It’s been entirely clear for a few months that Republic wants to spin Frontier off into a standalone airline, but the question has been . . . how would they make that work when the airline was losing money? Now it looks like we might know. Frontier is becoming an ultra low cost carrier, but I’m not quite sure yet what exactly that means.
Last week, the airline announced that Dave Siegel would be taking over as the top boss. This is all part of the separation process from Republic. As part of that announcement, we also learned that former Allegiant planning guru Robert Ashcroft would run finance, and Daniel Shurz, currently the strategy and planning mastermind, would be promoted to run the whole commercial side of the business. So the team is falling into place, but what are they going to do now?
The most interesting tidbit from that press release was a quote from Republic chief Bryan Bedford. He talked about the process to “continue [Frontier’s] transformation into a profitable ultra-low-cost-carrier.”
Wait, what? I can’t remember them tossing around the ULCC moniker for this airline before in such bold fashion. Maybe it’s been mentioned, but this seems to be the most clear affirmation of the airline’s strategy going forward. I like it.
When you think of a ULCC, you probably think of Ryanair in Europe or Allegiant and Spirit here in the US. These are airlines that work extremely hard to keep their costs very low so that they can also offer incredibly low fares. Those fares tend to exclude just every possible optional service, which allows them to keep the base fares even lower thanks to all the ancillary revenue that comes in the door. You know how this model works.
So is that where Frontier is going? Directionally, yes. But that doesn’t mean it will be a clone. Frontier has historically tried to build itself up as a beacon of quality customer service, and that often seems contradictory to the ULCC model. That doesn’t mean it has to be that way. Frontier already charges for TV, it charges for better legroom, and it’s built up a fairly comprehensive chart of additional services that can be bought. It has reduced seat pitch over the years as well, though not to the level you would expect of a ULCC. This isn’t the same Frontier as several years ago, but there’s probably more change to come.
The airline has worked very hard to get costs down, and that’s the most important thing required in order to become an ultra low COST carrier. Having low costs enables the airline to make money on a variety of routes that it might not be able to do otherwise through stimulation via low fares, but its costs are still not in the same league as the those of Allegiant and Spirit. More has to be done, but that’s why they’re building this team. Robert Ashcroft knows how a ULCC needs to operate and he’ll be able to get the financial side of the house in order. Daniel Shurz and his team can deftly continue the commercial shift that they’ve already begun.
The timing for this couldn’t be much better. Frontier has the potential to be able to really benefit from the disappearance of AirTran and others. Take a look at some of the recent route moves, which show the path already being followed.
- On January 9, Frontier announced it would begin 3x weekly flights between Knoxville and Orlando, a route that AirTran is abandoning thanks to Southwest’s takeover.
- On December 12, Frontier said it would start flying between Denver and Rockford 3x weekly. This is the kind of subsidized route that AirTran used to jump at, though it would have probably been Atlanta instead of Denver.
- On December 7, Frontier released its seasonal Florida schedule. That’s nothing new, but it does seem to be a more coordinated effort. This takes a page from Allegiant’s playbook by bringing travelers to Florida during peak season, but it’s not from tiny cities like Allegiant. Instead, flights are from mid-size cities.
- Last August 29, Frontier revealed that it would begin doing contract charter flying for Apple Vacations. Previously, Apple relied on its own airline, USA3000, but it has decided to wind that airline down. Contract flying like this can be lucrative and is also out of the Allegiant playbook. Allegiant does a fair amount of charter flying for casino groups like Harrah’s.
Does all this make sense? Well, yeah, it does. Frontier has long struggled with where it fits in Denver (and in the US in general). There’s not much growth on the full service side of the industry nor on the high end low cost model either. But as Southwest’s costs have continued to rise, it has become less of a low cost, and more importantly, low fare, carrier every year. The higher Southwest’s costs, the more opportunity for other airlines to come in with much lower costs and win with lower fares. That’s the message Southwest CEO Gary Kelly has put out. AirTran used to be expert at doing that kind of thing, but it will now be brought up to Southwest’s cost levels and its route network will change, creating more opportunity for others to join the likes of Allegiant and Spirit.
