Frontier decided to move its three daily Denver-Houston flights from Intercontinental to Hobby back in November 2010. At the time, the rationale given was that “Hobby offers Frontier’s guests easy access to downtown Houston and many popular tourist attractions in the area.”

For an airline that’s used to competing with United in Denver, that makes sense. This move gave Frontier an opportunity to differentiate itself from United’s service to Intercontinental by going elsewhere. Trying to serve Denver-based travelers meant Frontier was smart to look for a more convenient option. Hobby was also cheaper, but not by a ton. In 2010, the cost per enplanement at Hobby was $9.44 versus $11.06 at Intercontinental.

Here we are less than two years later and Frontier is switching back. What’s changed? A few things, I’d say.

Most importantly, Frontier is a different kind of airline today than it was just two years ago. It is now on its quest to be an ultra low cost carrier. You would think that would mean operating at the lowest cost airport, but the difference between Intercontinental and Hobby is not that great in the scheme of things. (It’s not like the deep chasm between Ft Lauderdale and Miami, for example.)

At Hobby, Frontier could have undercut Southwest. Southwest is hardly the low fare leader it once was, and that might not be hard to do, but what is hard to do is overcome Southwest’s perception as a low fare leader. Southwest’s roots run deep in Houston, and the roots are going deeper every day in Denver as well. If people want to go to or from Houston Hobby, they first think of Southwest. And since Southwest doesn’t participate in any online travel agent systems, people are going directly to Southwest.com to book.

That’s not to say that Frontier couldn’t have won some business by having a lower fare, but there’s just too much noise from Southwest there and it’s probably not a winning battle.

Intercontinental, on the other hand, looks like a low cost carrier’s paradise. It’s not insanely expensive to operate there, but more importantly, as Frontier notes in the second sentence of its press release, “Frontier will be the only domestic low-cost carrier at Bush Intercontinental.” It had to say “domestic” because VivaAerobus flies to Monterrey, Mexico. For the many people who think of Intercontinental first, those who maybe live on the north side or simply think northward, Frontier now has some real opportunity to go in and make some waves without Southwest creating problems.

This is exactly what Spirit has done at O’Hare, DFW, and many more. It goes where the big guys are, where the bulk of the traffic lies, and undercuts the heck out of it.

Frontier is, to be fair, a different animal. (Sorry, I know.) It isn’t quite running that same barebones schedule that Spirit flies. Frontier also can connect people via Denver to a lot of places. It’s something of a hybrid at this point, so United might be more interested in responding. But then again, United might not want to really get into a fare war on what should be a very profitable hub-to-hub route. It’s not like a move by United is really going to push Frontier to walk away from Houston. If Frontier starts growing further in Houston, then maybe United would be more concerned, but it shouldn’t be wasting its time on this one route.

Where does this leave Hobby? It leaves it in the same place we see Love Field, Midway, Oakland, you name it. Southwest has done an incredible job of effectively becoming a monopoly carrier at these airports and that’s a nice position to be in for an airline. Sure, JetBlue is still at Hobby, but would it stay if Southwest started flying from there to LaGuardia? I’m not so sure. Other than that, it’s just regional jets on American to DFW and Delta to Atlanta. Pretty sparse.

So, Southwest will continue to have what’s effectively its own airport on the south side while everyone else stays north.

In the Trenches: The Training Bottleneck – Intuit Small Business Blog
My new employee has started, but there’s a ramp-up bottleneck when it comes to training. We’re just pushing past it as quick as we can.

The Midwest Cookie Is Dead and Other Important Airline News – Conde Nast Daily Traveler
This week, I did a round up of the death of the Frontier cookie, Spirit’s growth in DFW, and Southwest’s expansion into AirTran markets.

Allegiant Air begins charging passengers for carry-on bags – The Madeleine Brand Show
I was on the show to talk about Allegiant’s new carry on bag fee and had a good discussion.

Dallas Tornadoes and DFW Airport: What Travelers Should Do When Flights Are Cancelled – Conde Nast Daily Traveler
When storms hit DFW this week, scores of flights were canceled and people were stranded. We were able to help our clients get home quickly. Here are suggestions for handling these types of events.

In the Trenches: Hired – Intuit Small Business Blog
It’s finally happened. I’ve hired my first employee. While it was a long road to get here, I’m glad that it’s done.

