Tuesday, July 31, 2007

Breaking News Analysis: Midwest Airlines buyout?

The news release this morning said that Midwest Airlines will be setting up a committee to talk with AirTran about AirTran's buyout offer. No great shakes there.

But the announcement intimates that there are other suitors and Midwest will be talking with them. That is news -- although it was overlooked by the Milwaukee Journal-Sentinel which apparently dismisses it as "boilerplate."

Not so fast.

It could well be that Northwest Airlines is Midwest's "Secret Santa." Here's why.

  • Recently profitable Northwest is the #2 carrier in Milwaukee. Acquiring Midwest would give it three-fourths of the market.
  • There are few overlapping routes so Northwest could essentially run Midwest as a standalone subsidiary which would allow Midwest to continue to offer premium service and even the chocolate chip cookies.
  • Adding Midwest would increase Northwest's capacity and Milwaukee could become a true mini-hub.
  • Northwest is known for predatory competitive practices and cornering the Milwaukee market will essentially put up the moat against invasion of low-cost carriers.
  • While local hostitlity toward AirTran is intense, it may not be the same with Northwest, i.e., the devil you know vs. the one you don't.
  • There is precedent for AirTran losing bidding wars. Remember that Southwest outbid AirTran for ATA.
  • There is no "downside" to Northwest going after Midwest.
  • Even if AirTran was the successful bidder, Northwest, if it can hire more pilots, can literally pull aircraft out of the desert and bury AirTran at Milwaukee.

This could be exciting -- especially for those of us who bought Midwest stock when it was selling at $17.

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