Barry Biffle, president, Frontier Airlines, talks route development strategyand US market dynamics.
Frontier Airlines has been revamped over the past year. The ultra-lowcost carrier (ULCC) has been busy realigning its network and bringing in a new senior management team to improve its competitive advantage. According to Barry Biffle, president, Frontier Airlines, the change has all been about improving customer service. “If you look at the background of the senior management we have recruited, it is obvious that it is about the customer experience,” he says. “Low fares mixed with the best possible customer experience is what we call, ‘Low Fares Done Right’. It’s a key differentiator.”
Biffle admits, however, that driving cost down has featured high on the agenda. The appointment of Jimmy Dempsey as CFO, the Ryanair veteran treasurer, hints at a strategy to not so much shave costs as to force them into submission
And Biffle – who also knows a thing or two about low cost having worked at Spirit and VivaColombia – is happy that the double-pronged attack is working. “We had strong views on what makes a good ULCC,” he notes. “By the end of 2015, we will be on a par or better than any of our competitors when it comes to cost, adjusted for size.”
The price is right
Driving down cost feeds into the Frontier route development strategy. The basic format is to root out those cities where consumers are paying above average fares because that would suggest that there is an opportunity for a carrier able to offer low fares to the market. “We then compare our product to our competitors’ products and look at the cost advantage we have,” Biffle informs. “Obviously, we want to go where our cost advantage gives the biggest bang for the consumer.” A final step is to look at how the destination would fit into the Frontier network operationally. The key here is ensuring a gate full of operations. Having just one or two flights a week doesn’t appeal to Frontier. Biffle explains that having to fit in a sporadic service to the network makes the entire operation more complex – “and complexity adds cost”.
The top 30 US cities are, not surprisingly, at the forefront of Frontier’s thinking. But Biffle says that a general increase in yields in recent months makes about two-thirds of the US of interest to the airline. “The truth is you start with the destinations you are interested in and then you look for the love,” he says. “Which airports or cities really want you? It’s very seldom that we are presented with a destination that we hadn’t already considered.” To handle the predicted growth, Frontier has A320neos and A321s on order. To what extent the new aircraft will be used for growth rather than replacement is still to be decided but the expectation is that Frontier will have a fleet of 100 aircraft or more within a few years.
The need to diversify
Frontier is headquartered at Denver and while Colorado will remain important to the ULCC the airline will diversify its operations. “There are great facilities at Denver but it’s about the fare environment,” says Biffle. “There are lower than average fares and higher than average costs. That is not a great combination. Part of it is to do with airport charges but it’s also about the market. Other carriers here have tried to hurt us but it’s ended up hurting them. I’m sure capacity will come out of the market here eventually and that will put fares back up.”
Despite this positive long-term prognosis, Frontier won’t be thinking as big at Denver as it did in the past. Biffle doesn’t believe the airport is the right solution for the airline and already operations have been cut down to about 70 flights a day, a number with which the airline is happy. It doesn’t mean Frontier is looking to get out of Colorado. But the strategy does call for the airline to reduce its connections there. Connecting traffic used to comprise more than 50% of Frontier’s total traffic at Denver but, by summer 2015, the aim is to bring this down to about 20%.
A dynamic market
Be it at Denver or another focus city, Frontier’s growth plans will be affected by the overall US aviation environment.
A country that led the world in deregulation has appeared to turn full circle and though competition is still fierce, mergers and acquisitions have brought a greater degree of stability to the market.
“Mergers were necessary for the viability of the carriers involved,” says Biffle. “It allowed them to increase revenues and reduce costs. But to translate that into consumer terms, it means they are paying higher fares. That gives us a great opportunity. It gives us a lot of growth room because we have lower costs and lower fares.” The recent, massive drop in oil prices gives Biffle further cause for optimism. It’s good for all airlines but as a ULCC – and hence with a higher proportion of total costs allocated to fuel – Frontier will benefit more than most. There is one downside, though.
Lower oil prices have now entered the public consciousness and incredibly, for an industry that survives on razorthin margins, aviation is already being scrutinised for what some deem to be excessive profiteering. Even though companies such as Apple make vastly greater profits and outsource much of their work overseas, US airlines are falling under the steely gaze of the government, suggests Biffle.
The solution, he says, is better communication. “The industry must do better at getting the message across about the service we provide to consumers and the wider economy. Two quarters of profits shouldn’t dictate aviation policy,” he warns.
Dealing with such issues makes Biffle glad he has aviation experience. He feels industry knowledge is a must if an airline is to be led forward in such a challenging environment. “It’s such a complex, dynamic industry that people from outside the industry have such a steep learning curve,” he says. “There are many aspects of the business that are unique to aviation.” And many aspects that are unique to the Frontier model too, it seems. Biffle underlines his belief that the airline has the lowest cost and the best passenger experience. “To be honest, it’s easy to rally people around a vision like that,” he concludes. “It’s good to be leading a company like Frontier. You just need to communicate the vision.”