To get back on track this was from the Denver post today
Frontier Airlines was forced into bankruptcy protection three months ago by what some considered a technicality: Its credit-card processor demanded more collateral than the carrier could provide.
But Denver-based Frontier's financial situation has quickly deteriorated since the April 10 filing. Its restructuring effort now looks like a fight for survival.
Oil prices have risen 30 percent since Frontier entered Chapter 11. Jet fuel, which accounted for 31 percent of Frontier's operating expenses during its last fiscal year, rose to 45 percent in May and probably climbed higher in June. Meanwhile, stiff competition has kept Frontier from raising its fares appreciably. Frontier hemorrhaged $38 million in April and May alone, after
Chapter 11
posting a $60 million loss for the fiscal year ended March 31. Cash held steady in excess of $100 million through May, but only with the help of one-time gains and bills left unpaid.
Adding to Frontier's troubles, rival Southwest Airlines is adding Denver flights at a feverish pace. The airline, which has 84 daily departures from Denver, will increase that to 95 by early September and 115 by the end of the year. That comes as Frontier cuts 21 of its 175 departures by fall. A few of those flights are seasonal and will be restored in the spring.
Amid all that, Frontier executives are trying to raise the money they need to lift the airline out of bankruptcy. The number could be in the hundreds of millions, and the timing could not be much worse.
Airline-industry woes and the credit crunch are making funding scarce. Those conditions have killed more than one potential airline combination and make it more difficult for Frontier to find a merger partner.
Frontier's best hope is that oil prices drop — closer to the $110-a-barrel range — over the next few months. "It's really tough for Frontier," said Henry Harteveldt, an airline analyst with Forrester Research in San Francisco. "I know Frontier is beloved
in Denver, and I wish I could be more optimistic about its future. But it's already been proven that no city can support three hub airlines."
On Thursday, Polk Majestic Travel Group, a large Denver corporate travel agency, suggested customers avoid booking with Frontier for winter holiday travel.
United Airlines, the dominant carrier at Denver International Airport, has its own problems. United lost $537 million during the first quarter and will cut capacity by 14.5 percent this year. In Denver, United and other airlines have lost market share to Southwest as Frontier's share of seats and passengers has grown.
Frontier has made a series of cost-cutting moves and is working on more to help it weather the storm, spokesman Steve Snyder said. The company has loyal customers and a dedicated workforce.
"Despite all of the negative things you hear about this company, we still think we have a very good story to tell," he said.
Frontier chief executive Sean Menke is still focusing on an early 2009 emergence from bankruptcy, Snyder said. Menke declined an interview request.
A Frontier liquidation, almost unthinkable three months ago, might allow United to secure its grip at DIA, but only if it could free the money to expand. More likely, Southwest could scoop up many Frontier customers and, possibly, some of its employees and gate space at DIA.
Frontier employs about 5,000 of its 6,000 workers in Denver. Hundreds will be let go during a planned downsizing this fall. Frontier rental payments, landing fees and other payments account for about 15 percent of DIA's airline revenue.
The airline's success has long been a source of civic pride in Denver and evidence of the region's economic vitality.
The competitive landscape at DIA is changing quickly. An analysis of capacity data from the U.S. Department of Transportation and OAG Worldwide Ltd., using airlines' announced capacity changes, indicates that about 18 percent of the available plane seats at DIA could be Southwest's by the end of the year. United would have 44 percent and Frontier about 22 percent.
Southwest entered Denver in January 2006 and flew just 6 percent of available seats here last July.
Southwest is flying planes less than three-quarters full in Denver, compared with a load factor of more than 80 percent for United and Frontier, according to load-factor data from Frontier. Southwest can profit while flying more empty seats and charging lower fares because it has locked in fuel purchases at prices well below current levels. Southwest's fuel hedges will be reduced significantly in 2010.
That means Southwest is in a strong position to make big gains in passenger traffic when United and Frontier draw down their schedules in the fall.
Frontier and its employees can rally around a few positive notes — facts that Menke is almost certainly repeating to potential lenders.
First, Frontier has loyal customers in Denver, many of whom pay higher fares even on routes that Southwest flies. Customers like Frontier's assigned seating, friendly service and the cuddly animals on its airplanes and in its ad campaigns.
"From a consumer point of view, more people are getting on Frontier flights and paying more to do it," said Evergreen aviation consultant Mike Boyd. "That's a heck of an endorsement of the market viability of the airline. ... This is an entity that is competing with Southwest and doing a good job at it."
Second, Frontier has relatively good relations with its employee groups, unlike United and other major carriers that have battled bitterly with unions in bankruptcy.
"People really do love the airline. I'm still pretty proud to say I work for Frontier," said John Stemmler, president of the Frontier Airline Pilots Association, which in May accepted pay cuts and other concessions.
"I can't blame them. ... There are so many external factors right now that are just pushing and pulling on airlines."
So far, the bankruptcy has moved smoothly, with Frontier encountering not even a contested motion in court.
A third advantage for Frontier, versus its rivals, is bankruptcy itself. It allows the company to escape expensive leases, return aircraft to lessors and renegotiate debt payments.
Frontier "can ground or take out of its fleet aircraft in a process that's going to be easier for them than a carrier faced with ongoing lease payments on planes sitting on the ground," said David Swierenga, a consultant in Round Rock, Texas.
Frontier owes about $500 million on aircraft financing, some of which it already is whittling down through aircraft retirements.
Part of Frontier's quandary stems from its success. The airline has very little fat to trim, unlike United in its three-year bankruptcy. Menke moved quickly, before Chapter 11, to refocus the airline on its most profitable routes.
Frontier quickly dispatched of one of its biggest operational challenges, a money-losing regional service contract with Republic Airways. Frontier lost $33 million on the regional service during fiscal 2008. It is serving some of the destinations with its Lynx subsidiary, which flies fuel-efficient Bombardier turboprops.
Its popularity with Denver travelers limits what kinds of changes it can make to its service and strategy, Snyder said. Though other airlines are charging passengers to check in a bag, Frontier has refrained because it doesn't fit with the carrier's image. The carrier does charge for a second bag.
The airline is considering changes to its fare structure, Snyder said. Passengers willing to forgo frequent-flier miles could pay less, he said. Menke is considering all options, Snyder said. "He enjoys being the underdog and having someone telling him this can't be done."