Continental’s Airline Quality Rating dropped out of Top 10 in 2011 (take our poll) – Cleveland Plain Dealer
I was asked about the Airline Quality Rating, which I don’t put much stock in.

What you see above is Frontier’s latest fare bundle chart. It’s true that these aren’t really separate cabins in a traditional sense, but as the fare bundles get stronger, the product differentiation gets bigger and bigger. In reality, these act like separate cabins do on many traditional airlines today.

The biggest leap came recently when Frontier rolled out Select seating. That gave the airline three different seating options to match with each bundle. If you purchase an Economy ticket, you get something very basic called Standard seating. You’ll get a seat behind the exit row, and there will be fees for most everything you’ll want along the way.

Until recently, you could still get a warm cookie that was the last holdover from the old Midwest days, but Frontier announced the cookie is now dead. In its place, it will stick with an animal theme to match its tails: Goldfish and animal crackers.

(This move, by the way, makes a lot of sense. Midwest’s soul died many, many years ago and the cookie really had no place with Frontier. Nobody was flying Frontier because it had a cookie and there wasn’t a strong association with the brand either. It was simply a nice little frill that doesn’t match Frontier’s new ultra low cost carrier persona. But let’s get back to the point.)

The new snacks, besides not being perishable, will also not be free for those in Economy. So effectively, you have the bare bones folks sitting behind the exit rows paying for everything along the way, including a snack.

The Classic people get more for what seems to be about $20 to $30 more than Economy each way. They can sit in what’s now called Select seating. Those are seats just like those in the back, but they happen to be in front of the exit rows. With that comes priority boarding as well, and oh yes, free Goldfish and animal crackers. Passengers will get two checked bags included in the fare and will be able to do same day standby without additional charge. There is no change fee and travelers get a mileage bonus.

Classic Plus passengers get the best treatment on the airplane for about $25 to $60 over the Classic fare each way. They get seated in Stretch seating at the front of the airplane which is like Economy Plus on United with extra legroom. In addition, they get priority check in, security, and boarding (ahead of the Classic people, I assume). The fares are fully refundable, they come with free booze, and they offer an even bigger mileage bonus.

In other words, it’s like First Class without a bigger seat.

So why aren’t these considered separate cabins? Maybe it’s because they’re more fluid. You can buy the bits and pieces you like individually if you want. Want Stretch seating from an Economy fare? You can do that starting at $15 a segment. Want to check a bag? That’s $20.

But come to think of it, that’s not really much different than the traditional airlines these days, at least not in the US where you can buy almost any amenity you want a la carte except for the First Class seat itself.

I really like the way Frontier is approaching this. Let’s say I’m flying from LA to Indianapolis. Without these bundles, if I need to check a bag it’s $20. But now if I see the bundle, I’ll see that it’s only $30 to get Classic and all that comes with it, including the bag. I might not have bought those other pieces on their own, but the way the bundle is pitched makes me want to pay up a little more to get the package.

Gary Leff explained why he thinks bag fees will disappear recently in favor of either bundles or all-in pricing, but I only partially agree.

You won’t see a one-size-fits-all fare again. Bag fees will stay, but if airlines offer bundles correctly, they’ll be able to push more people to pay more for a grouping of services at the time of ticket purchase. That, however, requires online travel agents and Global Distribution Systems (GDSes) to start selling flights in a manner that makes sense.

If I go to FrontierAirlines.com, I see my three options in front of me and I can pick what I want. I don’t see that on online travel agent sites – instead I just see the lowest fare without any sense that there are additional purchase options. And in the GDSes, it’s a big mess. We recently sold a Classic Plus fare to a Cranky Concierge client but could only do so by sifting through the fares to find which one was Classic Plus. Then I had to force the flights to price at that fare in order to ticket. Then I couldn’t even assign a seat – had to call Frontier to get the Stretch seat that came with the bundle. That sucks.

Once that hurdle is gone, bundling will become easier for more airlines to roll out broadly beyond their own websites. But that shouldn’t stop them from offering this kind of thing now. I hope we see more of what Frontier is doing here.

The news sounded great when the first announcement came out with a bunch of new routes from Denver and Colorado Springs. But all new routes need airplanes, and they have to come from somewhere The next day it was announced that many of the Milwaukee and Kansas City routes were gone. These changes all fall into distinct categories, in my eyes. Here’s how I see it.

