May 1, 2014 on 12:30 pm | In Airline News, Mergers and Bankruptcy | No Comments
jetBlue hasn’t impressed me in a long, long time. That’s a shame because this airline was quite literally the best funded, most successful start-up airline ever until the board panicked and asked David Neeleman to leave the leadership.
Neeleman has two qualities I really like when it comes to airlines. He knows how to sport real opportunity and meet it with innovative solutions. He also knows how to learn from mistakes.
Since his departure, jetBlue has worked on growing routes on some of the least profitable routes ever. This airline has stuck to the northeast corridor and Florida like a bad stain on a white shirt. There is no real growth and jetBlue let its relationship with American Airlines influence it’s strategies in ways that were laughable.
Laughable because American Airlines tossed aside that relationship instantly upon a change in the regime at AA. There is no leadership at jetBlue, only stewardship.
With a still low cost workforce, an efficient fleet and an opportunity to draw upon the largest O&D markets in the world, it barely turned a profit. Other airlines with far less advantages are doing dramatically better.
Without better leadership, I really don’t know where jetBlue goes. I don’t even necessarily see added value in this airline when it comes to mergers. Their position at JFK is somewhat valuable but only marginally so as that airport is less effective than La Guardia or Newark. They have some valuable slots but they’re not ideal.
Spirit Airlines and Allegiant are going to nibble at their business from the bottom. Southwest and SuperLegacy airlines are going to intrude on their marketshare more and more from the top and there is no great alliance to be had with anyone else in my view.
There was, in my opinion, one great merger opportunity but it would have required a very strong leader with a lot of courage. I could have seen a merger between jetBlue, Virgin America and Frontier. There was enough fleet harmony, relatively few seniority issues and core strengths in area of the United States to make that work.
The combined airline could have focused on the West via Virgin America and Frontier Routes using SFO, LAX and DEN and could have used jetBlue assets and strengths to make inroads in the midwest and tie together the East and the West.
But Frontier is going ULCC. Virgin America has slowed its growth but improved its profitability greatly. And jetBlue is just stagnant.
More importantly, I don’t see enough of a leader at any of those airlines and I don’t see enough of a leader sitting on the sidelines to make it happen.
jetBlue had its growth and had its momentum killed with the Neeleman ouster and that’s a shame. It’s gone from jetBlue to jetWho? over the past 8 years and what a lost opportunity that is.
October 2, 2013 on 1:00 am | In Airline News | 1 Comment
Frontier Airlines has been purchased by someone new and the world has barely noticed. Republic Airlines is selling its Frontier subsidiary to Indigo Partners for $36 million in cash and $109 million in debt assumption.
Indigo Partners is headed by Will Franke, a founder of America West and most recently involved with Spirit Airlines.
Indigo Partners will focus on completing the transformation of Frontier into an Ultra Low Cost Carrier which it has most recently done with Spirit. If you think Spirit Airlines was aggressive, I expect Indigo to force even more aggressive behavior into Frontier.
Will it work? On some level, I think so. I think it will be a long while before we see an airline such as Spirit or Allegiant, however. Frontier has to divest itself of its bases and reorganize itself into greater point to point flying. It also must find that high density sweet spot that is so necessary for.
Frontier flies 138 seat Airbus A319 (it also flies the A320) and Spirit flies a 145 seat A319. In general, Spirit flies with even less seat pitch than the already now constrained Frontier flies with.
The market for ULCC carriers in the US is limited. I think there has been some growth but the idea that ULCCs will explode across the country is somewhat silly to me. The distances that are flown here compared to Europe where ULCCs do thrive is considerably less.
It’s a lot easier to tolerate a 29″ seat pitch when your flight lasts an hour on average.
Frontier will likely survive and succeed and I put that prediction out there based on Indigo Partners’ success in investing in these kinds of airlines.
Hardly anyone noticed the announcement though.
August 17, 2013 on 1:00 am | In Mergers and Bankruptcy | No Comments
If we use the premise put forth by the US Department of Justice that the US Airways / American Airlines merger is bad for the consumer, then we need to take a very hard, long regulatory look at all of the US airlines, many of its busiest airports and taxes as well.
If anyone was truly concerned about competition in the airline industry, the Justice Department should have continued to block mergers as they did with the original United Airlines / US Airways merger (which was vastly smaller than the one being proposed today). Instead, they did not. Rather, a few years later they signaled with US Airways the idea that mergers were necessary in the airline industry landscape.
Quite frankly, I was perfectly happy to see the status quo maintained pre-2005. That landscape saw:
- Delta Airlines
- Northwest Airlines
- United Airlines
- Continental Airlines
- US Airways
- America West
- Southwest Airlines
- AirTran Airways
- American Airlines
- Alaska Airlines
It was a pretty well balanced mix of airlines of both the legacy and LCC flavors and pretty well distributed across the United States. Barriers to entry were, compared to today, fairly low.
