Even Republic Airways CEO Bryan Bedford hasn't thought of his company as a real airline — until now.
Republic rjet, one of the USA's most successful regional airline companies in the last decade, has flown other airlines' routes for them, for a fee. It provides 36- to 86-seat regional jets and crews to Delta dal, American amr, United uaua, Continentalcal and US Airways lcc.
"We're a contractor, working for all the major airlines," Bedford says.
But that's changing quickly because of two big deals: On July 13, a federal bankruptcy judge approved Republic's takeover of Frontier Airlines for $108.8 million unless it is outbid. And last month, Republic agreed to pay $6 million to acquire Milwaukee-based Midwest Airlines.
The deals move Republic from the ranks of regional contractor to big airline. Republic will operate Midwest and Frontier under their respective names and on their routes to a combined 56 cities across the country initially.
The deals also put Republic in the awkward position of competing on many routes against the big carriers, such as Delta and United, that are contracting for Republic's regional jet service. And they put Republic in competition with two of the country's best-run discount airlines, Southwest luv and AirTran aai, in Milwaukee and Denver.
"The good news is that Republic is buying Midwest and, to a lesser degree, Frontier on the cheap," says Vaughn Cordle, an analyst at AirlineForecasts. "The bad news is that AirTran, Southwest, United and the others are going to gang up on them."
Protecting its investment
Bedford justifies the deals by saying they make Republic less dependent on its five big, conventional airline partners.
"The foundation of our business model is revenue diversity," he says. "If we can draw revenue from a wide variety of sources, regardless what the broader industry conditions are, we'll likely do better."
But protecting Republic's existing financial stake in Frontier and Midwest also was a big part. Republic has been a regional airline partner and major creditor of both airlines.
Frontier, which has been in Chapter 11 bankruptcy protection since April 2008, canceled its regional contract with Republic last fall. That triggered a Republic claim against Frontier in bankruptcy court and forced Republic to scramble to find new homes for those planes and crews.
Midwest has been in rapid decline for the past 18 months, and its potential collapse threatened to leave Republic with more regional jets and crewmembers with no place to fly.
Acquiring the carriers protects Republic's regional service as well as provides new revenue.
"What they're trying to do makes sense," industry analyst Bob McAdoo at Avondale Partners says of Republic's strategy.
Learning to run an airline
What Republic is doing comes with risks.
Not the least of which is competing against the big, traditional airlines that now contract with three of Republic's subsidiaries —Chautauqua Airlines, Republic Airlines and Shuttle America— for their regional service. None of the contracts are up any time soon. But if the big guys aren't comfortable competing with one of their supposed partners, it could cost Republic regional outsourcing contracts in the future.
Republic, as the operator of Frontier and Midwest, will have to learn how to manage all aspects of an airline for the first time. As a contractor, Republic has just flown the planes. It's left routes, marketing, sales and ground operations to its partners.
As a result, McAdoo says, "There might be a quarter or two of down performance."
Republic will be learning in the face of intense competition. In Denver, Frontier's hub, Republic will be competing against Southwest and United. In Milwaukee, Midwest's home, it faces a big push from AirTran and, beginning in November, Southwest.
CEO Bedford is confident, however. "We feel comfortable that we have the resources to compete and win in those markets," he says.