Monthly ArchiveAugust 2007
Travel 29 Aug 2007 01:58 pm
Popular Science interviews SkyBus CEO Bill Diffenderffer. Some may see SkyBus’ strategy of offering cheap plane tickets but charging for everything to be nickle-and-diming the customer. Diffenderffer counters:
Q: Your business model also requires passengers to pay for any extras—drinks, blankets—piecemeal. Will consumers go for that?
A: They were paying for it before! Those were never free. Why should you be made to pay for all those sodas and blankets that other people use that you don’t?
Q: You’re even charging for checked luggage, $5 a bag.
A: If you don’t check a bag, why should you pay for those who do? We make our prices very clear, so we’ve had very few complaints. If you pay $80 for a Skybus flight instead of $180 for the competitor’s flight, and you pay $5 for a bag and $2 for a soda, that’s $87 versus $180. America can do that much math.
The private equity boom hit Milwaukee. For fans of an independent Midwest Airlines (MEH) this is a good thing. TPG Capital agreed to pay Midwest shareholders $16/share cash to take the airline private.
An interesting wrinkle is Northwest Airlines, the number two carrier out of Milwaukee’s Mitchell International Airport is putting in some money. Rick Esenberg observes, “AirTran had argued that they would actually increase service to Milwaukee by making it a second hub. Northwest must have believed it.” Or else why did get in the deal? That somewhat disparages the theory going around that Air Tran would reduce service to and from Milwaukee.
TPG/NWA won for a simple reason: they offered something better than Air Tran. The Orlando-based airline offered $15.75/share in a combination of cash and stock. TPG/NWA went with all cash. Cash’s liquidity is less risky than Air Tran’s stock. That’s understandable. The only airline to consistently earn a profit since the airline depression following the Sep. 11 attacks has been Southwest. Few think Air Tran is on par with the king of lost-cost flying.
The question now is what will be Midwest’s path to continued profitability? The Milwaukee Journal Sentinel reports TPG will let Midwest continue with its current plan of moderate growth including adding more seats to its signature two-by-two configuration. How that fits with TPG thinking there’s a market for higher-end travel I don’t know. The industry trend is towards low-cost with added bonuses. JetBlue offers all passengers satellite tv and radio, and Southwest offers its quirky style. We all know about JetBlue’s basic problems of getting people on and off their planes so the market may want an airline with a higher price that better ensures passengers get where they want to go. If so Midwest is in a good position. TPG is banking on it.
“What’s in the Cards?”