June 1976: Representative Fary and Lamar Muse

In June 1976, Lamar Muse, founding president of Southwest Airlines, testified to Congress. Representative John G. Fary, in whose district was Midway Airport, asked if Muse had any ideas how to revive the airport, then “virtually a ghost town”. Muse said, in part, “…you could do exactly the same thing at Midway that Southwest has done at Love Field in Dallas…”^[4] Muse said he incautiously aired this idea in the offices of consultants Simat, Helliesen & Eichner (SH&E), where partner John Eichner was a friend and frequent business partner of Muse. Two other SH&E consultants took the idea to former Hughes Airwest executive Irving Tague and incorporated Midway Airlines (October 13, 1976)^[5] to be first in line with the CAB. And founder Kenneth Carlson was in fact an SH&E vice president immediately prior to starting Midway Airlines.^[6] In response, Muse created a subsidiary, Midway (Southwest) Airway Co., which also applied to the CAB. Muse’s idea was to connect Midway Airport to 15 cities about 200-500 miles from Chicago, whereas Midway Airlines took a smaller list of six cities to the CAB.^[7]

Midway Airport was a flashpoint for critics of airline regulation because the slow and bureaucratic CAB failed to resuscitate the airport, a priority for the City of Chicago and the Illinois congressional delegation. Muse said in July 1977 Congressional deregulation hearings (when total airline service at Midway was two Delta flights/day) that, based on its experience in Texas, Southwest would, within a year, pump 5 million passengers per year through Midway with 92 737 departures/weekday (79 per day on weekends).^[8] But Southwest’s board of directors was not supportive and the plan was a bone of contention in Muse’s feud with Southwest founder Rollin King, which ultimately led to Muse's resignation from Southwest in March 1978.^[9] This helped clear the way for Midway Airlines. History later vindicated Muse's view of Midway airport as a Southwest opportunity (as of March 5, 2024, Southwest scheduled up to 249 departures per day at Midway).^[10] Midway Airport did not reach the 5 million annual passengers/year level until 1987.^[11]

1976 - November, 1979: extended gestation - everyone wants Midway Airport, even Federal Express

Midway Airlines, from concept to reality, reflected the progress of US airline deregulation, for which the inflection point was the high-profile 1975 Senate hearings on the CAB by Ted Kennedy. Ex-ante, new scheduled carrier certification was unthinkable, it hadn’t happened in decades. Ex-post, there was a sense of possibility, which is why, in 1976, the idea of Midway Airlines was plausible.^[12] But CAB bureaucracy still moved slowly. However, in 1977, President Jimmy Carter appointed deregulator Alfred Kahn to run the CAB, handing control to reformers, thereby completely changing the nature and tempo of its decisions^[13]. The Carter administration (and Congress) was in favor of opening up Midway Airport to low-cost air travel.^[14][15] The CAB announced in August 1977 that it would decide the Midway airport proceeding by August 1978, incredibly fast for the CAB.^[16]

The August 1978 CAB ruling (against a backdrop of the Airline Deregulation Act going through Congress) was good news/bad news for Midway. Good news: it got the routes it wanted. Bad news: so did everyone else. Midway believed it deserved (as the self-proclaimed innovator) all six Midway routes to itself, at least for a time, to become established. But the CAB noted that Southwest might be the innovator (see prior section) and projections showed it to be the most efficient applicant, but the CAB wouldn't play favorites. Midway, Southwest and local service airline North Central each got all six routes and Northwest and Delta got the select Midway routes they asked for. In addition, Midway and the Southwest Midway subsidiary were both given economic certification as well. The CAB was on a roll: it had already opened an even broader Midway airport proceeding for another 24 routes.^[17] There was substantial doubt Midway Airlines would get funding given what looked like an avalanche of future service at the airport.^[18]

But, notwithstanding early interest, few airlines made any subsequent moves toward Midway Airport, because deregulation put all networks up for grabs; there were more pressing concerns.^[19] While Southwest continued to participate in Midway CAB cases, it took no practical steps towards service. Lamar Muse was long-gone, and Southwest would not enter Midway until 1985.^[10] Even with the way relatively clear, Midway Airlines found it hard to raise money, Chicago investors were generally uninterested.^[20] On August 2, 1979, it announced it had raised $5.7mm from 16 private investors, only one of which was Chicago-based, allowing the airline to head towards a November 1, 1979 launch.^[21] In September, the CAB gave 15 airlines (including, of all airlines, Wien Air Alaska) the right to fly those other 24 routes from Midway. One was Federal Express, having obtained Boeing 737-200QC aircraft with which it wanted to fly packages at night and passengers during the day.^[22] This was Fedex’s “Project Torso”, wherein founder Fred Smith briefly toyed with the idea of passenger service.^[23] At the time, Fedex had a highly profitable monopoly on overnight delivery growing at 40% per year.^[24] Passenger service was a distraction. But ultimately, none of the 15, other than Midway, did anything with this broad new authority.

