I don’t have a crystal ball so I don’t usually comment on the stock price. It will be what it will be and may defy rationality. But the sell-off in RJET last week - probably because of the Midwest loss - deserves a comment, such as:

What did anyone expect?

For months, BB has been telling us that Midwest is only operationally profitable and will fall into a loss situation again. For months he has been telling us that Midwest has a cost problem.

As I posted last week, Republic recently released the financials for Midwest and they made fairly ugly reading, so my reaction to the $15 million dollar loss is - is that all it was?

If the knee-jerk sell-off was surpising to me, the small recovery was not. The shares were back up to $7.76 by Friday night - $7.96 in after hours.

This seems reasonable, because once the “shock” of the Midwest loss was over, there was a deal of good news.

Republic didn't own Frontier in 3Q, but if they had closed on Frontier six weeks earlier, for example, the profit sitauation would have been quite different, and I was amused that almost no one commented on Frontier’s profitablity. It was greeted with almost a shrug and that wouldn’t have been true a few months ago.

The projection is for Frontier to remain profitable (yawn?) and for Midwest to become profitable in fairly short order, while remaining something of a drag on earnings.

And really - what else did anyone expect? You didn’t need a crystal ball.

“But Pollyanna - oops, sorry, Davy,” I hear you cry, “it was the summer quarter, it should have been better!”

How so? Come back to the central point. Midwest has a cost problem. Midwest has a CASM (ex fuel) of about 8 cents. Aitran has a CASM of about 6 cents. Frontier’s CASM is the same or fractionally less. They both made money.

By comparison, Southwest’s 3Q CASM (ex-fuel) was just over 7 cents and they didn’t make money.

So the primary battle for Republic (BB/SM) is to get Midwest’s costs down. That has begun on all fronts - from the integration of ground handling to the use of the A319’s at MKE, as happened last week, and the integration of the payroll.

But getting those costs down isn’t going to happen overnight. Payroll doesn’t happen until January.

There is a greater battle, of course - what some are calling the Battle for MKE, and two things are surprising about that:

(i) It is the first battleground in which the three combatants are LCC’s.

(ii) Two of the three have laid out their strategy at MKE.

And surprisingly, the easiest to deal with is Southwest.

cont/...