Midwest Express Holdings, Inc.
Midwest Express Holdings, Inc.
Sales: $447.6 million (1999)
Stock Exchanges: New York
Ticker Symbol: MEH
NAIC: 481111 Scheduled Passenger Air Transportation; 481112 Scheduled Freight Air Transportation
Midwest Express Holdings, Inc. is the holding company for Midwest Express Airlines. Midwest Express is a small airline carrier, ranked at the beginning of the 21st century as the 17th largest in the United States. Despite its small size, Midwest Express is an industry leader, finding profits where other air-lines struggle, and leading the nation in customer service and satisfaction. The airline is geared primarily toward business travelers, who make up approximately 55 percent of its passengers. Midwest Express distinguishes itself by flying direct between many cities underserved by other, larger carriers. Its home base is in Milwaukee, where its planes fly out of that city’s Mitchell Field airport. The airline also has a smaller hub in Omaha, Nebraska, and a third hub is in development for the year 2000. Its fares are comparable to those of other airlines, but Midwest Express offers luxurious amenities on its flights, including gourmet food served on china plates with linen napkins, complementary wine and champagne, and planes retrofitted to provide extra foot room. It flies nonstop from Milwaukee to close to 30 cities in the United States and Canada and operates other nonstop routes originating in Omaha and in Kansas City, Missouri. The company also operates a subsidiary, Skyway Airlines, to offer connecting flights from Midwest Express flights, especially to smaller cities.
Beginnings with Kimberly-Clark
Midwest Express Airlines began originally as an air transport service run by the Kimberly-Clark Corporation for the benefit of its employees. Kimberly-Clark was a paper products company, known particularly for its Kleenex brand tissue. Beginning in 1948, it used its own aircraft to fly workers out to mills in difficult-to-reach locations. By 1969, Kimberly-Clark’s flight department evolved into a subsidiary, called K-C Aviation. This company ran Kimberly-Clark’s small fleet of planes and also provided servicing work on the planes of the parent company’s corporate clients. By 1982, Kimberly-Clark’s transportation needs increased, as it was having to shuttle employees between its headquarters near Appleton, Wisconsin and a forest products research center in Atlanta. K-C Aviation became a regularly scheduled shuttle airline, serving Appleton, Atlanta, and Memphis. The president of K-C Aviation was Timothy Hoeksema, a former pilot with the company. He oversaw a period of rapid growth at the flight subsidiary, helping it move from a 53-person operation in 1977 to a firm that employed 500 people and brought in $50 million in the early 1980s. Hoeksema had a feel for the airline industry, and he was instrumental in helping K-C Aviation become a full-fledged airline. The airline industry had been deregulated in 1978, allowing many small start-ups to get into the market. K-C Aviation was already doing much of what a small airline did anyway, making regularly scheduled flights for business people. So it was not much of a change to re-christen the company Midwest Express Airlines and begin nonstop service from Milwaukee to Boston, Dallas, Atlanta, and Appleton.
The new airline aimed small, at first wanting only to fill what looked like an available niche. One apparently shrewd business choice was claiming Milwaukee as its home base. Milwaukee’s Mitchell Field airport had just undergone major renovations, and it had the advantage of being relatively close to north suburban Chicago. Chicago’s O’Hare was both huge and congested, while Mitchell was by comparison much easier to negotiate. So the airline believed customers both in southern Wisconsin and northern Illinois would enjoy the ease of flying out of Milwaukee. Midwest Express also wanted to concentrate on service. In the early 1980s, many small airlines were entering the market hoping to compete on price. People’s Express and other small carriers offered cheap, no-frills flying. But Midwest Express wanted to go the opposite route and offer opulent accommodations, friendly service, great food, and the convenience of direct routes without cumbersome layovers. Midwest’s fleet was very small, at first only four planes, but it renovated them so that they carried only 60 seats instead of 85 or more. Seats were two-by-two instead of the usual three-seat layout, and the reduced number of seats meant maximum leg room. Instead of spending as little as possible on customer food, Midwest Express went all out. Its meals were served on china, with linen napkins, and typical dinner choices offered flyers were beef Wellington or lobster. Hoeksema was sure this emphasis on service would work out, although to some it seemed a risky business strategy. But because of his long experience with business travelers, Hoeksema felt sure he knew what customers wanted most.
