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Midway Follows Expansion Strategy


TEN years ago, a tiny company started flying three planes to three cities. The schedule fit on a pocket card. There were no executive offices. Everybody worked out of the gate areas. These days that same company - Midway Airlines - is flying high.

On Nov. 1 the Chicago-based carrier celebrated its 10-year anniversary, dedicated a new jet to its more than 5,000 employees, and inaugurated first-class service on its fleet of more than 60 planes. Today it will open its second hub, in Philadelphia, and begin another phase of what it hopes will be rapid expansion.

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Midway's success parallels the dynamic competitive forces unleashed by airline deregulation. It was one of the first of dozens of new airlines that started from scratch and prospered initially. But those same forces that nurtured the start-up airlines engulfed them. Now, virtually all those airlines are gone and even Midway faces a cloudy horizon.

So when chairman David Hinson broke a napkin-covered champagne bottle over Midway's newest jet two weeks ago, it was not just a celebration of the past. It was a challenge to the future.

Of the dozens of airlines formed since deregulation, only Midway and America West have avoided bankruptcy or merger. And airline analysts are not sure that either airline will survive long-term.

Even Mr. Hinson is not certain his company will be around to celebrate its 20th anniversary. ``I think there's more than an equal chance that we will be around,'' he says.

Currently, Ampco-Pittsburgh Corporation, an industrial company based in Pittsburgh, has a 9.6 percent share in the airline and has not made its intentions clear. ``We certainly have a long-term interest in Midway,'' says Ampco chairman Marshall L. Berkman, who is diversifying the company's holdings. But ``you have to match up desire and do-ability.''

Airline analysts doubt that a nonairline company would find it profitable to take over Midway just now. And the takeover fervor among airlines may have cooled temporarily as they await the outcome of the on-again, off-again buyout attempts at United Airlines.

``I think they will be around to celebrate their 12th anniversary,'' says Louis Marckesano, airline analyst with Janney Montgomery Scott Inc. ``Some of the major airlines - I don't give them that long!''

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To stay viable, Midway is growing as fast as possible. Its new Philadelphia hub will allow the airline to diversify outside of its Chicago base. Within a year to 18 months, Hinson expects to double Midway's sales volume to more than $1 billion and capture a portion of the north-south air traffic along the Eastern Seabord. The airline may post losses along the way, he adds.

Midway has prospered up to now by offering an alternative to the major airlines - a different airport, a complete business-class service, and, when that service proved unprofitable, a single class approach that drew vacationers as well as businessmen.

The irony is that the more that Midway grows, the more it resembles and competes directly with the major airlines. The Philadelphia hub will represent the first time that Midway will go head-to-head with a major airline - USAir - from the same airport.

``In order to survive, Midway really needs to establish another hub and this is one way of doing it,'' says Helane Becker, airline analyst with Shearson Lehman Hutton Inc. But one danger is that Midway will get too successful, she adds, causing a major airline to lose business and look seriously at buying Midway.

The tension between Midway's humble beginnings and its big aspirations is clear to see at its Chicago headquarters. Some of the executive offices in the 1930s-vintage, two-story building have been redone in an '80s mauve. But the hallways sport linoleum floors and a clutter of copying machines and shelves. Boxes of office furniture line the hallway just inside the main entrance.

A few blocks away Midway has just opened a spare but tastefully appointed training facility. Midway instructors, such as flight-training director Ross Hutchinson used to rent out hotel rooms and flight simulators all over the country to train employees. Now, they have their own classrooms, computers, and flight simulators.

Last week, flight attendants were learning how to serve Midway's new first-class meals - cold collations just like in coach, but classier and served in a oriental-style bento box with glassware and china.

``It's really amazing to see how much it has grown,'' says Kathy Klein, a passenger service agent.

A decade ago, when Hinson traveled to Chicago to view the airline's proposed hub, Midway Airport was virtually abandoned. All the passenger flights had moved to the much larger O'Hare International Airport. Grass grew in the parking lot. When Hinson got ready to leave, he had to wait an hour before a taxi showed up.

Now, Midway Airport is bustling. All its passenger gates are filled. The major airlines that moved out of Midway Airport have moved back in. Midway Airlines now wants to build another terminal to keep up with the growth. Nearby, a new hotel is under construction.

``It seems now that we are on the rollercoaster ride and we are on the upswing. But with every upswing there's a downswing,'' says Bill Goodwin, a Midway pilot. ``I am not worried about it. You can't worry about what you don't have control over.''

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