Airline Origins and Service Inauguration:
Chicago-based Midway Airlines, which plied the skies for a dozen years, was the first deregulation-spawned start-up to enter service, paving the way for the multitude of other similar-strategy carriers that followed. In a way, it represented all of them, sparking a resurgence of vacated, underutilized airports they claimed as their operational bases, and it taught important lessons about such airlines. Ultimately, it demonstrated the underlying forces of US deregulation. Its history may have been brief, but it was characterized by aircraft, destination, and strategy changes, as it sought to determine its niche and profitably fill it.
Founded on August 6, 1976 by Irving Tague, a former Hughes Airwest executive, to offer low-fare, high-frequency, no-frills, single-class service with a fleet of used McDonnell-Douglas DC-9s and to re-establish its virtually dormant, but city-vicinity Chicago South Side namesake airport, thus avoiding congestion and competition from incumbent carriers using O'Hare International and taking advantage of lower landing fees and terminal facility prices in the process.
Its story was, to a degree, almost as much about an airport as it was about an airline. Once “the” area airfield, it lost all of its tenants at the end of the 1950s when O'Hare was completed, leaving Northwest Orient as the only remaining thread to its pistonliner past.
Tague, resultantly, saw Midway Airport as an opportunity and an uncongested alternative, re-injecting it with passenger purpose the same way Southwest Airlines had re-established Dallas-Love Field. Harnessing deregulation's freedoms, he endeavored to link the airline and airfield with a common name and cause.
Wings would be provided by five former TWA DC-9-15s, featuring a five-abreast, single-class, 86-seat interior-only one row short of its 90-passenger maximum-and most of their previous owner's color scheme, but externally they reflected their “Rainbow Jet” designation by displaying a vibrant livery.
Inaugurating scheduled service from Midway Airport on November 1, 1979, Midway, the airline, offered multiple daily frequencies to the midwestern cities of Cleveland, Detroit, and Kansas City, and treated its passengers to complementary soft drinks, juices, coffee, tea, peanuts, and snack trays of breadsticks and cheddar cheese spread. An attempt to subsequently touch down in Minneapolis was unsuccessful, resulting in its discontinuation after a short period.
Its low-fare service concept, however, was successful, sparking rapid growth to other destinations and demand that could only be satisfied with the acquisition of stretched-fuselage, 115-passenger, uprated JT8D-powered DC-9-30s, whose approach and landing speeds remained comparable to its initial DC-9-15s' with full-span leading edge slats.
Midway Airport's Concourse A, its flight converging point, progressively fielded an increased number of flights and frequencies to both midwestern and northeastern cities, such as New York-La Guardia, serving as the connecting point between them.
As would repeatedly play out in deregulation skies, Midway soon adopted a fight-for-survival strategy, since long-established Chicago hub carriers American and United-albeit at O'Hare-temporarily lowered their fares to retain and, in some cases, regain market share, leaving Midway's load factors and profitability to slip away.
The Multiple Strategies:
Its decline, it was determined, was the result of its no-frills, low-fare structure, so prevalent within the deregulation airline arena. It was not always the most apocopate one in all markets, especially those involving higher yield business passengers whose expensive accounts covered higher fares with the expectation of superior comfort and service. It was this strategy with which Midway tried to compete, admittedly with “O'Hare operators that offered size, route structure, and brand loyalty fostering frequent flyer programs. It was little more than a shadow to them.
In order to more effectively compete, if not altogether survive, it needed to embark upon a systematic analysis of its makeup, discarding those aspects that were ineffective in such a specialized environment and replace them with those that were.
The result was Midway Metrolink, a concept that expressed its ability to “link” the major “metro”politan centers with the more convenient, hassle-free Midway Airport. Its advertisements depicted the toss of cabin seats through its aircraft doors and their replacement with business-attracting elements.
Internally, comforts included four-abreast leather seats, eliminating the dreaded middle one, increased legroom, larger carry-on luggage space, and garment closets, and externally its new image was expressed by a conservative, cream colored livery.
Improved inflight service featured light, chilled meals appropriate to the time of day, wines, hot towels, and chocolate mints.
The amenities, as expected, were praised and fostered higher load factors, yet costs were counterbalanced by higher daily aircraft utilization, from six to 9.5 hours, which facilitated increased frequencies.
Annual passenger figures clearly reflected Midway's growth-from 56,000 in 1979 to 464,521 in 1980 and 885,739 in 1981. In 1982 it topped one million.
By 1984, operating a 19-strong fleet comprised of 60-pasenger DC-9-15s, 84-passenger DC-9-30s, and 120-passenger MD-80s, it served Cleveland, Dallas, Detroit, Kansas City, Minneapolis, Newark, New York-La Guardia, Philadelphia, Topeka, and Washington-National with 125 daily departures to and from Chicago Midway Airport.