Then several bankruptcies occurred which included US Airways, United Airlines, Delta Airlines and Northwest Airlines. One airline (America West) had to get a massive loan after September 11th and essentially reorganize itself to survive as well. Another airline, American Airlines, got Billion Dollar givebacks from its employees to lower costs instead of performing a bankruptcy.
Of the 11 airlines listed above, 6 suffered exceptional financial trauma. Another 2 existed on fine line of financial trouble: AirTran Airways and jetBlue. Only 3 managed their finances appropriately and saw appropriate returns on investment: Southwest, Continental and Alaska Airlines.
So we permitted mergers and this is what happened:
- 2005: America West takes over US Airways and retains the US Airways name.
- 2008: Delta and Northwest merge as equals and retain the Delta Airlines name.
- 2010: United and Continental merge as equals and retain the United Airlines name.
- 2011: Southwest Airlines takes over AirTran Airways and begins the wind down of the AirTran name.
By 2011, the competitive landscape was dramatically different and American Airlines had to throw in the towel (it should have in 2006, in my opinion) in November of 2011 by filing bankruptcy itself. In the 2012 / 2013 period, the new airline landscape looks like this:
- Delta Airlines: Revenues $36.6 Billion (2012)
- United Airlines: Revenues $37.1 Billion (2012)
- American Airlines: Revenues $24.8 Billion (2012)
- Southwest Airlines: Revenues $17.0 Billion (2012)
- US Airways: Revenues $13.8 Billion (2012)
- Alaska Airlines: Revenues $4.6 Billion (2012)
- jetBlue: Revenues $4.9 Billion (2012)
- Virgin America: Revenues $1.3 Billion (2012)
- Frontier Airlines: Revenues $1.4 Billion (2012)
As you can see, the airlines that exist today are hardly equal despite the perception otherwise. For instance, Delta and United Airlines both are roughly equal as airlines but the next biggest by revenue is American Airlines which is a staggering $12.3 Billion behind. If you added US Airways revenues to American Airlines revenues in 2012, you still come in at just $38.8 billion. Put another way, the new American Airlines Group would operate at roughly the level of United and Delta Airlines.
Southwest would be at a disadvantage seemingly but Southwest’s revenues are based entirely on US based operations and therefore see Southwest operating at parity with the other 3 large carriers. So, now we have 4 carriers operating at roughly the same scale in the domestic US market.
The remaining four airlines: jetBlue, Virgin America, Frontier and Alaska Airlines have combined annual revenues of $11.2 Billion or a number that is still less than that of US Airways. It’s notable that those last 4 airlines are nowhere near national airline scale. They are all regional or niche in their marketshares. They can and will survive and at least 2 of them have every opportunity to organically grow much larger.
What my point in all of this? Scale is critical in this industry and while those billions in revenues sounds healthy, airlines often earn zero profits on such revenues. The dollars are large, the profits are tiny, at least until very recently.
If you stop the mergers now, you have two giants and three other airlines that would have to be labled as “at risk” over the next decade. While you allowed that to sort out, the two giants would only become . . . more giant. And the bigger they grow, the more influence they have on airports and route infrastructure.
So, if you feel the combination of US Airways and American Airlines is anti-competitive and anti-consumer, then you *must* be ready to “break up” Delta and United Airlines. They don’t have the potential to be dominant. They already are dominant. So much so that they dwarf every other airline in the industry.
More on these subjects tomorrow.
August 1, 2013 on 1:00 am | In Airline Seating | 1 Comment
There are news reports that Republic Holdings has entered into negotiations with third party to sell Frontier Airlines. Frontier, as it exists today, is made up of Frontier Airlines as bought by Republic as well as Midwest Airlines also purchased by Republic.
The two purchases were an attempt by Republic CEO to diversity his company. That attempt was arguably quite unsuccessful.
I never sensed that Republic knew what to do with both Frontier and Midwest. There seemed to be a lack of ideas on how to make these airlines rev up and win for Republic and even basic marketing seemed to defeat them.
When Frontier was for sale, Republic bested Southwest Airlines in price for the airline and that never once felt very smart to me. In hindsight, I think Southwest likely bid appropriately and when it lost, it did the right thing in walking away and looking for other opportunities.
Who is the buyer this time? Who knows. I would speculate that it could be an Ultra Low Cost Carrier such as Allegiant or Spirit and that wouldn’t necessarily be a bad thing.
It could be a mainstream airline but the only one I would learn towards in jetBlue. It certainly isn’t going to be Virgin America although I’ve long harb0red the idea that jetBlue combined with Virgin America and Frontier Airlines c0uld, at once, become an airline that spanned the United States and even might win big. But I appear to be the only one who thinks that.
Would Southwest buy the airline? No, I don’t think so. Frontier doesn’t offer opportunities that it offered several years ago. Southwest is a very different airline today with very different needs.
Could it be any of the other legacy airlines? US Airways? American Airlines? No, no way. United Airlines? No, that airline is too busy with solving its own problems. Delta Airlines? I don’t know why given that Delta has Frontier bracketed in all markets already.
The truth is that I don’t even see jetBlue as a big contender. That airline has been stuck in a rut for several years and nothing has changed in its operations to make me think they are looking for a risky purchase.
