Republic Airways announced a small first quarter loss the other day, but really, it was a tale of two airlines. Its Frontier subsidiary lost a bunch of money while the “Express” flying it does for other airlines made money. How is Frontier looking to fix things? By shuffling its fleet.
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.
