Across the Aisle from Frontier’s SVP Commercial on Lowering Costs and Building the Brand (Part 2)

Tuesday, I spoke with Frontier’s SVP – Commercial, Daniel Shurz about the airline’s network strategy. Today we’ll tackle the issues of lowering costs and building the brand.

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Cranky: You’re talking about getting the costs down to where Across the Aisle Frontier Largethey need to be. How much further do you need to go? And how do you get there?

Daniel: The benchmark is there are two ULCCs in this country, if you normalize costs, between 5.5 and 6 cents CASM [unit costs] excluding fuel on stage lenths of around 950 miles. We’d like to get the Frontier business into that same ballpark.

Cranky: And where are you today, normalized?

Daniel: There’s a bit of noise in the way it’s reported, but I’d say slightly north of 7. We don’t have the seat density that Allegiant and Spirit have on their aircraft, as an obvious observation. We are more complicated from an IT perspective than either Allegiant or Spirit are. Those are two big examples of opportunity for us. But managing costs is in a lot of ways, managing everything. It’s managing many relatively small opportunities.

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Cranky: For example, something like LiveTV? I assume there is some cost to that. If nothing else, the cost of fuel to fly it around. Is that something you’re evaluating?

Daniel: That’s a good example of something we’re evaluating and trying to figure out what the right solution is. A 2002 product with its weight is probably not the right long term solution. We’re still working on the right solution.

There’s the decision we took to make significant changes to our catering product. Customers imagine that a can of Coke costs 10 cents. Maybe it does in a large pack in the grocery store, but delivering a can of Coke on an airplane costs rather more. Catering we think should be a breakeven or better proposition. It was a significantly worse than breakeven proposition in 2012. And charging for beverages has advantages in multiple layers. We give customers a choice.

If you want to drink, you can buy a drink. If you don’t, you can save money by not buying a drink. And because many customers choose not to buy a drink, we can carry less inventory on the aircraft. There’s less inventory carrying cost in the system and less fuel burn because we’re not carrying around as many drinks that nobody used. This is a good example of how you get costs out of the business: Absolutely change the product, but make what I think is the right decision. Some of these changes are more surprising to American customers at the moment, but in the rest of the world, they’ve been the standard way of doing business in the low cost sector. For us, it’s a transition but we’re catching up.

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Cranky: Talking about the American perspective, I think there’s a negative view of the sector for a couple reasons. One, I think the current players have had pretty poor on-time performance. Some of it is just an American unwillingness to want to see this type of change. We don’t want to pay fees, even though the fare is lower. Going forward with Frontier, how do you position yourselves to the customer? How do you separate yourselves from the other competitors from a marketing and product perspective?

Daniel: It’s a great question, and there are a combination of issues. For a lot of customers in a lot of places we fly, they don’t have exposure to the other ULCCS. But you’ve raised an interesting point about operational performance. I look to Europe, and Ryanair has made a virtue, I know they do it in some interesting ways some times, of how good their on-time performance is. We’re providing a basic good value service, and part of that is providing what you promised the customer that the plane was going to leave at 10 and not at 2. I think we get it. To be fair, I think our ULCC competitors are also beginning to understand the importance.

But we do today run a reliable business. We’re not aiming to be the most on time airline in America, but…

Cranky: Why is that?

Daniel: Partly because Hawaiian has a big advantage of flying short flights in a beautiful climate, but more seriously there are costs to running an extremely reliable airline in terms of how many spare aircraft you have and how much backup you provide. But we want to operate at a good level of reliability. We want to be middle of the pack of the [airlines that report to the DOT]. I think we can show customers that they get equivalent reliability compared to airlines to which they pay hundreds of dollars more. But we also need to communicate the value.

The difference in Europe was that prior to the ULCCs, intra-Europe air travel was expensive and as a result, most people didn’t do it. The charter business was quite significant in Europe. The US customers have gotten used to flying in large volumes. Yes, once upon a time, I’ve been interested in this industry for a long time, I can remember when Southwest was considered a mediocre product because they only gave you peanuts, not meals.

Cranky: It’s a premium product now.

