Frontier CEO Barry Biffle took the stage at Morgan Stanley’s 12th Annual Laguna Conference last week, and it was all unicorns and rainbows. Barry says that Frontier has been turned around, and while there are some things that still need to be done, the airline is well on its way to besting pre-pandemic performance.
This may or may not be true, but there are reasons to believe that some of these positive signs may not be sustained. The good news is that over time we will learn the answer. But for now, let’s talk about what he had to say.
Overall, Barry says everything is going in the right direction. On the revenue side, July was down, August was flat, but September is up. And the trend going forward will continue. In fact, things are so great that Frontier is now expecting Q3’s pre-tax margin to be somewhere between -2 percent and flat. Previously it was expecting it to be somewhere between -6 and -3 percent.
According to the airline’s 8-K, the “majority” of that improvement comes from revenue coming in higher than expected. Why? Capacity is moderating. As is pretty much universally agreed upon in the industry, there is too much capacity and many airlines are taking steps to rein that in, including Frontier.
The problem for Frontier is actually figuring out why its revenue is doing what it’s doing. The airline has made sweeping changes over the past year, and when you do that, it means you can’t tag one specific change as being the reason for revenues doing better.
Even beyond the revenue initiatives, Barry didn’t hesitate to find yet another reason why revenue was improving. He says an improved operation has something to do with better performance. But, uh, the operation is still a complete mess.
Frontier Operational Performance by Month
Data via Anuvu
I suppose compared to last summer, this year does look better. But looking “better” is not the same as looking “good.” And Frontier is nowhere near looking good at this point when it’s running fewer than 65 percent of flights on time and canceling more than 2 percent through the summer.
Whatever the reason for the revenue bump, Frontier knows it has made so many changes that it thinks it needs to shift its success metrics. It used to pay close attention to ancillary revenue, but now it doesn’t care. Its goal is to make $125 each way per customer, and it doesn’t worry if that’s in the fare or ancillaries.
For comparison purposes, in the first half of the year, Frontier made $42.68 in fare and $70.15 in ancillary for a total of $112.83. It still needs unit revenues to grow more than 10 percent to get in the range it wants to be in.
Barry did make an interesting comment on this point. Common sense suggests that if the fare is lower, people will spend more on ancillary services. But in reality he says it has always been that a lower fare means people pay less for ancillaries. So they need to get a higher fare.
That’s the point of the entire effort to remake the airline’s fare products. It now has the various bundles that can be priced during the initial search, including the UpFront Plus product which includes a blocked middle seat. That, Barry says, already has 70 percent paid load factor. But the airline is reducing each set of three seats’ revenue-generating capability by a third when it blocks them, so whether the fare those seats are getting is worth it remains unknown to us.
On the cost side, Barry took a pointed dig at United CEO Scott Kirby and Chief Commercial Officer Andrew Nocella who have been touting “cost convergence” between low-cost and full-service operators as one reason that the low-cost operators will go out of business. But Barry says the airline keeps driving down costs and the gap is actually widening. I suppose we’ll see how that’s going when Q3 numbers come out.
Going forward, Barry says the airline will grow in the single digits for a bit, but it’ll be back in double digits in the next couple years. He also said he will be “shocked” if Frontier isn’t making double digit margins by Q2 of next year. That’s how confident this man is.
So will it happen?
We certainly don’t know. We only have data through Q2 now, and the numbers have apparently started looking better during Q3… according to Barry.
The guidance update is encouraging, no doubt, but this is also a tale of two quarters. The first half of Q3 is in peak summer while the second half is in the doldrums as a general rule. But even if we knew Q3, there’s a whole lot more to see before anyone can declare victory.
Q1 of this year was an absolute bloodbath with load factors and revenue taking a big hit. I want to see a real change in Q1 for Frontier before I even start feeling optimistic.
There’s no question that Barry’s job is part executive and part cheerleader. He has made so many changes in the last year, that his success or failure is directly tied to how these initiatives pan out. If he weren’t shouting with joy from the rooftops, I’d be very concerned.
