Tag Archives: Aaron Newman

Planely Speaking: The Battle for the Big Peach

Assistant Editor Aaron Newman

Assistant Editor Aaron Newman

Assistant Editor Aaron Newman

The Battle for the Big Peach

By Aaron Newman.

The world’s busiest airport will become the latest low-cost battleground this spring and summer as Spirit Airlines and Frontier Airlines deem Atlanta as their newest expansion target. By September 2015, Spirit will provide service to 15 cities from Atlanta; while Frontier will expand to 16 cities by the end of this month. With competition from Southwest and of course the hometown favorite, Delta Airlines; does Spirit and Frontier stand a chance at success in the big peach?

Frontier Airlines and Spirit Airlines routes from Atlanta

Frontier-Spirit ATL Graph

In the case of Frontier, Delta serves all of the above markets, and Southwest will compete on seven of the markets. In the case of Spirit, Delta operates service to all of the above markets except Atlantic City; while Southwest again competes on seven of the above routes.

It’s likely this aggressive growth stems from the purchase of AirTran Airways by Southwest; AirTran’s disappearance from ATL left a void for a true low-cost carrier in Atlanta. Frontier and Spirit perceive Atlanta as an opportunity to use their low-cost model to attract cost conscious north Georgia residents to travel where they otherwise wouldn’t.

Data from the US Department of Transportation demonstrates that during the 3rd quarter of 2014, Atlanta’s average domestic fare was $439, while, the average US domestic fare was $397–Spirit and Frontier advertise fares starting as low as $19 one-way.

Spirit ATL Map

Source: Spirit Airlines.

In a contrast to Cleveland, another market where Frontier and Spirit are doing battle in 2015, Atlanta is not an airport where any major airline has made a substantial cutback. Southwest has made some minor changes to its route network post-merger, but nothing like the 60% capacity reduction seen by United Airlines at Cleveland. Frontier and Spirit are aware that they are in for a battle before one airline eventually wins out. Can both of these airlines survive the threat from each other, as well as the size of Delta and the loyal followings of Southwest’s customers?

Frontier ATL Fares

Source: Frontier Airlines.

Who wins out?

Above Copyright Photo: Tony Storck/AirlinersGallery.com. Spirit Airlines Airbus A319-132 N503NK (msn 2470) prepares to land at its Fort Lauderdale-Hollywood International Airport (FLL) base.

Spirit has been growing quickly and their experience as an established ULCC (ultra-low cost carrier) gives them the upper hand in this turf war with Frontier. Spirit has a slightly lower CASM (cost per available seat mile) than Frontier (marketrealist.com), giving them the ability to offer lower fares while still maintaining profitability. The newly announced routes come at a time in which Spirit is preparing for a wave of aircraft deliveries (15 aircraft in 2015) that will push its fleet to 80 aircraft by the end of 2015–an added incentive to make Atlanta work for their bottom line. Spirit had long considered an Atlanta expansion, calculating that the Southwest Airlines acquisition of AirTran Airways would increase fares. What Spirit may not have expected, however, was that Frontier Airlines would try the same approach at the same time.

Copyright Photo Above: Ken Petersen/AirlinersGallery.com. Frontier Airlines’ Airbus A320-214 N227FR (msn 6184) is pictured at Raleigh/Durham.

Frontier’s route network is accustomed to change and though I believe one ULCC can gain market share in Atlanta, I predict Frontier will eventually leave or drastically reduce service in Atlanta due to disappointing bookings and slim margins caused by over-capacity. Ultimately, consumers will make the decision, regarding which ULCC they prefer, specifically on routes in which the two carriers overlap, such as Atlanta to Chicago (O’Hare) and Las Vegas. But, as mentioned, Spirit is believed to retain a slight cost advantage over Frontier, ultimately giving them the upper hand.

