Frontier Airlines plans to expand service from New Castle Airport to Atlanta and Detroit after a successful launch last summer.
Separately, Indigo Partners, the investment group planning to buy the airline, will move forward with its buyout despite failing to reach a labor agreement with flight attendants. While the buyout adds uncertainty, it also comes with an owner with deeper pockets to finance expansion.
Frontier is offering $39 early bird fares to Detroit and Atlanta for those who book by the middle of this month.
Airline president David Siegel made the service announcement, noting that Frontier flights out of the airport are running about 90 percent full.
Stephen Williams, who heads aviation operations for the Delaware River and Bay Authority, said Frontier has flown 70,000 passengers in and out of the airport since launching service in early July. The 70,000 is evenly divided between arrivals and departures.
The authority operates New Castle and other airports in the region. In remarks at a press conference announcing the expansion, Gov. Jack Markell again urged residents to fly on Frontier. Siegel said he spent an hour with Markell talking about Frontier and the importance of the Delaware market.
Frontier launched service from the airport in July to Denver, Tampa, Chicago and Orlando. It dropped service to Houston, but is adding flights to Fort Meyers this month. The decision to drop flights to Houston led to some nervousness about the future of airline service from New Castle, although airport officials have said that passenger traffic has been strong.
New Castle Airport has struggled to hang on to airline service, due to its proximity to Philadelphia. However, Frontier is the first airline in recent memory to make a concerted effort to build the market. In the past, airlines had normally operated a couple of flights a day to a hub city.
Many cities not in running
New Castle has also been able to obtain subsidies for service that often come to smaller airports, due to its proximity to Philadelphia. Siegel acknowledged that the airline made a mistake in selecting Houston, the nation’s fourth largest airline market. The carrier’s scheduling group will work more closely with state leaders with knowledge of the market when selecting future destinations, he said.
The choice of the two cities by Frontier may not have won popularity contests in Delaware, but is based on niches the airline can exploit.
For example, service to New England is largely ruled out by the presence of low fare Jet Blue, which now flies into Philadelphia after Southwest dropped New England service from the region. In the case of Dallas, another popular area, low fare carrier, Spirit, serves that market from Philadelphia. Also, San Francisco and Los Angeles are served from the Delaware Valley by Virgin America, another discounter.
Service from northern Delaware is part of a two-pronged strategy by the Denver-based carrier to serve the Delaware Valley from airports in Trenton and New Castle.
Earlier, Frontier announced it would add flights from Trenton to Charlotte, N.C., as well as Cincinnati. Last week, it went on to announce flights to Indianapolis, Cleveland and Nashville, bringing the total number of cities served from Trenton to 14. Siegel says New Castle and Trenton are “focus cities” that will allow Frontier to provide low-fare service in one of the biggest markets in the nation.
Leisure travelers targeted
Frontier’s strategy is to offer non-stop flights aimed primarily at leisure travelers two or three times a week. The Denver flights do offer the opportunity to connect to destinations in the western U.S. The Atlanta and Detroit flights, will take off from New Castle in late April and will operate three days a week.
Frontier may also be betting that the merger of American Airlines and US Airways will lead to higher fares and perhaps service cuts from Philadelphia International Airport. The combined carriers may also feel constrained from what is known as predatory competition. That involves deep discount fares and schedules that lead a competitor to cut service or move out a market. US Airways was able to sharply reduce Southwest Airlines flights from Philadelphia with that strategy.
In response to pressures in Philadelphia and elsewhere, Southwest shifted its focus to Denver and put similar pressure on Frontier, which has responded by adding services in northern Delaware, Trenton and other areas, while cutting service from Colorado.
Megacarriers have pricing power
Overall, airfares have moved upward, due to airline mergers that give carriers pricing power and the ability to cut back capacity. That has offered Spirit, Allegiant and other carriers some ability to offer deep discounts and make a profit. The government is contesting the American-US Airways merger and a trial is scheduled, although there are signs that an agreement could be reached out of court.
On Thursday, Indigo Partners told Republic Airways that its planned acquisition of Frontier Airlines will move forward. The Phoenix-based investment firm had previously sold off its controlling interest in Spirit Airlines in order to pursue the Frontier purchase. Major conditions, including agreements with pilots and Barclaycard are satisfied, as are other commercial and business arrangements, Indigo reported. Barclaycard is based in Wilmington. The transaction is expected to be completed later this month.
William A. Franke, managing partner at Indigo Partners said, “We are pleased about the progress we have made to resolve major issues and move this acquisition toward closing. We look forward to completing the transaction and continuing to extend Frontier’s reach and service as a leading, nationwide ultra-low cost carrier.”
Indigo sees potential
Siegel said at the press conference in New Castle that Frontier could expand in a more aggressive fashion from New Castle and other cities with the added capital that would come out of the buyout. One advantage that comes from flying out of New Castle is low landing fees and no parking fees for leisure travelers who cannot put such charges on their expense accounts. Free parking is expected to continue at New Castle until sometime in 2014.
Indigo profited handsomely from its investment in Spirit and may have walked away with hundreds of millions of dollars. Shares in Spirit tripled in price when the carrier went public in 2011 and Indigo had owned a stake in the carrier since 2006.
It is paying $36 million in cash for Frontier, while assuming $145 million in debt. That would leave ample funds to finance expansion. “Either way you win,” Siegel said when asked about the possibility of the buyout going forward or falling through.
Siegel denied that the Frontier had been working with Indigo on its scheduling, but has adopted many of Spirit Airlines strategies, including charges for drinks and luggage. Republic, a short-haul carrier that feeds hubs for major airlines, has cut costs to the point that Frontier is now profitable.
However, its fixed costs are still higher than those for Spirit. Frontier has also reduced the size of its fleet and invested in Frontier. That would change with the infusion of capital from Indigo.