I’m just not willing to declare victory at this point. This is going to be a longer road.
22 comments on “Frontier is Rather Upbeat These Days”
Whenever I hear senior management (from any company/industry) make super optimistic predictions & statements like this, I always wonder if they are doing so as much in an effort to convince themselves as in an effort to convince their employees, their investors, and the press.
I wish Frontier all the best and I’m glad to see that it’s been trying some significant changes, but I agree with the measured skepticism about Frontier’s predictions.
There’s a single word that describes Barry well… delusional.
“He also said he will be ‘shocked’ if Frontier isn’t making double digit margins by Q2 of next year.” This is what that safe harbor statement about “don’t take our forward-looking statements too seriously” is for.
Did analysts not even ask him about the operations or was this just a dog and pony show with no Q&A?
Bill – They did have a couple questions at the end, but it was a short session. That’s probably not the first question they had on their minds.
Blocking the middle seat only has a cost to F9 if it sells all the seats in the plane. If it is operating with a load factor between 73-83%, the cost is 0. With Frontier selling all you can fly passes, the free passangers are the ones who will not get to redeem a seat.
You can do the math. If F9 is selling 70% of their seats without one blocked at that $112 average, they need to generate a 68% fare premium on the surrounding two seats to generate the same overall revenue. That jumps to 92% premium and 116% premium at 80% and 90% paid load factor, respectively.
(I suppose this is an oversimplification, you’d really look at the overall average fare on the plane, which may be higher given the decrease in overall inventory.)
Exactly. I think that’s what a lot of people are missing here with the blocked middle seats.
Assuming all seats are the same (in terms of other requirements for the premium seats) and ignoring non-rev people in pax seats, the the number of **fewer** pax that a given Frontier flight will carry by offering a blocked middle seat equals the greater of 0 or:
[ (# of pax buying seats with blocked middle seats)/2, rounded up to the next whole number ]
minus
[ # of seats on plane ]
plus
[ # of pax on plane ].
As a hypothetical example, if 9 people bought the “blocked middle seats” option on a plane with 150 seats and 146 total pax, the math would work out to:
(9/2, rounded up) – 150 + 146 = 5 – 150 + 146 = 1 fewer seat that Frontier could fill with a paying pax
In this hypothetical example, even if Frontier absolutely knew that it would be able to fill that “1 fewer seat” with a paying pax (which isn’t a certainty at all), Frontier would only have to charge those 9 pax buying the “blocked middle seat” option a little over 11% more (1/9) in order to break even, assuming all tickets cost the same, etc etc (lots and lots of assumptions).
Even this example is a bit simplified, but nonetheless, this really only affects flights with a high number of pax buying the “blocked middle seat” option and/or flights with a high load factor, and I would argue that many people are OVERestimating the marginal revenue that Frontier needs to earn from selling the blocked middle seat opion in order to break even.
In the end, I’m sure Frontier’s done the math (or has hired $$$$$ consultants to do the math) and that marginal revenue it needs to break even on selling blocked middle seats is MUCH smaller than many people think.
Frontier is still the airline of Non-Choice in my household.
I have been burned too many times from Frontier. Every airline fails all of us eventually, but I get anxiety just thinking about taking an F9 flight. More than Spirit, yes. Airlines are complex, and I respect that, but I do wonder if there is enough turnaround power there to win back consumers. I don’t think people mind the ULCC model honestly – its the operational reliability that continues to plague them. We’ll see if start-up Avelo can continue to buck that trend – Breeze certainly is not.
Perhaps he is painting a rosy picture knowing that NK is negotiating w/ its lenders and F9 wants to be well-positioned do get whatever it can out of NK now or in the future; it wasn’t that long ago that F9 dropped its merger attempt w/ NK in light of B6′ proposal.