Filling the AirTran Hole
Of the five new Denver routes that Frontier is rolling out, two have a common theme – they’re former AirTran cities. With the merger proceeding, Southwest is pulling AirTran out of smaller cities, and Frontier is seizing the day. We already saw it when the airline replaced AirTran on the Knoxville – Orlando route, and now we’re seeing it again.

Frontier will start flights from Denver to Bloomington/Normal (IL) and Harrisburg (PA). These cities had AirTran service into Florida and into the airline’s Atlanta hub, but now they’ve lost all low cost service into a hub city. Frontier sees an opportunity to step in, even if it’s a dramatically different hub. Bloomington will be four times a week and Harrisburg three times, so it’s not a huge risk.

Skirting Southwest in Denver
Those two former AirTran cities also share something in common with the other three new Frontier routes. They’re all small cities, and that’s what Frontier is banking on to succeed in Denver. After all, United and Southwest have broad coverage and Southwest is only going to keep growing its presence. So what can Frontier do? It can look for other places where Southwest won’t be able to serve with its business model.

Frontier will start four weekly flights to Cedar Rapids (IA), four weekly flights to Great Falls (MT), and a daily flight to Bellingham (WA). These are cities that Southwest is unlikely to ever serve unless it decides to open up its business model. Considering the moves we’ve seen Southwest make with AirTran (small cities = goodbye), that change isn’t coming anytime soon.

The Ghosts of Western Pacific
While the Denver adds seem smart, many appear to be thrown for a loop by Frontier’s decision to start flying from Colorado Springs to Los Angeles, Phoenix, Portland, and Seattle. This is a somewhat risky move, but it’s worth a shot.

This might sound like shades of Western Pacific back in the 1990s. That airline started up with a hub in Colorado Springs and offered low fare service around the US. (I even flew it a couple of times back and forth to college.) It eventually moved the hub to Denver, attempted to merger with Frontier, and ultimately failed miserably. What’s different now?

First, Frontier isn’t going in with a lot of capacity. Only Phoenix is daily while the rest are 3 to 6 times per week. Believe it or not, even US Airways doesn’t fly to Phoenix from Colorado Springs, but Frontier thinks that it can make things work with this low frequency option. A fair number of people drive the short distance from Colorado Springs up to Denver to take advantage of cheap fares and frequent flights. Frontier is betting that enough people would rather stick to Colorado Springs, so it can steal passengers who might fly Southwest and United out of Denver otherwise. This didn’t work for Frontier in Long Beach (trying to take passengers from other airlines at Orange County and LAX), but that doesn’t mean it can’t work here.

Still, this seems like the riskiest of the moves so far, but we’re only talking about a couple of flights per day to start so it’s a good test. Besides, it’s probably better than what those airplanes are doing now . . .

Death of the Cookie, Again
So where are all these airplanes coming from? Other routes are getting the axe. Milwaukee loses service to Dallas, Grand Rapid, Kansas City, Newark, Philly, and Phoenix. That leaves just 18 daily flights. In the end, Milwaukee will likely see flights to Denver, Vegas, New York/LaGuardia, Washington/National, and some Florida/Mexico. I imagine it’s just a matter of time until all the smaller markets like Nashville on down are gone.

Kansas City loses Houston, LA, San Francisco, Seattle, and yes, Milwaukee. There are only 13 daily flights left there. I imagine that we’ll see Denver, Washington/National, and Florida/Mexico flights survive there in the end.

Ditching the Props
Another route-ending that might catch some by surprise is Denver to Aspen. Why is that going? Because Aspen is served only with Q400 props, and Frontier is finally retiring those after a few false starts. That route simply has to go if the Q400s go away. It’s hardly worth keeping those airplanes for just one route, especially as the airline strives to be an ultra low cost carrier.

The odd man out here is San Antonio. It doesn’t fit into any category but it will lose its only Frontier flights to Denver. This route must simply have underperformed so Frontier is pulling the plug.

In the end, this is a lot of change in a very short amount of time. I think most of it makes sense to try, though I will be surprised if everything works. That’s another hallmark of ultra low cost carriers – try a bunch of new routes and quickly walk away if they don’t work out. I expect that’s how we’ll see Frontier operate going forward.

[Original photo via Flickr user cliff1066™/CC 2.0]

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.

No bag? Then airlines should refund fee – CNN Out of the Office
I’ve written about this here before. If your bag doesn’t travel with you, then you should get a refund of the bag fee, but that’s not the way it works at most airlines.