It reflected the quality of its new strategy with the slogan, “The intelligent approach to air travel.”
Assets of failing and bankrupt carriers, including aircraft, airport facilities, and routes, at bargain basement prices provided opportunities for healthy ones to expand, and Midway did not hesitate to avail itself of this opportunity after Air Florida filed for Chapter 11 on July 3, 1984, enabling it to balance its business-oriented midwestern and northeastern routes with leisure ones to Florida and the US Virgin Islands.
The move, sparking its third strategy after its Rainbow Jet and Metrolink ones, entailed operation of its first non-McDonnell-Douglas aircraft-in this case, the Boeing 737-200-which accommodated 128 passengers in a six-abreast configuration. Although they were painted in the same cream livery and retained the light meal service, they operated under the “Midway Express” banner alongside the pure Midway Metrolink one.
The airline was, in effect, subdivided by aircraft type, seating density, passenger and route category, and brand identity, resulting in an airline within an airline.
The Metrolink strategy, in the meantime, was itself only partially successful. While load factors were high on morning and evening flights as businessmen traveled to and from their companies' corporate offices for the day, the period in-between attracted fewer passengers, leaving Midway to counteract the revenue loss with a reversion to five-abreast seating, its fourth strategy. The improved Metrolink service was retained, but, as occurred during the Rainbow Jet period, higher yield travelers lost their coveted comfort and legroom.
Other revenue eroding circumstances also arose, and they involved its route system. Because passengers traveled to its Florida and Caribbean sunspots to escape winter temperatures, its flights were full during this season, but not necessarily during the rest of the year, and the desired West Coast could not be reached with the range restrictions of its DC-9s.
Neither situation was particularly addressable with its current equipment, but it did seek to improve the business-leisure yield duality with the first true two-class cabin interiors that increased capacity to 75 in its DC-9-15s and 97 in its DC-9-30s with forward, four-abreast MetroClub and main, five-abreast MetroClass sections, resulting in its fifth strategy. Its now signature light cuisine was retained.
Although the 737-200s still offered six-abreast, 128-passenger cabins, the Midway Express and Midway Metrolink designations were eliminated.
By December of 1985, its DC-9s served 22 destinations from Chicago, including Boston, Cleveland, Dallas, Detroit, Ft. Lauderdale, Ft. Myers, Kansas City, Minneapolis, New Orleans, New York-La Guardia, Philadelphia, Washington-National, and White Plains, offering some 70 daily departures, while its single-class 737s concentrated on the seven Ft. Lauderdale, Miami, Orlando, St. Croix, St, Thomas, Tampa, and West Palm Beach Florida and Caribbean cities.
Midway's slogan at this time was “Our spirit will lift you.”
A sixth strategy, implemented in early 1987, once again saw it come full cycle. Because the single and dual class cabins of its nine DC-9-15s, 11 DC-9-30s, and ten 737-200s limited their route type and destination utilization, they were reconfigured yet again, the single-class concept now re-introduced, which provided ultimate network flexibility. Capacity increased to 83 and 115 in its short- and long-fuselage DC-9s, yet decreased to 122 in its 737s. Service differentiation in its two classes had only been reduced to seating and this lack had failed to attract sufficient front cabin load factors.
The brand, simply designated “Midway” and identified by a new red and white livery, eliminated class, seating, and name disparity, but it served a few new destinations, such as Denver, Indianapolis, and Las Vegas.
Now operating from both Concourse A and B gates, Midway had begun to re-establish its namesake airport the same way PEOPLExpress had at Newark. Its 1981 passenger throughput increased from 1,773,207 in 1981 to just under three million four years later, and lone Northwest had been joined by America West, Continental, Southwest, and United, which collectively carried 20 percent of the traffic. Midway, having firmly established a hub, controlled a full 80 percent of it–an accomplishment which had required six strategies, three paint schemes, two names, two sub-brands, and two basic aircraft types to achieve.
In order to continue expanding, it followed the mandate of the often-recited mantra of, “You have to feed the hub,” and did so by acquiring the assets of the former Allegheny Commuter operator that enabled it to serve routes too thin and too short for its jet fleet. Branded “Midway Connection” and constituting its seventh strategy, it commenced Chicago-serving fights on June 15, 1987 with seven high-wing, twin-turboprop, 19-passenger Dornier Do-228-200 aircraft, initially from half a dozen communities.
Twenty-five major business and vacation destinations in the US and the Caribbean were otherwise served with its DC-9 and 737 aircraft from 21 gates at that time.
In 1985, Midway posted its first, albeit tiny, profit in a three-year period, of $52,000, but this increased to $9 million in 1986 and $10.8 million in 1987. Fleet size, load factor, and annual passengers carried had all steadily increased, from 26, 50.2 percent, and 1,387,978, respectively, in 1984 to 27, 58.2 percent, and 1,748,942 in 1985 and 29, 58.9 percent, and 2,719,269 in 1986.
