Monday, August 13, 2007

Random thoughts on TPG Capital's offer for Midwest.

1. AirTran had argued that they would actually increase service to Milwaukee by making it a second hub. Northwest must have believed it.

2. Just how involved TPG is in AirTran is the critical question. AirTran probably would not have approved Midwest as we have known it. But this seems just as unlikely to do so. It is hard to imagine that control of the company by a shareholder group which is presumably dominated by NWA would do that. I would expect a move to "rationalize" routes by reducing "duplication" of routes offered by ... NWA.

3. I am not an antitrust expert. But, if I recall correctly, the combined market share in Milwaukee is very close to - if it does not exceed - the guidelines for problematic Hart-Scott-Rodino filings. The apparent move to forestall a competitive hub makes it even more vulnerable. AirTran cannot challenge the combination, but it seems likely to get heavy scrutiny from DOJ.

4. Sometimes large concentrations are OK if there are not significant barriers to new competitors entering the market. This can get to be a fairly complicated analysis. One problem for new competitors, I would think, is that the number of gates in any given market is finite. You can't come in and compete unless you get access to a gate.

5. But maybe the deal can survive such scrutiny if NWA is not a major investor or is otherwise effectively insulated from management decisions.

6. AirTran's statement that Midwest has frustrated the wishes of shareholders seems like sour grapes. The desire of shareholders is presumably for another quarter per share and for cash not AirTran stock. They got outbid.

7. Private equity groups do have a reputation for running up the numbers and then selling after a few years, although if NWA is in it to keep a competitor out, it would make no sense to do that.


Sherman said...

I may be a lone voice in the wilderness on this one, but I can't help thinking it would have been better for the majority of Milwaukee residents if AirTran had been successful. Midwest's business model is great for the business and political elite who want first class service for their trips to NY and DC, but for the average business traveler more direct routes and a lower cost are much more important. That's a real factor for knowledge based businesses making locational decisions in a fast paced global economy.

Anonymous said...

RJR said . . .

As a Midwest stockholder who supported the current management team in their fight with Air Tran, I'm pleased that TPG has won the fight and we won't be reduced to flying as part of the herd as we would have been on any Air Tran flight. It's ironic that Air Tran's stated reason for its takeover attempt (intially) was that an independent Midwest could never stand up to a real competition from a revitalized NWA once it was out of bankruptcy. Because of its outstanding service Midwest is the only airline my wife and I fly and as for you Sherman, if you want more direct routes and lower costs there's always Midway and Southwest. Emjoy your trip to Chicago!

Dave said...

Sherman... ummm I'm pretty sure once AirTran took over we'd have less direct flights not more... Probably a lot of stops in Atlanta. One of Midwests great features is all of the non-stop flights... Further if you plan ahead you can fly on Midwest as cheap as on AirTran but get a much much better flight.

Sherman said...

RJR and Dave sound like they don't travel a whole lot. I have to fly on a weekly basis for work. Flying out of Milwaukee is expensive and inconvenient. I love Milwaukee and when I was an infrequent, casual flyer I loved Midwest. But when you travel for a living it's a different ball game. If I continue in my current line of work, I likely will move to Chicago in the near future - and the lack of affordable direct flights out of Mitchell will be a major factor.

Say what you will about Southwest but they're the only airline in the United States to consistently turn a profit. Enjoy the $450 chocolate chip cookies!

jp said...

After two trips via Midway, I vowed never again.
And I usually never say never.

Please move to Chicago.