Yeah, I had no idea that things were that bad a frontier. I guess that I should have though that things were bad. Fuel costs are all over the place, they have WN and United at Denver and Airtran and WN in Milwaukee. One thing I know about WN is that they are like sharks. When they smell blood in the water they attack. While the skywest flights are gone don't look for them to let up especially with fuel costs on their way down. They would love to put frontier out of business.

I have questioned, like a few others on here about WN plans for the MKE hub of FL. I am this gut feeling that since MDW is so close and this being such a substantial connection point along with STL that you may only see a few of the FL routes retained as P2P routes. I could be wrong tough. We all know that FL was purchased for the ATL hub (like the bid for F9 in 2009 was for the quick growth into the DEN market) not so much for the routes.

Bedford's letter was an honest and frank assessment of the issues Frontier is facing. Say what you will about Bedford, but at least he's candid about the challenges confronting the airline.

IMO, the situation Frontier currently finds itself in are caused primarily by high fuel prices, use of high CASM aircraft (E170 and smaller), and the Milwaukee hub. There are other issues, of course, but these are the big ones.

For fuel, I don't expect Frontier to get much relief anytime soon. Despite the recent drop, the price of oil still hovers around $100 a barrel. As the global economy continues to recover and demand increases, the cost of oil will rise. Include the turmoil in some major oil producing countries and you have a very volatile situation. Frontier is smart to craft a business plan around $140 oil as that is where prices are likely headed. They can take some steps to mitigate the impact, such as hedging, use of more economical aircraft, fare increases (assuming the competition goes along), etc. However, this will only accomplish so much.

On the use of high CASM aircraft, Republic is in the process of removing the E170s. It helps that they can send these planes to the CPA side for profitable flying. After reading Bedford's memo, I was a bit surprised to see that E145s will be replacing some (all?) of the E135 flying but it sounds like Republic needs to find a home for those planes.

Regarding Milwaukee, it's clear that Frontier is losing big money there. Despite what some on this board believe, Milwaukee is not a two hub airline town. The market is simply too small. Add in intense competition and lowest in the industry yields and it's clear something dramatic needs to happen. Given AirTran's Q1 loss (especially the operational loss) it's apparent they didn't make money in Milwaukee either but yet they continue to push forward with few overall cuts. It's amazing that with oil at $100 AirTran continues to aggressively push $99 fares to the West Coast. The East-West flying has to be bleeding red ink.

Some may point to the record passenger levels MKE has experienced in recent years as "proof" that all of the added capacity can be supported. However, that traffic growth primarily came from huge amounts of connecting traffic flowing through the hub and stimulation by loss generating fares. It was unsustainable and some rationality needs to return to the market.

Obviously, the situation in MKE is such that Frontier can no longer wait for Southwest/AirTran to begin right sizing. So, it means Frontier will have to begin making cuts and this is what they've already started doing. In last weeks OAG thread, flying to PHX and Florida got whacked pretty significantly. The added frequency to BOS and LGA (which were originally scheduled to not be seasonal) will be eliminated in early fall. Every time another spoke or frequency is cut, the overall viability of the MKE hub comes into question.

While I'd hate to see this happen, from a business standpoint Frontier should pull the plug on the MKE hub if there is no hope of turning things around in the foreseeable future.

Tough times ahead for Frontier. I wonder what the exit strategy is if the board decides to throw in the towel on the branded operations?

In some respects, it feels like we're living 2008 all over again with the restructuring of Midwest.

The For Sale sign will be out soon. If it isn't already.

Its been up for a while, Seabury put it out there a few months ago. Bedford is a talking head just like Hoeskma was in the final year of Midwest. Seabury is making all the moves now, which is why he talked about cost cutting, something Seabury loves to do.

Considering how Republic is blowing through its unrestricted cash, significant cost cutting will have to be undertaken to keep the airline afloat. That will have to be done whether the branded operations are maintained, sold, or ....-down.

Hopefully they're looking at every aspect of Frontier's operations, from top down.

