Frontier Airlines chief financial officer Paul Tate acknowledged today that the company could sell off parts of itself.
In a speech at the Bear Stearns Global Transportation Conference in New York, Tate said Frontier could someday spin off its Q400 operation or sell off airplanes if needed.
The airplanes owned by the company are like a built-in piggy bank available, “if we ever get into a situation where we need to raise cash for some reason,” Tate said.
The company incurred $3.6 million in startup expenses in the 2007 fiscal year it just completed, including costs to get a certificate to operate the new Q400 turboprop planes it plans to use to fly to Rocky Mountain destinations.
“Once we get that certificate, that has value. That is something that we could spin off someday if we wanted to,” Tate said.
Tate and other airline executives speaking at the conference also discussed the fare wars in the airline industry.
While heavy airline competition in Denver has led to relatively low fares, airlines hope to eventually raise fares but are playing a costly, large-scale game of chicken in the meantime.
Southwest Airlines and its pricing helped spark the contest. Frontier, United and other airlines, eager to sell competitive fares, are fueling the fight.
Tate said Frontier is performing well against Southwest in Denver, although its unit revenue is down in markets where it competes against Southwest.
“It’s really the Southwest markets and their low-fare structure, which in our view is not sustainable,” Tate said. He said Frontier is still bringing in higher unit revenues compared with Southwest. “That’s the best we can do,” he said, “and let Southwest make the decision, if that’s something they enjoy doing.”
Around the country, some hope Southwest’s rising fuel costs will drive it to raise fares more readily than in the past, opening the door for competitors to also raise fares and boost revenues.
Southwest chief executive Gary Kelly, also speaking at the conference, said “we continue to seek fare increases where they make sense,” including hikes a couple of weeks ago that affected about 25 percent of our system “in markets that we hadn’t touched in a while, in terms of fares,” he said.
United Airlines recently moved to increase fares, but other carriers did not match the hike.
“Clearly, United is trying to lead a fare increase,” said Kathryn Mikells, United’s vice president of financial planning and analysis. Whether a fare increase sticks “has a lot to do with what low-cost carriers do and whether low-cost carriers match,” Mikells said.
Staff writer Kelly Yamanouchi can be reached at 303-954-1488 or kyamanouchi@denverpost.com .