November 1979 – July 1982: original no-frills business model

Midway duly started on November 1, 1979 on three routes: Detroit, Cleveland and Kansas City. Midway’s original business model was inspired by Southwest, but instead of Southwest’s 118-seat 737s, Midway started with three 83-seat DC-9-10s.^[36] Midway’s fares were below those of conventional competitors at O’Hare and there was no food on board. In 1980, it expanded to 5 DC-9-10s.^[37] The airline ran unconventional offers like penny sales, offering the return at a penny with the outbound at the usual fare to fill up off-peak days.^[38]. At times this caused chaos as customers rushed the airport to take advantage of them.^[39] It worked. Midway was solidly profitable in 1981 (see nearby table), a genuine achievement for only the second full year of operation. In fact, the 1981 operating margin was the highest full-year operating margin Midway would ever attain. In 1982, the board fired the person responsible for this achievement.

Early Midway was marked by significant management turnover. Some founders (like Carlson)^[6] were gone by 1980 and in early 1982, Irving Tague took a leave of absence for “personal reasons,” with David Hinson becoming acting chair.^[40] Gordon Linkon, ex-Frontier, was made President in 1980,^[41] embracing the low-cost ethic. Midway went public in December 1980, 850,000 shares at $13.50.^[42] But the board was dissatisfied by the airline’s discount image and some of those promotions. Chicago was particularly badly affected by the extended disruption caused by the August 1981 air traffic controllers strike. United Airlines grounded 50 aircraft, and Midway found itself unable to fully employ eight DC-9-30s it had acquired from Ansett Australia.^[43] A new Boston route failed in the face of severe competition.^[44] Consequently, results for the first quarter of 1982 were poor, as with the rest of the industry. In what was apparently a long-planned move, the directors fired Linkon in July 1982,^[45] shortly after he turned in a profitable second quarter, one in which most of the industry made a loss.^[46]

July 1982 – Spring 1985: Metrolink and Midway Express

New Midway Chair/CEO Arthur Bass was part of the founding management, and a former president, of Federal Express.^[45][46] Bass hired Neal Meehan, founding CEO of New York Air, as president.^[47] They took Midway upmarket, aiming to make Midway Airport the favored airport of the business traveler, similar to New York LaGuardia or Dallas Love Field.^[48] Given Midway’s convenience this seemed reasonable, and there was surely room for improvement. The airport, at the time, had no jetways, and suffered from a lack of maintenance on the part of the city.^[49][50]. But Bass and Meehan overcorrected, moving the airline to “Metrolink” branded all-business class service, with four-abreast seating, a “business center” at Midway airport, etc.^[51] Florida service, which Linkon started, was dropped. No one seemed to notice that Southwest’s frequent, reliable service garnered substantial business clientele despite no amenities. There was no answer as to what to do with low-density aircraft during off-peak periods. Ironically, Michael E. Levine, Meehan’s successor at New York Air (also a DC-9 operator), turned that airline around in part by taking it modestly up-market with a few judicious perks, (like sandwich bags) without resorting to four-abreast seating.^[52]

Metrolink failed. 1983 and 1984 financial results were poor. Meanwhile, in 1984, reacting to a proposal from Air Florida executives, Midway acquired, in stages, the remains of that bankrupt and grounded carrier. There were two attractions (1) winter demand to offset the seasonality of the Metrolink system and (2) Air Florida’s slots at airports like LaGuardia and Washington National.^[53] The deal nominally cost Midway $53mm, most of that ($35mm) for three Air Florida 737-200 aircraft.^[54][55] In fact, Midway never paid for the airplanes, passing them along to a lessor and leasing them back.^[56] Midway provided working capital to get the remains of Air Florida back in the air in October 1984, flying under contract to Midway (with Midway marketing and selling tickets) as “Midway Express” until August 1985, when the purchase went thru. “Operated by Air Florida” disappeared and Midway Express shifted to full Midway Airlines branding.^[56]

Florida service worked. in Midway’s 1985 annual report, the airline said Midway Express made a profit of $1.4mm for Midway pre-merger.^[57] But Metrolink made even less sense with Midway running all-economy class 737s to Florida and all-business class DC-9s elsewhere. And 1984 results included a $1.5mm writeoff for an expensive abortive attempt to establish a helicopter service between Midway, O’Hare and Meigs Field, to be called Chicago Airlink.^[58] In January 1985, Bass resigned, followed by Meehan in February with David Hinson, a Midway founder and founding board member, taking over.^[59][60] The airline announced cutbacks and layoffs (Midway Express was unaffected)^[61] and dumped Metrolink.^[62] In May, Hinson warded off an attempted proxy fight by other (departed) founders, including Carlson, wanting to return it to its original low-fare, no-frills orientation.^[63] At the time of Bass’s departure, Hinson gamely defended Metrolink, but one of Midway’s responses against dissident shareholders was to note that management team was gone.^[64] Metrolink was an expensive misadventure, but the airport now had jetways and Midway at last understood that Chicagoans really like Florida in the winter.