I think Frontier is going to go to Allegiant Airlines. Spirit Airlines has too much good organic growth going on today but Allegiant is looking to adopt the A320 series aircraft and Frontier offers some opportunities that are complementary more to Allegiant than Spirit.
Time will tell but I don’t see Frontier lasting very much longer as an independent airline. It’s be sold or liquidate at this point and the reasons to buy that airline wane more each day.
Update: (The above post was written on Monday, 7/29/2013 and scheduled) There is some new information that investors and directors currently associated with Spirit Airlines are the buyers for Frontier. These directors are William A. Franke and John R. Wilson. Franke is the current Chairman of the Board for Spirit (Ben Baldanza is President & CEO) and John Wilson is a director whose term ends in 2014.
Bill Franke is a former Chairman and CEO of America West and current managing partner of Indigo Partners (a major investor of Spirit) and John Wilson is a principle at Indigo Partners with a background in finance at several airlines including America West Airlines.
Indigo is selling its shares in Spirit Airlines asap and these two are withdrawing from the board asap. Do the math. I was wrong, this isn’t Allegiant buying Frontier.
But . . . while Spirit Airlines and Allegiant Air are doing great as Ultra Low Cost Carriers . . . how many ULCC airlines can the US handle? Frontier has a management team that has been positioning it as another ULCC (not very successfully in my opinion) and continuing that direction leaves me wondering why would you bother?
ULCCs aren’t stimulating more air travel at this point. Their robbing some low hanging fruit from other airlines on routes that have high fares. ULCCs don’t attract the attention of the SuperLegacy airlines because they don’t put frequencies up against the SuperLegacy airlines on routes.
Only time will tell but it does look like Indigo Partners will become the new owners of Frontier.
April 10, 2013 on 2:50 pm | In Airline News, Airline Service | 2 Comments
Frontier Airlines has been trying some rather weird destinations over the last year. Weird for this airline and weird for any airline.
The airline has started flights into Trenton, NJ for instance. Now it’s just announced Wilmington, Delaware as an alternative to Philadelphia and Baltimore’s main airports.
When a company is running around and trying very hard to go head to head with competitors, there is a problem. Frontier has been killed in Milwaukee and has been roughed up badly in Denver, it’s home base. Other focus cities have been discontinued but there is something more going on here.
I don’t know what this airline does anymore.
I don’t know what service level it offers, I can’t identify a market it has aligned itself with and it is getting hard to figure out where the airline flies to. These airport choices defy explanation to me. Wilmington, DE might seem like a decent alternative to Philadelphia until you realize that those 30 miles separating the two airports represents a significant inconvenience to most in the Philadelphia area. It’s a matter of traffic and logistcs. 30 miles isn’t 30 minutes of travel. It’s not even 60 minutes of travel in many cases. It’s considerably more and people in that city don’t need more complications.
More importantly, the people of Philadelphia aren’t screaming for low fares either. Nor is Baltimore.
How this airline is hanging on at this point defies my imagination. The fact that Republic can’t even sell this airline says something.
I honestly believe that if David Neeleman were still running JetBlue, he would have bought both Frontier and Virgin America and merged them into a national domestic airline. But Neeleman isn’t around and no other airline executive exists with enough vision and courage to make something like that work.
As much as I want regional mainline airlines to exist, I can’t find a good argument for Frontier at this point. Who flies them and why do they bother?
November 2, 2012 on 1:00 am | In Airline Service | No Comments
Virgin America has a net loss of $671 million. It’s a great airline and certainly the one that everyone said they wanted but . . . it ain’t making money.
And it should be by now. Virgin America never quite seems to close the revenue gap despite promises that that will happen. Yes, they have succeeded on many routes and, yes, they are popular with the business traveler who has tried them but . . .
Virgin America doesn’t offer the business traveler what he wants: Frequent flier miles that go someplace they want to go.
The true business flyer already can access great service and comfortable seats. They get upgraded on the legacy airlines and sniff at the lowly economy fliers who trudge past them. They don’t *need* more service. It’s a nice to have when it comes to Virgin America for these travelers but not a must have.
What the legacy airlines have that Virgin doesn’t is frequent flier miles that give these people the chance to fly their family to great destinations for vacation. Virgin America doesn’t. Unless you want to go from San Francisco to New York City. Not many do.
As much as I want to support Virgin America as a contender, there comes a time when such an airline needs to go away. I believe that time might be arriving since they have no (announced) plan to improve revenues and profits. Their advantage is evaporating quickly against legacy airlines and despite their low costs, they can’t even beat Alaska Airlines.
Who should buy them? You know, a great businessman such as David Neeleman could put JetBlue, Virgin America and Frontier together and create a national airline. I’m just pointing out the opportunities here since each airline uses the same aircraft type (Virgin and Frontier use the CFM powered version while JetBlue uses the IAE powered version) and which would suddenly have focus cities that cover the East Coast, West Coast and even part of the Midwest.
