After announcing a rare accomplishment in today’s airline environment – a profitable quarter – Frontier executives turned their attention to upcoming turbulence on three fronts.
Their response: Pull the financial seatbelts even tighter.
On Thursday, Frontier Airlines announced profits of $6.9 million. On Friday, it told analysts that the profits would be short-lived because next quarter it will lose money due to rising fuel costs and hurricane losses as high as $2 million.
Going forward, Frontier’s chief financial officer, Paul Tate, told the group that the airline will look to nearly 50 small cost-cutters that could help it recoup the losses.
“We are really literally looking under every rock,” he said. “It’s like an Easter egg hunt here. Everybody has a bag and is looking for Easter eggs.”
Or as chief executive Jeff Potter puts it: “We celebrate for a few minutes, and then we move on.”
Frontier has two strongholds: its Denver hub and profitable Mexican routes, especially to the coastal resort of Cancun. Both have been attacked in the past few weeks, the first by low-cost industry giant Southwest Airlines and second by a force of nature called Hurricane Wilma.
Frontier shares the third relentless assailant with all airlines – fuel costs that have doubled since January.
Cancun is the most immediate problem. Thirteen of Frontier’s 22 weekly Mexican routes fly there. Last week, they were canceled because of Wilma, and stranded passengers were evacuated from Merida’s tiny airport.
“If I were to guess, I would say (Cancun) is not going to get back up and running for another few weeks, at best,” Potter said. “Some hotels are talking December before they want to start receiving customers again.”
On Dec. 17, Frontier plans to start flying from Denver to the Mexican resort island of Cozumel, which also was struck by Wilma.
“A good amount of our capacity is dedicated to Mexico flying during the winter season, and in particular Cancun and Cozumel,” said Frontier’s John Happ, senior vice president of marketing and planning
A good amount of the airline’s profits come from those routes. Without them, Frontier expects to lose roughly $2 million, but Potter says the carrier’s biggest challenge is rising fuel costs, which it estimates will go up another 20 percent this quarter.
Tate is focused on cutting unit costs – the cost per available seat mile, excluding fuel – by at least half a cent. Frontier’s last- quarter cost was 8.68 cents per available seat mile, compared with Southwest’s 7.85 cents.
Taking small steps, such as removing convection ovens and curtains that add weight to an aircraft and offering passengers a half can of soda instead of a full one, could save as much as $10 million a year, Tate said.
Starting in January, Frontier will have direct competition from Southwest on 9 percent of its total flight capacity. They both will fly from Denver to Phoenix, Chicago Midway and Las Vegas.
Because of Southwest, Frontier’s market share will fall from about 39 percent to 30 percent on the Denver-Midway route, from 36 percent to 29 percent on the Denver-Vegas route and from 26 percent to 23 percent on the Denver-Phoenix route.
Frontier also will compete against United Airlines, which expects to exit from Chapter 11 bankruptcy in February.
“This is going to make it tough on Frontier. There’s just no way to get around that,” said airline consultant Darryl Jenkins.
But CEO Potter was optimistic. “I think we’re very well-positioned to compete with Southwest, or anybody, for that matter, but this is a new dimension.”
Staff writer Kelly Yamanouchi can be reached at 303-820-1488 or kyamanouchi@denverpost.com.
