Frontier Airlines Goes All-In As an Ultra-Low-Cost Carrier

Frontier Airlines has just about finished its move to become an ultra-low-cost carrier.

May 6, 2014 at 2:10PM

Over the last 10 years or so, Allegiant Travel (NASDAQ:ALGT) and Spirit Airlines (NASDAQ:SAVE) have pioneered a new "ultra-low-cost carrier", or ULCC, business model in the airline industry.

The two companies have very different strategies. Allegiant primarily serves small communities with secondhand jets, while Spirit serves heavily trafficked routes with state of the art planes. However, they share a commitment to keeping base fares and costs low by charging for various "optional services" and thereby encouraging cost-saving behavior in customers.


Spirit Airlines has been one of the pioneers of the ULCC model in the U.S. Source: Spirit Airlines.

In recent years, privately held Frontier Airlines has taken tentative steps toward adopting a ULCC business model. Last week, Frontier finally went all in by adopting one of the hallmarks of the ULCC world -- a carry-on baggage fee -- while reducing fares by an average of 12%.

Frontier's transformation
Historically, Frontier Airlines was a traditional low-cost carrier operating a hub-and-spoke route network based in Denver. However, the company ran into trouble as fuel prices spiked and the economy tumbled toward recession in early 2008, forcing it to file for bankruptcy.

Southwest Airlines (NYSE:LUV), which had just begun flying to Denver in 2006, hoped to buy Frontier out of bankruptcy court in order to gain a bigger presence in that key market. However, Frontier and Southwest pilots could not agree on a path to merging their seniority lists, causing the bid to fall apart. Since then, Southwest has grown organically in Denver, where it now offers 167 daily departures to 56 cities.


Southwest has grew rapidly in Denver following the Great Recession. Photo: The Motley Fool

This created a bit of an identity crisis for Frontier. Following Southwest Airlines' expansion in Denver, Frontier was a struggling low-cost carrier competing directly on most routes with the low-cost carrier par excellence. The company needed a way to differentiate itself.

This ultimately led Frontier to turn toward an ultra-low-cost carrier business model in 2012. The company added a row to all of its A320 aircraft to reduce unit costs, and it announced plans to add an additional row to each of its planes through the use of slimline seats.

A year ago, Frontier took another step toward the ULCC model by introducing a fee for carry-on bags that applied only to customers booking through third-party channels like online travel agencies.

This policy had two aims. First, it rewarded customers who booked tickets directly with Frontier -- something that saves the airline money on commissions. Second, it encouraged customers who did not book directly with Frontier to check their bags, freeing up bin space for other fliers and thereby reducing boarding times.

A new type of ultra-low-cost carrier
Last week, Frontier extended the carry-on baggage fee to all economy tickets. (It still offers a second fare class called "Classic Plus" that includes free carry-on and checked bags, seats with extra legroom, and other extra features.) This moves it more squarely into the ULCC world, as Allegiant and Spirit are the only other carriers charging for all full-size carry-on bags.


Frontier is becoming more like Allegiant and Spirit by lowering fares and adding fees. Photo: The Motley Fool

In many ways, Frontier Airlines is trying to pull the best from the Allegiant and Spirit business models and roll them into one. Like Spirit Airlines, Frontier uses relatively new A320 family aircraft, and it has a large order for next-generation A320neo planes. However, like Allegiant, Frontier is starting to focus on smaller cities like Trenton, N.J., and Wilmington, Del., where it flies most routes just two to five times per week.

Frontier's recent management changes clearly show that the company intends to move further toward a pure ULCC business model over time. First, Frontier Airlines was purchased late last year by Indigo Partners, a private equity firm that primarily invests in ULCCs and masterminded Spirit's transformation to that business model.

Second, last month Frontier Airlines that it had appointed Barry Biffle as company president. Biffle previously worked for nearly a decade as the chief marketing officer at Spirit Airlines before heading up a new ultra-low-cost carrier in Colombia for the past year.

With a management team that understands the ULCC business model and has successfully implemented it in the past, Frontier Airlines' transformation is likely to gain steam this year. As an ultra-low-cost carrier, Frontier will be able to differentiate itself from Southwest in Denver by consistently offering the best prices.

Foolish conclusion
Frontier has been moving toward an ultra-low-cost carrier model for more than two years, but it has finally arrived. The ULCC model will give Frontier a good chance to carve out a profitable niche for itself due to the relatively small size of Allegiant and Spirit. Most importantly, it will enable Frontier to compete more effectively against Southwest Airlines in Denver.

Longtime Frontier Airlines customers should read up on the changes in Frontier's fee structure. For savvy fliers, Frontier will be offering even better deals on flights than before. However, if you're not careful, you could be on the hook for massive fees on top of your base fare.

OPEC is absolutely terrified of this game changer
Imagine a company that rents a very specific and valuable piece of machinery for $41,000 per hour (that's almost as much as the average American makes in a year!). And Warren Buffett is so confident in this company's can't-live-without-it business model, he just loaded up on 8.8 million shares. An exclusive, brand-new Motley Fool report reveals the company we're calling "OPEC's Worst Nightmare." Just click HERE to uncover the name of this industry-leading stock and join Buffett in his quest for a veritable LANDSLIDE of profits!

Adam Levine-Weinberg has no position in any stocks mentioned, and neither does The Motley Fool. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.


Compare Brokers