DENVER—Frontier Airlines Holdings Inc. took one of its first significant steps to restructure operations Wednesday, ending a regional jet pact with Republic Airways and announcing plans to eliminate service to five cities.
The announcement, which was made by both airlines, comes as Denver-based Frontier reorganizes under a Chapter 11 petition in U.S. Bankruptcy Court.
It represents a shift away from a business strategy to move into small and mid-sized markets that were underserved by larger carriers. Frontier put it into place in January 2007 when it signed the 11-year agreement with Republic Airways Holdings Inc.
Republic’s stock fell 9 percent in early trading.
“Unfortunately, with current economic conditions and other business changes, we have been forced to drastically rethink the use of regional aircraft in our flight mix,” Frontier Chief Executive Officer Sean Menke said in a statement.
Frontier will eliminate 12 Republic-owned 76-seat jets from daily operations by mid-June. Service will end by June 1 to Sioux City, Iowa, Jacksonville, Fla., Little Rock, Ark., Memphis, Tenn., and Tulsa, Okla. It will not start service, as planned, to Missoula, Mont.
Passengers who may be affected by the schedule changes will receive refunds or the option for an alternate flight, Frontier said.
Indianapolis-based Republic, which operated the jets under Frontier’s brand, said the agreement generated about $6 million a month in revenue. Frontier paid some operational costs such as landing fees and fuel.
Republic’s initial contract was for 11 years with a Frontier option to extend it for an additional six years. Financial terms were not disclosed.
Frontier had planned to take on an additional five regional jets during the second half of this year. Republic said it will try to place the jets with other partners or sell them.
Republic also will file a $260 million damage claim because of the early termination of the agreement, although it said the bankruptcy court will decide how much it will be able to recover.
“It’s unfortunate that despite their many efforts to reorganize their business outside of Chapter 11, factors beyond their control conspired to force a deeper reorganization,” Republic CEO Bryan Bedford stated.
Although Frontier has struggled amid stiff competition and high fuel costs, Menke has said the airline was forced into bankruptcy reorganization because its credit card processing company sought to hold up to 100 percent of proceeds from ticket sales in reserve until the passengers’ flights were completed.
The filing prevents Greenwood Village, Colo.-based First Data Corp. from implementing the change until Frontier emerges from bankruptcy or First Data receives a judge’s approval to proceed.
In addition to the Republic contract, Frontier late last year launched Lynx Aviation, a turboprop operation with the goal of serving small and mid-sized markets to attract customers who would boost traffic at its Denver International Airport hub.
Frontier spokesman Joe Hodas said Wednesday that the turboprop operation may benefit because it would be more cost effective on some of the routes that Republic had served.
Republic’s stock fell $1.61 a share, or 9 percent, to $16.35 a share in midday trading.
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