Forecast for the monsters of Midway: Higher fares, bumpy skies

Travelers at Chicago's Midway Airport should brace for turbulence in 2005. While Southwest's $117 million purchase of six of ATA's gates has some apparent benefits for consumers, the deal boosts the airline's market share at Midway to nearly 60 percent. And with ATA cutting back on its flight schedule and partnering with Southwest on many of its remaining routes, the two low-fare rivals will no longer be competing aggressively for passengers in Chicago. And that could mean higher fares for Windy City travelers.

Plus, Southwest's codeshare agreement with ATA marks a departure from its tried-and-true formula of quick turnarounds and efficient operations. Although ATA generally has a better on-time performance record than Southwest, the need to coordinate between the two airlines - especially given the prevalence of flight delays in Chicago - could cause massive customer service problems for Midway customers.

The deal between Southwest and ATA calls for a codesharing arrangement between the two airlines on up to 9 routes initially. Although those cities have not yet been defined, in theory a passenger traveling to Boston could purchase his entire trip on Southwest, even though the flight to that airport would be operated by ATA. Similarly, the codeshare could give Southwest the ability to sell tickets to New York's LaGuardia and Washington's Reagan National, as well as Dallas' Ft. Worth Airport, to which it's legally prohibited from operating flights.

But with ATA largely off the competitive landscape (even though the airlines won't collaborate on setting fares, ATA will be flying to fewer cities), Southwest will be fighting with American and United, not ATA, for market share in Chicago. And given the dominance of those airlines in the Windy City, Southwest will struggle to turn a profit without raising its leisure fares. Plus, American and United may choose not to match Southwest's cheapest tickets. If they don't, those prices are likely to creep up over time.

On key business routes, Southwest's simple fare structure will put pressure on the major carriers to match prices. But Southwest, even with the additional horsepower provided by ATA, simply can't operate enough frequency to compete with the bigger airlines on price alone. The best thing for consumers might be for another low fare carrier, like JetBlue, to arrive in Chicago. If that were to happen, Southwest would have greater incentive to keep its fares low and improve its service to match JetBlue's superior product.

It also remains to be seen how Southwest and ATA will attempt to integrate their frequent flier programs. While Southwest uses a credit-based system, ATA's program is based on points. And because Southwest offers neither business-class seating nor elite status, ATA passengers might be able to earn points for a Southwest flight, but they'd lose many of their benefits when they fly the partner airline. In the other direction, Southwest passengers will probably be able to cash in an award ticket for a seat on ATA. But if their trip involves both carriers, that award could require additional points. While the details have yet to be announced, it's worth mentioning that neither program is terribly useful for the infrequent traveler, because on both airlines, points and credits expire just after 12 months.

In the months ahead, Southwest will be facing challenges it's never had to confront in more than three decades of flying. Be sure to watch "Airline" on A&E to see how it all plays out.