I found myself paying close attention to Frontier’s Q3 earnings report last week. This isn’t something that I’d normally do, but I was particularly interested in seeing how the “New Frontier” bundled offerings were playing out. So far, there’s a lot of promising that better days are coming, but Q3 surely didn’t show it.
The whole new bundling effort was rolled out in May, so Q3 (July, August, September) would have been the first month that travelers could have realistically purchased a bundle for a significant chunk of the total passenger count. That being said, there’s no doubt that a good bit of July travel would have been booked before the bundles came out. So this is certainly not displaying the full power of the new model.
Let’s start with the bad news.
In Q3 2024, the airline’s total revenue per passenger declined to $105.83 versus $114.71 in last year’s Q3. Load factor also dropped from 80 percent to a particularly-weak 78 percent. This is despite all of the network changes, especially those at the end of summer when off-peak flights were slashed. That, by the way, led aircraft utilization to drop from 11.3 to 10.2 hours per aircraft per day. These numbers are not good, and it resulted in an adjusted pre-tax loss of 1.1 percent.
Again, this isn’t good, but there are some things to consider. First, Frontier’s average stage length absolutely plunged 14 percent from 996 miles to 856 miles. If you’re flying 14 percent less, you don’t mind the 8 percent decline in fare quite as much. Still, unit revenue adjusted to account for that difference in stage length still dropped 5 points vs last year.
Cost performance, however, improved. The adjusted unit costs excluding fuel went down 4 points. Fuel prices also dropped 13 percent, giving the airline some additional cover. Still, this is not a result that anyone should consider ok.
Despite the numbers for Q3, CEO Barry Biffle still said that the airline will be producing double digit margins by next summer. So, how is that going to happen?
Barry talked a great deal about maturing markets, and how the enormous upheaval in the airline’s network has hurt revenues in the near term. The change is pretty staggering. I looked at September over September, and according to Cirium data, a full third of the airline’s more than 300 markets this year did not operate last September. There were more than 60 markets from last year that did not operate this year. That is, indeed, a lot of change.
According to Barry, a full 20 percent of total capacity was considered “outsized redeployment,” meaning a significant shift. He expects a 20 to 30 percent bump on revenue as those markets mature in 2025. And he seems bullish on nearly every network change the airline made with one exception. Apparently, New Orleans performed terribly. Go figure.
He also says that more broadly, capacity didn’t really start to fall off enough from an industry perspective until the middle of Q3. In fact, he repeatedly mentioned how this was a tale of two halves. The second half was much better, but we don’t have any details to corroborate that. The only thing we do know thanks to T100 data is that Frontier’s load factor in July (the last month released) was just above 81 percent. So things got worse after that.
Overall, Barry struck a very positive tone on the call, as you’d expect. This man can sell his airline, and it’s not just the part that flies airplanes. He has high hopes for making more money on the airline’s loyalty program. Today the airline makes closer to $2 per passenger, far below what other airlines can generate. He thinks Frontier can be at $5 to $7 per passenger within a few years. That would still be well below the network carriers, but it would add a nice revenue bump.
Barry also crowed about the operation, saying “excluding the impact from the hurricane and the Microsoft CrowdStrike outage, our operation delivered year-over-year improvements across nearly every operational metric.”
Improvement? I’ll give the airline that. But listen, we aren’t talking about a very high bar here.
Frontier Operational Performance Metrics by Month
Data via Anuvu
This is still not acceptable performance, but it is indeed better that last year. And really, we could say that for the airline’s financial performance as well. There’s still a lot in here that concerns me, including the low load factor and big drop in aircraft utilization. I know the latter was by design, but it isn’t sustainable with all those new, expensive airplanes.
The airline continues to be a work in progress.
12 comments on “Frontier’s Promise for Future Glory Remains a Question Mark”
Love how you cut through the spin. What do you think, does combining with Spirit help F9 navigate this mess or not?
That’s a real question mark as well. Remember what was said when Sears merged with Kmart, you can’t create a good company by merging two struggling ones & that is the case here.
Emac – Frontier just needs Spirit to go away. If that’s through failure or merger, it’ll work. Frontier just needs less competitive capacity and then it’ll be in better shape than it is now.
Cranky,
One of the real issues with Fronteer & the other ULCC’s right now is what Alex wrote below. There just isn’t any more room for thin point to point routes with demand without bumping into at least one of the big carriers hubs.
American 7
Delta 8
United 7
Southwest 13 (that maybe a bit of a stretch as most of the cities aren’t meant for connections even though you could do so)
Underperformance in New Orleans is not all that surprising – there is significant nonstop competition on every route:
– MSY-ATL: Delta, Southwest, Spirit
– MSY-DEN: Southwest, United
– MSY-MCO: Breeze, Southwest, Spirit
– MSY-PHL: American
– MSY-RDU: Breeze, Frontier
That’s a ton of capacity chasing a finite set of price-sensitive passengers. Also – Louisiana isn’t a huge tourist draw in the summer. Winter and spring would be the peak time for leisure travelers.
