Monday, January 21, 2008
SkyWest Takes over Midwest’s Regional Network
Midwest has long been focussing on its regional operations, evaluating the cost of the 32-seat jets in an era when regionals such as Mesa complained 50-seat jet operations at United Express were not profitable. The obvious conclusion was to streamline equipment and the most efficient way to do that was to tap SkyWest to do the operation, according to Midwest Spokesperson Michael Brophy who said Midwest had reached the point that it made more sense to call on SkyWest than not to do it.
Given Midwest's growing code-sharing ties with Northwest and consolidation activity, Brophy adamently confirmed Midwest's intentions to remain independent. "NOrthwest's role is as a minority, passive investor," he said.
Midwest is grounding its Fairchild 328 regional jets to be replaced by SkyWest’s 50-seat Bombardier CRJ 200s. The company will sell or return to lessors 12 Fairchild 328JETs (FRJs) and four Beech 1900D turboprop aircraft. Coupled with the sale of Air Midwest’s 1900Ds, the move creates somewhat of a glut on market for the type. In addition, there is little or no market for the 328s.
Midwest anticipates that pre-tax expenses associated with exiting the Skyway flight activities will be approximately $23 to $26 million, which consists of approximately $14 million of aircraft-related fixed asset impairments, approximately $1.6 million of severance and related benefits, and approximately $8 to $10 million of contract termination and facilities-related costs. Its preliminary estimates include cash expenditures of approximately $6 million to $9 million. The company anticipates that of these pre-tax expenses, approximately $14 million will be in the fiscal 2007 fourth quarter and the balance in fiscal 2008.
Midwest cited the economics of its regional operations, especially in operating such disparate aircraft from the rest of its fleet. SkyWest will take over all of Skyway’s regional markets during the March/April transition period, offering about the same number of seats in Skyway markets, but with slightly less frequency for about the same cost.
"The change in strategy will redeploy our resources in a more strategic, cost-effective manner," David C. Reeve, Skyway chair, president and chief executive officer, said. "The 50-seat aircraft will provide us additional seating capacity at about the same cost of operation as the 32-seat aircraft. This was an extremely difficult business decision in terms of its impact on Skyway employees. However, it is necessary for the long-term success of Midwest Air Group."
About 380 employees, mostly pilots, flight attendants, mechanics and dispatchers will be laid off. He noted that there will likely be opportunities for some employees with Midwest Airlines or SkyWest Airlines, and that the company would provide severance and support to eligible employees whose positions are eliminated.
Skyway Airlines will continue in an airport services role, something the carrier had been building over the past year and will provide ramp and dining services operations for Midwest Airlines and Midwest Connect, and customer service operations in Midwest Connect field stations. Over time, Skyway's business will be expanded to offer services to other airlines. The positions of the approximately 750 employees who provide service support functions will be preserved.
SkyWest operates a fleet of 15 50-seat CRJ 200s jets for Midwest Connect as part of a five-year agreement with Midwest that began in April 2007 and included the opportunity to grow the operation to 25 aircraft. Owing to the fact that the number of aircraft needed for the recently announced expansion is unclear, according to SkyWest, it remains to be seen what the economic impact will be on the airline. Even so, to support the transition, additional 50-seat aircraft will join the Midwest Connect fleet in March and April 2008. "SkyWest's experience, excellent record of operational performance and commitment to customer service mirrors our own," Reeve added. "Midwest Connect passengers should expect a smooth transition of service."
Midwest Connect carriers posted $49 million in operating revenues in the third quarter compared to $28.2 million in the Q306. The significant difference between 2007 statistics and 2006 is the participation of SkyWest Airlines. Expenses for the quarter were $12.3 million. For the nine months, Midwest Connect contributed $110.1 million in operating revenues compared to $82.5 million in the year-ago period. Expenses for the nine months totaled $208.7 million.
Midwest Connect carried 899,640 for the nine months, up from 625,333 in the year-ago period. Scheduled revenue passenger miles jumped to 173.2 million in the third quarter, up from 69.8 million in Q306. For the nine months RPMs jumped from 197.6 million to 341.1 million. Total available seat miles rose from 97 million in Q306 to 247.1 million in the third quarter 2007. For the nine months they rose from 288.4 million to 486.5 million. Load factor for the quarter dropped from 72 percent to 70.1 percent while yield dropped from 36.24 cents to 26.38 cents for the quarter. Passenger revenue per scheduled ASM was at 18.48 cents, down from 26.08 in the year-ago quarter. Total revenue per ASM was 19.84 cents versus 29.15 cents in the year-ago quarter. Total cost per ASM for the quarter was 20.74 cents versus 28.62 cents and ex fuel the two statistics were 15.10 and 20.88, respectively. Average trip length rose from 320 miles to 424. Midwest Air Group subsidiary Skyways is also a Midwest Connect.