It was a high-flying start-up – an airline with bright-colored planes, low-cost fares and a reputation for impeccable customer service.
No, it’s not JetBlue, the current darling of the airline industry. It’s Midway Airlines, which on Thursday decided to stop fighting its way out of bankruptcy and filed for liquidation.
Midway’s battle is an object lesson for anyone looking for salvation among the discount airlines.
Though Southwest and JetBlue are investor favorites, dozens of other smaller carriers could easily go the way of Midway. And an experiment like Song, a discount spin-off that Delta launched this summer, isn’t necessarily a sure bet.
“There’s a limited market space for new airlines. Most of them have gone out of business,” says Michael Boyd, an airline consultant. “There is going to be a shakeout; there are too many small-jet carriers flying.”
Midway, which took off in Chicago in 1979, was the first major airline formed after deregulation. It generated buzz – and profits – with its regional approach, but rising costs and price competition drove Midway out of business for the first time in 1991.
The airline was reincarnated in Raleigh-Durham, N.C., where it had some success providing short East Coast hops to business travelers.
But that’s when Midway made three major mistakes, Boyd says. One was location. Few fliers liked flying from New York to Florida through Raleigh-Durham – it wasn’t a profitable hub.
Two, it tied itself too closely to one group of customers. And after the burst of the dot-com bubble and Sept. 11, business travel dried up.
Finally, Midway tried to expand, buying expensive 737s and going public in 1997. “They had hallucinations of grandeur,” Boyd says. “When they did that, I knew they were finished.”
By August 2001, Midway filed for bankruptcy. A post Sept. 11 congressional bailout kept them flying, but eventually the company simply provided jets to US Airways.
Creditors, and the lack of a contract management and unions could agree on, finally caught up with the airline this week.
What are the lessons of Midway? First, discount carriers are a low-margin, high-risk business. The reason JetBlue and Southwest have succeeded is at least partly due to their use of only one kind of aircraft (which cuts down on maintenance and training costs), fast turnaround times and high-quality customer service.
Second, they need to make tough choices. JetBlue announced this month that it was pulling out of Atlanta, which Boyd saw as a positive.
“Management knows when to cut and run. Total lack of ego equals a successful airline.”
There are also employee relations issues, which have sunk more than one airline.
While the pilots union refused to sign long-term contracts with Midway, JetBlue employees are not currently in a union.
Grounded
Shortcomings of Midway Airlines, a regional carrier for US Airways, are characteristic of the old guard as upstarts like JetBlue and Song gain market share. Some problems:
* Heavy use of connections rather than direct flights
* Dependence on business travelers
* Lack of concessions from pilots