Why did Frontier Airlines change its business model?

Why did Denver-based Frontier Airlines change its business model? Photo: Wikipedia.

Why did Denver-based Frontier Airlines change its business model? Photo: Wikipedia.

As most readers know, Denver-based Frontier Airlines this week took the final step in becoming an ultra low cost airline, similar to Spirit Airlines. That means if you fly Frontier, you’ll pay for drinks and carry-on bags. On the bright side, the airline says its fares will be a lot cheaper than mainstream carriers.

Kirsten Painter of the Denver Post has been covering this story well and conducted an interview last week with Frontier CEO David Siegel. The full interview is up on a Denver Post blog, but I wanted to share some snippets with readers.

On why changing customer behavior could represent more profit for the airline. 

“When soda’s not free, fewer people want it, the less we carry onboard, the less fuel we burn, the more money we spend. So this is about changing customer behavior. If the customer behaves in a way that saves us money, we give them some of that back. They can behave any way that they want to behave, but if it saves us money, we’ll share that with them to give them an incentive to behave differently.”

On one of the reasons for instituting a carry-on bag fee. 

“We want to create a disincentive (for carrying on) but we don’t want it to be punitive or customer-unfriendly. But it’s a balancing act because you really want to change behavior, it’s better for the customer because they save money.”

On the reason the fee for bags gets higher, as the passenger moves physically closer to the gate.

“We don’t have a higher fee at the gate because we want to make more money. We have a higher fee at the gate so we hope we never collect it.”

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Frontier Airlines: Is there room for a third ultra low cost airline?

Frontier Airlines belivves there's space for a third ultra low cost carrer in the United States. Do you agree?

Frontier Airlines believes there’s space for a third ultra low cost carrier in the United States. Do you agree?

I linked to it earlier today, but I think it’s worth taking another look at Brett Snyder’s interview with Daniel Shurz, Senior Vice President – Commercial for Frontier Airlines.

In one of the most interesting parts, Schurz says the U.S. market needs more ultra-low cost carriers, like Allegiant and Spirit. He says the airlines we now view as low cost — Southwest and Jetblue among them — are not really LCCs in the European model.

Into and out of the UK on intra-Europe flying, ULCCs account for over 50% of capacity. In all of Europe, it’s just over a third. Spirit and Allegiant represent slightly below 3% of US capacity. Even if you include Frontier, we want to get to the ULCC point, it’s still under 4.5% of the capacity. I think that leaves a significant opportunity for ULCCs in the US market, and I think it leaves an opportunity for differentiated strategies across the ULCCs.

Frontier has been making a play not only in its long-time home of Denver, but also in smaller airports in the Northeast, such as Trenton, N.J. Shurz tells Snyder that the region is ripe for an ultra low cost carrier.

And the world has changed. I think you’ve done work, Brett, to show how much domestic fares have risen notably on one airline, but also generally. And that’s what’s creating opportunity for ULCCs in the country. It’s that fare umbrella. The northeast never had low fares to the same extent since Southwest was never that big in the Northeast. And their failure to succeed in Philadelphia has led to fares rising. One of the things about Wilmington is that even though Baltimore fares are lower than in general in the northeast, they’re significantly higher than they were 5 to 10 years ago.

I’m not sure whether Frontier will be successful as the third ultra low cost carrier in the United States. But I do think the market needs more low-fare airlines to undercut carriers like United, American, Delta and even Jetblue and Southwest. It’ll be interesting to see what happens.

Do you think Frontier can make it? The airline likely will be sold in the next few days to Indigo Partners, a Phoenix investment firm. 

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