Growth plan: Frontier diversifies and expands

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Back in December 2013, when Indigo Partners purchased Frontier Airlines, the company inherited a struggling, heavily Denver-centric carrier.

In fact, Frontier's senior vice president – commercial, Daniel Shurz, characterized the carrier then as “90% Denver-focused.”

Two years later, Indigo, which is owned by veteran budget-carrier investor William Franke, has transformed Frontier into a profitable, ultralow-cost carrier embracing the Spirit model. And Denver, while still Frontier’s hub, only figures into about 45% of its routes.

Today, with that rebalancing act well underway, the carrier is set to expand. This year, Frontier will see its fleet grow from 56 to 65 planes as it takes delivery of 18 new aircraft while retiring just nine. 

Already the carrier has announced 56 new routes to commence between April and June of this year. They’ll mainly connect mid-size markets, such as Cincinnati, Charlotte and Portland, Ore., to major destinations like Chicago, Orlando and Phoenix.

Denver, too, will figure into the expansion, with the addition of service between the Mile High City and San Antonio; Columbus, Ohio; and Pittsburgh.

“We see this as a great opportunity,” Shurz said. “We are targeting markets that are overpriced and generally underserved.”

To people in some markets around the country, it might seem as if Frontier has already expanded service over the past two years. The carrier now flies to 12 locations from Las Vegas, up from the lone Denver-Las Vegas route at the time of the Indigo acquisition.

Similarly, Frontier has expanded its number of routes serving Orlando from six to 15 and has increased from three to 11 the number of destinations it serves from Chicago O’Hare. But what Frontier has really done until now is to reshuffle, not expand, its network. And it’s not just Denver that has seen a reduction in service. The carrier flew nine routes out of Trenton, N.J., two years ago, for example, and has dropped that number to four.

All told, in fact, Frontier serves just 46 destinations today, down from 69 two years ago. Its total number of weekly departures has remained more or less flat, at just under 1,700.

Shurz said the reorganizing has improved Frontier’s cost structure and positioned the carrier for its planned 2016 expansion. Meanwhile, the changes have not been limited to the route network.

In April 2014, Frontier changed its business model from that of a low-cost carrier to an ultra-low-cost carrier, charging extra for everything from carry-on bags to assigned seats to boarding passes printed at the airport. Last August, the airline rebranded what had been its discontinued Classic Plus bundled-fare package as the Works, which offers refundable fares, priority boarding, seat choice, a checked bag and a carry-on bag for an additional $49 to $69 each way.

Frontier has accomplished the changes while staying in the black. Net income for the first three quarters of this year was $113.7 million, according to the company’s Department of Transportation filings, up from $103.5 million for the same period in 2014.

Analysts say that Frontier’s quick transformation over the past two years has been unsurprising. Franke served as chairman of Spirit before bolting from the airline ahead of Indigo’s Frontier purchase. Indigo is also a major investor in the Mexico ultralow-cost carrier Volaris and the Hungarian ultra-low-cost carrier Wizz. In addition, Franke brought former Spirit marketing director Barry Biffle to Frontier to serve as CEO.

“It’s not like they have to spend a lot of time figuring out what they have,” said Henry Harteveldt, a travel industry analyst with Atmosphere Research Group. "Barry Biffle simply said, ‘This is what we did with Spirit; let’s copy it.'"

Harteveldt added that Biffle has sought to avoid Spirit’s worst pitfalls by pursuing measured growth and working to maintain a good reputation for customer service despite its ultralow-cost model.

Still, Frontier’s transformation hasn’t been all clear sailing.

For example, during each of the first seven months of 2015, as the carrier decentralized its route network, Frontier came in behind the on-time average for U.S. discount carriers, according to Flight Tracker.

The airline’s performance picked up substantially from August through September, exceeding the discount carrier average once, coming in below the average once and performing almost exactly at the average during the other three months.

“We’ve adjusted block times as we learn,” Shurz said, referencing the industry term for the amount of time a carrier leaves itself to complete a flight, gate to gate. “And on top of that we have block times that are [shorter than] the industry norms of low-cost carriers.”

Bob Mann of airline analyst R.W. Mann and Co. called Frontier’s approach to expansion and the ultralow-cost model, “informed trial and error.”

“They look for markets that are hindered by higher-fare competitors, then they come in and expand that marketplace by entering with their low cost structure and their fares,” he said.

Frontier’s transformation into the second-largest ultralow-cost carrier in the U.S. has fueled speculation of a merger with Spirit or another discount carrier, such as JetBlue or Allegiant.

Of those three, Spirit has garnered the most talk, in part because of the familiarity the management teams of the companies have with each other and in part because their route networks rarely butt heads.

In fact, Franke fueled such speculation a year ago at an airline conference in Dublin, when he said that he anticipated mergers among the U.S. budget carriers. But Frontier executives have since downplayed talk of a merger with Spirit.

Asked about the prospect earlier this month, Shurz responded, “No comment.”

Correction: Frontier's senior VP - commercial is Daniel Shurz. A previous version of this report had the wrong last name.

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