In trying to catch up on various threads, I posted the following item on another board. I apologize for repeating it for those who also read that board, but some of the points address things on this board as well. And rather than cut up the document and try to find what existing threads different pieces should be pasted into, I figured it would be easier just to post the whole thing here.

Please do take note that the tone of some items is primarily to address comments on the other board, not necessarly things posted here. However that aside, the meat of the post is relevant here, and many of the items do cover things posted here, even if they were somewhat less extreme than some other boards have been.


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On the two new Branson markets:
If you take a closer look at exactly what the new Branson routes are, one might find they are less alarming than they seem at first blush. BKG-AUS is a 3x/week ERJ, using slack RJ lift to extend the 3x/week MKE-BKG down to Austin and back. BKG-PHX is a Saturday-only flight, again using weekend schedule slack. Neither of these markets "replaces" anything. This is not a Frontier "trade" from one subsidized route to another. Instead, in the case of AUS it is them finding a profitable use for surplus RJ lift, and in the case of PHX it is them finding use for Saturday slack during the months when very little traditional vacation travel takes place.

On flight reductions (seasonal and other) this fall:
To a great extent, flight reductions this fall are a function of the fleet reduction already well-discussed in prior months. No matter what you think of the E170 deal, whether you think it was a very shrewd stratiegic move or a piss-poor decision with RAH stunting the branded operation for their own short-sided needs, that there are cuts this fall was something easily predicted. And frankly...most of the specific cuts so far were not all that tough to predict. Yet with every reduction comes hand-wringing and prognostication that the wheels are coming off, that Frontier can't make it. After all, if they can't make XXX work, then it's clearly hopeless (or so the CW goes). This is akin to saying that global warming isn't happening, and then using the (predictable) seasonal drop in temps come fall as more proof to bolster one's arguement. Now...that flight reductions this fall are fully to be expected because of the fleet circumstances...that does not prove that everything is peachy at F9. It proves nothing either way.

On Frontier's unconventional markets, including subsidized and low-frequency service:
A critical thing that some people fail to realize is that it is very difficult for any airline to penetrate another airline's loyal busienss segment, and it's especially difficult for a smaller airline like Frontier. Time and again various pundits bemoan low-frequency service. The fact of the matter is that in many markets, Frontier needs to be able to break even on nearly 100% price-conscious leisure traffic because they are not giong to get much else. Now there are quite a few markets -- especially at Denver -- where volume is high enough that they can offer business-useful schedules and compete for their piece of the business market. But that is simply not true everywhere, and there's not much Frontier can do to change that. One frequent contributor has lamented that Frontier doesn't have frequent enough service year-round to Tucson to offer business-friendly flight options. That's true, but there's just not enough leisure volume for Frontier to tap into at Tucson (short of giving seats away) to justify a frequent year-round schedule, and the prospects of Frontier making large gains in the local TUS business segment are just not there even if they fly a classic "business schedule". To be sure, this is *not* the case in every market, and Frontier does compete relatively well for business traffic in some markets. But Frontier has to be very selective where they make a stand to improve penetration into the loyal-traveler segment because it can be very costly to do so. And beyond such targeted initiatives, the rest of their expansion is necessarily in markets where they have to be prepared to make it on leisure traffic. In those sorts of markets where your role is serving the leisure market, there's no point in flying year-round if there's not enough traffic year-round, or flying daily just for the point of flying daily. Would they like to be able to penetrate Green Bay enough to fly a business-friendly year-round GRB-DEN schedule? Of course. But the odds of succeeding at stealing enough loyal DL and UA flyers at GRB to make this work are nil. Does this mean Frontier is a bottom-feeder in these markets? You bet it does. The reason that Frontier targets a lot of less-conventional markets like GRB, PHF, FSD, TYS are that the "bottom" is not as low as it might be in some more competitive large markets like PIT, JAX, CMH, etc. And among those less-conventional markets are those which offer subsidy.

