Republic Airways Holdings has flown under the radar, with its three commuter airlines plying the skies under contract to big carriers. That is all about to change.
Republic’s recent acquisitions of Milwaukee-based Midwest Airlines and homegrown Frontier Airlines signal a new approach in a flailing industry.
Republic chief executive Bryan Bedford believes the status quo doesn’t cut it, and the acquisition of Frontier and Midwest offers an opportunity.
“We have an industry that isn’t producing sustainable profits,” Bedford said. “We’re losing money and we can’t attract capital, so something else has to change.”
Bedford said Frontier and Midwest have strong brands that carry value in their communities, and by mixing and matching assets, both carriers will be strengthened.
For now, Frontier keeps those animals on plane tails and Midwest will still offer chocolate-chip cookies baked in flight.
Instead of toiling for other airlines, Republic and its subsidiaries will chart their own financial destiny. Its airlines will have to generate revenue, ensure enough working capital and cut costs.
“This will change the formation of tomorrow’s domestic airline industry,” predicts William Swelbar, a research engineer for the Massachusetts Institute of Technology’s Center for Air Transportation.
Analysts say Republic will have to shift gears in a major way — in what could be a high-risk but high-reward strategy.
“This is another iteration of trying to stay profitable,” said transportation researcher Helane Becker of Jesup & Lamont. “All of the regional airline companies are looking for ways to resume growing.”
Becker noted that an unknown is how major carriers such as United, Delta and American will react when a Republic subsidiary competes on routes that they contract with Republic to fly.
No risk of fare wars, fuel hikes
Regional airlines such as Republic Airways Holdings’ Chautauqua, Shuttle America and Republic have had no risk of fare wars or fuel-price spikes because they are paid fixed fees by major carriers to provide planes and the crews to fly them.
How the cards play out for Republic “depends on what happens with the economy, on what happens with H1N1 flu, on what happens with business travel,” Becker said.
Until Republic owns Frontier, an event expected as soon as Sept. 17, not enough details will be disclosed to make a good assessment, said airline analyst Bob McAdoo of Avondale Partners.
“Republic will do just fine in Denver,” Mc- Adoo said. “What I don’t know is what Republic plans in Milwaukee.”
Midwest will be “a little bit of a project to turn around,” McAdoo said, since it has been losing money. Frontier offers “another piece of profitable flying.”
McAdoo recently downgraded Republic, saying a “riskier business model and investor doubts will likely drive Republic shares downward until the likely outcome of recent acquisitions is clear.”
Regional airlines’ growth is stagnating as major carriers cut capacity and cut what they pay for commuter work, Bedford said.
“If you look at what we do — flying 50- to 90-seat planes for network airlines and bringing smaller airlines to smaller markets and bringing passengers into a hub — that’s great business as long as hubs are around,” Bedford said.
He sees more consolidations and some hub closures ahead.
As contracts between regional and network airlines are renewed, Bedford sees a wrestling match over grabbing market share.
Frontier’s and Midwest’s aircraft are about to be shuffled around, with Bedford envisioning “the right aircraft will be flying in the right markets” within six months.
Bedford has said Frontier’s A319s — which can seat 132 passengers — will be shifted to Midwest flights from Milwaukee to the West Coast.
Republic’s Chautauqua flies Embraer jets with 76 to 99 seats that Bedford said may be flowing in and out of Denver on shorter hauls after the Frontier deal is closed.
Identifying inefficiencies
To make the changes, Bedford said he will tap the knowledge of people such as Frontier chief executive Sean Menke.
Bedford has said he hopes Menke will stay on as Republic works on “leveraging the full strengths” of Frontier and Midwest.
Menke and Bedford see efficiencies in the elimination of duplicate “back-office” jobs such as accounting, administrative, customer service and reservations.
That work has begun at Midwest. On Aug. 14 — two weeks after Midwest was acquired by Republic — Bedford announced that about 100 of Midwest’s 1,100 Milwaukee-based jobs will be cut.
More labor concerns are expected to rise as Midwest and Republic pilots work on seniority issues, a stumbling block in Southwest Airlines’ bid for Frontier. Similar talks await Frontier pilots.
Ann Schrader: 303-954-1967 or aschrader@denverpost.com