Daniel: Right, the world’s changed. But I think the difference is that it’s what customers have become used to. It’s not going live as a campaign tomorrow, but we know we deliver a great value product. We are giving customers choices. We’re going to educate customers on how to pay the least for the ancillary products we offer. And we don’t want to be charging people $100 for a carry on at the gate. But we’re trying to make it clear that there’s a behavior we want them to engage in and the fees will be designed to encourage that.

The European airlines have been very good at encouraging ancillaries at the time of booking by offering big discounts. I think we have the advantage. It’s harder in our home market where customers know what we were. But we do have a fun brand. We’re pushing a message, working with the employees on the idea that we want to deliver good service. It doesn’t mean giving things for free, but it does mean being friendly and being available. It’s a transition we have to get through, but we think the brand strength is actually an advantage.

Frontier is seen as a good friendly company enjoyable to fly. Although we had a good product, that was never what the brand was all about. And I think if we can deliver the reliable service, if we can deliver a good experience, the more times that customers find they’re saving a lot of money, of course they’d rather save a lot of money and not pay any fees, but the more experiences they have where they save $200 and pay $70 in fees an remember that’s still a savings of $130, the easier it becomes to get customers to accept that this is a good model.

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Cranky: You have taken some flak over going into a market and then pulling out when it doesn’t work. You get a lot of angry people. Even if you give them a refund, now the other options are much more expensive. Are you looking at some of these issues? Is there a better way you can handle this?

Daniel: It’s something we’re definitely conscious of. One of the reasons we no longer issue schedules for 12 months in advance is that by the time we load the schedule, we have more certainty in what we’re doing. If we’re not certain about a market, we try to be better about not putting them into the schedule. Our general approach is still to re-protect customers when we can. And our preferred approach to canceling flying is when the schedule gets extended, just don’t extend the market.

We’ve taken heat over certain situations. Yes, it’s a downside. Customers get really low fares on us, and if we find that the service isn’t meeting our expectations and we cancel it, fares go up. But we will do less of this. But it’s a great reminder that when these low fare options exist, customers need to take advantage of them. Low fare carriers make bets on markets working. We’ve got a lot of data to help us, but we see some markets where customer support is incredibly good and others where it isn’t. And where it isn’t, the service doesn’t continue.

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If you missed part 1 where we talked about network strategy, you’ll find it here.

15 Responses to Across the Aisle from Frontier’s SVP Commercial on Lowering Costs and Building the Brand (Part 2)

  1. Pingback: Across the Aisle from Frontier’s SVP Commercial on the Future of the Airline’s Network (Part 1) - >> The Cranky Flier

  2. John G says:

    When he’s referring to the seat density on Spirit and Allegiant, you know that one of the first orders of business is to cram more seats on Frontier aircraft. Book it.

  3. MeanMeosh says:

    Agree with John G that based on what I’m reading here, one of the first items of business that Frontier has planned is to cram a bunch more seats into their aircraft (along with introducing a host of new fees). I’ve said this before on another post, but I can actually live with that, as long they can maintain reasonable on-time performance and a better customer experience than Spirit. It sounds like that’s exactly what they’re aiming for, but the question is, can they pull it off. My worry would be that the cost-cutting hits reliability excessively and makes the employees unhappy, which leaves you with, well, a Denver-based version of Spirit.

  4. JayB says:

    Always enjoyable to read your “Across the Aisle from…” posts though I wonder about the width of the aislie in your picture there. Wouldn’t it be nice if real airliners had aisles that wide.

    Just a comment, but for me it would be nice to have a better understanding of what groups or sectors airlines think they are in today and what differentiates that group or sector from any other

    Way back when, we lumped passenger airlines into groups based on their routes or where they operated. The main group was the domestic trunk carriers and other group, the domestic local-service carriers.

    Now, we use terms like legacy, low-cost, and ultra-low cost, and possibly regional carriers. Do those terms make sense? Do they serve the prospective customer with any useful information? Does any customer truly care if an airlines is an old or new carrier? Do they care about carrier costs? Fares, maybe, but should any carrier be taken as low-fare, without some proof, something obvious, something that can be easily seen by a prospective customer? And, can’t we get someone to honestly say what Southwest is, or isn’t.