Now there's a fair amount of oversimplification in all that...Frontier is not only a bottom feeder, there are not zero routes where they make a stand to achieve business market share, the world is not cleanly divided black-and-white between business traffic which pays high fares and leisure traffic which pays junk fares, brand recognition is not perfectly meaningless in a market like PHF, etc., etc. Yet I think it helps to illustrate the circumstances a small airline like Frontier faces, and how it leads them to do what they do. Of course people are free to disagree with the strategy Frontier uses, but I think in many cases critics don't recognize some of the realities that go into decisions, and just dismiss everything as flakey or wrong. The conventional multiple-flight / business friendly schedule many of us have been groomed to view as "right" just doesn't work in a lot of cases, especially when someone else already owns the business market or the business market is thin. It's just not realiitic to think that Frontier is going to come in and eat someone else's lunch...the big boys often fail at this. The fight-for-every-passenger way to penetrating a market is costly, and Frontier can't affort to fight a whole lot of those battles at once. They need to fight them when they can or risk morphing into another Spirit (if they're lucky), but they also need to figure out how to make a buck when/where they are not picking their battles. Not every new market can be a tough fight like MCI-MSP because they couldn't withstand the losses that kind of fight can bring. So their expansion necessarily includes places where they can make it on high volume leisure traffic, including markets where the way to make it work is with lower frequency and/or a subsidy.

Welcome back Knope! As always I am grateful for your insight.

For the sake of discussion, one could argue that the real issue Frontier faces is less about the frequency of flights (daily and/or year-round service) and more about proper network development.

Frontier currently has three key markets (four if you count OMA) and they should be focused on maximizing opportunities there as much as possible to build better brand awareness, increase market share, and leverage traffic flows as much as possible.

Using your example of GRB, Frontier doesn�t have to fly to DEN on a daily year-round basis because they also have flights to their other hub in MKE that should in theory provide connection opportunities to a majority of the route network as well (more on MKE below). The TUC schedule could be further enhanced with flights to MCI and/or MKE that connect to the Midwest and East Coast.

The issue of low frequency can actually be a big issue in some markets due to limited options and low network connectivity. BDL and RDU are two prime examples where Frontier probably handicapped themselves a great deal by offering limited flight schedules with few useful connections. If you originated in DEN, you only had one flight option going to either destination. This is hardly a useful or beneficial schedule for business travellers. For customers originating in either city, they are either cut-off from much of the network (especially the Western network) or have to make a double connection to get to many places. With schedules like that, you�re going to only attract the die hard Frontier flyer or the ultra price sensitive leisure traveller. Frontier should have either added a third flight to MKE and/or routes to DEN and MCI to capture both O&D and connecting traffic. Of course yield and revenue management is important here but you should be able to attract a better passenger mix with good scheduling options.

Setting aside the situation in MKE, Frontier seems to have some more opportunities in MCI that they simply haven�t pursued for whatever reason. Back when Midwest was still flying, they competed well against Southwest to places like SAN, MCO, and FLL. While yields were OK, the real issue Midwest faced was this it wasn�t economical to fly 88 seat 717s against Southwest 737s. Now Frontier had the right planes to commence this type of flying (and add things like LAS) but has chosen not to. At some point they need to decide if they will take a more aggressive stand against Southwest or simply chase after opportunistic flying (which there is less and less of).

Looking specifically at BKG, the bigger concerns I have is that this seems to be as a short-term move designed to take advantage of subsidized flying during the slow travel months in fall. If you�re an airline going into a market, aren�t you focused on more long-term objectives? The DEN-BKG route may be doing fine, but was does running AUS and PHX for a few months accomplish other than finding a profitable place to deploy excess lift? Maybe there�s something else in the works for BKG but if not it�s a bit scary to think Frontier can�t find better uses for this capacity. What happens if Southwest decides to go after some more markets in BKG?

