Newly Public Frontier Looks Beyond Losses to Huge and Sustained Leisure Travel Opportunities
U.S. consumers have spent the last year largely cooped up, postponing long-planned vacations and trips to visit friends and family. That’s changing, and as the country wakes from its pandemic torpor, Frontier Airlines, flush with cash from its recent stock market debut, is positioning itself to take advantage of what it calls a “surge” in leisure travel.
In fact, Frontier executives think the surge will last as long as 18 months, as people flock to the airways to take summer trips they put off last year and travel again for the year-end holidays. With a network primed for leisure flights and its focus on keeping costs low, Frontier thinks it’s uniquely positioned to reap the benefits as Americans head to the beach.
But it’s not just the beach; the nature of travel will have changed as well. Workplace flexibility could redound to Frontier’s benefit as “work from home” becomes “work from anywhere.” As long as companies don’t mandate workers to return to their offices, and as the fear of the pandemic recedes, more people will take to the airways to work from wherever they want, Frontier believes. This could shift more leisure travel — traditionally heavy during the weekends — to midweek. “This could last for years,” CEO Barry Biffle said during the company’s inaugural quarterly earnings call on Thursday.
The surge could result in people not being able to go where they want, simply because there just aren’t enough flights. Biffle thinks people who wait too long to make their summer plans will be out of luck, and this problem will snowball as more people begin to travel. Thanksgiving and Christmas could see this problem become more acute. The booking curve — the amount of time between buying a ticket and traveling — will begin to lengthen out to pre-pandemic levels, and Biffle thinks by early next year, travelers will begin planning their summer vacations six months out, more in line with consumer behavior before the pandemic.
But, striking a note of realism, Biffle acknowledged the recovery is in its very early stages. “We’re between the second and third innings,” he said. The summer could be “inning seven, if demand outstrips supply.”
Frontier is luckier than carriers like Delta Air Lines, American Airlines, and United Airlines, which earned much of their revenue before the pandemic from international flights and business travel. The Denver-based ULCC is primarily a domestic U.S. airline, and what little business traffic it carries is from small- and medium-sized enterprises and not from managed travel. The airline thinks it has ample room to grow. ULCCs comprise about 10 percent of the U.S. market now, but in Europe are about half the market. As the nature of travel changes, Frontier believes its network and model will stand it in good stead to reap the benefits.
The major airlines’ basic economy is not much of a threat, Biffle said. Basic economy ticket prices have been rising as demand returns, making it less attractive to travelers who may want fewer restrictions than that fare class usually allows.
Frontier has been busy adding routes and has started service to five new domestic cities. The carrier has added dozens of new routes in the quarter, and started flying to three more near-international destinations: Nassau, the Bahamas, San Jose, Costa Rica, and St. Maarten.
It expects to be profitable in the second half of the year, after losing money in the first quarter. Daily cash burn turned into cash generation at the beginning of March, just when Frontier saw an uptick in demand for spring break and summer travel.
Frontier, unlike most U.S. carriers, leases all of its fleet, an arrangement that gives it more financial flexibility than owning aircraft, Chief Financial Officer Jimmy Dempsey said. In the quarter, Frontier took delivery of three Airbus A320 Neos and is returning its four remaining A319s. The carrier expects to take delivery of 10 more A320 Neos this year and will start adding A321 Neos to its fleet next year. By 2025-2026, the larger A321s will make up half of the carrier’s fleet.
Frontier benefited from $96 million in federal payroll support in the quarter and will take an additional $75 million from the most recent round of payroll support in the second quarter. Biffle doesn’t expect the government to provide a fourth round and said additional funding was unnecessary given the industry’s return to health. Frontier began hiring flight attendants and pilots during the quarter and will be fully staffed to operate its larger fleet as the aircraft arrive.
The carrier raised $271 million from its April 1 initial public offering. Frontier reported a $91 million first-quarter loss on revenues that were roughly half of the same period last year. Its operating margin in the quarter was -34 percent. The carrier expects its second-quarter operating margin to be between -10 and -15 percent. Management did not offer revenue guidance for the balance of the year.Subscribe Now to Airline Weekly