It’s the same issue everywhere for the LCCs: Almost all viable “hub bypass” routes have been claimed. Almost any city pair you can come up with will fall into one of three buckets:
1. Has a legacy airline hub on at least one end, so you’ll be competing with AA/DL/UA. They can offer better connectivity and often higher frequency (on small regional aircraft), so you end up stuck competing purely on price. Not great.
2. Already claimed by at least one LCC (often Southwest). If there is enough demand for higher frequency, the main question is “Why hasn’t the incumbent carrier increased their frequency to match demand?” More typically, there is not enough demand for 2 carriers to run a schedule with reasonable frequency, so you end up in a price war with the incumbent carrier, playing “chicken” until one of you taps out. Not a fun or profitable situation. And even once you “win” and can capture higher yields by being the only carrier in the market, that might only last until yet another LCC decides to take a stab at entering the market. Rinse and repeat.
3. None of the other LCCs is flying it, because they’ve looked at it and decided there wasn’t enough demand to be worth it. If you’re lucky, they were wrong, and you’ve noticed a unique niche of passengers you can sell to. More often, though, they were right – there is not enough demand to regularly fill planes at a reasonable yield.
For a long time, there were a lot of city pairs that were only served by connecting through hubs, and there was a wide-open map full of viable hub-bypass routes to add. That was a lot of fun while it lasted. At this point, though, that space is really crowded, and it’s hard to grow without running into overlap with other LCCs.
There are still special situations that are interesting. Maybe you can bring service to an airport that hasn’t had real commercial service, like Avelo has done in HVN and LAL. Or (more speculatively) maybe you have capabilities to serve “long, thin” routes more efficiently than existing aircraft, like Breeze claims they can do with their A220-300. But it’s not clear that these special situations are common enough to enable you to build out a full business.
Aircraft-enabled routes do provide an opening. If you’re flying 220s somewhere that doesn’t have a Delta hub or focus city on one end, there’s potentially opportunity there. Catch is the 220-300 and 737-700 are comparably sized so if WN is at one endpoint and can’t make your route work you might have a problem. And if WN is already there you’re competing against them. So you have to go with routes where WN decided that neither endpoint was sufficiently interesting to them.
If you just have 320-series aircraft though, you have to pick routes where your cost advantage turns into a fare advantage, inducing demand that wouldn’t have flown at all. And there are a limited number of those that aren’t valuable enough for loyalty reasons for existing carriers not to sit on top of until the ULCC taps out. If the route is fat enough maybe you can carve out spill but that doesn’t seem to work consistently enough to build a business model around.
How cute. You’re counting Breeze as being competition for someone. Breeze isn’t competition for Fred’s Airline and Bait Shop.
MSY-DEN: Southwest, United is a million dollars one way on each airline.
Does anyone make money in New Orleans? Looking at the mobile analytics data, total visitation to the City is down versus pre-Pandemic levels – by a lot. Me thinks Charleston is the new New Orleans, which is why MX has found a niche there.
Do you know just how much visitation has fallen there? I think part of the problem with New Orleans is outside of the superdome all the tourism is concentrated in one area, the French quarter. Put it another way, imagine Times Square being the only tourist draw in NYC & then nothing else to see while there.
The MAJOR problem with Frontier is it’s lack of customer service. The airport workers are NOT Frontier employees, they work through a temp agency. They have NO training on Airline/Airport procedures. They don’t have a clue on what they’re doing! The next thing is the horrible reps they have on chat, which for a while was the only means of communication. They did add a phone number back again this year but either way you are getting foreigners who are also clueless and are of no assistance. There is NO customer service with Frontier which is a direct link to lost customers.
I agree with you to an extent. Frontier is absolutely missing out on connecting with the customer. It’s ridiculous that even in Denver you can’t find a CSR that works for Frontier.
To be clear, I’m not opposed to contractors. It makes sense at out stations, especially for foreign carriers, but at least you can get a hold of someone who works for the airline through the phone and is empowered to use their brain to help the customer.
At my airport, the Frontier workers couldn’t care less about the passenger experience and it feels like every time I pass by their counter there’s someone new working there.
United recognized the importance of touch points when it handed out wipes at the plane door. Those add up. When all Frontier customers remember is long check-in lines because of untrained staff, unempowered workers during IROPS and gate agents barking at you to pay for a carry-on because they have a financial incentive to charge you it doesn’t make for return customers.
Frontier needs to invest in its workforce if it wants to earn more revenue from customers, but it won’t.