Realizing network synergies is further complicated by the situation in MKE. I firmly believe (and have been told by a few people in a position to know) that much of the turmoil Frontier currently finds itself in is due primarily to the financial black hole at Mitchell Field. For the time being, Frontier has essentially ceded the West Coast, Vegas, and Florida to AirTran/Southwest (for those interested, I was told that AirTran lost big bucks in MKE this past winter as well). With every additional cut MKE becomes less attractive as a connecting point. Hopefully some yield relief is in store in the coming months, but time is not on Frontier�s side. With the secondary hub essentially on life support at the present time, there's not much for Frontier to fall back on.

There are other issues at play, of course, but there�s no reason to get into all of that again.

TUS.

F9 is a leisure airline. If business travel was their target segment, their strategy would include tactics that lured business travelers. No FF alliance = little to no business traveler revenue.

"Yields were ok, but flying 88 seats in 717s wasn't economical?" True, if you assume YX and WN were competing for the same passengers. That's like lamenting Chipotle losing market share to Bojangles.

BB is a day trader-no long term strategy, only short-term gain. The airline takes his personality, much like WN became successful under Herb and his personality. Would Apple be Apple without Steve Jobs? Well, F9/RAH is F9/RAH because of BB. Business travelers aren't attracted to F9's persona (or lack of FF alliance).

It's funny how the excitement of MKE traffic increases has turned into "turmoil." MKE fares were definitely a race to the bottom. MKE is a great market for loyalty. YX had unmatched loyalty and that's why they were able to make it work, even with 88 seats on a 717. Blame the economy, crack int he sidewalk, whatever. TH and his obsession with "shareholder value" (outdated way to run a company) killed YX.

Yes, and they are:
1. F9 is a, as Knope correctly points out, a bottom feeder.
2. No FF alliance.
3. Uncertain strategy.
4. Passengers aren't paying premium fares and pricing seems to have no discrimination element (which is how airlines maximize revenue/profit).

While I agree a FF alliance would add value to their frequent flyers, it is not a necessity to attract business travelers. If your business is primarily in the Midwestern United States the biggest factor is going to be convenient scheduling for where you need to go. Not every business traveler works for a multinational organization.

I agree 100%. While F9 can't provide DL or UA-sized networks, membership in Sky Team or Star would, IMO, generate more business as customers could still earn the benefits of a major alliance by flying F9, or fly DL or UA when the route they need isn't served by F9. Since F9 can't offer the benefits of a major FF program, I'm curious how many pax (business and leisure) choose another carrier even though they may prefer F9's service.

I've been building status with UA this year. When I can't fly them, it's nice to continue earning EQMs flying US or CO. Ultimately, I fly UA more often because of the choices provided by the greater Star Alliance.

Absolutely agree - I happily flew Frontier for domestic business for many years, they got me where I needed to go (mostly east/west coast from Denver) and treated me like a king (no change fees, exit row every flight, free drinks, free bags, free tv, first one on the plane every time, plenty of free trips to Mexico) for a measly 25k mi/yr, whereas that level of flying makes me a peon among millions of other 2P members on United who would rarely get upgrades and have to deal with their old planes and surly employees.

That I agree with. YX used to have some FF reciprocity with AA (might have just been Eagle) before DL. I'm not even sure it has to be a full alliance membership, just an international carrier. That doesn't necessarily mean a US based one either, but I'm not sure how many international carriers would be willing to step outside their alliance boundaries.

For the Atlantic, maybe Virgin Atlantic? The problem is VA doesn't fly to any of F9's hubs, so connections would most likely have to double connect somewhere. They might be able to convince them to fly into DEN.

On the Pacific, maybe they could convince Hawaiian to fly to DEN?

Both Eagle and mainline.

YX probably was more influenced by one thing more than anything else. Sarbane-Oxley accounting reforms of 2002 thanks to the well known problems with Enron/Tyco/Adelphia/Perigrine Systems and Worldcom. Until then they could write off costs of promotion and even today's expenses until just about forever. Not terribly unlike a ponzi scheme. They looked like they were making money for a long time. Until then.

