Frontier Blames Leisure Market Capacity Growth for Its Revenue Problems


Frontier announced its Q3 earnings last week, and while it wasn’t nearly as bad as Spirit, Frontier did not do well. The airline had a -5.1 pre-tax margin on plunging revenue numbers. And while there are several things being blamed, CEO Barry Biffle issued a challenge for people to look at just how much capacity had poured into its biggest markets. Challenge accepted.

The airline’s unit revenue dropped from 11.27 cents per available seat mile last year to an anemic 9.10 cents this year. That nearly 20 percent decrease wasn’t quite the end of the world since ancillary revenue held up, but the average revenue per passenger still dropped 15 percent to $115.

What’s to blame? It sounds like the biggest issue in Frontier’s eyes is overcapacity in the big leisure markets. Here’s what Barry had to say in response to a question from TD Cowen’s Helane Becker.

But I think what you should look at is just take the cities in the U.S., take all the airports and just go in and look at the fourth quarter capacity by city, look how many seats in each city and compare that to the same quarter in 2019, and you’ll see a dramatic, dramatic difference. You’re talking probably 30 to 40 points swing between the top and the bottom. So if demand is similar and you have a 30% swing in capacity, that can be a 20 to 30 point jump in RASM or it can be a 20 to 30 point drag on a relative basis. So that’s what we’re talking about when we say uneven capacity deployment in the U.S.A and I think you’ll find something very interesting if you do that analysis.

Ok, let’s do that. I limited this to looking at domestic travel within the lower 48 states since the rest is not really relevant for Frontier. Here is what it looks like.

Q3 2023 vs Q3 2019 Seats by Origin on Routes Within the Continental US

Data via Cirium

To the surprise of nobody, he’s right. On a percentage basis, we see capacity pouring into Denver, Las Vegas, Orlando, and Miami when looking at the largest markets in the US. And what are Frontier’s biggest stations in Q3? That’d be Denver, Orlando, Atlanta, and Las Vegas. Atlanta is certainly more of an outlier, but that’s after Frontier slashed Las Vegas flying anyway. Even after some cuts, Denver, Orlando, and Las Vegas account for 29 percent of the airline’s total seats. That’s a lot.

Barry says that the plan now is to redirect growth to more underserved markets. He was emphatic in saying that this will not see the big leisure markets get reduced. It’s just that future growth will redirect to other places where fares are better.

In six to 18 months, Barry says that capacity distribution will likely normalize based on past precedent. So we’ll see the leisure markets settle back down and fares will rise while the Chicagos and LA’s of the world will grow back up again.

Do you buy it? I don’t know. Barry is bullish even on Las Vegas. He says Frontier is the lowest cost provider, so it won’t be going anywhere. Frontier will win on costs. (It has other plans to help improve that side of the equation, by the way.) But I just don’t know who would be pulling back in Vegas.

On the one hand, I suppose this is like Mexico during the pandemic. Or even Hawai’i. Airlines didn’t know what to do with their airplanes, so — in Hawai’i at least once the testing rules were in place — they put the widebodies in there and add frequency. That has now evened out.

But this summer, the big boom was in long-haul international. Europe was absolutely hot hot hot. You would think that with Europe being so hot, the bigger hubs would have seen more capacity added to feed those Europe flights. But it’s the big hubs that performed worse. And the airplanes flying in Florida and Vegas can’t be sent to Europe.

So will capacity really be redirected? It has to be, because these big leisure markets are not doing well. And there may very well be too much capacity out there, so the question is… where can they put it?

Since Frontier thinks there are underserved markets out there, that’s where it will put its growth. We don’t know exactly what markets those will be, but Barry did mention Minneapolis/St Paul as an example of an underserved market on the earnings call. So keep an eye out for cities like that.

Meanwhile, Frontier is also revamping its frequent flier program and fixing its operation to be more of an out-and-back model (stay tuned for a future post on that) to try to improve profitability. But without capacity coming out of the airline’s biggest markets, it’s not clear that profitability will be possible.

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18 comments on “Frontier Blames Leisure Market Capacity Growth for Its Revenue Problems

  1. Seems like Frontier and Spirit chose to mostly go into bigger cities and connect them to leisure markets while Allegiant went into much smaller cities. I’m assuming Allegiant is doing better relative to the other two.

    With that in mind, if Frontier and/or Spirit go after Allegiant’s model, I could see a bloodbath.

    I don’t see how all of the above 3 along with Breeze and Avelo make it out of 2024.

  2. I hope that American is looking at Frontier and Spirit’s performance since this is the model that American is moving to.

  3. What do most of these leisure markets like Vegas, Orlando & Miami have in common besides the info mentioned in the article? They historically are low yield routes & therefore there’s little pricing power by the airlines. Now add to that fact a ULCC operating model & you’ve heading for problems. Or should I say several airlines are headed for problems.