There’s some good stuff in Biffle’s comments, particularly shifting to a focus on total revenue, but double-digit margins by next year? Not unless Spirit downsizes considerably or disappears entirely (unlikely, in 2025 at least.) If they get that much of a revenue increase, they’re likely to see selective responses from the Domestic Big Four and/or Alaska and JetBlue.
Frontier’s operational issues caused my family to miss a flight home from Disney World last year. In the morning, they delayed the flight by 3 hours – ok, no problem, we’ll spend a bit more time at our hotel in the morning before we head to the airport. Then they pulled the flight in by 1 hour while we were driving to the airport. Nothing I really could have done at that point – we arrived at baggage check just after they closed it for our flight. The next Frontier flight home wasn’t for 2 days. It wasn’t clear if Frontier would have comp’ed that flight, or if the agent was just offering to sell me tickets. I didn’t bother. I ended up spending $$$ on a same-day ticket on another airline to an airport 2 hours from my home, and also a one-way rental car back to my origin airport. Annoying and expensive, but I got home.
Now my wife won’t let me book Frontier (or Spirit) for family trips. We pay a premium to book Southwest, with the knowledge that even if our nonstop flight gets cancelled or we need to miss it for some reason, they’ll still be able to get us home same-day with a stop in BWI, BNA, etc.
Many such cases. I’m curious if the ULCCs are burning through the pool of potential customers with experiences like these. I’m pretty enthusiastic about a convenient nonstop and don’t care too much about seat comfort or onboard amenities for a short flight – on paper, I’m an ideal customer. But I’d have to have confidence I’d get there.
P.S. Yes, I’m aware that I technically *should* have been at the airport 45 minutes before the originally scheduled departure time, even if Frontier had marked it delayed by 3 hours. But when the options are entertaining your kids for 3 hours at a Disney hotel vs. the Orlando airport, you too might be tempted to roll the dice.
I have had the same experiences and “booking anxiety” with F9.
Just booked two big family vacations to Mexico and chose to spend 135% more in airfare with SWA so I can sleep soundly at night.
Ugh. I don’t blame you for doing what you did at all, especially with young kids. I did the same thing on an AirTran flight many years ago myself.
I’m not anti-ULCC or a snob at all, but what you described is exactly why people need to consider the risks when booking on ULCCs (Frontier, Spirit, even Allegiant). The price may be right, and the vast, VAST majority of the time pax will be okay and things will work out. However, if something like a flight cancellation happens on a route that a ULCC only flies a few times a week (and on an airline that won’t put pax up on other airlines’ flights in that situation), the pax are screwed. That can be okay on the outbound leg if the other pieces of a traveler’s trip are flexible or if the traveler is flying out to visit family. If not, though, it’s a huge headache, and the traveler may get stuck somewhere for days, lose their hotel/car rental/etc deposits, miss a cruise, get in trouble at work for using extra vacation time, etc etc. (Don’t forget about the time not too long ago when Frontier stranded pax in Mexico.)
Actually that was Sun Country that did the stranding.
Ah, my poor memory fails me again; I knew I should have Googled that. I appreciate the gentle correction.
That sounds like a legit reason someone would prefer a bigger airline. Then they would complain about airlines getting too big.
Cranky, a question about the blocked seat bundle. You said its “reducing each set of three seats’ revenue-generating capability by a third when it blocks them”. But…. two of three seats in each set as having a blocked seat. The customer buying 1A is buying a blocked seat, but so is the customer buying 1C. Nobody tells them it’s the same seat. So isn’t Frontier really only reducing revenue generating capacity by a sixth?
Well, the point is you now have 2 people buying what would have been 3 people previously. They don’t buy a second seat or anything like that.
They just pay extra to sit in that row. So ultimately they need to get those two people to cover and hopefully exceed what the third would have paid.
https://crankyflier.com/2024/09/17/frontier-is-rather-upbeat-these-days/#comments
Frontier Flight Attendants just approve a STRIKE VOTE 99.64% with 93% participation.
Not sure everything at F9 is so cheerful!