Surviving the big guys

In a recent presentation to investors, Spirit Airlines estimated Delta has an adjusted cost per available seat mile (CASM) 59% higher than Spirit (Atlanta Journal Constitution). Even though Delta has created a new low-fare class with limited perks in an attempt to compete with ULCC’s, Spirit predicts legacy carriers will eventually narrow their focus to high-yield passengers on over-lapping routes. This allows Spirit to concentrate their efforts on their favorite audience—the leisure traveler. Additionally, Spirit has historically coexisted well in other fortress hubs, like; Detroit, Minneapolis, Houston (IAH), and Dallas (DFW), proving they can effectively compete with larger, legacy carriers.

ATL Market Share

I conclude that Spirit and Frontier are not entering Atlanta to gain market share from Delta, but rather Southwest. Delta’s numerous frequencies, extensive network, and corporate contracts are no match for Frontier and Spirit. The two ULCC’s believe they can use their ultra-low fares to stimulate cost-sensitive passengers that have otherwise been priced out of air travel. This business model does not directly compete with Delta, but rather Southwest.

The decisions by Spirit and Frontier to grow in Atlanta demonstrate that Southwest is no longer the low fare leader it once was. Their cost structure is higher than that of the ULCC’s competing for lower yield passengers. In a recent interview, Frontier’s president Barry Biffle called Southwest a “mid-cost carrier,” and said that in Atlanta, “fares are relatively high compared to the average,” (Atlanta Journal Constitution) creating an opportunity for a ULCC to come in and thrive.

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Introducing a new Guest Editor: Aaron Newman

Planely Speaking

Guest Editor Aaron Newman
Aaron Newman (small)

Frontier Airlines: An Indigo Shaded Change

By Aaron Newman

Frontier Airlines, no stranger to change and restructuring, is on the cusp of another major move. A move will not only impact themselves, but the industry as a whole. Bryan Bedford, CEO of parent Republic Airways, made it recently clear they are shopping for a potential buyer for the airline. “If a binding sales agreement is reached … we currently would expect such a closing to occur late in the third quarter,” Bedford reiterated this on a recent conference call, according to Reuters. Republic Airways has been shopping for a buyer since 2011; however it looks as if a serious potential suitor has been lined up.

As reported by World Airline News and others, Indigo Partners have been interested in buying the Denver-based airline and Bedford made it clear an announcement may be coming any day now.  “While both Indigo Partners and Republic Airways have declined to comment on the matter, Republic reportedly told investors in an earnings call in July that it expected to sell Frontier to an unnamed purchaser by September”, according to this report by ibtimes.com. There has been no shortage of speculation on this potential acquisition, and with another ultra-low cost carrier in the mix, what impact does this have on the domestic airline industry?

My Take

If, in fact Indigo Partners does purchase Frontier Airlines, expect a move further toward the Ultra-Low Cost model. More ancillary revenue strategies such as; marketing tactics to increase website traffic, removing Frontier’s Stretch Seating for additional rows of seating, increased baggage fees, and bundling vacation, car and hotel packages–something Allegiant Air and Spirit Airlines have perfected.

Frontier currently offers many levels of tickets based upon what the customer wants, they offer the Classic Plus, Classic, Economy, and the newly introduced Basic ticket. The Basic ticket is any ticket purchased outside of the FlyFrontier.com website. I look for this model to continue, as most customers like the flexibility that the Classic and Classic Plus ticket offer. But, look for the price variances between the four tickets to increase, offering the flexibility to choose a higher priced ticket to include bag fees, and reservation changes. Basic and Economy tickets will offer a lower priced ticket, accompanied with the option for consumers to pay a la carte for extras.

The biggest question for a restructured Frontier Airlines; what does the route map look like in the months, and years ahead, and what is Denver’s role in the transition? I foresee Frontier slowly moving away from the intense competition in Denver and adopting a route map similar to that of Allegiant Air. Serving cities with less competition and attracting the leisure traveler to vacation destinations in places like Orlando (MCO), Las Vegas, Cancun, and Punta Cana. I expect a large presence to remain in Denver; however I do not expect Denver to act as a hub with less focus on connecting traffic and an increased focus on point to point traffic.  In summary, Frontier will be slowly ‘de-hubbing’ Denver while looking for a route strategy that works well with a changing business model.