It hasn’t been an easy path for Frontier employees, and I’m not sure that it’s about to get much easier for them. But this is where the potential growth is in this industry, and it’s the best chance for Frontier to succeed. I’m not sure what this means for Frontier’s product and its ultimate route network, but hopefully the team will be able to find a way to marry the customer service reputation with a ULCC model to create a very attractive offering for travelers.
59 comments on “Frontier Charts Its Course as an Ultra Low Cost Carrier”
Cranky- Speaking the new agreement with Apple and Frontier, What’s your take on the Chicago Cancun slot fight?
By the way, I always enjoy your posts. Great job.
My take is that the bilateral between the US and Mexico is absurdly out of date. This shouldn’t be an issue, because we should have open skies. But because of that, in the few markets where we’re at capacity in terms of number of airlines, there will be a fight. I don’t know who should win this one.
The downside of this any LCC model is that “low cost” generally comes from low employee pay. It’s no different at Frontier than at Spirit, or Allegiant. Low pay generally equals low morale and too many incompetent and indifferent front line workers.
Well said, John Ford!!!
This isn’t always true…. Southwest Airlines is a LCC and we have some of the highest paid and happiest Employees in the entire Airline Industry worldwide. And an Industry leading Flight Attendant Contract. That’s a fact!
In mature industries like airlines, a new or small entrant usually needs to find an unserved or underserved niche. It looks like Frontier is doing just that. If Southwest had stayed out of Denver, the story would have been different, but it didn’t. Frontier can’t compete with United and Southwest head to head in Denver, so it’s doing what it has to do to survive and prosper. I also wonder if a Frontier / Spirit merger isn’t in the future at some point. It would diversify both carriers. Can’t have a post like this without bringing up a merger possibility, I guess.
I disagree. Frontier has been doing fine in DEN while SWA has been not so great. Frontier leaving DEN would spell the end of all the brand loyalty they have built up.
However, diversification is good. I’m very worried about where the product is going though. They’ll probably charge for drinks and the cookie and put 180 seats in an A320. As long I still get a carry-on free on any fare (even the base one), I’m ok. I absolutely will not pay for a carry-on. I mean even Ryanair allows free carry-ons.
Frontier needs scale, and while they have several good connection banks at DEN it’s not enough to match WN, UA, or DL with multiple hubs.
I don’t think I wrote that Frontier should leave Denver. Frontier needs to find its place in Denver for precisely the reason you state, customer loyalty. I was simply stating that a merger between Frontier and Spirit would diversify both carriers. If a merger occurs (and it’s a big if…), I would hope to see Spirit’s business model move toward Frontier’s, but it could move the other way.
I’m not a fan of cookie cutter airlines. You might as well create “Ameriflot” if that’s what you want. I like the idea of differentiating one’s product from others.
Since I don’t have access to Southwest’s books, I have no idea of how well it’s doing in Denver.
Spirit and Frontier are completely different animals.
Frontier like most airlines focuses on utilization with new planes. Spirit will happily park planes if they don’t have something profitable for it.
As CF has said Allegiant is more of a travel company with an airline than just an airline.
Err I completely fouled that comment up. I though DesertGhost said Allegiant and Frontier should get together. Thus is the problem of commenting on a blog while hungry and standing on a packed bus.
I think there is room for Frontier in Denver, but it’s likely as a ULCC. Southwest’s costs are higher, so Frontier can try to compete on amenities and customer service, but it’s tough to beat Southwest in the long run that way. But if Frontier can get its costs down enough, then it can win on price. And that’s a big potential win as Southwest’s costs continue to grow.
As for Spirit and Frontier, Frontier’s costs are too high right now for Spirit to be interested. But down the line, it could be a fit if the cost levels got closer to each other.