It’s not a foolish idea. There are synergies there that would serve all three airlines. Each has some valuable slots at slot controlled airports. And a 3 way combination isn’t entirely unprecedented in this industry either.
Use JetBlue’s reservations and IT infrastructure. Use Virgin America’s A320 orders for expansion and use Frontier’s assets to build a real Midwest operation.
But it would take a very visionary airline industry leader. Someone who has started successful airlines and who is brave enough to take advantage of opportunities and who knows how to compete with major legacy airlines. Someone who, you know, is driven and leads well. A guy who speaks both English and Portuguese.
July 12, 2012 on 10:58 am | In Airline News | No Comments
It is being reported that American Airlines is now considering 5 merger partners and they are US Airways Group Inc., JetBlue Airways Corp, Alaska Air Group, Republic Airways’ Frontier Airlines, and Virgin America. There are interesting choices here but at the same time one can see a less than enthusiastic theme here.
Alaska Airlines is a great airline and has a great operation on the West Coast of the United States. That said, be 100% sure that Delta isn’t about to let Alaska Airlines get away without a fight. I would rate this opportunity rather low.
JetBlue is another interesting option in that it would bolster American Airlines in its cornerstone market strategy as it applies to New York City with its operations centered on JFK. I think that JetBlue is rather stagnant and while it offers market share, there is nothing else here to be gained and given AA’s history of buying airlines and then not knowing exactly what to do with them. . . this merger could happen but it adds little value to AA overall and certainly doesn’t bring American Airlines back into United and Delta’s scale. All it does is leave existing AA management in control of AA.
Frontier and/or Virgin America? No value added here. There is no great complementary system found here, the management of either airline isn’t doing very well and the most that happens is that AA eliminates a tiny bit of competition on some profitable mainline routes. These are red herrings in my opinion and I think there is very little probability of a real merger with either of these airlines.
US Airways: Enough said already. There are complementary systems, there are good executives who know how to make money and there is enough scale to compete effectively with United and Delta. It’s interesting to me that US Airways’ Doug Parker says that he still hasn’t been contacted by anyone with American Airlines. This is the least attractive merger path for AA executives and, yet, the one that makes the most sense.
I think the intent in leaking these potential merger partners to the press is to appear to be doing something about examining all options while focusing all the real effort and work on a stand-alone emergence from bankruptcy. While that gives people like Tom Horton a chance to realize extremely beneficial financial rewards and an opportunity to keep their jobs, I’m not sure that it means that US Airways can’t be the dominant merger partner.
AA is almost certainly going to emerge with a higher market capitalization than US Airways presently has. However, that doesn’t mean that they have very much maneuvering room against US Airways who has been building cash holdings and operating their business both profitably and sensibly. AA’s current cash holdings are almost certainly going to be reduced in this bankruptcy and will be needed to finance both operations as well as aircraft purchases. Furthermore, creditors and shareholders aren’t likely to be amused at the notion of using those cash holdings for a purchase of US Airways.
I would like to see a conversation about AA’s ability to be a dominant merger partner today. This is an airline that has essentially dismantled every purchase and just made it go away. Reno Air, TWA and Air California all were airlines purchased by American and removed from the competitive landscape without adding any real value from the purchase with the exception of some aircraft. They were, for all intent and purpose, minor asset purchases.
Is that what creditors and shareholders want to see out of the next merger? My guess is that won’t fly with anyone.
April 25, 2012 on 1:00 am | In Trivia | No Comments
Frontier’s choice for a new animal to be added to their fleet is Polly the Parrot. You can see the “audition” videos they did in THIS post.
I liked Polly and I thought she was the sure shoe-in when I saw the videos.
March 6, 2012 on 12:48 pm | In Airline Fees, Airline News | No Comments
It’s been said publicly by many that Frontier Airlines will be refocused on Denver again and that it will become an ULCC airline in the spirit of Spirit or Allegiant Airlines. Many think this is difficult to imagine for Frontier and in some ways, I agree. However, I think another ULCC isn’t such a bad idea.
The truth is that existing LCC carriers aren’t all that low cost any more. Even the newest are raising fares right alongside the legacy airlines and that has significantly impacted the consumer and, I think, degraded demand. Airlines are constricting capacity over and over and over again and while the rising fares do make up for that, it’s noticeable that every quarter we hear about an airline restricting growth or even contracting themselves in light of the market place.
I believe the reason we see Spirit and Allegiant doing as well as they do has a lot to do with the fact that they are the airlines who are able to stimulate and benefit from the incremental demand that appears with a lower air fare. I’m referring to the Southwest effect, yes. With the consolidation that has gone on for the past 6 years in this industry, I’ve wondered when new entrants were going to appear and I think the only reason they haven’t is due to the lack of available investment capital. It’s hard to start a well funded airline right now.
But Frontier isn’t in need of that kind of capital. Based in Denver, the airline could actually fight back against what are essentially 2 legacy airlines whose air fares are considerably higher today than they were 2 years ago. There is money to be made there and money elsewhere too.