TH was the only YX employee happy with the ending that only because of a decent payout. Though I'm sure if he's human at all he regrets failing the employees. I'd hate to be haunted with that.

BB hasn't the cash in a world of real world accounting to play the game long with these losses without risking Republic as a whole. It's a hot seat nobody would like to be in. They can't afford to go into markets with the big boys and play fare war. So finding cities not served with fare potential if they can market it or better yet subsidized is the bottom feeding. Yet, every city they abandon due to low loads loses "their" loyal customers.

Not even close. The Sarbanes Oxley Act (SOx) doesn't deal with accounting principles (that is covered by GAAP and IFRS). Instead, the law covers things like internal controls, responsibilities of senior management and the Board of Directors, accounting firms, etc. I think you are the first person to raise the notion that Midwest employeed questionable accounting practices to achieve their financial results. Besides, you seem to have confused the term "write-off" with delaying expenses for future periods or misclassifying them in the financial statements (such as capitalizing liabilities as in the case of Worldcom).

As for Tim Hoeksema, I can assure you he wasn't happy with how things turned out. When TPG and Northwest took the airline private in 2007, Hoeksema got a big pay-out mainly due to his stock holdings. There were many other employees who made out quite well in the deal too (at least those who accumalted and held on to their YX stock). As a stockholder of YX at the time, I certainly don't fault Hoeksema or the board for getting the best deal possible for the shareholders.

After TPG took over, Hoeksema was just a figure-head and was taking his marching orders from Ft. Worth.

Obviously Hoeksema deserves some of the blame for what happened at Midwest. However, that topic has been covered here many times in the past so there's no need to re-hash all of that again.

It’s true that BDL and RDU didn’t tie in well to the broad western Frontier network, but that wouldn’t have made much difference. If they believed that BDL/RDU markets to the west were worth pursuing, they needed to link those cities nonstop to Denver. Something like BDL-MKE-DEN-SLC is an absolute nonstarter. Even reworking BDL and RDU schedules to better link to Denver would actually have made things worse. Those BDL and RDU flights needed to survive off of local Milwaukee traffic and be bolstered by connections from MKE’s feeder markets. Based on geography and time zones, making the Hartford and Raleigh schedules work well for optimal traffic to-from Denver would have meant poorer schedules for Milwaukee-based traffic and worse connectivity for markets like MSN-RDU and MCI-BDL. The loyal F9 flyers in Denver can be used to help bolster certain Milwaukee markets, but they can’t be a primary concern because the yield for something like DEN-MKE-RDU is nowhere near enough to justify MKE-RDU flying. It has to be the local market first and foremost.

Agreed that they need to be more aggressive against WN…their costs are better than WN’s. The immediate problem is that aggression costs money, and they needed to make changes to stop bleeding so much. I do look for them to be more aggressive in the near-moderate future, based in part on some comments I’ve heard, but that’s obviously a vague statement.

I’d be more concerned if this was really significant capacity.

BKG-AUS: In the current situation, no, there is likely not a better place for that RJ lift this fall. And I say that because they already park some excess RJ capacity. That RJ situation may change, especially if fares solidify in a few more markets like PIT where capacity is falling dramatically.

PHX-BKG: As a single weekly Airbus flight from mid September to early December, it’s less “useful” capacity used than non-hub flying like SLC-CUN or STL-PVR operating weekly during the winter/spring peak.

That Austin flight is not hurting anything, and in a small way by adding 1-stop MKE-AUS is it helping improve presence in the MKE market (though certainly in a small, coincidental way.) One could argue that the autumn weekly PHX-BKG Airbus flight is capacity which, small though it is, be used to build something in DEN, MKE, MCI or OMA. True, but think about specifics. Let’s say instead that instead of flying to Branson they used that plane to fly a weekly Saturday morning PHX-MCI-PHX flight. That would help increase their footprint in Kansas City. But to what end, if it’s only going to run September until early December? Unless they are planning to enter the PHX-MCI market with a year-round daily presence, it’s probably a money-losing waste to fly a Saturday morning PHX-MCI-PHX flight in fall. Now at some point they probably need to challenge Southwest more in Kansas City and Milwaukee if they want to increase their foothold. But is this winter the right time to jump into PHX-MCI, based primarily on the decision that they have enough slack during the slow fall season to send a Saturday-only flight in the market? Not in my book…if/when they deicide to enter PHX-MCI it had better be on something more solid than that.