I don’t know about the price competition side of things. Southwest has exhibited an uncanny willingness to price themselves identically to Frontier’s Economy fares, even when F9 has had a sale. I guarantee that both airlines are losing money on a $39 one-way fare ($50 AI) DEN-AUS, and that Southwest is losing more than Frontier, however that hasn’t stopped Southwest from price-matching in many, many instances. I’d call this predatory, but I personally don’t mind playing the airlines off of each other as long as Frontier stays around :p
So Frontier may end up as a true ULCC (albeit with better amenities, normal seat pitch and premium economy for those who want it) but they will have to compete on their route map and amenities out of DEN rather than flat-out pricing because Southwest will take a loss to match them, and has been willing to match them for a few years now. It’s a tough situation to be in (especially since WN is also a major force in MKE, OMA and MCI) however the picture does improve when F9 is able to pack planes because they’re the only one flying to, say, Knoxville or BMI.
As for seat pitch, I’ve been flying the airline since late 2007 and haven’t noticed any pitch decrease. Maybe they did something when introducing STRETCH, but I haven’t minded the 31″ pitch with rather slim seats that F9 has now, with the option of having miles of legroom up front for a few extra bucks.
Maybe it’s time for Frontier to find a new home and move out of Denver?
Or go back to it’s original namesake and cover the western part of the country like the original Frontier did.
I thought original Frontier was based in Denver (DEN)
It was.
If they leave Denver, there aren’t that many cities left where a hub could be profitable. Perhaps MCI?
There is the potential in much larger cities than Kansas City if Frontier truly can get a sustainable lower cost structure.
How about moving from DEN to STL? The infrastructure is there from the TWA days and STL needs a shot in the arm.
You need a local market for a hub to be profitable !…
I know it’ll never happen. A man can dream, can’t he?
But you have Southwest…
Frontier has had and continues to have some of the best deals for flying out of the mid-Atlantic region (e.g., Washington DC) to Alaska. With summer travel coming up, I hope they build on that good reputation. I want Frontier to make it. BTW, they quietly slipped back into Little Rock, after being gone for a couple of years. Here, too, overall the best deals to the NW and Alaska are from Frontier.
Do you have 20 titanium screws in your back from the poorly reconstructed airline? Bedford admitted he did not know much about airlines when he got into the business! They better be cheap, for what you get!!! I wish I had known about the sale, BEFORE buying a ticket to fly with them. The aircraft was still designed with the “Midwest” logo. HORRIBLE!!!
Your point? Would you rather have a repainted aircraft (which they’re slowly doing) or a cheaper fare? Also, if you want to see a motley crew of aircraft, look no further than Denver’s largest tenant, United. ’nuff said.
The problem is they have zero brand recognition in DC. Absolutely none. Even Spirit with multiple FLL flights has better recognition.
@themainepain Would you rather have had AirTran hack away at Midwest? Truth be told, domestic US flying is a commodity business and the lack of premium demand in MKE and rising fuel meant the market for Midwest’s luxury service was dwindling. Small niche carriers will not survive unless they get larger or merge. Just look at Spanair and all the Eastern Europe flag carriers.
@ Sanjeev M, I’ve flow AirTran without any problems! It’s all in the owners hands for the safety of their passengers! AirTran was a smooth flight, and no cracks in the interior. Small quarters, yes, but good flight overall!
Bryan Bedford. He talked about the process to ?continue [Frontier’s] transformation into a profitable ultra-low-cost-carrier.?
HE ALREADY DID THIS, WHEN HE HACKED AWAY AT THE MIDWEST AIRLINES! He turned a luxury airline into a shell of more seating that was very poorly designed for profit only! He could care less about the consumer, only the profit!
Midwest had already moved away from being a luxury airline at the time of their purchase by Republic.
Agree with Nick. Your anger is completely misplaced, themainepain. Midwest was a shadow of its former self long before Republic stepped in to buy the airline. Without Republic, Midwest was probably out of business.
Whoops, hit enter too quickly . . .
If you want to blame anyone, blame Tim Hoeksema for taking the airline apart. What he should have done was sell to AirTran, because there wasn’t much of a chance of Midwest surviving on its own.
