Can Frontier become an ultra-low-cost airline worth buying? (Business & Travel)

By Charisse Jones and Nancy Trejos, USA Today, March 5, 2012, http://travel.usatoday.com/flights/story/2012-03-04/Can-Frontier-become-an-ultra-low-cost-airline-worth-buying/53356340/1?csp=ip

Is there room for another ultra-low-cost carrier like Spirit, which offers fares as low as $9 but charges plenty of extra fees — even to carry on a bag? Or like Allegiant Air, which will sell you a tour package along with your low fare?

Travelers may soon find out. As soon as this week, Republic Airways Holdings, which owns Frontier, may start searching for someone to buy the low-fare airline, or start the process to split it off as a separate company that follows the Spirit or Allegiant model.

Frontier is probably best known for the colorful animals on the tails of its planes and its loyal following in Denver. But it's been largely a money loser for Republic, a regional airline company that bought it roughly three years ago. And now, Bryan Bedford, Republic's CEO, says it wants to cut it loose.

"The biggest challenge we've had is convincing our shareholders that it was a good investment," Bedford says, adding that Republic hopes to name an adviser in the next two weeks so the process of selling Frontier or making it a separate company can begin. "They didn't agree that long term these were two businesses meant to be together."

In the meantime, Bedford says, Republic is forging ahead with its strategy to make Frontier into a "more pure low-cost carrier" that offers cheap fares but charges for extras similar to Spirit and Allegiant, which define the "ultra-low-cost" space of air travel.

Frontier already offers passengers the chance to book some vacation packages, a hallmark of Allegiant. But unlike Allegiant and spare-frills Spirit, it doesn't charge for booking a trip by telephone. And Spirit takes extra fees a few steps further, charging travelers for carrying on a bag and even for having an airline worker print a boarding pass.

Frontier also differs from Spirit and Allegiant in that it offers reclining seats, round-the-clock satellite TV and extra legroom in its economy cabin, says Henry Harteveldt, airline and travel analyst at Atmosphere Research Group.

Service won't disappear as Frontier reshapes itself, Bedford says. "People understand Frontier stands for value," he says. "Generally, it's the lowest-cost ticket from point A to point B. But you've got comfort, live TV, terrific flight attendants and ground personnel. Unlike some, being a low-cost carrier doesn't necessarily mean less customer service."

Lindsey Carpenter, a Frontier spokeswoman, says the company will seek extra fees "where it makes sense," but not "to the point that Spirit has."

Some analysts say there's room for another ultra-low-cost carrier.

"Air travel is very expensive," Harteveldt says. . "There are people who are … being priced out of traveling. So if Frontier can find a way to serve these customers, then there may be an opportunity for them to take business away from Spirit or Allegiant."

The move to charge fees for extra perks and for services that used to be bundled into the price of a ticket may make financial sense. Spirit and Allegiant have found profit using the model.

"All airlines are unbundling (fare prices) to some degree," says airline analyst Mike Boyd. "People will pay it. Why leave money on the table?"

Despite Frontier's strength in Denver, the airline doesn't have as large a network or the same frequency of flights as United and Southwest, which also count Denver as a stronghold, Harteveldt says. But there could be an opening as United completes its merger with Continental.

"If it pulls flights down in Denver, or the (United) merger doesn't go well and there are disappointed travelers, Frontier may have an opportunity to capture some of those customers," Harteveldt says. "Right now, the airline industry is a land grab, even though there's been a lot of consolidation. This is an industry where victory can be gained around the margins."

Frontier may have opportunities as Southwest and AirTran pull out of some markets as they merge. Last week, for instance, Frontier said it would begin non-stop flights between Orlando and Allentown and Harrisburg, Pa., routes that were flown by AirTran.

Though Frontier has steadily lost money, it had a $7.8 million pretax profit the last quarter of 2011, compared with an $11.2 million loss for that period the year before.

Still, some analysts say it could be difficult for Frontier to find a buyer — or even survive.

"They certainly had a much better fourth quarter, but one quarter does not a trend make," says William Swelbar, a research engineer at MIT's International Center for Air Transportation. "2012 promises to be a difficult year for the industry, so I would say their work is far from done. It's hard to imagine that any airline would want to spend money on this."

Jay Sorensen, president of the consulting company IdeaWorks, agrees. "Someone wouldn't buy it unless they're buying something of value," he says. "This is an airline that has a tremendous amount of problems, and I don't see a bright future for it."