It requires lower costs and fees on everything, yes. Frontier will need to add seats, reduce frills and start charging fees for anything it can find while lowering air fares dramatically. This is real work but isn’t capital intensive work. They can do this.
Can they succeed? I think that depends a great deal on the management team and its willingness to sharply execute a ULCC plan. There is no need to take too long to implement the ULCC strategies. Implement them and start undercutting your competition as fast as possible. Move aggressively into markets where you can show a difference against the legacy carriers including Southwest Airlines. It really isn’t as far fetched as it might seem at this point.
The truth is that the airline marketplace has changed dramatically over the past 3 years as a result of the economy, fuel prices and consolidation. Furthermore, most consumers have accepted the fee structures and despite hating them, they’re paying them. So why not a ULCC that aggressively plays against the legacy airlines and older LCC carriers? That model might not have been ready for prime time 5 years ago but a lot can change in 5 years.
January 2, 2012 on 10:31 am | In Airline News | No Comments
Over the past 12 months, FlyingColors has doubled its readership and has seen nearly 1000 blog entries reached with enough words written to equal a book with over 1700 pages. But enough about me, let’s look at the last year in the airline world.
Southwest Airlines did its deal with Airtran and bought itself an Atlanta base of operations and some very valuable landing slots at Northeastern airports. As if that wasn’t enough, it made a firm deal on a bunch of 737MAX aircraft and agreed to take on even more 737-800 aircraft for its routes. However, the airline wasn’t without some trouble: Airtran pilots tried real hard to step on their on feet in a seniority deal with Southwest Airline pilots.
American Airlines struggled (more) and lost more than a Billion dollars (again). Instead of making any real progress with its labor force, it decided to file bankruptcy but not before having made a historic order for aircraft from both Airbus and Boeing for the A320 and 737 series aircraft (with both A320, A320NEO, 737 and 737MAX in the mix). 2011 also saw long term CEO Gerard Arpey depart the company (to work with former Continental CEO Larry Kellner) and AA President Tom Horton took over.
Virgin America has horned in on American’s routes, Frontier has struggled more and more under Republic Airways leadership and US Airways still doesn’t have pilots or flight attendants integrated onto one seniority list. JetBlue decided to fly more to the Caribbean, entrench itself even more at JFK airport and blew it during an October snowstorm (again). United and Delta made money. Quite a bit actually.
I think we’ll see Frontier either spun off rapidly in 2012 or the rapid decline of the airline necessitating bankruptcy of Republic Airways. I don’t see a real strong suitor for Frontier except, perhaps, JetBlue but since Frontier isn’t based at JFK airport, I do wonder at JetBlue interest in an airline like Frontier.
I think we’ll see Alaska Airlines find even more odd partners for its success and still manage to cozy up close to Delta while doing it. Southwest will start painting Airtran aircraft in its colors and operating even more great deals to more places from Atlanta but I also think that if any slots at JFK, LGA, EWR, IAD or DCA come available for purchase, Southwest will bid the cost of a Boeing and lose again.
I think it’s possible that Virgin America will make money in 2012 and I think it is really possible that we’ll all be pleasantly surprised by that. The determining factor? Cost of fuel.
United will order a nice chunk of aircraft and I’ll bet that it will be an order similar in mix to the American Airlines order from both Airbus and Boeing. However, I do not think it will be similar in size. I think it will be a partial fleet replacement with lots of options for incremental change in the fleet.
I think Delta will continue to make a big pile of money with very little controversy surrounding it except that I think Delta will look for and execute a plan to encroach on more Legacy and SuperLegacy airline routes as it has announced its intention to do so from La Guardia Airport. I also think that Delta will decide its not afraid of Southwest and it will decide to give Southwest a taste of bullying it hasn’t experienced before. Particularly in Atlanta. It’s not just an opportunity for Southwest to succeed in Atlanta but it is also an opportunity for Delta to capture lost customers.
I think we’ll see capacity restraint for another year and higher air fares than seen in a long, long time. I do not expect to see another new airline show up and I think we may well see one true LCC depart the picture if things get particularly rough with respect to fuel prices or competition. Milwaukee will become the regional airport it was intended to be instead of a bloody battleground between LCC airlines.
Tomorrow: The rest of the world
November 13, 2011 on 1:00 am | In Trivia | No Comments
This will be a tough one for almost all of you out there but here it goes:
What western airline was owned by what appliance family from 1955 until 1962?
The answer after the fold: (more…)
November 12, 2011 on 1:00 am | In Airline News | 2 Comments
It was in the news earlier this week that Frontier is laying off an additional 120 people in Milwaukee. Likely these are more former Midwest employees but the hit hurts just the same.
It’s another sign of just how much Frontier is bleeding and another sign of just how much Republic Airways is approaching their investment with a lack of enthusiasm.
Frankly, I thought Southwest was the better suitor for Frontier but I didn’t believe that Republic would lose interest quite that rapidly either. The truth is, Republic has never shown much enthusiasm for its purchases of Frontier and Midwest. They blame high fuel prices for their problems. I blame a lack of expertise in running a brand airline, getting rid of the expertise that did come with Frontier and just not really going “all in” with their purchase.