If Republic's board does decide to go ahead with a restructuring of Frontier, I hope Management handles things better than Midwest did in 2008.

I didn't know Seabury was already involved. I had a feeling things were not going well at Frontier before they announced MKE cutbacks. One strong sign was that the advertising campaign Bedford talked about never really happened. Buddy was to star in some of the commercials. If Frontier has to be sold, I am hoping JetBlue will be interested.

It's obvious. Frontier's problem is pilot compensation. If Bedford had any business sense, he'd replace Airbus flying with E190s and their lower paid flight crews. Problem solved.

Luckily Seabury is only responsible for one little part of the organization and not the whole thing and it's what they're good at doing. The decisions they make in this area have no possibility of affecting the major organization or employment, it will help with cost savings, not to be confused with cost cutting. Not going to go any farther than this though, just wanted to qualm a little fear that Seabury was making all the decisions.

Bedford led Frontier out of Chapter 11. It looks like they may be headed right back.

Not at all. The problem is that management made the decision to pour resources into MKE, a "hub" that can't even support year round west coast service, at the expense of DEN where a large national network already existed. The result is that F9 basically lost their most valuable asset in DEN to WN hoping that AirTran would eventually just go away, or downsize, in MKE.

Thanks for the clarification in regards to Seabury. I'm curious about Bryan's mention of the E190s being moved to the F9 Certificate. I think I know why... Republic doesn't want the E190s on their certificate because they can't fly them for anyone else if Frontier is forced into bankruptcy or a sale. It is a way of protecting Republic from financial hardship.

Beyond that, The E-jets are just like the A320 series of aircraft. You don't need to completely re qualify pilots from the E170, E175, E190. So for right now, it is definitely cheaper for RAH to keep the airframes on the existing certificate

The current tumult comes at a time when I can't dedicate even 10% of what I'd like to the debate, but I'd like to make these points, at least.

The employee memo really doesn’t say anything more than what BB already said in the quarterly earnings call. That’s not so make light of the circumstance – if anything perhaps it suggests that some of the information in the Q1 conference call flew under the radar of some. But Bedford was pretty clear at that time that a looming task was not only to devise a way to make the company profitable, but to convince the powers that be to continue funding this program as an ongoing entity. The red-letter day is this week, hence the mention in the employee memo.

I don’t think there’s anything to suggest that things are any worse than they were a few weeks ago when the Q1 call was. It’s just an update as d-day approaches.

At this point, there’s undoubtedly a plan to right the branded operation – this is the time when Bedford needs to sell it to the decision makers.

What we don’t know is how much of that plan is already announced and in the works, and how much of the plan is yet not announced. We also don’t know how much of the plan comes from changes in flying, versus how much comes from changes in fleet, versus how much comes from non-flying sources of cost reduction.

Bedford isn’t going in front of the board without a plan – his task is to show them enough financial improvement within the plan to justify continued investment. From our perspective, we know some of the aspects of the plan. Part of it certainly includes reduction in Milwaukee, which with already-announced cuts is down around 20-25% in ASM’s. The fleet change benefits – especially the redirection of E170 but also replacing A318 and E135 flying with better-CASM aircraft – are also undoubtedly part of the plan. We don’t know if already-announced changes represent 35% of the proposed plan, or 85% of the proposed plan, or what. Even if the already-announced changes are shown to yield enough improvement to right the ship (and I’m certainly not saying they are) the BoD still needs to be sold on the idea to continue supporting the business while the changes yield results.

If the plan includes more changes in the Frontier network – which it well could – Milwaukee of course comes to mind. It’s a fairly obvious thought since Milwaukee has clearly lost a lot of money for Republic. Rather than a flippant “Milwaukee” on the list of what to cut, I think it’s worth looking at exactly what there is to cut.

(1) RJ’s
The majority of flights in Milwaukee – service to about two dozen cities – are RJ markets. The memo specifically speaks of the RJ operation in terms that suggest it will continue. That doesn’t necessarily mean zero reductions in that segment, as the upcoming end of RDU service suggests. But several of the RJ markets are high-fare routes, and the only RJ market with LCC competition is MSP. Even the longer-haul routes to PHL and EWR, which would probably be a better fit for E-jets, are rather high fare markets and which have only RJ competition.

