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]

Frontier has long had a preference for smaller airplanes, which seems kind of strange. Larger airplanes allow for lower seat costs, and that helps low cost airlines in particular. The bulk of its fleet was made of adequately-sized A319s with 136 (soon to be 138) seats but it also had an 11-strong fleet of the smaller A318 aircraft. That airplane has been a terrible seller, primarily because there are other airplanes (the Embraer 190/195 comes to mind) that are much more efficient. Airplanes that shrink significantly from a larger model rarely do well.

Over time, Frontier realized this wasn’t the best plan and it started to go bigger. It ordered some A320s and it started retiring the A318s. Those airplanes were so undesirable that at least one has been turned into beer cans. Now, however, it has a different airplane problem, thanks to its owner, Republic.

When Republic bought Frontier (and folded the carcass of Midwest into the Frontier brand), it brought a bunch of small airplanes with it. Somes of these airplanes did not have a home flying “Express” with another airline so they went into the Frontier fleet. The Embraer 190 has become a mainstay of the fleet, but the Embraer 170 and smaller Embraer 135/145s were more awkward fits.

In the first quarter of this year, Republic lost $600,000 before tax. The Frontier operation, however, lost a whopping $55.2 million. You math majors know that the rest of the Republic operation must have been profitable. To be fair, that was an improvement for Frontier, but it’s not good enough. So what’s the plan?

The remaining four A318s will be gone by the end of the summer. Republic is also working hard to get all the Embraer 170s placed with other airlines. Delta has committed to take 14 of them and if there are any others left, they’ll be going out of the Frontier fleet as well.

That move, however, isn’t all great news. There are 50 seat ERJ-145s coming off contract with Continental that will go into the Frontier fleet instead. This will help serve some of the cities that were being served by Embraer 170s, but those aren’t exactly the most cost-effective airplanes around either. Still, if there’s not enough demand to fill a 70 seater, then it’s better to fly it with 50. These will now be flown under the “Frontier Express” moniker. So Republic is now flying as an Express carrier for itself. I believe that may cause a rip in the space-time continuum.

By the way, just playing the shell game with airplanes isn’t all that Frontier is doing. It’s also axing some routes. Milwaukee to San Francisco and LA are gone. These were always low fare markets, but when fuel spiked, it had to have made them really ugly. Longer haul, low fare routes are most at risk when fuel spikes, because they see the biggest impact.

So where does this all leave Frontier? Like every other airline, it’s struggling to adapt to fuel prices, and it’s not winning the battle. But its situation is improving in the big picture, so that’s important. At this point, it’s just a matter of whether or not Republic can right the ship before shareholders start getting angry. At least Frontier is being proactive and not sitting on its hands.

Before we get started on the changes, it’s important to remember how Frontier sets up its pricing. The airline has its base Economy fare, a buy-up to Classic, and then the top level Classic Plus. The idea has been to bundle various fees into the higher levels to encourage people to buy up to higher packages. This announcement will help build more value into the higher levels. Here’s a chart with some of the benefits (click it to enlarge). See the Frontier website for the full list of what’s included in each type.

Now, let’s talk about what’s new here.

Change Fees Dropping
At one point, Frontier had matched the big guys with a $150 change fee. That was quietly reduced to $100 and now it’s going down to $50. But that’s only for Economy. Classic and Classic Plus fares will have no change fee at all. You have to imagine some of this is to deal with Southwest and its lack of change fee with its increasingly overlapping presence in Denver.

Bag Fees Dropping
The first bag is $20 on Frontier, but if you check-in online, you’ll now save $5. This tells me that a lot of people aren’t bothering to check-in online, so Frontier needs to use an incentive to help change that behavior.

Bike Fees Dropping
Before, there was a flat fee for checking your bike. Now it will just count as a regular bag. So if you pay the bag fee (or you’re on a ticket with no bag fees), then you can just check a bike instead of a suitcase. In outdoorsy-Colorado, Frontier’s home, this should be a big selling point. This also matches the Southwest policy while United still charges an extra fee.

Name Changes Now Allowed
Most airlines shudder at the thought of allowing name changes, but Frontier is jumping right in . . . with a catch. If you have an Economy or Classic ticket, you can give your ticket to someone else for a $50 fee. Classic Plus customers pay nothing. But there is one more thing. The name change will also require paying the difference between the original ticket and the fare available on the day of the change. So it’s like any other ticket change.

