Bill Franke's Indigo Partners pioneered the ultralow-cost carrier (ULCC) airline model in the U.S. Indigo formerly owned Spirit and currently owns Frontier and the Hungarian carrier Wizz and is a major shareholder in Mexico's Volaris and Chile's JetSmart. Last fall, Indigo made the largest aircraft order in commercial aviation history: 430 Airbus narrowbodies that it will spread among its four carriers. Airlines editor Robert Silk interviewed Franke in Houston, where he was speaking at the CAPA Americas Aviation Summit.Q: Do you see yourself starting up a new North American airline? You've said that Canada is ripe for ULCCs
A: I think that between Allegiant, Spirit and Frontier, we're pretty well fixed. There is Sun Country, which just changed hands and whose CEO came out with the ultralow-cost model, so I'd be interested in seeing what he is able to produce. But, by and large, I'd say the market is pretty settled.
Q: Talk to me about the synergies that Indigo is able to facilitate among its various airline holdings. Offhand, I think about that record-breaking aircraft order and the upcoming Frontier/Volaris codeshare.
A: Those two airlines touch today in several markets. So it's a logical thing for us to move passengers across either airline. I think with a very modest cost to efficiency we can develop a very significant traffic pattern.
Q: What complexities do codeshares introduce?
A: We've got to move your bags. We've got to move you. Those are the major ones.
Q: What has held back such ULCC partnerships to date?
A: We all live in a box, and this is the way they've always done it. This codeshare between Volaris and Frontier is a first. Let's just see how all it goes. But I bet money you'll see different opportunities to cooperate. The Airbus orders are a classic example. All four airlines participated, and as a result we are able to negotiate a very attractive transaction.
Q: Where do you see the Frontier network going?
A: When we acquired Frontier it was a Denver-centric airline. We have worked to diversify the network. You'll see that continue as we extend the flying and reduce our exposure to the ups and downs of the Denver market.
Q: Will you also pursue more connecting service?
A: There will be some connecting service out of Denver, but at the end of the day, the ULCC model is focused on point-to-point flying. To the extent you can connect a passenger, it's to your advantage to do that. But it can't drive the system. We are not a hub-and-spoke carrier.
Q: I am sure you recall how United president Scott Kirby reacted to a major Frontier route announcement last summer that included connecting service, saying, more or less, "We win. The ULCCs have run out of places to fly."
A: I know Scott quite well. Smart guy. High-energy guy. But he likes to think he's always right, and he's not always right. At the end of the day, we're going to do what we're going to do. We have a cost structure that is 40% lower than his cost structure. So it just depends in some markets on how much money he wants to lose.
Q: ULCCs make up 6% to 7% of U.S. airline capacity. In Europe they make up 40% by some measures. You've talked about U.S. ULCCs getting up to 20% market share. How does that happen?
A: Connecting more and more points is part of it. Part of it is attracting more customers who want to pay a lower fare and who are tired of the higher-cost model that is produced by the legacy airlines.
Q: How do you overcome the mindset of the public that ULCCs don't do things as well, especially after the recent "60 Minutes" report about Allegiant's safety culture?
A: At Frontier we are not flying older aircraft, for one. And number two, we are very focused on properly maintaining those aircraft. Just from a selfish perspective, can you imagine what happens to the value of an airline when there is a major negative event? Not only is that a terrible thing from a flyer's perspective, from an investor's perspective it is terrible.