Midwest Feels the Heat at Milwaukee Hub

The odds seem tipped against Midwest Airlines(MEH Quote - Cramer on MEH - Stock Picks) in its battle for survival.

If the airline does not succumb in the hostile merger battle now being waged by AirTran(AAI Quote - Cramer on AAI - Stock Picks), it may well do so in the hostile competitive battle that AirTran and others will wage for its Milwaukee hub.

Midwest is a model corporate citizen, grounded in its community, fighting the trend of depersonalization and imbued with Midwest charm. But it is also an anachronism, flying costly airplanes, barely diversified beyond its single hub and baking chocolate-chip cookies on its flights, an Andy Hardy type in a Paris Hilton world.

Like other airlines, Midwest has been forced to dramatically reduce costs over the past six years. Still, it has been fortunate not to have faced more competitive incursions in Milwaukee. In fact, Northwest(NWACQ Quote - Cramer on NWACQ - Stock Picks) scaled back in Milwaukee after filing for bankruptcy protection in 2005.

Yet Milwaukee is exactly the type of place airlines covet, a medium-sized market that lacks a dominant major airline and that is within driving distance of a major metropolitan area, Chicago. And now, the industry is expanding again. It is easy to imagine expansion by Northwest or an entree by JetBlue(JBLU Quote - Cramer on JBLU - Stock Picks) or Southwest(LUV Quote - Cramer on LUV - Stock Picks), not to mention more expansion by AirTran. All three have lower unit costs than Midwest.

AirTran currently serves Atlanta, Orlando and Baltimore from Milwaukee. It is not going away, even if it loses out in the tender offer that expires May 16. Instead, it will add Las Vegas in August.

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