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Northwest Airlines And Midwest Airlines  
User currently offlineSNCntry32 From United States of America, joined Jan 2007, 1516 posts, RR: 0
Posted (6 years 3 months 4 days 5 hours ago) and read 3384 times:

So,
Northwest buys with TPG 40% of Midwest Airlines, what exactly is Northwest doing with Midwest? Defending MKE? I have just been curious, havent heard much about it.


Long Live Memphis!
8 replies: All unread, jump to last
 
User currently offlineDavescj From United States of America, joined Jun 2007, 2307 posts, RR: 0
Reply 1, posted (6 years 3 months 4 days 5 hours ago) and read 3383 times:



Quoting SNCntry32 (Thread starter):
Defending MKE?

This is my opinion as well. I think if it had been possible, NW would not have minded buying Midwest totally. That would have given them MKE as an instant hub, plus lots of service as the major carrier in lots of small Wisconsin markets (which would then have high fares of course).

I will be interested to see what happens with this post merger with DL. I think DL might create some of the same deals NW has -- such as allowing you to get NW miles on Midwest flights. I could also see limited codeshares, particularly to small cities.

Dave



Can I have a mojito on this flight?
User currently offlineKnope2001 From United States of America, joined May 2005, 2912 posts, RR: 30
Reply 2, posted (6 years 3 months 4 days ago) and read 3306 times:

Northwest had and continues to have no compelling reason to purchase Midwest. They do not need another hub in the upper great lakes region.

What Northwest did with their equity was keep an aggressive, low-fare carrier out of their backyard. Now some may say that it didn't work, that AirTran is in Milwaukee anyway. However what AirTran has done at MKE has almost zero effect on NW compared to what they would have done with a full purchase of Midwest. AirTran's MKE expansion in 2008 has been to trash Midwest's yields on select high-volume markets during peak season. Everything added has been seasonal...and announced as seasonal back when oil was far cheaper. The only exception to this is MKE-LGA, a market planned to be year round but which has definitely not yet been tested. These AirTran additions have not really hurt Northwest much since they are mostly temporary and are markets where Northwest doesn't carry all that much traffic.

Had AirTran purchased Midwest, then every YX city pair would become low-fare (at least until AirTran strated weeding them out.) That includes MKE-MSP and MKE-DTW, a new AirTran market promised frequent AirTran flights. That also includes for the first time brining a low-fare carrier with broad access into markets like Madison, Grand Rapids, Des Moines, Appleton, Omaha and Green Bay, markets where Northwest earns high revenues from business travelers. And no matter if AirTran lost their shirts in MKE and pulled the plug in 20 months or AirTran flourished in MKE for 20 years, the blow to Northwest would be severe. That's what Northwest's investment was for...not for control of a couple of dozen planes and routes out of MKE and MCI.


User currently offlineSNCntry32 From United States of America, joined Jan 2007, 1516 posts, RR: 0
Reply 3, posted (6 years 3 months 3 days 22 hours ago) and read 3157 times:



Quoting Knope2001 (Reply 2):
That's what Northwest's investment was for...not for control of a couple of dozen planes and routes out of MKE and MCI.

Gotcha. Thanks for the insight, I guess NW is like working for the mofia, who knew.



Long Live Memphis!
User currently offlineKnope2001 From United States of America, joined May 2005, 2912 posts, RR: 30
Reply 4, posted (6 years 3 months 3 days 20 hours ago) and read 3035 times:

Yeah, it was for more of a tactical move rather than a power grab. If they wanted to purchase Midwest outright they could have done so. More money and more hassle, but the cost of Midwest at that point for Northwest was a relative drop in the bucket.

To expand just a little more on Northwest's perspective at the time, remember that the money sunk in to their 47% stake in Midwest was an investment...they purchased something with residual value which can be sold again. Had they not blocked the AirTran takeover, every cent in decreased revenue they lost would be money out the door.

Now of course in today's environment the 47% stake in Midwest is almost certainly not worth what Northwest paid for it were they to divest today. That may change given time IF TPG is successful in sustaining and strengthening Midwest, but that's of course an if. But their stake in MIdwest is an asset in literal terms as well as in figurative ones.


User currently offlineDaus From United States of America, joined May 2005, 288 posts, RR: 0
Reply 5, posted (6 years 3 months 3 days 20 hours ago) and read 2959 times:



Quoting Knope2001 (Reply 4):
Now of course in today's environment the 47% stake in Midwest is almost certainly not worth what Northwest paid for it were they to divest today.

More than likely that is true, but part of the math people have to keep in mind is the other game afoot here is the valuation of Northwest in a sale/merger of itself. If having secured it's core market make's Northwest 10% more valuable than if they had not, the dollar value of that is $173 million dollars. I'm just picking that % out of thin air, but that is the type of hedging discussion that is likely going on here. Add that number to whatever the residual value of their holding in Midwest is, and you've got the return on NWA's investment.


User currently offlineKnope2001 From United States of America, joined May 2005, 2912 posts, RR: 30
Reply 6, posted (6 years 3 months 3 days 18 hours ago) and read 2847 times:

Very true. If blocking AirTran made the NWA a more value asset for sale, the money invested in 47% of Midwest may pay far greater returns even if that stake in Midwest can't be sold for a nickel.

These are the sorts of reasons why I have doubts when people speak of Northwest trying to get its grubby hands into the inner workings of Midwest, and that Northwest wouldn't have sunk all that money into Midwest without gaining conotrol. No, Northwest had far, far larger reasons for the action it took with Midwest. All Northwest wants Midwest for is to keep the relative status quo in the upper midwest...they did not sink money into Midwest to gain some sort of decision-making control over a couple dozen 717s and M80s.

[Edited 2008-06-19 11:26:56]

User currently offlineTVNWZ From United States of America, joined Feb 2006, 2388 posts, RR: 2
Reply 7, posted (6 years 3 months 3 days 17 hours ago) and read 2799 times:



Quoting Knope2001 (Reply 6):
All Northwest wants Midwest for is to keep the relative status quo in the upper midwest...they did not sink money into Midwest to gain some sort of decision-making control over a couple dozen 717s and M80s.

Outstanding evaluation and understanding of fundemental business concepts. Airchair CEO's take note.


User currently offlineBurnsie28 From United States of America, joined Aug 2004, 7545 posts, RR: 8
Reply 8, posted (6 years 3 months 3 days 16 hours ago) and read 2725 times:



Quoting Davescj (Reply 1):
This is my opinion as well. I think if it had been possible, NW would not have minded buying Midwest totally

It was possible, but NW didn't really do anything, since they have a non-controlling part in it.



"Some People Just Know How To Fly"- Best slogan ever, RIP NW 1926-2009
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