Bucking the Air Service Trend

MILWAUKEE — AirTran Airways has expanded service by more than 50 percent at General Mitchell International Airport (MKE); Midwest Airlines has added flight options; and, there is new service from American Eagle and Delta/Northwest. “We are in good shape right now,” says Barry Bateman, A.A.E., managing director at MKE. “Milwaukee is a business market with many companies headquartered here; the airlines are looking to capture that market.” Each airline has ramped up service from Milwaukee to some degree, and the effect has brought a healthy level of competition, as well as success, to the airport. While most airports across the U.S. struggle to maintain air service, Milwaukee has turned vibrant. Reasons include its unique position in the marketplace; the potential to gain market share to the south; and, being an airport that has a history of working with the air carriers.

The three key airlines serving Mitchell International include Midwest, the market-share leader and long-time regional carrier; AirTran, a fast-becoming dominant player in the area; and the recently merged Delta/Northwest alliance.

Says Midwest’s Michael Brophy, “We have maintained our non-stop business destination core focus; the Milwaukee market exemplifies that focus.” Beginning in June, Midwest will add non-stop flights to Boston and Orlando, and another to Los Angeles (connecting in Kansas City.)

In May, Delta will introduce service to New York’s JFK International and Salt Lake City — both of which can connect travelers to international destinations in Africa, Asia, Europe, South America, and the Caribbean.

The big story, however, is AirTran’s growing interest in the Milwaukee market. In an effort to diversify its network, the carrier is currently targeting high-profile business destinations to complement its more leisure-oriented offerings. The launch of eleven new flights out of Mitchell to Branson (MO), St. Louis, Minneapolis, and Denver, as well as extended year-round service to Los Angeles, Boston, and Tampa, with extended seasonal service to San Francisco and Seattle, results in an increase of flights from Milwaukee to more than 50 percent year over year.

“AirTran Airways’ ability to be nimble and responsive to changing market conditions is a tremendous competitive advantage,” says Kevin Healy, senior vice president of marketing and planning for AirTran.

“Increasing flights to and from Milwaukee and Orlando while redesigning our Atlanta hub schedule to make the network more efficient and productive are the latest examples of this capability.”

Airtran - gaining a foothold
AirTran recently announced a record first quarter net income of $28.7 million; company officials offered comment in a conference call conducted last April. Relates Bob Fornaro, chairman, president, and chief executive officer, “The ability to post a profit is rooted in the company’s industry leading cost-unit position, and the many difficult decisions made last year.

“At a time when businesses are facing tremendous economic headwinds, reporting profits alone is an accomplishment,” says Fornaro.

“We were one of the first airlines to react to the changing economic environment last year; as a result, we are among the first airlines to show signs of recovery. We expect to be profitable every quarter this year.”

Fornaro says the company is focusing on developing a more balanced network. “We have a weak revenue environment; this is the time to focus on reallocating assets and managing expenses.

“We are optimizing our system right now in an effort to focus on where our strengths are. We have really enhanced our position in the business community and become a much stronger business carrier.”

Fornaro says there are some great opportunities for AirTran to take advantage of, with perhaps the biggest in Milwaukee. After a strong winter, “We are going to double our capacity in the marketplace this summer; I think the timing is right for us to finally gain a foothold in the Midwest,” says Fornaro.

“As a result of new city growth and natural attrition, we are hiring new crew members in our in-flight operations and maintenance groups, primarily in Milwaukee, Baltimore, Orlando, and Atlanta.”

According to Healy, as a low-cost producer in a moderate to low fare environment, AirTran is in a much better shape to take advantage of market conditions with its product and the ancillary revenues that come along with its volume.

“I feel we are in a position where, with our cost structure, we really can expand whatever market we choose to go into,” says Healy.

In a recent press release, Healy states, “Passenger demand for the AirTran Airways’ product has been strong in Milwaukee; service expansion to Las Vegas and Phoenix has been extremely well received. We think the addition of New York will be a strong market for both business and leisure travelers and a key part of our growing network from Mitchell Field.”

Says Mitchell International director Bateman, “We are very fortunate that AirTran has chosen to make Milwaukee one of its major operations.

“That is a wonderful improvement, particularly during a recession, to have that type of expansion. To date, none of the other airlines are cutting back service as a result of that, giving us a superior air service map.

“AirTran has focused on increasing their business traveler base; we are not an explosive market like Las Vegas or Phoenix, but we also don’t have the downturns.”

On the issue of airline consolidation, AirTran’s Fornaro relates that the company tried to play a role in consolidation two years ago by purchasing Midwest, a deal he is glad it didn’t win due to the price for which Midwest ultimately sold, some $450 million.

“Now we have the opportunity to grow organically,” says Fornaro. “In terms of consolidation going forward, you have to look at Delta and Northwest, who have done a good job in bringing people together.”

Vigorous Competition
Mitchell’s hubbing airline, Midwest, remains the region’s market share leader, serving 27 destinations non-stop. Headquartered in Milwaukee, the carrier has been a major presence in the area for 25 years.

Michael Brophy, vice president of corporate communications for Midwest, says from a business standpoint the airline has gone through some fairly significant reductions in schedule and capacity during the last year; by at least 40 percent in some markets; and at least 30 percent out of Mitchell. Due to the run-up in fuel prices last summer, capacity cutbacks were made in particular to its long-haul flights to the West Coast and some leisure destinations.

“Right now we are looking at each route to see what makes sense economically; we are in a hold-on and make it work period now, although we have added some capacity back to Milwaukee, with flights to Boston and Orlando,” says Brophy.