There is now speculation that there will be no interested buyers for Frontier and it is hard to argue with that. There is a tiny bit of speculation that Frontier could be of interest to JetBlue largely because of fleet commonality and, somewhat, service commonality.
Going up against Southwest and United in Denver is not for the faint of heart. I don’t disagree that jetBlue could be interested and I do think there is some “fit” there. I also don’t think JetBlue has enough guts to make such a purchase. They have signaled their complete happiness with being the airline they are today and have made little effort to grow into new markets. Denver certainly isn’t an attractive market for the risk adverse management of JetBlue.
But another airline does come to mind. Virgin America. The fleet commonality works and they *are* being smart about competing with legacy airlines. I don’t think you would see Frontier in Milwaukee for very long or quite as much flying in Denver either. But I think Virgin America has an aggressive enough management cadre to figure out how to make Denver profitable and how to use the remaining fleet to enter into other profitable markets quicker.
The real question is whether or not Virgin America could even financially swing such a deal given how much Frontier is burdened with debt.
November 7, 2011 on 1:00 am | In Airline News | No Comments
Frontier Airlines has lost $90 million in the first half of 2011 and parent company Republic Airways has announced plans to try to staunch the losses with layoffs and reconfiguring aircraft.
The losses are attributed to high fuel costs but I have to call nonsense on that. Every airline has experienced high fuel costs and many have higher labor costs than Frontier. I think the problem is an unfocused strategy that has involved competing in Denver on price alone and using any aircraft Republic Airways doesn’t have a use for with another airline.
Frontier has potential and real value but only to people who know how to run such an airline. Frankly, I think that one of the best things that could happen is Republic selling the business to someone else. JetBlue would be an excellent fit and, frankly, I don’t think you could even get Southwest glance in its direction now.
But that window is *barely* open right now and it closes if Frontier loses anymore ground in its fight.
August 5, 2011 on 1:00 am | In Airline News | 1 Comment
Let’s summarize where Republic Airways is today with its strategy of purchases over the past few years,.
1) Bought Midwest Airlines and traded away its mainline aircraft for E-170 and E-190 aircraft.
2) Bought Frontier Airlines, chased away the CEO making that enterprise cash positive.
3) Merged brands and used a mish-mash of aircraft to provide service in both Denver and Milwaukee focus cities causing confusion among consumers.
4) Unable to get Frontier to earn money and now is seeing it as such a drag on Republic earnings that they’re making deals with labor where they trade equity for labor savings.
I’m not against Bryan Bedford (CEO of Republic Airways) or even against Republic Airways itself. Not in general. However, I cannot see what it got for its money by buying Midwest Airlines and I don’t believe anyone else saw the value there either. He didn’t turn it around and it didn’t provide a very good footprint in Milwaukee that made competing against Airtran and Southwest very viable. The truth is, Midwest should have gone to Airtran. On the other hand, did Airtran dodge a bullet?
I do think that Frontier’s success was based upon its people and, more specifically, Sean Menke. I do not think that Republic understood that substituting available aircraft in for Frontier branded and operated aircraft for a hodge podge of flights was a *bad* idea. Brand is everything in an airline.
Brand stands for what, exactly, the consumer can expect when he/she buys a ticket on them. The lack of consistency and lack of focused marketing and the lack of a coherent route plan has made it possible for Southwest Airlines to start taking away market share in Denver. Even United may be benefitting.
There was a reason why SWA wanted Frontier. Frontier (pre Republic) was the airline that SWA couldn’t seem to knock down. SWA thrived in Denver at United’s expense rather than Republic’s. The airline that can fight off SWA is one that SWA is interested in. SWA knew that Frontier’s model was working and working well despite hard competition from SWA.
Rather than identifying the value that Frontier had in its operating model, Republic just did what they wanted and lacking the knowledge of how to operate a mainline branded airline, they made some real amateur moves. This is where we learn that just because you can operate a regional airline working contracts for legacy airlines successfully doesn’t mean you know *anything* about running a mainline airline itself.
But to Bedford & Co’s credit, they are trying to solve problems well in advance of when those problems become almost unsolvable. At least cost wise and those guys know how to manage costs, I think.
Yet, there is something missing and that is coherent, focused brand leadership in the form of a relatively independent president of the company. It won’t be Sean Menke but you can find talent elsewhere. There are plenty of airlines who’ve got people who do understand what’s needed.
I think ego, however, will preclude that happening and we’ll see Frontier sold off to another airline eventually. My guess? Jetblue.
June 13, 2011 on 1:00 am | In Airline News | No Comments
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.
April 30, 2011 on 1:00 am | In Airline News | No Comments
Southwest Airlines is now the number 2 carrier at Denver with Frontier Airlines (as well as Republic Airways flying) dropping to number 3 now. The good news: this is more at the expense of United Airlines than Frontier. the bad news: dominance is dominance.