I guess I just don’t buy the charge that Frontier is subsidy-chasing to the point of neglecting their core focus markets at this point. Beyond these two non-hub markets, the other areas where Frontier has benefitted from things like revenue guarantees, waived fees, etc, have all been markets to their hubs with a decent shot at succeeding without the economic boost. All new markets have risk of failing, and most new markets lose money at first. Instead of flying Provo-Denver, should they have used that plane to fly 1x Reno-Denver? One could make that argument, but do they have a better shot at succeeding in RNO? Not necessarily. Reno is pretty much a known entity, with heavy competition and low fares. If Provo works (and it is getting off to a slower start than they’d want, although not in the 15-20% load factor range some claim) they will have a monopoly market with higher fares than they’d likely get out of Reno. And if Provo doesn’t work, they won’t have lost money trying it – the same can’t be said for them trying Reno.

All this is not to say that they should never try Reno, nor that they should onlyadd markets where there’s a financial cushion. They need to choose battles where they press into new territory or challenge an entrenched carrier. But they can and should only do that in measured ways, especially when they are working to shore up financial results.

This is quite true. Fare and capacity rationalization is what Frontier needs in Milwaukee. Obviously we can’t know exactly what Southwest will do, but if fare and capacity rationalization come to Milwaukee, it will benefit both top carriers significantly. The dismal fare levels (dismal from the air carrier’s perspective) continues to be driven home with each new quarter’s data. Here are freshly-released Q4 local fares from Milwaukee for AirTran, compared to Southwest’s average fare for the same destinations from Midway.

FL MKE ….. WN MDW ….. WN higher by %
$ 141 ….. $ 157 ….. 11% RSW
$ 98 ….. $ 109 ….. 12% IND (Skywest)
$ 126 ….. $ 148 ….. 18% MCO
$ 149 ….. $ 181 ….. 21% FLL
$ 99 ….. $ 123 ….. 24% OMA (Skywest)
$ 169 ….. $ 210 ….. 24% SEA
$ 117 ….. $ 153 ….. 31% WAS
$ 93 ….. $ 122 ….. 31% STL (Skywest)
$ 125 ….. $ 165 ….. 32% TPA
$ 97 ….. $ 128 ….. 32% PIT (Skywest)
$ 164 ….. $ 217 ….. 32% SFO
$ 147 ….. $ 197 ….. 34% LAS
$ 116 ….. $ 158 ….. 36% NYC
$ 115 ….. $ 158 ….. 37% BOS
$ 150 ….. $ 208 ….. 39% LAX
$ 103 ….. $ 166 ….. 62% MSY

The fares for Southwest at Midway were often in the range of 1/4 to 1/3 higher than AirTran at Milwaukee, and that’s a massive gap. And it’s not just a matter of markets where they fought Frontier – look at the gaps in markets like SEA, SFO, LAX and MSY where they had a 4th quarter monopoly – FL fares were still in the dumpster to fill seats. I, too, have heard MKE created massive losses for FL this past winter on their east-west operation. Southwest certainly has deeper pockets to endure losses, but merger costs will put their profitability string in jeopardy this winter. Of course some would suggest Southwest will keep the pressure on in Milwaukee to ultimately kill Frontier and reduce Denver competition, but they have been around long enough to recognize how excessively long it takes for an airline to shut down. Southwest would be better off, strategically, to let Frontier succeed in Milwaukee and make them less desperately reliant on Denver, where they could drag Southwest earnings down for years.

