In late 2013, Frontier Airlines was taken private by William Franke's Indigo Partners. Since then, the company has vastly overhauled its route network in order to find a niche in the ultra-low-cost carrier market beside Spirit Airlines (NYSE:SAVE) and Allegiant Travel (NASDAQ:ALGT).
After numerous false starts, Frontier seems to be settling on a strategy that combines the best of the Spirit and Allegiant business models. However, in terms of individual routes, Frontier is still experimenting. It needs to quickly reach a more settled state to create more certainty for customers and avoid getting an even worse reputation than its fellow ULCCs.
One clear recent trend at Frontier is the elimination of its Denver hub. Spirit and Allegiant both operate extreme point-to-point schedules with very little connecting traffic. By contrast, Frontier has traditionally operated a hub-and-spoke model with virtually all of its flights touching Denver.
As recently as 2012, Frontier operated more than 150 daily departures in Denver. In November, Frontier Airlines CEO David Siegel announced in a letter to staff that the carrier would cut back from an already-reduced schedule of 85 daily departures in Denver to 70 in 2015.
Siegel blamed the move on a variety of factors, including rising taxes and landing fees in Denver. However, it's clear that the main reason for cutting flights in Denver is that Frontier wants to focus on more profitable point-to-point routes.
Trying small cities -- with mixed success
One way Frontier has tried to redeploy capacity from Denver is by opening focus cities at small, underserved airports. In doing so, Frontier was taking a page from Allegiant's playbook. The main difference was that Allegiant operates a low-utilization schedule with cheap, older planes, flying only at peak times, while Frontier uses newer planes and therefore needs higher utilization.
Frontier implemented this small airport strategy at Trenton-Mercer Airport in New Jersey and New Castle Airport in Delaware. Both airports are located on the outskirts of the Philadelphia metro area, and neither one had commercial service when Frontier entered the market.
Frontier has experienced some success with this experiment, but there have been plenty of bumps in the road. At New Castle Airport, Frontier briefly operated more than half a dozen nonstop routes. In the past few months, it cut flights to Detroit, Chicago, Denver, Atlanta, and Fort Myers. Frontier also downgraded its remaining routes (to Orlando and Tampa) to winter seasonal service.
In Trenton, Frontier's route map briefly reached 19 nonstop destinations. But while Trenton has been a stronger market, Frontier has still made deep cutbacks there, dropping flights to Nashville, St. Louis, Indianapolis, Milwaukee, Cleveland, and Nassau, Bahamas, just in the past few months. Other routes have been reduced to seasonal service.
Pivoting to a "big city" model
In the past year or so, Frontier has become more interested in serving larger cities -- following in the footsteps of Spirit. (Even Allegiant has moved into a fewer larger markets recently.) Some of the capacity removed from Denver has been redeployed on routes from cities like Washington, D.C., St. Louis, and Milwaukee to warm weather destinations.
Additionally, Frontier quickly moved into Cleveland after United Continental decided to close its hub there last year. Frontier's schedule in Cleveland peaked at 17 nonstop routes. It has dropped several of those in the past few months -- perhaps because of the impending start of Spirit Airlines service -- but Cleveland remains a significant market for Frontier.
Frontier Airlines also began serving Miami International Airport a few weeks ago, becoming the only low-cost carrier operating there. It is flying from Miami to New York, Philadelphia, and Chicago -- three of the largest metro areas in the U.S.
Looking for stability
Frontier's current focus on point-to-point service -- particularly leisure routes from big cities -- seems like a promising move. These routes tend to ramp up to profitability relatively quickly, and Frontier's low costs should allow it to underprice most other airlines (excluding Spirit and Allegiant).
However, even in larger markets, Frontier Airlines has had an uncomfortably high number of failed routes. The airline has attributed this to having ramped up so quickly in some markets without any historical performance data.
This "trial and error" strategy is a relatively straightforward way to gather the necessary data to make better decisions in the future. Nevertheless, it risks causing customer backlash when Frontier doesn't honor tickets it sells.
For example, Frontier canceled its plans to fly from Washington, D.C., and Trenton to Nassau, Bahamas, based on poor bookings, without ever starting the flights. Customers got refunds, but many were left with a choice of forfeiting resort deposits or paying exorbitant prices for close-in bookings on other airlines. Not surprisingly, these customers felt duped by Frontier.
As an ultra-low cost carrier, Frontier has a little more leeway to inconvenience customers. Many fliers are willing to endure considerable hardship in search of cheap airline tickets. That said, there is probably a limit to travelers' patience. Frontier needs to settle on a strategy ASAP so customers can feel confident that they will be able to use the tickets they book.