(2) East Coast Mainline Business Markets
These three markets, Boston, New York, and Washington. Are what should be the biggest earners for the MKE hub, but the AirTran fare pressure and overcapacity (especially in the offseason) have led to red ink, at least for part of the year. Should Frontier cut here? Perhaps, but these are markets that likely make money in stronger seasons, or have the best shot at making money with merely rational pricing by the competition, something which has been lacking.

(3) Leisure Routes
Orlando, Fort Myers, St Petersburg, Fort Lauderdale, Phoenix and Las Vegas. The four Florida markets have already been trimmed so that only Orlando is year-round, and it is not daily during the weak all period. Phoenix and Vegas are the only daily, year-round markets, but they are 1x/day each. Those two markets could potentially be cut in the offseason.

(4) West Coast Nonstops
These long-haul markets have absurdly low fare levels which lead to losses. Of note, even with Frontier not flying nonstop to LAX nor SFO this summer, AirTran still has $111 and $119 one-way fares available on various days. And this fall, $99 MKE-SFO seats abound on AirTran, even without any nonstop competition. Frontier is still flying a handful of weekly nonstop each SEA and SAN this summer in the late PM, but compared to last year’s level of flying and level of resources dedicated to MKE-west coast, this already-announced change saves a good deal of red ink.

(5) Other Routes
Denver, at 6x/day, is primarily about local traffic and feeding traffic through the Denver hub.
Dallas, at 3x/day, is a rare entity in Milwaukee – a mainline market without LCC competition. This market should be one Frontier can make money in.
San Antonio is only 3x-4x per week and also has no LCC competition. It started last fall and has apparently held its own.
Kansas City, at 4x.day, connects the MKE operation to the MCI focus city. It has LCC competition (twice-daily WN) but there are more reasonable close-in business fares.

That’s what MKE has. Beyond cuts already announced…which are already reducing MKE ASM’s around 20-25%...there’s not all that much left to cut. It would not surprise me to see some reduction in RJ flying, and perhaps LAS and PHX going to seasonal or less than daily, But I think some people think MKE has 15-20 aircraft which should instead be focused at Denver, and shutting down MKE would do that. Well, the RJ’s are not going to Denver, nor should they in my opinion. Beyond 10 flights to Denver and Kansas City, the Airbus/Ejet fleet serving Milwaukee is rather limited. MKE has already seen a lot of cuts.

There’s a tendency…human nature I guess…to label things as good or bad. More than once on this and other boards I’ve seen people saying that MKE should be shut down and resources used to build Denver, Omaha, and Kansas City. It’s safe to say that Frontier loses money on several Denver routes for at least part of the year. Realistically profitable opportunities for Omaha are limited at best. And while Kansas City has some promise, look at the types of sale fares Frontier is offering and ask yourself why. If you say it’s the fault of irrational Delta action, that puts MCI in the same boat as MKE.

The fact is that finding profitable places for expansion is a difficult task for anybody. That’s especially true for airlines with comparably fewer resources such as Frontier. That’s why airlines don’t take lightly the decision to drop established routes when they turn into red ink. They try to figure out a way to make the best of the situation in hopes of weathering the storm. But that has its limits.

Getting back to the crux of the situation, assuming Bedford is successful in his presentation, we shall see what further actions will be taken. Some of course may be in Milwaukee, but I don’t think it’s safe to assume they will be limited to only MKE. For example, one wonders if they are looking to outsource Aspen flying and getting rid of the last Q400s. No matter how efficient on a CASM basis an aircraft is, having a tiny fleet of any aircraft is a big drag on costs. Aspen is a very high-yield market in season, but if there’s a more cost-effective way of getting F9 into the market such as paying Horizon to fly it, perhaps that’s among the additional moves in store.

I'd say that Sean Menke did the heavy lifting on leading Frontier out of Chapter 11, not Bedford.