Yup but a handful of people in MKE had to try to “save the cookie” :eyeroll
It’s a curious, revisionist history of Frontier.
It has been talking about the ULCC model for many months, since the restructure and separation was announced.
Frontier has been flying “in conjunction with (and charters for) Apple Vacations since 2002, when the restructured Allegiant was scarcely more than a gleam in Mr. Gallagher’s eye.
@ themainepain
That “luxury airline lost half a billion dollars in 2008, before Republic took over. It was on the ropes – look at how much its then owners were ready to sell it for.
The way rose colored glasses are applied to the mess that was Midwest Airlines is truly curious. Sure: Big leather seats, two across, great seat pitch featuring a limited, cherry-picked route structure, and a hub based in a decidedly blue-collar, over-served market. For those of us who lived in Wisconsin during its heyday, it was certainly a fun way to fly. But, it was barely sustainable in the best of times; once “hard times” hit, it became a laughable money furnace.
So yes, Republic’s efforts to merge Frontier and Midwest proved to be foolish, but Frontier was not the “problem” half of that equation.
I still wonder whether Midwest’s model could work in a bigger market.
@davywavy I don’t recall ever seeing it in print, but I’m happy to be proven wrong. Please show me an example of where it’s been discussed before.
If you mean Apple Vacations, an extended partnership began back in March 2005:
http://media.frontierairlines.com/article_print.cfm?article_id=4441
“DENVER (March 21, 2005) Frontier Airlines and Apple Vacations Announce Partnership”
But it had existed before that on an individual destination basis.
If you mean the ULCC issue, I don’t know if it has been discussed in the media – I live in New Zealand – but I’ve been aware of it since about the time the restructure was announced, I guess through the various aviation forums and websites.
I suppose I am never quite sure how stuff filters through to me here, I don’t keep track of it all.
I was talking about the ULCC issue. Of course it’s been discussed in forums and the media all over, but that doesn’t mean the company has been clear about it. People have speculated over this for quite some time. Someone else suggested to me that is was mentioned in the last quarterly call, but I have never seen it in print from the company.
As for Apple, this is different. That press release you sent is simply Frontier selling seat blocks on its scheduled service directly to Apple. What’s happening now is that Frontier will operate charters on Apple’s behalf.
Then I am confused. You say it has been discussed in the media and I’ve been fully aware of discussions about it in other places, and as a given.
As to Apple, Frontier has long-time flown charters for them, and not just as one-off’s. Somewhere in the DOT files there are lists of the bulk charter flights over the years as they are contracted. The only difference here is a whole big bunch of charters became available because of the winding down of USA3000. Further, the contract allows for many of those charters to be flown, by Frontier, as scheduled service as well, as many of the earlier ones are – thus Frontier’s new incursion into Chicago – ORD-PVR, ORD-SJD, for example, which become effective CPA’s by Apple on routes flown by Frontier. I believe the same will apply to a number of the PUJ routes (Frontier has the authority), and just this week0end, a couple of the STL-LIR flights became available as scheduled Frontier service.
So I suppose what I found curious was your suggestion that Frontier was copying other airlines, whereas at least in the case of Mexico, Frontier was the LCC leader. Indeed, when Frontier first announced DEN-CUN and DEN-MZT in 2002, I recall that many commentators doomed it to failure because, it was said at the time, LCC’s don’t fly to Mexico.
I’m not sure that I can be much more clear, but I’ll try. The media and discussion forums are full of all kinds of speculation regarding the direction of every airline. People have been talking about which way Frontier would go for years. But the company hasn’t said it directly, and that’s really the only thing that matters.
Regarding everything else, the point isn’t whether someone is copying someone else. I really couldn’t care less who was first at something. The point is that Frontier has been acting more like other ULCCs with recent moves.
Fair enough, if that’s your view. I can only say again that I – in New Zealand – was surprised that anyone was surprised.
