Little airline preparing to fly higher

Jeremy Hobson Jul 13, 2009

Little airline preparing to fly higher

Jeremy Hobson Jul 13, 2009


Bill Radke: In New York this morning, Frontier Airlines has a date in bankruptcy court. The Denver-based discount airline is hoping a judge will allow it to be bought by Republic Airways. That’s the same company that just bought up Midwest Airlines. Marketplace’s Jeremy Hobson has more now on what could soon be the biggest airline you have never heard of.

Jeremy Hobson: Republic is the airline you fly when you have, say, a Delta or United ticket, and you have to get from a small airport in a place like Grand Rapids or Savannah to a major hub like Atlanta or Chicago.

Most people don’t realize they’re flying Republic. But get this:

Seth Kaplan: In some quarters over the past couple of years, they’ve been the most profitable airline in the world, and they’re generally in the top five or six.

That’s Seth Kaplan of Airline Weekly. He says the reason Republic is so profitable is because its business model is virtually risk-free. It doesn’t pay for fuel, it doesn’t pay for marketing, and it doesn’t have to worry if its planes are full.

Kaplan: Of course, long-term, they want their mainline partners to be successful, because that’s the only way they’ll continue to give them business. But on a short-term basis, they’re just paid to fly those aircraft whenever and wherever the mainline airlines want them to fly.

That model works right now, but Kaplan says nothing lasts forever.

Kaplan: The airline industry is shrinking, and that’s not good for anybody and if you have less flying in general, you’re gonna have a little bit less of a need for regional flying.

Enter Republic’s high-profile bids for Midwest and Frontier. Airline consultant George Hamlin says the industry is changing fast. If Republic doesn’t want to caught in a holding pattern, it has to diversify.

George Hamlin: The little guy here is light on his feet, is solvent and has the cash to do this.

More importantly, Hamlin says, not diversifying could be much risker.

Hamlin: Just waiting to see what happens and in effect playing musical chairs and hoping that there’s one to sit down in when the music stops, that’s a lot less strategic in my mind.

Republic would more than double in size with the acquisition of these airlines. But how easy will it be for David to become Goliath?

Kaplan says it shouldn’t be too hard, as long as Republic doesn’t meddle too much in the operations of Frontier and Midwest.

Kaplan: There are regional airlines that have tried to raise their own profile — the equivalent of putting “republic” on the side of an airplane and trying to sell those flights on their own — and the results have not been very good.

For now, Frontier and Midwest will keep their names. But the change may ruffle the feathers of some of Republic’s current partners. The big carriers who made Republic what it is will now be in direct competition in some markets.

In New York, I’m Jeremy Hobson for Marketplace.

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