There are a couple times where this could be advantageous for the new customer. If the original ticket is in a booking class that’s currently sold out, then this will be cheaper than just buying a new ticket directly. If the flight is completely sold out, then this becomes even more important. In those cases, then it’s a big value to both side of the equation, but in more normal circumstances, it will benefit the original customer and not really anyone else. Still, it’s a great benefit because now for no more than $50 (assuming the new customer pays for the total fare), the original customer can get rid of a ticket instead of having to sit on a credit that might never get used.

Hello, Frontier Express
The turboprops and sub-50 seat regional jets are now going to be branded as Frontier Express to show that the onboard product is different. That’s great, but there’s no difference noted between the larger EMB-170/190 airplanes with no TV and the Airbus airplanes with TV.

Beyond these announcements, Frontier is making changes to its Guest Commitment which created some unparalleled benefits. I’m not entirely sure which of these are new and which are old, but here are some of the points that grabbed me.

Pay for Delays
If your flight is delayed 2 to 4 hours and it’s Frontier’s fault (not weather, etc), you get a $50 certificate for future use on Frontier. If it’s 4 to 6 hours, you get $100 certificate and a meal voucher. If it’s more than six hours, you can double that to $200.

Bag Fees
As we discussed yesterday, if your bag doesn’t travel with you, you get the fees refunded. Even if you check a bag and didn’t have to pay a fee, they’ll still give you a voucher worth the amount of what the fee would have been had it not been waived.

Stretch Seating Refunds
If you paid for Stretch seating (extra legroom) and didn’t get to sit in it for one reason or another, you’ll get a refund.

Rebooking If It’s Not Frontier’s Fault
Let’s say you’re delayed and it’s not Frontier’s fault. The weather’s bad, air traffic control, etc. Frontier will actually put you on another airline with which it has agreements if it can’t get you on Frontier within 3 hours, unlike other airlines. Unfortunately, Delta stubbornly doesn’t have one, but American, United, and Continental do. Southwest doesn’t, of course, since it doesn’t play nice with anyone.

I like what I’m seeing here. Frontier is trying to make policies more customer friendly. I’m sure some of this is related to the increasing competition from Southwest, but it can’t all be for that reason. Now it’s up to the traveling public to actually shift business to the airline so these changes can be justified.

On March 2, Frontier said it would begin two daily flights between its mini-hub in Kansas City and Minneapolis on June 6. Before these flights, Delta was the only one operating that route. It was big enough that there were even some mainline Delta flights out there. So you would expect hard price competition between the two and maybe a little beefing up/tweaking of Delta’s schedule to best position itself against Frontier. But the reaction was far stronger than that.

Delta has quietly added new flights that sit right on top of Frontier coincidentally (yeah right), also beginning on June 6. You will now get two daily flights from Kansas City to Boston, two to Columbus, one to New Orleans, and one from Omaha to Washington/National. Why do I say this is retaliation? Because there’s no other way to look at this.

The only nonstop from Kansas City to Boston, Columbus, and New Orleans right now is on Frontier. Apparently Delta forgot to look at the tapes, however, because the Columbus flight will end on June 3. But these are also the only nonstops from Kansas City on Frontier that have no direct competition except for Austin, Seattle, and the newly-announced San Antonio flight. There’s no way Delta is going to want to waste that much aircraft time to bother with Seattle if it’s just retaliation. And Austin and San Antonio really aren’t Delta’s domain. They can leave that to the Texan airlines.

But possibly the biggest smack is that Omaha to Washington route. That’s one of the legacy Midwest Express (now part of Frontier) routes that has been operated for years. Right now, Frontier flies it twice daily but Delta is coming in to spoil the party.

Though I doubt this is the main catalyst, this move might also be a little kick in the pants for Frontier’s decision to fly to Provo, an alternate for Delta’s big Salt Lake City hub. Never a dull moment in this business.

So what’s the bottom line here? This is an attempt by Delta to convince Frontier not to bother starting Minneapolis. The hope is that if the collateral damage is too much, Frontier will walk away with its tail between its legs (sticking with the Frontier animal theme). But Frontier isn’t likely to budge on this, I wouldn’t think. Instead, both airlines may just suffer losses for awhile as they compete hard against each other. At some point, someone at Delta will realize that it’s a waste of time and pull out.