US Airways Warms to Inflight Internet – APEX Digest
I’m writing for the Airline Passenger Experience Association’s publications now. This piece was about US Airways revisiting inflight internet.

In the Trenches: Relying on Third Parties – Intuit Small Business Blog
Sometimes, you think you’re as prepared as you can be, but third parties can throw a wrench into things sometimes.

The first piece of news was that Virgin America posted yet another awful loss in the first quarter of the year. How bad? The airline posted a negative 14.7 percent operating margin and a negative 22.2 percent net margin. There’s only $25 million in cash in the bank. Not good, but not surprising either.

On the other side, we saw Frontier parent Republic strike a deal with the pilots union. If the union members vote for the deal this week, they will agree to postpone a pay raise, cut back benefits, and extend the existing contract for an additional two years. In return, Republic will start a profit-sharing plan, put growth requirements out there for aircraft, begin the restructuring program by the end 2011, and raise cash.

How will the airline raise cash? Republic will raise “at least $70 million . . . through one or more debt issuances or other financings,” and the company will make a “good faith effort . . . to attract equity investment(s) in Frontier that would reduce the Company’s ownership of Frontier to a minority interest by December 31, 2014.” That’s right, Republic will do its best to become a minority shareholder in Frontier, effectively letting Frontier go it alone once again.

With this scenario set, I started thinking about a combination between the two. Frontier isn’t going to be able to get that $70m+ loan for cheap . . . unless Sir Richard Branson provides the loan at a low interest rate.

Meanwhile, if Virgin America buys a majority stake in Frontier, Branson will have his share in the combined airline diluted, so he can pump more money in to get back to the 25 percent foreign ownership cap. That seems crazy to pour more money into two airlines that are losing money, but a lot of the airline business is driven by ego and dreams and not business sense. (Reason #518 why the airline business has always sucked.) Then he would just need to find some other money people (American citizens, of course) to put more money in to help pad the cash cushion and provide the rest of the equity. That’s probably the hardest part.

For Republic, this makes some sense. It would undoubtedly keep flying Embraer 190 aircraft for Frontier but on a more traditional express capacity purchase arrangement. I imagine a deal like this could include deploying more of those airplanes into the current Virgin America system. So Republic gets out of Frontier (mostly) but keeps its airplanes flying with the new airline. The only thing it has to lose is its remaining investment in the combined airline, if it thinks that the airline’s fate could be worse than its current predicament (something that’s not entirely clear). Besides, who else is going to pony up the cash for Republic?

The rationale for Virgin America is less convincing. If Virgin America does this and takes over Frontier, it will undoubtedly end up standardizing around the Virgin America name and product. It can use that as part of the pitch to the money men. Can’t you see it? “Frontier is too similar to Southwest right now, so we’re going to leapfrog Southwest and create a killer product that will take people away from Southwest in droves.”

Does the Virgin America product work in Denver going up against heavy competition from United and a growing Southwest, regardless of product? I doubt it. People might like it, but they aren’t going to pay a lot more for it. And Virgin America’s superior product doesn’t come cheap. Besides, a lot of the flights from Denver are in the 2 hour range, when the onboard offering doesn’t matter nearly as much as on longer flights.

I know, this sounds crazy. Combining two airlines in trouble usually doesn’t make sense . . . or does it? America West and US Airways successfully did just that, but that was a different story. America West management went into US Airways in bankruptcy and cut costs, ditched airplanes, and basically cleaned the place up. The money flowed and that was a successful merger. (You can talk about the pilots not being merged if you want, but neither airline would exist at this point without that merger. It was successful.)

The problem here is that Virgin America and Frontier don’t have nearly as compelling of a story. What changes? Virgin America brings its brand to Denver and makes a better (pricier) product offering available. There are no great “synergies” between the two that will help wring out costs. But it does create a larger airline . . . with more cash. That doesn’t solve its problems but it buys more time to try to solve them.

Ultimately, something needs to happen with each of these airlines. They’re both short on cash and Republic has made it clear that it is in the market to raise money as part of this pilot deal. I just don’t see Branson backing down from Virgin America, so would he dig a deeper hole? This is the kind of scenario that, while not really making much sense to me, wouldn’t shock me at all if two things happen.

1. Branson would have to decide he’s willing to pour more money in the airline.
2. Branson would have to find more people willing to put money in as well.

What do you think?

[Original Virgin America Photo via Flickr User dtweney/CC 2.0]