Frontier plans capacity boost betting on recession-wary US travelers
CHICAGO, Aug 16 (Reuters) – Frontier Group Holdings Inc (ULCC.O) is aiming for capacity growth of up to 20% over the decade, chief executive Barry Biffle told Reuters, as the airline lowers its Price strives to take a bigger share of the United States. leisure travel market from its rivals in a weakening economy.
From 2024, the Colorado-based carrier aims to increase capacity, or the number of seats it offers, by 10% to 20% per year as it seeks to position itself as America’s low-cost airline. price after the recent collapse of a merger deal. with its competitor Spirit Airlines (SAVE.N). JetBlue Airways Corp (JBLU.O) prevailed over Frontier after a months-long bidding war. Read more
Frontier, which is about 82% owned by Bill Franke’s Indigo Partners, previously told investors it would increase capacity this year to as much as 15% above pre-pandemic levels and said it increase by 30% year-on-year in 2023.
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If Frontier hit the high end of the previously undeclared long-term growth target, it would appear nearly the size of 2019-era American Airlines (AAL.O), before COVID-19 sent the travel in a sharp decline.
“We will now be positioned in the market as the only ultra-low-cost national carrier,” Franke told Reuters.
Frontier’s merger with Spirit would have created a low-cost airline giant and the fifth-largest airline in the United States. Read more
Now the company is warning rivals that it will fight to take shares on its own. It will reduce base fares to fire sale prices, seek to increase non-ticket revenue and take advantage of the withdrawal of some US airlines – and Frontier’s relatively larger pilot pool – to open up new routes.
Major US carriers have been forced to reduce capacity due to staff shortages. American Airlines, for example, expects capacity to be down 9.5% this year compared to 2019.
WALMART OF THE SKIES
Frontier is betting that a low-cost, low-cost business model will fuel its growth in a recessionary environment.
“In every recession, Walmart (WMT.N) is doing well and Nordstrom (JWN.N) is struggling. So what business model do you want to be in? You want to be in low cost,” Biffle said.
Frontier shares gained nearly 40% following the termination of its merger agreement with Spirit in late July.
Immediately after the cancellation of the Spirit deal, Frontier launched a limited-time $19 fare sale for 1 million seats. Biffle said the sale led to a 10 percentage point increase in bookings compared to the first half of the year.
Henry Harteveldt, founder of travel consultancy Atmosphere Research Group, said selling fares shows Frontier is “a very nimble and very aggressive competitor”.
Last week, Frontier launched nonstop service to four cities from its base in Las Vegas. It is expected to launch new nonstop service between Denver and Houston next month with fares as low as $69.
The airline also sees opportunities in smaller cities that are losing air service due to pilot shortages at major carriers, Biffle said.
At the same time, Frontier has made it clear that it will withdraw service from existing airports if there is a mismatch between what it can charge and costs, as it has done with Los Angeles, Washington-Dulles and Newark where he said airport costs were excessive.
Frontier’s strategy is based on offering ultra-low fares despite high fuel and labor costs. It seeks to achieve this by increasing its non-ticket revenue through new ancillary products and services.
The airline charges additional fees such as baggage, seat selection and assistance at its counters. But there is a risk of customer pushback if certain non-ticket fees appear as “nuisance fees”, Harteveldt said.
Likewise, the company could struggle to attract pilots in the future if major carriers continue to raise wages, Harteveldt said.
In response, Frontier highlighted its success in increasing non-ticket revenue and said its pilot salaries were competitive with major carriers. To secure the supply of pilots, the company said it has launched a cadet program through which it plans to recruit pilots in two years.
Delivery delays at Airbus (AIR.PA) are also likely to slow Frontier’s ramp-up. Biffle, however, only sees this as a problem if all of his planes are delayed by five months.
‘WAY TO HELL’
Frontier’s strategy is rooted in Franke’s belief that failure to manage costs is the “way to hell” for airlines.
The 85-year-old entrepreneur, the pioneer of ultra-low-cost air travel, stuck to that view in the bidding war for Spirit and refused to further sweeten his $2.7 billion bid for beat JetBlue’s $3.8 billion cash offer.
The decision cost him a deal he had been seeking for nearly a decade, but Franke said he was okay with the end result.
“It’s generally not wise to be emotional about business transactions,” he said.
Franke’s airline-focused private equity firm, Indigo Partners, also has stakes in Wizz Air Holdings Plc (WIZZ.L), Chile’s JetSMART and Mexico’s Volaris.
He is open to new investment opportunities in the sector and does not rule out making a new offer for Spirit, of which he was chairman from 2006 to 2013, if his transaction with JetBlue does not succeed.
Franke insists that ultra-low-cost carriers focus on leisure travelers, who want “safe and comfortable” air travel at a “very reasonable cost”.
He dismissed criticism of the quality of customer service, citing data from Europe where low-cost carriers like Ryanair Holdings Plc (RYA.I) and Wizz Air hold more than 20% market share and dominate the short-haul leisure travel.
“It’s a clear indication that we’re providing a service that people want,” Franke said.
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Reporting by Rajesh Kumar Singh in Chicago Editing by Kevin Krolicki and Matthew Lewis
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