““[Bill Gates] has been historically one of my best supporters…One of my favorite e-mails he ever sent me…I proposed this crazy project. And he sent back this two-line response: ‘This has got to be the craziest thing you’ve ever suggested. Please proceed.’” ”
When there's no substitute for a business jet
Over the years, more than a few all-business-class airlines have tried to lure customers who might otherwise opt for private aviation. What we haven't often seen is a corporate flight department trying to morph itself into an airline with the same goal in mind. But that has happened at least once.
After running a corporate flight department for 36 years and a successful aircraft maintenance company (K-C Aviation, now part of Gulfstream), paper-products giant Kimberly-Clark began Midwest Express with a few used short-body DC-9s in 1984. Initially, Midwest established a Milwaukee hub and flew to places where Kimberly-Clark had major operations-Appleton, Wis.; Atlanta; and Dallas. It was sort of an employee shuttle with the public invited to ride along and subsidize the trip. However, its route network soon spread nationwide.
The airline incorporated amenities from corporate aviation: It installed all-business-class leather seating and treated passengers to full meal service-featuring food that you'd actually wanted to eat-with real china and silverware, liberally poured complimentary wine and freshly baked chocolate chip cookies-all at no extra charge for a ticket that, in the 1990s, maybe cost $25 more than coach on the competition.
A lot of people loved Midwest. Zagat rated it the best domestic airline. Midwest branded itself "the best care in the air" and, for an airline at least, is was probably true.
By 1995, however, Kimberly-Clark figured out that running an airline and making Huggies diapers weren't compatible core competencies-and that the airline could even negatively impact its bottom line. It spun Midwest off in an IPO. Without KC's deep pockets for refuge against the airline industry's financial gyrations-which intensified after the 9/11 terrorist attacks-Midwest was forced to fend for itself.
The brand unraveled. Midwest installed coach seats on some of the airplanes; the "free" gourmet meals went away; and an annoying number of what used to be direct flights now connected through Kansas City. The airline had devolved into just another carrier racing to the bottom of the cheap-tickets derby. It dumped the full-sized jets, replacing them with leased regional airliners with miniature seats.
Budget carrier AirTran made an unsuccessful hostile takeover run at struggling Midwest in 2007 and the airline was subsequently sold to a consortium that included Northwest Airlines and TPG Capital Partners. It appears they overpaid.
Last summer, Republic Airways Holdings took possession of Midwest, which had been valued at $450 million less than two years earlier, for just $31 million. In January, Republic let Midwest employees and their friends buy up all those leather business-class seats that had been ripped out of the old airplanes for $50 a pair. In basements across southern Wisconsin sit reminders of what happens when you try to blend corporate aviation with today's airline pricing structure.
Republic recently announced that it would fold Midwest into another of its properties, low-fare carrier Frontier Airlines. By the end of 2010, Midwest will be history. Republic said Frontier would continue to serve Midwest's cookies as a conciliatory gesture: "Your airline is gone, have a cookie."
The Midwest saga serves as a powerful reminder that airlines and corporate aviation are very different animals, selling very different products, at completely different price points. As noted earlier, Midwest was not the first airline to try what was essentially an all-business-class model. It won't be the last. But most of them have one thing in common: They fail. The carnage list over the last three decades has included Air Atlanta, Air One, Eos, Legend, Maxjet, McClain, MGM Grand, Regent, Silverjet and UltraAir.
Midwest had significant advantages over these failed ventures, including its corporate-flight-department DNA, a national route structure and a hub in what was for years an underserved market. Yet not even these could ensure Midwest's survival. There is no substitute for the comfort, convenience, flexibility and speed that corporate aviation can provide. Airliners are not business jets. They cannot afford to offer anywhere near the same level of service and hope to stay in business.