The airline grew slowly, adding new routes each year, and gradually increasing its number of customers served. In 1985, the company suffered a tragic reversal, when one of its planes crashed just after takeoff, killing all 27 passengers on board as well as the four crew members. No wrong-doing was attributed to the airline, but it shook consumer confidence and set the airline back considerably with the loss of one quarter of its fleet. The company operated in the red for its first several years, losing more than $3 million by 1986, according to figures from the Department of Transportation. Yet Midwest’s reputation grew. Its percentage of passengers at Mitchell Field increased from less than one percent in its first year to close to ten percent four years later. Consumer Reports rated the airline number one for comfort in 1985, an honor it continued to enjoy. By 1988, the company was making a profit, and it was in the black year after year from then on. When it began, Midwest’s flights were only 20 percent full, but by 1988 its flights were about 66 percent full, and sales stood at around $54 million. In addition, it still had the deep pockets of parent Kimberly-Clark to help. Kimberly-Clark put $120 million into Midwest’s expansion in the late 1980s, allowing the airline to boost its fleet from four planes to 11. By 1989, it was the third largest carrier flying out of Milwaukee, and its direct flights took it to 15 cities.
Exploiting a Niche in the Early 1990s
Midwest Express grew in the 1990s, but it remained a small airline and avoided direct competition with the major airlines. It carefully exploited its niche as it expanded, keeping in mind its core customer group of business travelers. Thus it offered few trips on weekends, and timed flights so that business people could make day trips. While airlines like Northwest and American might offer trips to Washington, D.C. every hour, Midwest Ex-press typically scheduled early morning flights, with an early evening return. Midwest did not offer discounts to people booking several weeks in advance, as other airlines did, because it depended on the quick trips business travelers made as the need arose. Midwest’s standard fares were thus comparable with other airlines’ regular fares, though passengers who wanted a cheaper flight might have turned to a bigger carrier to get it. By catering to business travelers, Midwest gave itself another profit advantage. Business travelers rarely checked luggage, but took carry-on bags for their mainly short trips. This freed much of the cargo hold, so Midwest’s planes could earn money carrying freight. The company grew and prospered in the early 1990s, though several similar full-service airlines failed. Small full-service airlines that did not make it included Air Atlanta and St. Louis’s Air One.
As the airline added more destinations, it looked for a smaller airline that could act as a “feeder,” bringing passengers from small cities into Milwaukee to connect with Midwest Express flights. Midwest worked out an agreement with Mesa Airlines of New Mexico, and in 1989 that company inaugurated its new Skyway Airlines, or the Midwest Express Connection, for flights into Milwaukee. At first the companies had no direct financial relationship, but Skyway soon became a subsidiary of Midwest. Skyway ran a fleet of small, 19-seat turboprop air-planes, bringing passengers between Milwaukee and cities like Green Bay, La Crosse, and Stevens Point in Wisconsin, and operating between other Midwestern towns, including Des Moines, Flint, and Cincinnati.
At its ten-year anniversary, Midwest Express was doing very well. The airline industry as a whole had trouble in the early 1990s, especially as customer satisfaction dropped. Out of the entire domestic airline industry, only two carriers were profitable in 1993. One was the no-frills Southwest Airlines, and the other was Midwest Express. Southwest spent on average 20 cents for passenger meals, while Midwest lavished $10 per passenger for food. Other carriers sought to imitate Southwest and cut down on frills as a way of clinging to often elusive profitability. But Midwest never faltered in its mission to provide first-class service and would consider trimming costs only in areas the public would never notice. It was going against the prevailing pattern in the industry, and it was working.
