JetAmerica Makes a Splash With New Service

JetAmerica, a new discount brand, will start service from Toledo, Lansing, and South Bend to various cities including Minneapolis, Newark, and Melbourne, Florida (as an alternate for Orlando). The brand will commence service in July and will offer 9 seats on every flight for just $9. Not surprisingly, such an offer has received lots of buzz in the media eager for stories about ways to travel cheaply in the recession. I am specifying that this company is a brand and not an airline, because neither the planes nor the crews will be under company ownership. Instead, JetAmerica is conducting a public charter operation with planes owned by Miami Air International. A technicality, perhaps, but it is also likely an indication that this is likely a method of "testing the waters", for the brand owners to see if these markets warrant additional service. The flights are modeled after Ryanair and (the late) Skybus, with no-frills and lots of fees for extra amenities. Skybus, if you remember, was a valiant attempt at the Ryanair model in the States serving a variety of cities from Columbus, Ohio, but unfortunately buckled under external forces that affected all carriers early last year. JetAmerica is aiming at the same market as Skybus, albeit in a slightly safer way for the owners.

Will JetAmerica find markets that it can thrive in? The answer to this question I feel is an unequivocal no. There is already a surfeit of capacity in our air transportation system. It is true, that JetAmerica will be serving smaller markets, the same markets in which Allegiant has succeeded at spurring new demand and growing traffic (Allegiant offers service from two of JetAmerica's three focus cities at Toledo and South Bend and offers service to Grand Rapids, roughly an hour from JetAmerica's third focus city at Lansing), even with less-than-daily flights. However, it is really debatable whether JetAmerica will find enough other demand to stimulate. Most of Allegiant's traffic is leisure traffic, and the company tailors its flight schedule accordingly, which it can do, because it has older aircraft which it can easily park. JetAmerica, however, plans on using newer 737-800s and acquiring them on a fixed schedule, making it hard for the company to easily reduce service if demand weakens.

Moreover, JetAmerica plans on serving three markets from its Midwest focus cities, Minneapolis, Newark, and Melbourne, markets which have competition or may not be able to stimulate the requisite demand. I am quite skeptical about the demand to Minneapolis, as it is hardly a leisure destination and is already well served from airports near Toledo (namely, Detroit), although to be fair, airfares are quite high because of the dominance of Northwest between MSP and DTW. Nevertheless, I suspect this route will quickly come to an end. The two other markets could potentially stimulate leisure traffic, and I would be a bit more optimistic about them. But as noted above, Allegiant offers competing service from JetAmerica's focus cities, including flights to Orlando Sanford Airport, which is closer to Orlando than Melbourne. Moreover, as the incumbent in the market, Allegiant may be difficult to unseat, since it has a reputation for friendly and reliable air service that makes it popular with customers. The Newark service could prove attractive, and that may be the most successful market for JetAmerica. But whether fares will be low enough to stimulate demand (without customers defecting to larger, nearby airports) remains questionable.

However, aside from the New York City area and Orlando, there are few other large, leisure-oriented markets near Toledo, South Bend, and Lansing that are suitable for this business model. Chicago is well-served by Southwest (and so is Baltimore, which could possibly serve as an alternate for DC, a city that has a huge tourist flow in the summer months). Allegiant dominates services to Florida and currently offers what it sees as a suitable schedule for the market, a market where low fares have already stimulated demand considerably. Whether JetAmerica will find success with Newark, possible service to the DC area, or some other market that does not have significant low-fare competition, I feel that it is unlikely that the company can expand to anything beyond a small niche airline, and I would not be surprised if it ceased operations within a year.