  4. The reality is that the big 4’s focus on matching fares of the ULCCs as basic economy has been very successful. F9 and NK have both tried to siphon off traffic in markets that are competitive w/ larger and otherwise higher fare carriers and the big 4 – including WN – have been able to hold onto their share of the market in large part because of their schedule dominance.
    ULCCs in Europe succeed by flying markets that are not directly competitive – airport for airport – as ULCCs.
    The US government tried very hard to make sure that ULCCs and non-incumbent LCCs have access to every airport but they can’t force travelers to choose carriers.
    The shift will indeed be for smaller lower cost carriers to find markets that do not directly compete against the big 4.

    1. Anecdotal, but I screenshotted it because it’s a fabulous example of current dynamics:
      At least on DL, you can determine how many basic economy they sold because the standby/need seat list shows them all and labels as basic economy. My CR9 from LGA to CLT on Sunday had 23 basic economy passengers. Flight was full. That’s a staggering percentage of seats, but shows the power of the ability to dynamically flex capacity between “products” to best compete.

      1. Did those 23 BE fares cover the cost of fuel, labor, and depreciation? Or does every flight with a lot of BE tickets operate at a loss?

        1. Brian,
          the question of how low airlines can price w/o being considered predatory has gone before the courts and the ruling has consistently been that it is impossible to know by specific passenger whether a fare is predatory or not.
          Airlines can allocate costs many different ways and view each passenger as incremental.
          On a 76 passenger regional jet, 1/3 of the passengers on a BE fare might seem high but we have no idea what AA is offering on their flights. In addition, CLT is an AA hub so they could be carrying high percentages of connecting traffic on that flight which might actually yield less revenue for that flight than BE passengers on a local basis for DL.
          DL might get enough revenue from 20 passengers paying fairly high fares that the rest are just incremental.
          And let’s keep in mind that AA and DL are both legacy carriers so it’s virtually impossible to make the argument that DL’s actions are predatory against a carrier that is similarly sized and w/ a similar business model.

  5. Maybe because they just suck. I’m in Denver and used to the the biggest fan of old Frontier. It’s now like taking an older Greyhound bus. Dirty, not on time, employees who couldn’t care less and fees that are so misleading. I’m cheap, very cheap, and even I am done with them.

    1. “Maybe because they just suck.”

      You hit the nail on the head.

      My friend’s have a daughter who lives in the Denver area. They bought into the “all you can fly” scam this past summer thinking that they’d be making lots of visits to see her at minimal cost. Things didn’t turn out quite like they hoped. They’ve also complained about not getting mileage/flight credit for past flights, and they aren’t getting anything for purchases made on their Frontier credit card.

      Frontier has also dropped service to my home airport dramatically over the past year, and have completely pulled out of a nearby city. They basically only fly to Orlando from my home airport now. I’m really not interested in having a 12 hour layover in MCO just to save a few dollars on an airfare.

    2. I’m cheap too, but not stupid. I’m flying my family of five to Texas from CVG over the holidays. F9 had a great fare, but I didn’t want to take a chance on taking F9 so I chose an AA nonstop (that’s before I knew of a potential F/A strike!)

  6. Overcapacity in markets is visible far in advance of when it’s flown. So why didn’t Frontier (and Spirit) take steps to mitigate this slow-motion disaster? You schedule flights six months or more in advance – plenty of time to revamp schedules, move capacity into less crowded markets, etc.

  7. I think Frontier and Spirit are underestimating the cost of poor performance and bad customer service. I’ve flown them a lot lately to Vegas and every time there is a delay or issue I hear the people around me saying never again will they fly them. As long as other carriers can get close in price with their basic they will get the sale every time. Cant run a airline without a phone number. I’d be curious to see a customer satisfaction index by quarter on these airlines.

    1. I heard people say the same thing after Southwest’s winter meltdown. But people are all talk and come back as soon as the next fare sale.

      1. But I think WN had a lot more brand equity and credibility with most passengers than the gruesome twosome of F9 and NK.

        At least when B6 delays you, you still have a seat with live TV ever the most legroom in regular coach class. When the gruesome twosome delay you, it’s just another reminder you’re on a bus with wings. Except buses have more reliability.

  8. ..I think I now see several places where capacity reductions will take place due to the PW Engine SNAFU-&-FUBAR..

  9. I think the USA’s ULCC problem is that America isn’t very fond of the product they’re selling — and there isn’t all that much demand for it. Nobody seems to carefully follow Frontier’s ever-changing route structure, but the impression I’m getting is they’re eliminating east-west connectivity now and focusing on mostly being a north-south airline that takes you to vacation destinations. They’ve given up on being a “network carrier.” Look at Philly, for example, where they have a pretty sizeable operation. They cancelled LAS flying a couple months ago, and now they’re cancelling their “spoke” to DEN. I would think AA is happy about this development, because their Philly margins should improve.

    If Frontier doesn’t want to be a network carrier — they just want your business when you’re heading to Florida, or the Caribbean — how big an airline do they need to be? And that assumes they can even be successful in these leisure markets against their bigger, better competitors. I don’t see a viable business plan here. At least for the moment, the future seems to belong to the Big Guys.

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