Partly, I suppose, because I’m not actually sure what differentiates a (US) LCC from a (US) ULCC, except in the case of Allegiant which does not offer connections. I think if Frontier stops offering connections, it would be deep doo-doo.
Since LCCs arrived in the US first, they evolved differently here than elsewhere. Our biggest LCCs tend to offer more inclusive pricing (free bags on JetBlue and Southwest) and better onboard products (more legroom on JetBlue, amenities on Virgin America, XM Radio on AirTran). So you don’t get extremely low fares. Fares have gotten more expensive as the airlines age and their costs rise.
While airlines like RyanAir and Air Asia have flourished elsewhere, those models have seen limited success here. Part of that is simply lack of trying.
When I search for low cost airfares UA/CO consistently come up among the most competitive.
So now you have a scenario where a new executive comes in, cuts everyone’s pay (this insuring a downgrade in passenger service) competing against two far better known airlines, one of whom hands out Star Alliance miles – and no doubt has a ton of corporate contracts in place based on market share. On top of that they announcing the might spin the outfit off, giving the poor employees another reason to put dirty ice cubes in your Diet Pepsi. Then announced spinoff upsets those who have been loyal to Frontier because they will wonder what happens to their accumulated mileage.
UA and Southwest cut fares to remain competitive and give mileage bonuses to win over marketshare.
After a year, owner realizes all is not working out. Newly highered execs collect golden parachutes, sell off aircraft, can workforce, and add to the country’s unemployment problem.
Unfortnately in 2012, “is this anyway to run an airline – you bet it is!”
I guess it is a way to run an airline because Republic just revised earnings guidance – upwards – because of strength at Frontier and the shares have been on a roll ever since. :-)
What exactly is a low cost carrier in the US? I’ve flown in Europe where you really can fly somewhere on Ryanair for $50 – and that’s really the price if you don’t go for the ancilary stuff. Here in the states nothing comes close to that model that I’ve seen. Often times the price for a WN flight is the same as DL, UA or AA. Nothing against Southwest but if I’m not saving money I’ll take the flight without the cattle call boarding.
Frontier seems to have cheaper flights, but not living in DEN why would I force myself into a layover when for a modest amount more on DL can take me direct? Flying direct to DEN, well the flight is the same price so I’ll go where I at least have the potential of an upgrade, FF miles, etc.
Sorry Colorado folks (I used to live there so I know), but I still think Frontier should have taken the offer from Southwest. There is still too much capacity (especially at DEN) and it would’ve been better to be taken over by the much stronger airline and absorbed in that system.
There was no offer from Southwest for Frontier to take. Seriously. Southwest never actually made an offer. It talked about it, but when push came to shove, it didn’t make an offer.
SWA made an offer, the pilots at Frontier didn’t except. That is what shot the deal down.
That’s not really a fair way to look at it. Southwest’s offer was contingent on an integration deal between labor groups on both sides being done before any deal could close. That was virtually impossible considering the incredibly short timeline required for that to happen. I put the blame more on Southwest management for not being willing to go forward without having the deal than on labor itself.
I don’t wish to appear simply contrarian, but the pilots were a useful excuse.
The day the Southwest bid was announced I posted (elsewhere) that it wouldn’t work unless Southwest raised it by about $150 million, because – at issue – was the $150 million that Frontier owed Republic. It was a settlement of the original $260 million claim by Republic, against Frontier, for the cancellation of the E170 contract.
Southwest, like just about everyone else, assumed that Republic was simply just another unsecured creditor, but that wasn’t the case. The debt was accepted by the bk judge and recorded in Frontier’s books four months before the auction.
As Southwest CEO Kelly said after the auction:
http://www.bizjournals.com/denver/stories/2009/08/17/daily59.html
“Asked in the WSJ interview about Southwest’s failed Frontier bid, Kelly admitted that his company was “probably a little late getting into the game. Unbeknown to us, Republic had already formulated its own plan.”
“Unbeknown”? I was ten thousand miles away and not in the airline business and I knew.
It was why Republic CEO Bedford said he wouldn’t raise his bid to counter Southwest – he didn’t need to.