Restricted by capacity and range, it addressed its fleet deficiency for the first time with a new aircraft order-in this case, for eight confirmed and 28 optioned McDonnell-Douglas MD-87s-in the fourth quarter of 1988. Quieter, larger, and more fuel-efficient, they would enable it to serve any of its routes with full payloads.
The previous year it had carried almost 3.5 million passengers, a 26.2-percent increase over the year-earlier period, and employed 2,460. This growth merited even greater capacity than its just-ordered MD-87s, prompting it to convert its 29 options to full-size MD-80s, powered by refanned Pratt and Whitney JT8D-217 engines.
By September of 1988, Midway served 49 destinations in the US, the Bahamas, and the Caribbean, of which 17 were Midway Connection turboprop routes and eight were to Florida, more than any other Chisago-originating airline. Hourly shuttle flights were offered to Detroit and Minneapolis, mostly with short-fuselage DC-9-15s.
November 1, 1989 marked its one-decade anniversary, which it proclaimed with the slogan, “Ten years of spirit.”
Expansion, for a second time by means of undervalued assets of a failing carrier, occurred when it took advantage of Eastern's $213 million package that consisted of its passenger, cargo, and maintenance facilities in Philadelphia, 16 Midway compatible DC-9-30s, engines, and spare parts, two transborder routes to Montreal and Toronto, and two lucrative slots at both New York-La Guardia and Washington-National airports.
The strategy, its seventh, gave it a second hub, an east coast route concentration, and Canadian reach, all without the otherwise protracted expansion period required if it had attempted to do so from scratch. It also avoided any aircraft, facility, frequency, service, or employee reductions at his exiting Chisago hub in the process.
The deal, concluded in October of 1988, additionally enabled it to make more cost-effective use of its Boston and Florida stations.
As the fourth largest metropolitan area in the country, Philadelphia provided an immediate origin-and-destination passenger base not reliant upon connecting traffic.
Its first wave of expansion entailed inaugurating 12 daily round trips to seven Florida cities on November 15, which added to its six already existing flights from Philadelphia to Chicago, and by the end of the year this had increased to 33 to Albany, Boston, Ft. Lauderdale, Ft. Myers, Hartford, Miami, Orlando, Rochester, Sarasota, Tampa, and West Palm Beach.
The first quarter of 1990 saw it connect the City of Brotherly Love with Jacksonville, Savannah, and Providence in the US and Montreal and Toronto in Canada. Its north-south route flow balanced the Chicago hub's east-west one.
Concurrent with this accelerated expansion was a fleet modernization program, which saw it take delivery of eight 120-passenger MD-87s between March of 1989 and January of 1990 and enabled it to increase its nonstop Chicago-California routes. The quieter, higher capacity aircraft constituted the first of its 37-firm and 37-optioned MD-80 order, the remaining 29 of which were full fuselage length, 143-seat MD-82s, toward which three MD-83s and two MD-88s, the latter with glass cockpits, were intermittently leased.
By the end of 1990, its fleet consisted of nine DC-9-15s, 37 DC-9-30s, ten 737-200s, eight MD-87s, four MD-82s, three MD-83s, and two MD-88s.
Its Springfield, Illinois-based Midway Connection division played an increasingly important role in its Chicago hub feed, its 21 Do-228-200s serving 20 cities in four states within a 250-mile radius and carrying 550,000 passengers in 1989 alone. Sixty-five percent of them connected to Midway jet flights.
Addressing its own needs, Midway placed a 33-firm and 40-optioned order, worth $250 million, for Dornier Do-328 high-wing, twin-turboprops intended for delivery between 1993 and 1996. Successors to the Do-228s, they offered three-abreast, 30-passenger cabins with standup headroom, galleys, lavatories, and flight attendant service, enabling it to offer more comfort consistent standards between its jet and turboprop fleets. The type would also enable it to substitute more appropriately sized aircraft during low-demand, off-peak times, such as at midday.
In order to plug the capacity gap, Midway subleased a dozen 30-passenger Embraer EMB-120s from West German regional carrier DLT, taking delivery of nine in 1990 and the remaining three the following year.
Single- and dual-class cabins had factored into its decade of evolution on several occasions and it reverted to the latter once again on November 1, 1989, marking its eighth strategy. As had previously been proven, major carrier-comparable amenities, particularly in the form of a first or business class section that offered increased service and comfort, was vital if Midway wished to play in their league, since it was in the process of growing into it. First class upgrades constituted one of the most important rewards for frequent flyer members.
All of its aircraft were reconfigured with a four-abreast, two-row, eight-seat forward section, with the balance of capacity varying according to type: 70 in the DC-9-15, 90 in the DC-9-30, 105 in the 737-200, 112 in the MD-87, and 135 in the MD-82. All except the 737 were in five-abreast coach arrangements.
