at Mitchell airport
By Joe Taschler of the Journal Sentinel
April 13, 2013 12:15 p.m.
When talk turns to expanding airline service at Milwaukee’s Mitchell International Airport, a question has been popping up lately: Are there any airlines left to bring new flights here?
The short answer is no.
With American Airlines and US Airways merging – the deal announced in February is being reviewed by regulators and likely to gain approval – there will be four major airlines serving more than 85% of the U.S. market.
And all four of them – the others are Southwest, Delta and United – already serve Milwaukee, where passenger numbers continue to fall as airfares rise amid the reduction in airline competition.
A total of 7.5 million passengers passed through Mitchell in 2012, compared with 9.5 million in 2011 and nearly 10 million in 2010, when AirTran and Frontier had hubs here and Southwest was operating its first full year at the airport.
Barring, say, Delta deciding to pick a fight with market share leader Southwest here – and no one is saying that is anything more than hypothetical – the commercial air service we have now is probably what we’re going to have for the foreseeable future, market watchers say.
“I think in terms of large aircraft new entrants, what you see is what you get,” said Robert Mann of R.W. Mann & Co. Inc., an airline industry consulting firm in New York. “The real issue will be to what extent there is new entry by brand-new carriers, or expansion by some of the low-cost carriers who fly point to point.”
There is no question that the continuing consolidation in the industry will create gaps in service that someone will step in to fill, said Jay Sorensen, a former Midwest Airlines executive who now runs the IdeaWorks Co., an air industry consulting firm in Shorewood.
“This will create the opportunity for some sort of niche airline somewhere in the country,” he said. “I don’t think it’s going to be here, but someplace.”
Yet even if there are new entrants in the U.S. industry, history has not been kind to start-up airlines. In the 35 years since the U.S. airline industry was deregulated, out of 200 or so airlines in the United States, about 195 have failed, been taken over or swallowed up in mergers and no longer exist, Mann said.
Starting an airline is expensive, and finding folks to back start-ups can be tough.
“I think the capital markets have gotten very reluctant to fund peoples’ claims of better mousetraps,” Mann said. “I just don’t see the capital markets being very interested in funding either someone with big ideas or big claims.
“People (investors) charge you for the risk. On a risk-adjusted basis, the cost to fund an airline is pretty high.”
Despite the continuing upheaval in the nation’s airline industry, the American-US Airways deal itself won’t have much direct effect here, Sorensen said.
“For once, something major is happening in the airline industry and it’s not going to have any meaningful impact on Milwaukee. Both of these airlines do not have significant operations here.”
Still, the deal reflects what is happening in the industry, including the ongoing disappearance of cheap airfares.
“I think the great air travel bargain for most Americans is going to come to an end,” Sorensen said, “not because of this merger but because of the overall effect of the past couple years.”
The consolidation so far this decade was brought about by too many airline seats chasing too few passengers. That led bankrupt airlines to reduce their capacity, merge or cease doing business.
The atmosphere at 30,000 feet is filled with the ghosts of Midwest, Northwest, Continental, America West, America Trans Air and Vanguard, among others.
“I think people have begun to realize that you can’t solve the physics problem of carrying people for fares that are less than the cost of jet fuel to carry them,” Mann said. “It just doesn’t work.”
So the industry’s approach has changed.
“The objective is not to fill the plane with passengers,” Sorensen said. “The objective is to fill the plane with as much revenue as you can. You can sell every seat on an airplane for a cheap fare and you can lose a lot of money.”
The change was necessary to save the industry, which “has been bankrupt for too long,” he said.
“The short-term response is, ‘This is bad.’ The long-term response is, ‘This is needed and necessary,’ ” Sorensen said.
For now, there is nothing in the industry’s realignment that appears likely to help expand nonstop air service in Milwaukee, where the business community has expressed dissatisfaction with the reduced availability of direct flights to and from Mitchell.
Airport Director Barry Bateman says he hears the dissatisfaction.
“I get comments from people saying, ‘You need to get more airlines in here.’ I say, ‘Well, who?’ ” he said.
“There was a time when we were shoehorning airlines into the airport here because we didn’t have room for all of them,” he added. “Now, we have space to sell.”
So do a lot of other airports serving similar size cities, including Pittsburgh, Cincinnati and St. Louis.
Fares have risen
The consolidation has also driven up prices, although fares remain comparatively reasonable in Milwaukee. The average domestic round-trip fare at Mitchell in the third quarter of 2012 was $317, according to the most recent government figures available. That compares with a national average of $367. In a ranking of the top 100 airports in the nation, Milwaukee’s airfares were 82nd-lowest in the third quarter.
At the start of 2010, Mitchell’s average round-trip fare was $250, according to U.S. Department of Transportation data.
“Back when we had 12 airlines, competition was great and the airfares were lower,” Bateman said. “What was a $250 round trip fare is now $400 round trip.”
Trying to attract new air service also raises the risk of cannibalizing the service that an airport already has, Bateman said.
“It’s so much easier to keep the routes you have than to capture new routes,” Bateman said. “We sure as heck don’t want to lose the routes that we have.”
Of the airlines that are still out there and not at Mitchell – such as Alaska Airlines and JetBlue – their primary destinations are places such as Seattle, New York, Boston, Orlando and Fort Lauderdale, which already have nonstop service from Milwaukee.
And bringing in a very low-cost airline like Spirit or Allegiant won’t work here, Sorensen said, because our airfares are still lower than other places in the country.
Consider Spirit Airlines. “This is an airline that goes into big markets to – quote, unquote – fly under the radar of the major airlines in that market,” Sorensen said.
Spirit, he said, typically comes in with a couple of flights “with really low fares and hopes the major airline ignores them. The fares in Milwaukee are just too low for them for that method to work here.”
The size of what soon will be the Big Four airlines also creates trouble for smaller airlines that might want to enter markets. That’s because the big carriers have the ability to match prices and have cleaned up their customer-service problems.
“They will make that new niche carrier cry ‘uncle,’ ” Bateman said.
Nothing in this industry seems permanent, though. In another few years, it may not remotely resemble what it looks like today.
“It’s an endlessly entertaining industry,” Sorensen said.
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