It always amazes me that airlines continue to try these types of tactics that so rarely seem to succeed. And since it’s nearly impossible to prove anti-competitive behavior, there’s nothing really stopping Delta from doing this other than someone on the inside looking at the balance sheet and saying that it’s a huge waste of money. At a time when fuel is spiking, decisions based on spite instead of actual commercial viability really are a waste.

But hey, there is a silver lining. Cheap fares for Kansas City-folk for awhile! Enjoy it while you can.

• Provo (50 miles south of Salt Lake City) will be served once daily from Denver with an Embraer 190
• Knoxville will be served four times a week from Denver with an Airbus A319
• Sioux Falls will be served once daily from Denver with an Embraer 190
• Minneapolis will be served twice daily (once on Sunday) from Kansas City with an Embraer 170 and 190
• San Antonio will be served five times a week from Kansas City with an Embraer 190

What do you think?

Why Frontier Airlines Isn’t Going Anywhere Any Time Soon – BNET Headwinds
A post came out suggesting that Frontier wouldn’t exist by the end of this year. That’s laughable.

In the Trenches: Burning Out – Intuit Small Business Blog
It’s been a long time coming, but I’m starting to feel twinges of burnout. It’s time to fight that feeling.

We got to Long Beach Airport an hour early and had plenty of time to spare. Inside, the Frontier folks said our E190 couldn’t fit all the bags so they were looking for people to check bags through all the way to their final destination, not just Denver. Since my wife’s “carry-on” was more like a trunk, we decided to check it.

Our flight, flown by Republic crews under the Frontier name in Midwest colors, boarded on time as the sun started to peak out over the horizon on the very busy Long Beach ramp. We got on board to find a frowning flight attendant. She wasn’t mean but just looked profoundly unhappy.

After taking our seats, another flight attendant walked by and loudly said my seat number while looking at me. She just kept walking and I never heard anything about it again. Beats me what that was all about.

Once the magical hour of 7a hit, the noise curfew was lifted and we were on our way. The captain turned the seatbelt sign off while it was still choppy and a couple minutes later he turned it back on. Then when it smoothed out, he never turned it back off.

Even though the seatbelt sign was on, I had to use the lav, so I got up and went to the back. It was smooth at the time but I apologized for having to get up. The flight attendant looked at me and snapped that I had to go back to my seat to wait for the lav to be empty. I understand that at the front of the plane due to cockpit proximity but I’ve never heard that at the back. Sheesh.

I did as she said and waited. Soon after I got back, we were descending into Denver.

It was a rare smooth ride into Denver, and that must have confused the flight attendants. They made the “we’ve begun our approach” announcement when we were actually on final approach. They ran through the cabin collecting trash and making people put their seatbacks up and probably just sat down right before landing.

Our connecting gate was right across the crowded concourse, so we went over there and hung out. It was fun to see three United airplanes parked next to each in three different liveries.

A friend who works for Frontier stopped by to say hello and then it was time to board.

Lots of friendly smiles on this flight to greet us from what looked like a seasoned Frontier crew, including Flip the Dolphin on the tail. I was really excited to watch crappy TV – that’s about all you get around noon on a weekday – but as soon as I got to my seat, I found a blank screen. Damn.

I asked the flight attendant and she said she couldn’t get the TV guys onboard since we were ready to go, but she suggested trying to tilt the screen down and kick the box. I love a little rough repair work, but it didn’t do the trick.

As we were taxiing out, however, it came on. Cool. Then it went off again 5 minutes later. Son of a motherless goat. The TV was taunting me.

Soon we were airborne and the flight attendants came through to give free TV to all kids on the plane. (I guess they’re doing a holiday promo.) I asked if she would give me free TV since the audio worked and I could listen even though I couldn’t see. She gladly agreed.

Then they came through with drinks and I had a ginger ale. That was followed by the ghost of Midwest . . . the warm chocolate chip cookie. I love that.

After the service was done, the flight attendant came back to ask if I wanted a cocktail to make up for the broken screen. I had a scotch and soda and listened to stand-up on Comedy Central, which really was a great way to spend the flight. The flight attendants on this leg were just excellent; a huge contrast with the Republic flight attendants on the first flight.

We landed in a cloudy and cold Indianapolis and headed off to spend a long weekend with the family.