I’m not entirely surprised at SWA’s success at Denver but I do think that, like others, it is a bit surprising that this took as long as it did. United, Frontier and Southwest have been in a pitched battle for that market for years now. This was never a battle about SWA beating Frontier. This battle was about SWA owning market share and pushing out more expensive incumbents. That would be United.
Frontier never was and still is not big enough to be a real threat to Southwest. Based on Frontier’s route decisions, they aren’t going to be a real threat to SWA either. Frontier is looking for low hanging fruit that has little or no competition. Southwest is connecting focus cities to focus cities region by region and sees Denver as a good place to establish itself on several of those mainline routes.
If anyone should fear Southwest, it’s United. You can’t sustain attacks from two low cost carriers forever and stick around. As the ContiUnited merger plays out in integration, I expect Denver to look less and less important to that airline as a hub.
March 17, 2011 on 1:00 am | In Airline News, Airlines Alliances | No Comments
With the various mergers and consolidation that we’ve seen over the past 3 years, there is quite a bit of speculation as to who is next in the merger game in the United States. The truth is, with the exception of some very small players, I see no opportunities.
Sun Country is actively looking for a purchaser and I think it will find one but it won’t be for Sun Country’s business nearly as much for Sun Country’s Minneapolis / St. Paul gate space and, perhaps, a few routes. Two candidates as buyers come to mind in this area: Southwest and Frontier. Both should find the opportunities in MSP attractive and Southwest is liable to also be attracted to the staff and equipment Sun Country is flying. Sun Country flies the 737-700 and -800 and getting their hands on the -800 of which there are 10 available could help SWA get a jump start on an aircraft it needs.
Frontier has a little bit less incentive for MSP. The aircraft fleet doesn’t match and they already have hubs and/or focus cities bracketing MSP in Denver, Kansas City and Milwaukee. But getting to compete against Delta in MSP where it is by far the dominant airline could be attractive to Frontier.
As far as other airlines go, I just don’t see it for now. Airtran will be going away this year. JetBlue is doing OK and while I think it could stand to grow, nothing is available and an attractive fit in areas where it could grow. There is the ever so slight chance that JetBlue could make a bid for Frontier but Frontier’s new management hasn’t had very long to make a go of it with that brand and it doesn’t seem like they would want to be consumed.
Alaska Airlines is very profitable and doing very well with its multiple relationships with various legacy and international airlines. They could be attractive to purchase but I think they would seriously resist overtures unless the economics just made their shareholders rich.
American Airlines has too many labor problems and is busy coordinating with its OneWorld partners at this time. This is an airline whose house is not in order and whose leadership is not really interested in acquisitions and who is not very visionary to begin with. Without new and radically different leadership, I presently see AA maintaining the status quo.
US Airways is pretty profitable and has their act together in many ways operationally speaking. They, too, have labor problems but somehow management manages to sit back and let labor fight among themselves while earning profits. This is another airline that could stand to grow and the most attractive place to grow would be internationally. The bad news is that they don’t have any long haul aircraft on order except the A350 and that isn’t due for quite some time. What’s worse, there is no internationally strong airline for them to target for another purchase. Obtaining long haul aircraft isn’t financially easy to do presently due to constrained credit markets and the popularity of their choice in long haul equipment (the A330.)
In addition, in light of the uncertainty that fuel prices and the economy present, I think that any growth that airlines choose to do will be slow, methodical and very cautious. It will be organic and through upsizing aircraft rather than many new routes.
The merger game of this decade is still undecided. Certainly Delta appears to have done well although their profits still seem very dependent on fuel prices. But United is far from complete and they’re already experiencing more problems than Delta ever did. Southwest and Airtran are working hard to consummate their relationship but Southwest has stumbled as much as they have succeeded in the past 2 years. There is nothing to say that SWA will execute their merger with Airtran smoothly so far. We hope they will but we don’t know they will.
Look for it to be quiet in the merger and acquisition game for the next 12 to 24 months absent the possibility of a few small acquisitions. I expect well see the alliances spark up a bit more in the near future, however.
March 8, 2011 on 1:00 am | In Airline News | No Comments
Frontier Airlines has announced new services to Knoxville, Provo and Sioux Falls using the A319 for the former and the E170/190 jets for the latter cities last week. Each will receive service from its Denver hub. In addition, Frontier is adding additional service to Minneapolis / St. Paul and San Antonion from Kansas City which are both cities it already serves from Denver.
I genuinely like the Embraer E170/190 jets for service to smaller cities as it offers a mainline type service to cities that traditionally would be served by cramped 50 seat regional jets used by other airlines. It’s a nice service product and Frontier’s owner, Republic, gets to remain flexibile in how it deploys its fleet of those jets.
I do wonder if Frontier isn’t kind of dancing out of the way of real competition though. Its newest routes don’t strike me as something the airline is doing to fight against its LCC competition out there. Nor do these new routes strike me as low hangling fruit for an airline like Frontier as well. For instance, while I can understand flights from Provo and Sioux Falls to Denver, I struggle with the idea that there is a great deal of demand in Knoxville for a route that goes to Denver even if traffic can flow ownwards to other destinations.