“Where it makes sense, we will add; but we are not going to knee-jerk things just because competitors come in and announce various additions to their schedule. We are making sure we execute our business plan; it’s a bit of a back-to-the-future approach for us, focusing on non-stop travel to primarily business destinations.”

Brophy says that, to deal with the current economic environment, major legacy carriers will continue to announce cutbacks in capacity throughout the next year. The Milwaukee market, however, makes sense for Midwest as part of its non-stop business destination core focus.

“I think the [Milwaukee] market itself has a fairly diverse base of business,” says Brophy.

“The economy, in spite of what people may believe, has remained stable here, and businesses have done a good job of diversifying. You don’t see the wild economic swings here that you would see on the coasts.”

While the carrier is seeing some softness in business travel, it’s not as drastic as in other parts of the country, relates Brophy. “That can be attributed to the Milwaukee and Southeastern Wisconsin market; and the state actually, because we get good feeder traffic from Green Bay and Appleton.”

According to Brophy, the most important aspect of the airline’s relationship with the airport are the open lines of communication and superb management.

“We have a good partnership with the management at the airport; that’s critical,” says Brophy.

Explains airport director Bateman, “There is a great deal of affinity and support for Midwest, because it’s based here, and because it offers a lot of non-stop service. As the hometown airline, Midwest has been able to develop many corporate alliances in the region”

Regarding the growing competition for market share between AirTran and Midwest, Bateman says time will tell.

“There is a fare war between them because they fly to a lot of the same cities,” says Bateman. “Right now they are both surviving, which is great for us because the consumer has the opportunity to take advantage of excellent air service with very good fares.”

Because of the level of air service at Mitchell, says Bateman, the airport is careful to take care of the service it has and is doing what it can to ensure the airlines see a profit. Interestingly, there will be four airlines with non-stop service to Denver this summer; something Bateman says is unheard of.

In terms of airport competition, Mitchell’s primary competitor is Chicago O’Hare. “We draw passengers from the smaller airports of the region; we also draw from Rockford [IL]. But we lose to O’Hare; a good amount of our international traffic goes to Chicago to catch non-stop flights.

Marketing Mitchell
Pat Rowe, marketing manager at Mitchell International, says that with most of the airlines, the airport has entered into cooperative marketing agreements in which Mitchell matches funds to promote and advertise air service.

“We target our marketing efforts in the northeastern Illinois counties and the northern Chicago suburbs,” says Rowe. “The area’s new customers can be drawn from is a 45-minute drive from here; Lake and McHenry Counties in Illinois are communities that fly consistently.”

While it’s been some time since Midwest has opened up a new market, Brophy relates that the carrier has worked with Mitchell in the past on marketing initiatives targeting Northern Illinois.

Rowe says the airport utilizes a mixture of web, print, and broadcast advertising, as well as other types of “guerilla” marketing tactics. A particularly novel approach to marketing took place last year when the airport hired a skywriter to fly over a Chicago Cubs/White Sox baseball game, writing “skymailme.com” high above the stadium. The gimmick was intended to draw potential customers to a unique website which promotes Mitchell as a hassle-free alternative to flying out of Chicago’s O’Hare. “That was a wildly successful campaign,” relates director Bateman, who says the ploy generated more than $1 million in media exposure.

Additional marketing initiatives include the flymke.com website, which complements the airport’s original website, mitchellairport.com. The flymke.com website focuses specifically on targeting the Northern Illinois market. Included on the website is a fare calculator which adds additional fees such as parking to the total fare, giving travelers a side by side comparison of the price difference of flying from Milwaukee versus Chicago.

Mitchell Airport has also purchased advertising on the Orbitz website. The ad rolls up when the website recognizes a customer looking to fly out of O’Hare. The ad encourages travelers to try Milwaukee, then automatically compares fares between Mitchell and O’Hare.

“There is a vast difference in the parking rates of the two airports,” says Rowe. “As a result of last year’s marketing efforts to the northern Chicago area, we had some 18,000 more Illinois plates in our parking lots.

“We focus on that region because it present’s a major opportunity for us.”

Rowe explains that it’s a new world order in terms of the media now that everyone purchases tickets on the Web. She says that’s where the airport wants to be, stating, “We have just touched the surface of that; ideas are in the works for more innovative approaches to marketing the airport.”

Lease structure
The airport/airline lease structure is 100 percent residual; and the term is 25 years, which terminates in 2010 for all carriers regardless of when they entered into it.

“We have a lease agreement which establishes the way the airport is operated, and it establishes the relationship with our airlines,” says Bateman.

“The lease does not permit us to offer cash incentives or abate landing fees or rent agreements.

“I think at this airport at least, all of the airlines appreciate the fact that the airport is giving everybody the same deal; we let them compete on the same playing field, and that rings well with them.”
Bateman says that subsidizing airlines as an incentive to provide air service has really done more harm than good. Many times, he relates, airlines leave once the deal has run its course, setting up an unrealistic model and hurting the community. In terms of luring carriers to provide service to Mitchell, it all goes back to the airport’s marketing efforts.

“The more people we can get to use the airport, the more the airlines are going to respond by putting more seats in the market,” says Bateman. “The carriers are not here to create a market; they are here to exploit it.”

The airport is constantly analyzing its markets, says Rowe. The airlines also keep a very close eye on what’s going on in the region; and several airlines have sales representatives that stay in tune with changes, especially where new business is concerned.

“We want to keep what we have, which is really a function of the economy, and to keep our expenses down so the airlines remain healthy,” says Bateman.

“It’s difficult to keep rates and charges in the airlines’ realm of reasonability; at the same time, traffic has slowed, so we depend more on non-aeronautical revenue.

“Parking, car rental, and concessions are all major contributors to the airport’s base revenue, and all significantly reduce the cost of operating the airport for the airlines.”