Frontier Airlines Sold to Indigo Partners

Republic Airways has sold Frontier Airlines to Indigo Partners for about $36 million plus some debt, putting the total value of the deal at about $145 million.

And now a quick Q&A about this:

What is Indigo Partners?
Indigo Partners is an investment firm run by Bill Franke that invests primarily in low fare carriers around the world.

Who is Bill Franke?
Franke was the CEO of America West from 1993-2001 back before it became one of the unheralded success stories in the industry. For you airline nerds, he was the CEO after they decided that flying Phoenix-Nagoya on a 747 was a great idea and before they brought in Doug Parker.

Is this good news or bad news?
Like it or not, Indigo helped turn Spirit into one of the few financial success stories in the US airline industry. Franke resigned from the Board of Spirit Airlines this summer, I would assume in anticipation of purchasing Frontier. They’ve also had success with Wizz Air in Hungary, Volaris in Mexico, and Tiger Airways in Singapore. Although everyone and their mother thinks they can run an airline, this team has, for the most part, has shown that they can.

What changes can we expect with Frontier?
I think one of the key lessons we’ve learned about the airline industry in the US is that either you are 100% a low cost carrier, or you’re not. Spirit and Allegiant do not half-ass the low cost thing – they have been innovative (again, whether you like it or not) in ways to drive down costs and derive more revenue from customers. Lots of airlines have tried to do this, but they were not willing to go all the way. Frontier has made positive steps in this direction (well, positive from a revenue standpoint – I’m sure customers have been complaining), making their cheapest fares most easily available on their own website, for example. But we can expect more ancillary charges, likely a reduced presence in their current hub of Denver, and more experiments with tertiary markets like we’re already seeing in Trenton and Wilmington (DE).

Hm, that strategy sounds familiar…
Yes, it sounds like Spirit. Frontier has seen some success moving toward a Spirit-like model, and I expect them to have even more success when they hammer that home. I’m sure nobody will like the additional fees, but, like with Spirit, they will pay them, and if they can get their operational costs down, the investors will love them. Spirit and Allegiant have shown that flexibility is enormously important – these so-called ultra low cost airlines need to be willing to try new routes and quickly pull out of the ones that don’t work. Tiny airport authorities hate that, but if they can’t get passengers on planes for the 2x/week flights to Orlando, no airline will stick around for years trying to make that profitable. Frontier will find more Trentons and Wilmingtons, find less need to be in Denver, drive up fees, drive down fares, and I bet in 2 years we’ll be looking at a success story.


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