By 1993, Midwest Express was only the 24th largest airline in the United States, with revenues of $165 million. According to interviews with its president, Timothy Hoeksema, the airline did not have plans to expand aggressively. But Hoeksema was confident little Midwest would continue to do well despite troubling trends in the industry. In an article in Forbes from October 23, 1995, Hoeksema declared: “When you have an industry with dissatisfied customers, you have a business opportunity.” In other words, as things got worse for the larger carriers, Midwest would still make money. Customers often specified they wanted to fly on Midwest. It was one of the few airlines that really had such a recognizable and positive identity. The company baked and served fresh chocolate chip cookies on board. No other carrier could beat that.
Midwest Express exists to: provide the highest quality travel experience to our consumers; foster a work environment of mutual respect, caring, pride, continuous improvement and dedication to safety, where employees are valued for their contributions; and increase shareholder value as a means to future growth and success.
Midwest’s growth was slow and controlled. In 1994 it opened a hub in Omaha. This gave it easier access to western markets, including flights into Los Angeles. By the mid-1990s the airline ran a fleet of 19 jets, and Skyway, its feeder subsidiary, had 12 smaller planes. Revenues surpassed $200 million for the first time in 1994 and continued to go up. In 1995, parent Kimberly-Clark decided to spin off the airline subsidiary. Midwest Express went public in October 1995. Kimberly-Clark hung on to 30 percent of the airline’s shares, while sales of the remainder brought in $81 million. After going public, Midwest did not have the cozy backing of the large paper company, and it had to spend more money on its plane leasings because it lost the paper company’s high credit rating. But the new public company was absolutely free of debt, with a comfortable cushion of cash.
Milestones in the Late 1990s and Beyond
Midwest added a few airplanes to its fleet each year, buying slightly used planes from other carriers and renovating and refitting them. The airline grew to be a major player in Milwaukee, with about a 30 percent share of flights from Mitchell Field. It was still possible for the carrier to have an unprofitable quarter, such as a bad period in May and June of 1996, when unusual fogginess around Milwaukee caused the airline to cancel a record 750 flights. But overall, the company steamed ahead, and its stock value was noted on Wall Street. By 1998, Midwest’s stock was one of the stars of the market. The booming economy, good weather brought by the warm weather pattern El Nino, and a dip in fuel costs combined to bring the company’s stock to an all-time high in February 1998. The company contemplated buying more planes and adding a third hub somewhere in the Midwest.
As the company encountered such good fortune, its employees began to organize. Midwest had operated without union representation through its formative years. In 1997 the Teamsters Union and the Air Line Pilots Association (ALPA) vied with each other to represent Midwest’s pilots. ALPA won out after elections in December 1997, and the Association of Flight Attendants (AFA) began organizing roughly a year later. Negotiations between the unions and the company dragged out for some time. Negotiations for the first pilots’ contract began in August 1998, and a federal mediator was called in the next March. With no contract imminent, ALPA took a vote on authorizing a strike in July 1999. A strike by pilots was narrowly averted in February 2000. Although the airline had been consistently profitable since the late 1980s, pay for pilots lagged behind other airlines. Other issues in the contract involved retirement pay and health benefits. At least 80 percent of the airline industry was already unionized, and settling its first contract with its pilots represented a major step in Midwest’s maturation.
In the late 1990s and into the next century, Midwest continued to stand out among domestic airlines, for the same reasons it always had. Customer complaints were high throughout the industry, and consumers railed about flights inconveniently routed through hubs and planes being overcrowded and delayed. Meanwhile Midwest won awards for its service year after year. Business customers who could afford to pay Midwest’s fares chose the airline for its direct flights and its home-baked cookies. Midwest Express was the 17th largest domestic airline carrier in the late 1990s, and it was too small to compete directly with airline giants in many markets. But it had the flexibility to offer what the big fliers could not. The company relentlessly pursued its niche market. Midwest’s long history of profitability was quite unusual in the industry, and the little airline made no indications that it would change its winning formula.
- Kimberly-Clark inaugurates flight department.
- K-C Aviation founded.
- Midwest Express Airlines founded; first commercial flight June 11.
- Company begins consistent profitability.
- Kimberly-Clark spins off Midwest to public.
- Midwest ratifies first union contract with pilots.
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