January 7, 2008

Be wary about Midwest's takeover by Northwest

Jay Sorenson:

I believe within four years, Midwest Airlines will cease to exist as an independent entity. Northwest Airlines did the math and found it was cheaper to buy a small competitor than to risk the entry of AirTran Airways as a low-cost carrier smack in the middle of its so-called Heartland market area.

In this case, Northwest is strategically incapable of being a passive investor with TPG Capital. The experience at Duluth, Minn., may highlight why passivity is already a myth.

Midwest announced new flights to Duluth early in its takeover battle. The service was designed to connect Duluth with the Midwest network. Northwest had a lock on daily service prior to Midwest's three daily round trips. One other airline served Duluth, and it only operated flights on Wednesdays and Saturdays to Las Vegas.

Midwest began the Duluth service on March 4, 2007. The takeover involving Northwest was revealed on Aug. 12. On Oct. 19, Midwest announced it would drop Duluth. The city's business newspaper didn't mince words: "Northwest ownership likely affected Midwest decision to exit Duluth."

The following describes snippets of dialogue that could occur in Northwest's boardroom during the next four years:

Posted by James Zellmer at January 7, 2008 12:00 AM | Subscribe to this site via RSS:
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