All that speculation aside, I suspect Southwest is less concerned that many might think about what it wants to “do” to Frontier. More likely, at least in my book, is that they will fly in Milwaukee what is determined to be a good, profitable use of resources…nothing more and nothing less. But….of course….time will tell.

Getting back to Frontier, if they are at some point going go back to rebuilding in Milwaukee, that first needs to be based on making money in core routes. That is what supports added spokes, which in turn improves connectivity and increases the viability of more routes. If they lose money on every MKE-LAX passenger, they can’t afford to sell marginal XXX-LAX tickets over Milwaukee. If they make money on local MKE-LAX passengers, then XXX-LAX traffic served over Milwaukee is gravy, and that gravy can help justify something like BDL-MKE if local traffic alone isn’t enough to support it.

That all is predicated on improved health of core markets.


Although the lack of FF alliance is a significant problem, and the lack of success so far in remedying this is a disappointment, they have stated they are working to change this.

That’s quite a stretch, to put it in very charitable terms. The vast majority of business travelers in Frontier markets probably have very little knowledge (and in many cases zero knowledge) about BB. BB hasn’t even been at the reins very long. The average consumer knows crap about the leadership of the companies they patronize – especially the personal attributes of the top brass – except for a tiny handful of high-profile giants. BB is not in that category.

As for them being repelled by the “persona” of Frontier itself, look who has had made the biggest inroads against Frontier. It’s not stoic old-guard carriers like United or Delta, it’s carriers like Southwest and AirTran, neither of which has a “persona” so much different than Frontier. And neither of them are members of a FF alliance.

Business travel decisions are primarily based on schedule, fare, corporate contracts and policy, and frequent traveler affinity programs. “Persona” of the airline is not among those key factors, and is only an intangible influence and probably ranks lower than other lesser factors like perceived “service” and onboard amenities.

I do think that Frontier needs to be more focused in their actions to attract business traveler loyalty, and gaining membership in a FF alliance would be a big benefit. Improving points of differentiation – especially compared to Southwest – is key.

How many quarters did Midwest turn a profit with the 88-seat 717’s? I think you can count them on one hand…and if memory serves me correctly, on one hand after an unfortunate industrial accident. Midwest did make good money for years, even after being spun off from Kimberly Clark…it was not an accounting trick…but it was based on a heavy diet of high business fares and low oil prices. As both those things disappeared, the model didn’t work anymore.

Thanks for quoting me out of context – I said they were a bottom-feeder specifically in their role of seasonal 3x/week GRB-DEN flying.

Little or no business traveler revenue? Care to support that assertion? And with no FF alliance, does that also mean Southwest has little or no business traveler revenue?

You are correct about accounting but SOx put teeth in it with Officers being subject to prison. I'm not implying YX was any better or worse than GAAP at the time. But things have changed a lot.

GAAP got pretty conservative with the fall of Arthur Andersen. Officers are signing off with a significant risk to their lives and livelyhood on that.

Since that time a lot of companies have adopted ERP systems which for the most part are capable of near real time numbers to (far faster than accounting departments used to) execs that would take some creative accounting to fudge. And there would be an electronic trail in the process. Changing, covering up or omitting that data would likely put SOx to the 20yr sentencing part.

ah but I regress... YX is gone and done.

I keep wondering if EK (Emirates) will seek an alliance like this. They are lonely since United & Continental merged and ended the EK-CO relationship. They don't have any competing routes, either, and their approach to elite travellers is about the same.

Hawaiian is already in cahoots with United/Continental.

I've been thinking about this for a while.. a way to get in to northern South America and the Caribbean from a southern airport that doesn't have direct service to many of these destinations, with some feed from current F9 hubs/focus cities and some other northern and Midwestern cities.

Call me crazy or a dreamer.. but I think these routes utilizing RSW would be interesting. Cough up a codeshare on Air Berlin to DUS.. to spice things up a bit. Maybe one with Cape Air to EYW..

The range circles are as follows: Q400, E190LR, E190AR(ex-US Airways), and A319-100.



Unfortunately, the money and the metal isn't there.