The Remaking of Frontier Shows Positive Results

When you think of Frontier, what comes to mind? You probably think of an airline flying mostly out of its Denver hub. Maybe you remember its brief fling with Milwaukee after the merger with Midwest. But chances are that what you think of Frontier isn’t what Frontier actually looks like today. So what is Frontier? It’s an airline taking advantage of a growing opportunity for low cost carriers. I talked about Frontier’s decision to become an ultra low cost carrier back in January, and the makeover continues. The change appears to be paying off.

There’s no question that Frontier is a work in progress. Its previous plan to be a more traditional hub and spoke low cost carrier wasn’t working. Milwaukee had tremendous over-capacity and Denver was a bloodbath with United and Southwest all fighting it out with Frontier. So what did the airline do? It started to remake its network. There seems to be a three (or three and a half) part strategy to this network shift.

Frontier Route Map

1) The Beach
Frontier has actually long dabbled in serving sun destinations from several places throughout the Midwest. There was a surprising amount of service to places like Cancun. But Frontier has stepped this up further. Much of this has been through its agreement with Apple Vacations. Apple Vacations used to operate its own airline, USA3000. But the airline was wound down and now Frontier is doing a lot of flying for Apple. That is good money to keep the fleet flying, particularly during the winter.

2) The Ghost of AirTran
When Southwest decided it didn’t want to take anything from AirTran’s small city network in the US, it opened up a big opportunity for someone with lower costs to step right in. Frontier has certainly taken advantage with a host of flights in smaller cities, particularly from its burgeoning Orlando operation which now serves about a dozen cities. But Frontier hasn’t stopped with just AirTran cities like Knoxville or Harrisburg. It has announced interesting choices like Greensboro and Trenton, both of which might have been on AirTran’s map at some point had Southwest not taken over.

3) Ducking Meaningful Competition in Denver
The third prong to the strategy seems to be to look for cities from the Denver hub where either nobody else flies today or there is limited, high fare service. We saw this start awhile ago with cities like Branson and Provo (Utah) coming on the map. Then we saw places like Newport News, Knoxville, and South Bend. Just recently, the airline announced it would start flying Denver to Phoenix-Mesa Airport (about a 30 mile drive southeast of Phoenix Sky Harbor Airport where most airlines fly). Frontier is also going into cities like Fargo (again). But instead of trying to run a business schedule, it will operate three times a week. This gives a good, lower cost alternative to United’s expensive 50 seat regional jets.

There is also a “third and a half” strategy of just picking off random routes that seem to possibly support demand. Things like Vegas to Durango in the winter. Or a few routes out of Colorado Springs. The idea is that with so few low cost carriers really serving the US market these days, there is great opportunity and Frontier isn’t limiting itself. Think about it. Southwest isn’t really low cost these days. JetBlue really runs mostly up and down the east coast (with few exceptions). Allegiant does small city to big city almost exclusively. And of course, Spirit has been trying to capitalize as well with rapid expansion. But for a country the size of the US, that means there is still plenty of opportunity to be had.

The result of all this is a Frontier route map that looks a lot different and will continue to look different. With many of these cities coming online with service only a couple times of week and others being seasonal, Frontier now has quite the expansive route map. But will this work?

Proof is in the Profit
So far, the results look very good. In the second quarter of this year, revenues were up more than 11 percent to $370.7 million. Aircraft were packed with a 90.1 percent load factor, and unit revenues climbed 8.3 percent. Revenues are doing well, but what about costs? After all, if you want to be an ultra low cost carrier, you need to actually have low costs.

Frontier actually made great progress. Excluding fuel, unit costs dropped 5.7 percent. That’s a mix of lower costs and higher seating density on the A320 aircraft, which helps to lower the cost per seat. Most importantly, the airline posted an operating profit of $15.5 million. That roughly 4 percent operating margin may not be as good as it needs to be in the long run, but considering the airline lost over $30 million in the same quarter last year, that’s a great improvement and certainly shows real, tangible progress.

As a traveler, I’m actually quite excited about the prospect of a thriving Frontier, assuming things don’t change too much. Why? Part of it is that Frontier is trying to be a more customer-friendly version of an ultra low cost carrier (as compared to Allegiant and Spirit), and that should be a welcome development. But it’s really something else that has me interested. Frontier is the only ultra low cost carrier that may very well end up bringing small cities into the global airline network.

Lets use Fargo as an example. Today, Fargo has traditional high fare service on United to Chicago and Denver, American to Chicago, and Delta to Minneapolis. American and United fly 50-seat regional jets while Delta uses some larger aircraft. But fares are still pretty high. Now, Allegiant serves the market, but Allegiant will only get people to LA, Orlando, Vegas, or Phoenix. It won’t sell connections and it certainly won’t work with other airlines. Don’t get me wrong. The service Allegiant provides is great, but it has limited utility.

But Frontier is coming in with 3 flights a week that will connect in Denver to the rest of the airline’s network. More interestingly, Frontier does work with other airlines, and it has ticketing and baggage agreements so that travelers from Fargo can connect into the larger global network if they so choose. That is something that smaller cities have been begging for. Of course, Frontier might decide that it’s too expensive to maintain these kinds of relationships, but I really hope not. I’d like to think there’s a model here that works. At this point, it seems like Frontier is trying a lot of different things. And the results are encouraging.

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