As much as Frontier is a western states airline, it does seem to somewhat ignore opportunities on the west coast where it would seem its service product ought to thrive against the competition. Mostly I’m struggling to see the strategy here. 2010 was definitely a “rebuilding” year for Frontier and perhaps its plans will become more clear as 2011 unravels.
January 6, 2011 on 1:00 am | In Airline News | No Comments
At the beginning of each new year, I like to review what I thought would happen over the previous year and where I think things might go in the next year. Let’s take a look.
I thought that not much would happen with AA labor in the past year and that pretty much was the case. We’ve now seen several years of virtually no movement on solving these issues and I suspect that 2012 is the year that we see some kind of movement. Look for the flight attendants to be the aggressive parties but the pilots to be the leaders. All they need is a management group that wants to get something done. This might end up being a make or break year for AA CEO Gerard Arpey and it could well be based on coming to an agreement with their labor groups.
United Airlines (and Continental) really didn’t go where I thought which was the status quo. Instead, they merged and got going on getting somewhere and I like that. I didn’t think they would merge and said so at the beginning of last year. They proved me wrong. However, I think CEO Jeff Smisek hasn’t considered carefully what he needs to get agreement on to move forward with each phase of the merger. Look for this year to be good for United financially but bad on getting labor groups to agree on something. I don’t think they are headed in the same direction as US Airways . . . yet.
This is a year for Delta Airlines to continue rationalizing its routes and aircraft. They spent much of last year doing so and saw great financial results. However, their goal of a sustained 10%+ profit margin makes me think we’re going to see some weird stuff out of them somewhere around the beginning of spring. Probably in the form of new and innovative fees.
US Airways pretty much performed as predicted and I like how they are earning a profit but I hate how they still have no agreement with their flight crews that will permit them to quit operating two airlines in one. If Doug Parker were to have a New Year’s Resolution, it should be to hire someone who’ll get that taken care of this year.
LCC(s) and Regionals:
I didn’t see a merger partner for Southwest except, perhaps, Sun Country. Southwest proved me very wrong on that but I like the results. One concern I have is the somewhat “plodding” progress towards consummating this merger into one company. Does it indicate a plodding approach to actually consolidating operations? One good thing is this brings the potential for greater international flights and, hey, Southwest, consider just keeping that Airtran reservations system and then spending some real time to pick or develop a new one that will last another 30 years. You could do a lot worse.
Frontier/Republic is holding its own and I thought they would hold their own. I think they’ll hold their own this year but I don’t see them merging with anyone and I don’t see them growing subtantially either. Brian Bedford could prove me wrong and I hope he does.
Airtran made the Milwaukee market. They deserve the credit for the huge growth that city has seen in air travel. Southwest needs to commit to doing the same when they lead the game.
I slammed Virgin America a few times last year for appearing to be afraid to compete. In particular, with American Airlines. Finally, Virgin America made the plunge and came to DFW with flights from both San Francisco and Los Angeles. I liked the move and I think there is room for them to grow here. Time will tell. One thing I’ve noticed so far: AA doesn’t seem to be attacking them quite as badly as one would have expected from AA just 5 years ago. Mr. Cush, let me suggest that you could really do well with some flights from DFW to the NYC area. In particular, to Newark.
Alaska Airlines has moved closer to Delta in the past year and that worries me a bit for Alaska. They’ve generally been an airline willing to do a deal with anyone that made sense. Now, they appear to be more and more the Delta lackey and that could harm them in the long run. Another thing: Alaska doesn’t have any more logicical merger partners that make sense. American Airlines may have missed an opportunity here by not getting closer to Alaska instead of withdrawing more and more.
I don’t think we’re going to see any big mergers in the US this year. We might see one minor merger and that’s OK with us. I think this year we’ll see legacy and SuperLegacy airlines attempt to earn as much money as they can to retire as much debt as they can and to bank as much war chest as they’re able. However, I see competition heating up this summer and I think the LCC and new entrant carriers are going to put pressure on the legacy and SuperLegacy airlines in the form of adding capacity *and* routes. The question is, will the industry discipline we’ve seen hold strong or will someone crack?
December 13, 2010 on 1:00 am | In Airline News | 1 Comment
Milwaukee has had 14 consecutive months of record traffic and if you ever doubted whether or not airline competition in a market is good, you should get over that.
Airtran, Frontier and Southwest have all been battling it out there and it has been good for passengers and businesses alike. Yes, there is such a thing as too much competition but in this case we’ll see Southwest rationalize with Airtran and Milwaukee will continue to benefit from two airlines who want their business.
Markets with healthy traffic are always marked by health competition. Witness what it is like in NYC, Los Angeles, Chicago and even Atlanta. Now consider what it is like in places like DFW, Cleveland, Houston and Cincinatti.
I’ve no objection to airlines earning a profit and you shouldn’t either. But strong competition keeps airlines lean and well managed. It’s notable that American Airlines probably experiences the least competition overall among the SuperLegacy airlines and is also the least healthy.