In a deal tentatively agreed upon and subject to Frontier Pilots Association ratifying it, Frontier pilots will get an equity stake in Frontier Airlines. 

Parent company, Republic, led by CEO Bryan Bedford, has so far struggled to make Frontier truly work under its business plan.  Why?  In Frontier’s case, it was based upon lower oil prices (aka lower fuel prices) than exist today.

While Republic’s regional airline business is continuing to do well financially, Frontier’s isn’t.  It doesn’t help that it is hubbed in Denver and surrounded by two 800lbs gorillas:  United Airlines and Southwest Airlines.

Both United Airlines and Southwest have made it clear that they are there to stay in Denver while Frontier has flailed about attempting to survive.  One has to wonder if the Southwest purchase of Frontier wouldn’t have been a better deal both for employees of Frontier as well as investors.

In hindsight, Southwest’s “loss” in the bid for Frontier now looks like a far better choice and its admirable they walked away.  Now they’ve filled spots in their route map that were “must haves” and get to integrate a fleet and flight crew that more closely matches their own.

It’s notable that Frontier is struggling in its two focus cities of Milwaukee and Denver.  Frontier is bracketed with Southwest and United in Denver and bracketed with Southwest and Airtran in Milwaukee.  

In addition, Frontier lost the man largely reseponsible for producing profits at Frontier:  Sean Menke.  Menke has just agreed to go to work for Pinnacle Airlines, a competitor of Republic.

Is Frontier over?  No.  Can it survive in the long term?  Only if it breaks out of being in entrenched battles for its cities.  So far, Frontier has mainly concentrated on building new routes to lesser cities that connect back to its Denver hub and Kansas City focus city.  It needs more coverage across the United States and there are few cities that are ripe targets for Frontier’s entrance at this point.

In addition, starting new routes is mostly only possible with Republic’s E170/190 jets as it has no more A319 jets on order and only one more A320 jet due this year.  Additional A320s are to be delivered starting in 2015.

Republic Airways does have Bombardier’s CS300 on order (40 orders and 40 options) but those aircraft aren’t due until 2014 officially and they are likely to be as much as 2 years late.

One has to question whether or not a stake in Frontier has that much value over the next several years.  In the past, airlines could survive for years and still bleed money.  Today, airlines have to manage their cash very closely and Frontier isn’t generating enough positive cash flow to have a very optimistic future.  It’s possible that Republic could keep the company afloat but only with further concessions from labor and I think that is unlikely.

Filed under: Airline News by ajax