A Frontier Airlines Airbus A320 arrives at LAX in May. (Photo by Aaron Bauer-Griffin)
Airline industry executives keep saying that the low-cost carrier segment is in trouble and that someone may even have to go out of business. What they don’t say is that while Spirit is in trouble, Frontier Airlines is not.
On Thursday, CFO Barry Biffle reported a series of visits to aircraft lessors. He said lessors want to lease to Frontier. “They see us as the last man standing in the U.S. market as we move forward,” he said at the airline’s second-quarter earnings call, referring to the last, best low-cost carrier left.
Lessors “know that low costs win. That’s why they’re betting on Frontier,” Biffle said, adding: “I know investors are thinking short-term. When you lease an aircraft, you’re committing to us for eight to 12 years.”
He also stated, “We will be the clear winner in the low-cost carrier segment in 2025 and beyond.” For the quarter, Frontier’s cost per available seat mile excluding fuel was 6.24 cents, United’s CASM excluding fuel was $12.10, while American and Delta both reported $13.14.
In a CNBC interview last month, Delta CEO Ed Bastian said demand is strong, “but the low end is challenging.” On Monday, CFRA analyst Siye Desta reiterated his sell rating on Spirit. In June, United CEO Scott Kirby said of the low-cost carriers on “The Air Show” podcast: “I think they’re going to go bust. It’s a fundamentally flawed business model. Customers hate it. Customers have voted, and they’re going bust.” Spirit CEO Ted Christie said in June that the airline was not considering filing for Chapter 11 bankruptcy.
As for Frontier, Biffle reiterated in an interview after Thursday’s earnings call that low prices are an advantage, especially in a slowing economy. He said he doesn’t see a recession, but “I think things are going to slow down. We’re already seeing people shifting gears. That means Walmarts, Costcos and Frontier are going to benefit.”
On Hilton’s earnings call Wednesday, CEO Christopher Nassetta said, “The bottom half of consumers, maybe even the bottom three-quarters, have less disposable income and fewer opportunities to do anything, including travel.” But Biffle said the group of lower spenders does not include Frontier passengers, who are generally upper class. “The top 10 percent of income accounts for 99% of all air travel,” he said. “That’s the upper middle class and above.”
“We’re like Costco,” he said. “There are a lot of Lexus cars in the parking lot, even in our parking lot.”
In the call, Biffle said Frontier’s prices are rising. “Prices in September have been positive,” he said, because airlines have been cutting capacity. “Many of the cuts have already happened,” he said. “The industry is responding to that capacity imbalance.” But he noted that Frontier’s costs are not rising to the level of its higher-priced competitors. “We’ve debunked the cost convergence thing,” he said.
Frontier’s recent innovations include adding more round-trip flights, fewer flights on Tuesdays and Wednesdays and opening 114 new routes, many of them on business routes such as Charlotte-Philadelphia rather than leisure routes. On the conference call, President James Dempsey said, “We typically have about a two-thirds success rate in new markets. The ones we think aren’t doing well, we’ve eliminated.”
Biffle said: “When you’re under pressure, there are people who can sit back and let things happen, or people who can actively manage the situation. We are the ones who are most proactive in dealing with challenges and meeting them head-on.”
In the second quarter, Frontier’s revenue rose 1% to $973 million. Net income fell to $31 million from $71 million. Margin was 3.3%. Frontier earned 14 cents per share, more than the 12 cents estimated by analyst reports based on LSEG data. Frontier said it will delay delivery of 54 Airbus jets to 2029-31 rather than delivering them between 2025 and 2028, which would slow growth. Frontier shares rose about 3% on Thursday but have fallen 40% since the start of the year.
In a report released Thursday, Melius Research analyst Conor Cunningham wrote: “The slowdown in growth should be positive for Frontier as the company looks to increase unit volumes.” The report said: “It will not be enough to meet the 10-14% margin target for 2025 announced in February, but it is a step.”