    Perhaps you, Cranky, could provide a post listing today’s passernger airlines and what grouping, or sector, they are part of. And then, list the principle or principles that create each group or a sector. Be interested in what the airline itself says it is and whether or not you agree.

    Maybe in today’s world airlines can’t be grouped or sectored into anything meaningful for more than a month. Things may be just too dynamic. If that’s true, than the terms ULCC and LCC should be banned from airline lexicon and I would hope every airline could describe, on its own, to its prospective customers, “Here is why we exist. Match us against any other carrier in our (or any other) group. I’m sure you’ll find us number one.”

    Anyway, just for us, the “littles!” Little help here!

    • CF says:

      JayB – Well it used to be that all the big ones were lumped into “majors” but that morphed into the current naming. Generally, American, Delta, United, and US Airways are legacies. Southwest, JetBlue, and Virgin America are called LCCs (though that’s an increasingly difficult argument). Republic, SkyWest/ExpressJet, Trans States, Mesa, and Endeavour (old Pinnacle) are regionals. Now Allegiant, Spirit, and Frontier are going into the ULCC category. That leaves a few stragglers like Hawaiian and Alaska which you could probably call “regional legacies.” And then the commuters which are guys like Cape Air, Seaport, Mokulele, Great Lakes, etc.

  5. tharanga says:

    He mentioned the charter/holiday business in Europe. Over the years, going to a European airport, you’d see tons of Thomas Cook, Condor, Thomson, TUI, LTU, corsair, danair, and so on.

    In the US, things like USA 3000 and ATA had a much smaller visibility and presence – I bet most people never even heard of them.

    Am I correct that there has been something fundamentally different between the US and European markets in this sense? And if so, why did the markets develop in such different ways?

    • quite simply, intra-US flying cost far less than intra-european flying until their ULCCs gained a strong foothold. even in the late 90s, i remember spending more on a ticket from london to copenhagen or amsterdam than on my flight from the US to london. hence, a profitable “charter” business grew within europe but i suspect that business is waning due to the proliferation of ryanair and other ULCCs over the past 10-20 years.

  6. tharanga says:

    One thing I’d be interested in: what percentage of customers are buying tickets at frontier’s website as opposed to other sources? and are they finding that the customers coming from online travel agents are uneducated about the fee structure, and the overall nature of the airline?

  7. Olamide Iledare says:

    Cranky I love hearing about giving the customers choices about baggage, drinks and food but what causes an airline to pass these savings on to the customer and lower prices. Yes you save money by selling drinks instead of giving them for free but if it was me I would just keep the ticket the same

  8. JRS says:

    They failed to reach an agreement with the flight attendants by the deadline today but have decided to go through with the deal anyway.

  9. Sideline_Observer says:

    What he’s aching to say is “The damn pilots and flight attendants make too much money!! and if we had our way we’d schedule and pay them like Trans States!”

    I do love the MBA buzzwords bandied about though.

  10. Robert says:

    Frontier. Proving, again. “We are just another cropduster airline.” Nothing exceptional with these guys. Period!

  11. Frontier flier says:

    I’m a Frontier Summit member – have been for 4 years now. The changes they’ve made in the last 6 months have resulted in DISMAL customer service. I can’t tell you how many people I’ve overheard say how terrible Frontier is and that they’ll never fly them again. This comes from people who are frequent fliers as well as those who are families traveling for pleasures. Frontier has direct flights to where I need to travel – at convenient times. I am SERIOUSLY trying to find some other alternative as this is not the airline I hoped it would be anymore.

    • Frequent Flyer says:

      I am also a Summit member. I have been flying Frontier consistently for the past 8 years. I have noticed a difference, not anything good, on how they treat me as a frequent flyer. Over the past year it seems every few weeks there is another change in benefits for frequent flyers. On most flights I show my summit card when asking for a soda and every time they ask to see my ticket. What good is the Summit frequent flyer card? I even had one attendant tell me a cup of soda was all summit members receive at this time. And recently Frontier fares are not much of a savings to the areas I travel for business. I have been a loyal customer to Frontier. I am seriously questioning my loyalty.

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