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Fearless Frontier Picks a Fare Fight With Airline Giants

Bloomberg logoBloomberg 8/3/2017 Justin Bachman
 © Photo by Andy Cross/The Denver Post via Getty Images  

Frontier recently jolted the U.S. airline industry by issuing a press release that brimmed with boldness. Given the implications of the scrappy carrier’s news, the superlatives were arguably a harbinger of war.

A fare war, to be exact.

The ultra low-cost carrier (ULCC) that sports wild animals on its tails plans to double its footprint by next summer, adding 21 cities and 85 routes for a total of 1,000 routes that will enable it to reach 90 percent of the U.S. population. The expansion has a heavy focus on Florida and Denver, Frontier’s home base, and is part of a planned expansion that will see its fleet rise from 75 Airbus SE A320-family aircraft to 120 planes by 2022. By spreading its lower fare flights across most of the country, Frontier crowed, it will save travelers more than $1 billion.

“By taking advantage of our natural share of connecting passengers, we can offer our low fares to even more of America,” Frontier said. “This is particularly important through our largest hub and our home in Denver.”

The July 18 news drew a quick response from United’s president, Scott Kirby, who has used the phrase “natural share” to describe his company’s growth plans at its main airports. Denver, incidentally, is the most profitable of United Continental Holding Inc.’s seven U.S. hubs.

Kirby, who as president of American Airlines Group Inc. led the industry’s first real pricing war against ULCCs, said the Frontier news illustrated a lack of growth opportunities for such carriers. “They’re now competing on our turf and trying to be a network carrier in Denver,” Kirby said, throwing down the gauntlet for little Frontier by declaring it “a battle I guarantee United will win.”

Frontier counters that it’s merely doing what growth airlines do—namely, begin service into markets where they sense opportunity. Kirby’s comments were a “selective interpretation” of its plans, Daniel Shurz, Frontier’s senior vice president-commercial, said Friday in a telephone interview. “We are continuing to build a nationwide, low-cost, primarily point-to-point airline,” he said. “We have not suddenly announced a huge change in the core strategy of the business.”

“If we were going to just copy what United has done, yes, it would drive up our costs”

In 2013, before Frontier was purchased by private equity firm Indigo Partners and converted to an ULCC, about 90 percent of its capacity involved Denver. Today, the city represents about 40 percent after Frontier sought to diversify nationally. The new routes will allow it to connect more of its new traffic through Denver, which is the key to United’s profitability there. But Shurz says the comparison will continue to be David vs. Goliath, since his carrier’s overall Denver service will remain at just 70 daily departures in peak times, while United has more than 400.

Currently, about a quarter of Frontier’s passengers transit through Denver, until recently the only city where it sold connections. In the coming months, Frontier plans to offer connections in more than a half-dozen cities, including Austin, Cincinnati, Cleveland, and Orlando, spokesman Richard Oliver said.

“We are not moving all of the assets back to Denver,” Shurz said, arguing that the new routes from there will work at Frontier’s current cost structure. “If we were going to just copy what United has done, yes, it would drive up our costs.”

These new connections in Denver are likely to trigger a pointed response from not only United, but also Southwest Airlines Co., which counts Denver as its fourth-largest airport, with almost 200 daily flights. Consider two of the new midsize cities Frontier is adding, Boise, Idaho, and Oklahoma City. This summer, United has four daily flights from Boise to Denver, and five from Oklahoma City. (Southwest has two and three nonstops, respectively.)

Despite the daunting odds of success, Shurz maintains that all three carriers serve unique customers: United with a full-service global network, Southwest as the traditional domestic carrier with free checked bags (and higher fares to match), and Frontier as the low-cost champion to fly the financially pinched. Most of the new flights will be once daily or less frequently, a schedule that further differentiates the legacy airlines’ customers from those who choose a no-frills operator such as Frontier or Spirit Airlines. Moreover, Frontier’s cost structure is durable enough to withstand the competition, he said, much as Spirit weathered the 2015 onslaught Kirby launched from American.

Its other focus, Florida, is the land of the low-cost airlines and an active airline battlefield. Both Southwest and JetBlue Airways are building large operations at Fort Lauderdale, which is home turf for Spirit. The Sunshine State is also attracting ULCCs, with about 60 percent of Allegiant Travel Co.’s seat miles there this year and 45 percent for Spirit, according to trade journal Airline Weekly. At Frontier, more than one-third of its capacity will soon touch Florida, owing to its increased flying in Miami, Orlando, and Tampa.

“I remember our obituary being written lots of times” 

Shurz says Florida has been underserved by low-fare airlines in recent years, relative to a tourism base that lures families on budgets. “Leisure destinations are the ones to which we are most ideally suited,” he said.

While it’s clear Frontier is girding for a fight, it appears unwilling to drag investors into the fray, delaying plans for an initial public offering. The IPO has been put off until at least September, Bloomberg News reported. Shurz declined to comment on the offering.

Recent fare skirmishing between United and Spirit, coupled with financial head winds facing Allegiant, may raise questions about whether these cheap-fare carriers, the U.S. kin to AirAsia and Ryanair Holdings Plc, will be crushed by their behemoth rivals. That didn’t happen in Europe, where ULCCs such as Wizz Air Holdings Plc and EasyJet Plc command about one-third of the air travel market. In the U.S., it’s roughly 10 percent.

“Is the age of outsized ultra-LCC profitability in the U.S. coming to an end?” Airline Weekly asked in its July 30 issue. Says Shurz: “I remember our obituary being written lots of times.” 

To contact the author of this story: Justin Bachman in Dallas at jbachman2@bloomberg.net.

To contact the editor responsible for this story: David Rovella at drovella@bloomberg.net.

©2017 Bloomberg L.P.

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