West Coast route expansion begin in May of 1990 with three daily Chicago-Los Angeles MD-87 frequencies. So popular was it, that it was progressively increased to four and then five.
Its growth was reflected by its later-year fleet size and annual passenger statistics, respectively totaling 29 and 2.8 million in 1986, 49 and 3.8 million in 1987, 61 and 4.7 million in 1988, and 82 and 5.2 million in 1989.
By March 15, 1990, Midway and Midway Commuter collectively served 59 cities in 24 states, the District of Columbia, the Bahamas, the US Virgin Islands, and Canada, of which 41 saw mainline jet operations. They included Albany, Atlanta, Boston, Buffalo, Chicago, Cleveland, Columbus, Dallas, Denver, Des Moines, Detroit, Freeport. Ft. Lauderdale, Ft. Myers, Hartford, Jacksonville, Kansas City, Las Vegas, Los Angeles, Memphis, Miami, Minneapolis, Montreal, Nassau, New Orleans, New York, Omaha, Orlando, Philadelphia, Phoenix, Pittsburgh, Providence, Rochester, Savannah, St. Croix, St Thomas, Tampa, Toronto, Washington, and West Palm Beach.
Midway had, as a byproduct of its own growth, resurrected its hub airport from its post-O'Hare, virtual ghost town period to one which offered more comparable service, carriers, and connections. In 1980, Midway's first full year of operations, its throughput was 609,000 passengers. Nine years later that figure had skyrocketed to eight million, or only two million short of its 1959 piston pinnacle figures, but seven times lower than O'Hare's annual 59 million. Midway itself carrier 65 percent of the traffic, with 35 percent handled by the balance of the nine other carriers, which included Allegheny Commuter, Canadian Airlines International, Comair, Continental, Northwest, Southwest, TWA, United, and USAir.
Now an integral part of the US air transportation system, it owed its regrowth to Midway Airlines, which offered almost 500 daily systemwide flights and ranked third in size of the Chicago-based carriers after United and American.
Demise and Deregulation Lessons:
All of these figures were superlative and promising, except one-Midway's financial ones. It was losing almost $1 million a day.
Its acquisition of the Philadelphia hub at a time when fuel prices increased because of the Iraqi invasion of Kuwait and competition from USAir there prompted its October 1990 sale of it to them for $67.5 million. The following year's recession and declining load factors forced it into Chapter 11 bankruptcy protection in March. Its overexpansion, the Gulf War's effects, and competition from the established, more financially sound airlines all sealed its fate.
Despite potential promise of a takeover by Northwest, which constituted its last ditch effort at survival when it assumed $153 million of its debt, it rejected the deal on November 12, 1991 and Midway Airlines ceased to exist the following day.
“As a result of Northwest Airlines' unilateral decision to withdraw from its commitment to acquire substantially off of Midway's assets, effective midnight, Wednesday, November 13, Midway will cease operations,” it said in a statement. “Midway deeply regrets the inconvenience it caused to our loyal customers by the cancellation of all Midway service.”
Ironically, the airline that rescued an airport could not be rescued itself. Its meteoric, multiple-strategy rise-and-fall was brief, spanning only a dozen years, but it left a legacy by teaching several lessons.
Although it employed the low-fare, no-frills, used-aircraft model subsequently adopted by numerous other deregulation-spawned carriers, that strategy, first and foremost, was not always successful in markets which competed with major, established, well-financed ones that offered frequent flyer programs and improved comfort and service to high yield business travelers on expense accounts.
Secondly, its continual strategy changes attempted to achieve profitability in a very competitive environment, but only dual cabin classes could satisfy high- and low-yield executive and leisure passenger-and not necessarily on all routes, such as those to the Florida sunspots, which themselves were subjected to seasonality.
As had occurred with Southwest at Dallas-Love Field, PEOPLExpress at Newark International, and Northeastern at Islip's Long Island MacArthur Airport, Midway was able to resurrect an uncongested, underutilized, almost-dormant airfield by taking advantage of its lower landing fees and ground facility costs, attracting passengers and, ultimately, other operators with its low-fare service. Its common goal of both airline and airport growth was briefly successful in the first case and ultimately so in the second one.
It often expanded with the acquisition of bargain basement assets of failing airlines, such as those of Air Florida and Eastern, until it itself became fodder to surviving entities.
Finally, it demonstrated deregulation's David and Goliath theme, whose opportunities, if adequately financed, enabled a long list of upstart airlines with numerous structures to expand until the majors, now threatened by them, either defeated them or absorbed them, once again proving the fundamental Darwinian truth of survival of the fittest.
Midway, the first deregulation carrier, wrote the story that was repeated and replayed until the last one lost its wings.