Southwest's Milwaukee Service and Its Impact on the Future of Air Travel in the Midwest

Southwest announced at its annual meeting today that it intends to serve Milwaukee in the near future. Services will start after the summer travel season. Destinations and schedules have yet to be announced. This is a surprising move from a carrier that, in the past few years, has surprised many industry observers. Although Milwaukee is one of last large markets Southwest has yet to enter, it is relatively small compared to some of the other cities Southwest still has yet to make inroads in--such as Cincinnati, Charlotte or Atlanta. However, given the recent efforts of AirTran to expand its presence in Milwaukee, replacing some services previously offered by Midwest Airlines, Southwest may have felt this was an opportune time to make its move--before AirTran becomes too dominant in the market. As with some of Southwest's recent expansion efforts, such as in Minneapolis, Milwaukee will likely see roughly ten daily flights initially from Southwest, probably to such destinations as Baltimore, Kansas City, Fort Lauderdale, Orlando, Denver, Phoenix, and Las Vegas.

Travelers in Northern Illinois and Southern Wisconsin should be celebrating the addition of new services to their city. However, like many cities, Milwaukee has seen its fair share of service cuts recently, and the new services by AirTran and Southwest are unlikely to replace all of the withdrawn capacity--at least in the short term. With the economy in a slump and business travel plunging, few cities are in line to see increases in their air service. Nevertheless, this is welcome news and hopefully an indication of future sustained growth at MKE. However, such an announcement reflects the wider changes in commercial air service in the past few years, not merely with the expansion of Southwest into business-oriented markets, but also the gradual decline of service to the Midwest.

Milwaukee, and indeed, many other Midwestern cities struggling with air service cutbacks (Columbus, Cleveland, Cincinnati, Indianapolis, Kansas City, St. Louis, and others) will see permanent losses in air service due to a continued lack of population and economic growth. These reductions will especially affect the shorter regional routes that low-cost carriers will not replace. This is not to suggest that individuals in small cities in the Midwest should worry that they will lose air service altogether. For most communities, that is unlikely, and in fact, the success of both low-cost carriers in larger markets like Milwaukee, and niche carriers like Allegiant in smaller markets, demonstrates that the Midwest has continued demand for point-to-point air service. But such service will increasingly be to larger markets where low-cost carriers can effectively lower fares and fill planes.

Milwaukee will not become a hub anytime soon, and will not replace Midwest Airlines in this sense. While Southwest and AirTran may have some limited East-West connecting flows, those will pale in comparison to the hubs 100 miles to the South in Chicago (including Southwest's operations at Midway where they handle a great deal of connecting traffic). Cities like Milwaukee that have successfully functioned as small hubs for years are likely to face the most severe cutbacks because they have limited originating traffic, and thus must be served with smaller, higher cost aircraft. Since the industry is more competitive than ever, and yields are continuously getting squeezed, high-cost hubs are not going to fly. Travelers in places like Green Bay, Des Moines, Grand Rapids, South Bend, and other small markets will start to feel the pinch because their connectivity options--to places like Cleveland, Cincinnati, Indianapolis, and St. Louis, are likely to be in jeopardy if legacies are forced to trim service further. Cutbacks have already taken place in Cleveland and Indianapolis (where Northwest once had a small focus-city operation that, like MKE, offered connectivity, though on a limited scale). And Delta recently trimmed service from its Cincinnati hub to Chattanooga, TN, Sioux Falls, SD, Asheville, NC, and White Plains, NY while adding flights to larger markets.

Thus, the Midwest as a whole will see fewer planes. Larger markets will see fewer planes, but some of those they do see will be mainline, 737-sized planes, increasingly from low-cost carriers. Smaller markets will see fewer planes period, and those they do see will be headed to such wonderful places as Newark and Atlanta. At the end of the shakeout, there will probably only be three cities in the Midwest with significant levels of regional service--Minneapolis, Chicago, and Detroit. The other cities, soon-to-be former hubs, will see more services from low-cost carriers to a scattering of large business destinations and leisure markets as well as continued service from legacies to their respective hubs. But the days of midsize Midwestern hubs are gone, and today's announcement by Southwest is merely a step towards the demise of one of those hubs.