Republic CEO Bryan Bedford says the company's subsidiary Midwest is improving in both market share and revenue performance in Milwaukee, and believes Midwest's rival AirTran will find it tough to use low-fares to stimulate the market.
US regional operator Republic now operates two branded airlines after completing acquisitions of Midwest and Frontier Airlines earlier this year.
Bedford this week during a presentation at the Next Generation Equity Research airline conference acknowledged that from October 2007 to October 2009 Midwest was in a shrink mode in Milwaukee, and most of the market share was surrendered to AirTran.
But as Republic has started to rebuild Milwaukee, "we're starting to see the share shift back", says Bedford.
"What is more important to us is the RASM [revenue per available seat mile] advantage," says Bedford. He highlights the latest US DOT survey data that show through the second quarter of 2009 Midwest maintained a 156% unit revenue premium in markets where it competed directly with AirTran.
"I don't think that's surprising to anybody except perhaps the AirTran guys," says Bedford. "Milwaukee is not a destination market you can stimulate by price."
Quipping that "you don't go there [Milwaukee] unless you have to", Bedford says "there is no reason to believe that price stimulation in Milwaukee is going to be a competitive advantage".
Bedford stresses that Midwest boasts 1.1 million frequent flyers in Milwaukee, "and they will pay a premium to get on Midwest".
He also acknowledges that Midwest is currently a virtual airline. "We have dismantled everything that was Midwest. There's no Midwest operating certificate any longer. There's no Midwest union labourers. There's no Midwest anything."
The dismantling enabled Republic to replace Midwest's historical high cost structure with its own low-cost operating model.
The aircraft Midwest operates in Milwaukee are either Republic E-Jets or Frontier Airbus A319s.
"Our job was simple," says Bedford, "Can we buy this company and operate it at our costs?"
Noting that Republic has eliminated Midwest's unit cost problem Bedford says, "We hope we've retained the RASM premium."
Source: Air Transport Intelligence news