Mid-1985 – June 1989: peak Midway

Hinson wanted Midway to be “more like other airlines,”^[63] and indeed he built a relentlessly conventional airline, essentially the only differentiator being Midway Airport. The DC-9s were converted to two-class seating^[65] and Midway built out its network to both business and leisure destinations (cities like Las Vegas^[66] and Phoenix^[67]) from coast to coast, acquiring McDonnell Douglas MD-87s, the short, high-performance version of the MD-80, to allow the airline to reach to the west coast, at the time a non-trivial feat from Midway Airport’s short runways. Midway acquired its own regional airline subsidiary, Midway Commuter, to fly from Midway to smaller cities around Chicago. 75% of Midway Commuter passengers connected to mainline flights at Midway airport.^[68] Midway had its own maintenance facility in Miami (an Air Florida legacy) ^[69] and built a simulator facility.^[70] It was just like a big airline, only smaller. The strategy produced profits, but with modest margins that never challenged that achieved in 1981 with the discount model. However, during this period much larger airlines like Eastern, Pan Am, America West Airlines, Continental, People Express, etc, all made (at least at times) heavy losses, and other high profile names like Pacific Southwest Airlines and Western Airlines merged out of existence. Modestly profitable it might be, but Midway stood out just by surviving.

On a June 1988 weekday, Midway scheduled 116 nonstop flights into Midway Airport from 25 airports, along with 75 Midway Connection nonstops from 17 other airports. They flew Chicago Midway (MDW) - Miami (MIA) - Saint Croix (STX) - St. Thomas (STT) round trip as well as Chicago Midway (MDW) - Fort Lauderdale (FLL) - Nassau (NAS) round trip ; aside from those, all Chicago flights were nonstop to and from Midway Airport. Midway Airlines′ peak year was 1989, when it flew 10.1 billion revenue passenger-kilometers, compared to 0.6 billion in 1981.^[71]

June 1989 - November 1991: throwing it all away

The long slow decline of Eastern Air Lines ended in March 1989 with a debilitating strike, tipping it into Chapter 11.^[72] In June, Midway bought Eastern’s Philadelphia gates (and certain other assets, such as routes to Toronto and Montreal from Philly) as well as 16 DC-9 aircraft for $210mm.^[73][74][75] Further investment included hiring, refurbishing the aircraft and the former Eastern space in Philly, and heavy marketing to introduce east coast residents to Midway. Hinson’s rationale was that Midway was reaching the limits of growth in Chicago, it needed a second hub and this was its best opportunity.^[76] The Philly hub was supposed to help drive Midway annual revenue to $2bn within two years.^[77] Philly was one of several major commitments in 1989. Midway ordered 29 McDonnell Douglas MD-82s for a nominal $900mm^[78] as well as a nominal $244mm for 33 Dornier 328 turboprops for Midway Connection.^[79] It also reintroduced first class on all routes.^[80] Midway was living large.

USAir was the dominant Philly incumbent and had little desire to accommodate Midway.^[75] At the end of 1989, Midway had 61 jets vs 441 for USAir.^[34] It wasn't a fair fight but Midway picked it. The Philly hub launched November 15, 1989.^[81] Fuel prices were up significantly in early 1990 over 1989, while Florida fares dropped $30.^[82] Then the US entered a recession in July 1990. Iraq invaded Kuwait on August 2, pitching the US into the Gulf War, inducing an oil price shock and an immediate decline in international travel, which only accelerated once fighting broke out.^[83] On October 19, less than a year after starting the hub, Midway announced it was leaving Philadelphia. Oddly, USAir paid Midway $68mm for the former Eastern Philly gates (and Canadian routes).^[84][85] Had USAir not paid for them, Midway would have collapsed even sooner and USAir would likely have obtained the Philly assets for nothing; it's not like there were other bidders. USAir's payment was small next to Midway’s total Philly stranded investment but it was something. Midway’s 1990 losses vastly exceeded the sum total of every profitable year Midway ever had, but in fact the previous record loss in 1989 was also due to Philly: Midway had made a small profit in the first three quarters of 1989 and the 1989 fourth quarter loss was Philly-driven.^[86][87]

By March 1991, Midway filed for Chapter 11, Hinson describing it as a “minor setback”. In October the bankruptcy court approved a $175mm Northwest takeover deal, including assuming remaining aircraft and employees. The court rejected a smaller, $110mm bid by Southwest, which did not offer to take aircraft or employees. Midway had lost $36mm since filing Chapter 11, against projected income of $6.5mm, and was down to $4mm in cash.^[88]. Northwest ran newspaper ads saying customers could book Midway with confidence but a month after agreeing to the deal, it pulled out, accusing Midway of showing inaccurate revenue figures for 1990 and ostensibly worried about environmental liability at Midway Airport. Why Northwest pulled out is unclear. It had huge debts of its own, having been taken private in an untimely LBO in 1989.^[89]. Some believed Northwest saw the Midway deal as risking a simultaneous deal to get funding from the state of Minnesota.^[90]. Whatever the reason, Midway ceased flying November 13, 1991.^[91]

The airline was dissolved in 1992. A group of investors bought the Midway Airlines name and started a new airline using the name in 1993. That airline went bankrupt in 2003.^[3]