July 2013 Route Map

Frontier (2nd) 7:2013 Route Map

The competition in Denver from a growing presence by Southwest Airlines and legacy carrier United Airlines has caused Frontier to experiment with cities like Trenton, NJ and Wilmington, DE. Frontier has created focus cities with large surrounding populations with no commercial service prior to Frontier’s entry into the market. I’m looking for Frontier to explore more cities like these; taking a page from Allegiant’s playbook by offering fewer frequencies to ensure high load factors while taking advantage of low airport costs. These airports often offer financial incentive packages minimizing risk, while testing new markets. This may cause Frontier to enter and exit markets quicker than most airlines would; look at recent announcements from South Bend, IN and Rockford, IL.

Frontier’s recent announcement of their exit from Albuquerque, NM in January is a microcosm of their flee from direct large carrier competition. With service from WN and UA, Frontier could no longer compete with Southwest and United on a lower profile route like ABQ-DEN. Contrast that decision with their recent move to increase service to Eugene, OR, Fresno, CA, and Palm Springs, CA.  Frontier will begin looking for more cities similar to these where legacy service is limited, leisure travel is in demand and airport costs are at a minimum.

Source: flyfrontier.com

Impact on the Industry

The airlines most affected by this move are United, Southwest and Spirit. The winners in this move are United Airlines and Southwest Airlines. As Frontier begins to move operations away from Denver, competition on several routes will decrease, and fares will potential increase. United and Southwest will continue to grab the largest share of the local Denver market while Frontier will potentially escape to capture underserved markets for leisure travelers.

Spirit Airlines will be the most affected by this move as it will not only have another competitor in the ultra low cost market, but it will lose William Franke and Indigo’s expertise to Frontier. Spirit announced an 8.5% profit margin in the quarterly earnings ending in June, and shares of Spirit have nearly tripled since the company’s IPO in 2011. Indigo and CEO William Franke has been successful with Tiger Airways, Volaris, Wizz Air and most notably Spirit Airlines.  Frontier’s move to an all Airbus A319 and A320 fleet, service to new under-utilized markets and new focus on increased ancillary revenues has some industry insiders speculating a Spirit–Frontier merger on the horizon.  What do you think? What does a “new” Frontier Airlines look like in the months and years ahead?

Recent World Airline News articles on Frontier Airlines:

https://worldairlinenews.com/2013/05/17/frontier-airlines-updates-its-livery-to-promote-its-website/

https://worldairlinenews.com/2013/05/02/frontier-uses-a-new-strategy-for-services-and-fares/

https://worldairlinenews.com/2013/04/11/denver-post-indigo-partners-is-interested-in-acquiring-frontier-airlines/

Aaron is a relatively new AvGeek who obtained an appetite for the industry in college while flying in and out of LAX observing the diverse liveries, and large bodied planes. Aaron studied International Business in college and found himself writing the majority of his case studies and papers on the airline business. He currently works in the oil industry and maintains a part-time job as a Customer Service Agent to satisfy his passion for planes, airlines and traveling. You can leave a comment, or you can contact Aaron directly at aaronnewman34@gmail.com.

Top Copyright Photo: Tony Storck/AirlinersGallery.com. Airbus A320-214 N220FR (msn 5661) with Sharklets and the new FlyFrontier.com full-fuselage titles prepares to land at Washington (Reagan National).

Frontier Airlines Slide Show: AG Slide Show

Bottom Copyright Right Photo: Eddie Maloney/AirlinersGallery.com. Also in the updated look, Airbus A319-112 N954FR (msn 1786) lands at Las Vegas.