At the auction, Republic waived any claim to repayment at that time, thus giving the other unsecured creditors a bit more loot, but he didn’t waive the debt altogether. As far as I am aware, Frontier may still owe Republic that $150 million, I’ve never seen a settlement of it, but I could be wrong.
Try Allegiant and Spirit. There is absolutely nowhere near the coverage in the US as there is in Europe from the ULCC segment. That’s probably why Frontier sees opportunity – it’s there.
As enplaned noted, there was no Southwest offer. Southwest couldn’t get a deal with its pilots quickly enough so it pulled out.
the various machinations of FronMidPublic over the past few years make my head hurt. something tells me this will continue to be the case.
You make some great points Cranky. I really want to see the Animal Tails survive as a stand alone and I hope this works. I fail to see where a market as large as the USA can be well served by 2 mega-legacies, 2 LCCs and 2 or 3 boutique carriers. My concern is how the brand will be impacted as they transition to the ULCC model. Will this be done is phases or one change en masse? The way Midwest was absorbed, or malabsorbed, was a fiasco: buying a ticket from A to B where flights were Frontier operated by Chautauqua on behalf of Midwest…or Midwest operated by Frontier but on Republic metal 0_o? I hope Siegal and Co. take a hard look at that as a way not to do things.
NK and G4 have always been bare bone products from their inceptions. F9 has been the airline that delivers a cut above what WN offers without legacy bells and whistles. I am looking forward to how the new regime manages expectations as they adapt. Engine changes at altitude can be tricky.
Time for Midwest Express v2.0
It’s a disgrace that a profitable all premium airline like Midwest Express was bought up by Frontier/Republic and is now going to be an ULCC.
The Midwest Express model can work in the US! You could almost replicate a ULCC route network with premium services, charge a bit more and business travelers would pay it. The last minute fares on Air Tran were almost exactly the same as the fares on Midwest Express yet Midwest Express was rated the best airline in the US while people openly complained about service on Air Tran.
In its last years, Midwest was anything but profitable – it was a loan from Republic which helped keep the airline out of Chapter 11:
http://www.jsonline.com/business/48905032.html
“Republic’s role at Midwest has been growing since last fall, when Republic lent financially troubled Midwest $25 million. That loan helped Midwest avoid Chapter 11 bankruptcy.”
TPG and Northwest (soon to be Delta) paid $452 million for Midwest in January 2008. They sold it to Republic eighteen months later for $31 million and only $6 million of that in cash.
Good luck. So far, all they have been able to excel at is being an ULRBCA – an Ultra Low Revenue Below Cost Airline.
Americans on the whole seem driven by low price for everything, particularly airline tickets. They do not want to pay for service. They are so acclimated to barebones service they unknowingly pay more on Southwest because the just assume it is the cheapest and their bags go for “free”. Frontier might do better by becoming a VERY low cost carrier (VLCC) and charge for all bags and onboard food & beverage service and keep the same seating and offer seat assignments and one carryon…just my 2 cents worth
It actually amazes me every time I go to the airport now, since DEN is my home airport. Concourse A is primarily Frontier then all the misc airlines, concourse B is UA and US, and concourse C is WN excepting 5 gates that are DL because they can’t get room in Concourse A. In every case the concourses are hopping. I remember when Brett was here in Denver for the State of DIA luncheon and said Denver would likely have trouble supporting a 3 airline hub. I think F9 going to a ULCC is the only way we will continue to support the 3 airline hub (just like Brett said at the luncheon WN has a hub whether they want to call it one or not).
I do hope F9 survives because they afford a downward pressure on ticket prices, but at the same time they aren’t going to be able to continually stand against WN at the LCC level. Having a legacy hub, a LCC hub, and a ULCC hub might be the only way.
Also, the loss of an airline like F9 would throw some serious financial problems into the airport hotel and train link. So from that perspective alone I hope DEN keeps all three hubs. Now, if F9 would give DL some gates in concourse A I would be even happier.