Barry Biffle Claims Victory

A year ago, Frontier was in serious trouble. Now, its CEO is optimistic. But is it too early to say the airline's plan is working?

Dear readers,

Even though his airline will (at best) break even this quarter, Frontier CEO Barry Biffle engaged in major self-congratulation on Wednesday, spinning an analyst about why the turnaround plan he unveiled about a year ago — which includes network shifts, changes to products, and capacity reductions — is already a success. As evidence, Biffle pointed to September’s unit revenue, which is up "mid- to upper-single digits" compared to last year.

"I think things are finally coming together," Biffle said at the Morgan Stanley 12th Annual Laguna Conference. "We've clearly seen the bottom on the revenue environment, and on the cost side we continue to perform there as well, so [we] continue to see a lot of goodness in all the initiatives that we've got."

Sadly, I don't have Scott Kirby's number, so I couldn't ask our favorite ULCC-skeptic about Biffle's exuberance.¹ But I imagine Kirby laughing his big laugh at Biffle's comments. Yes, things are looking up — because of Frontier’s moves (including its renewed commitment to cost control) and also because many of its competitors have slowed their growth. But with winter approaching, isn’t it early for Biffle to declare that the worst is over?

To be sure, this isn’t just rhetoric. You can often tell whether talk of a recovery is artful spin, or whether it is real, by what an airline files with the SEC.² And Frontier backed up its optimism with a filing: It now expects third quarter adjusted pre-tax margin between 0 and -2 percent, with operating expenses (not including fuel) dropping by $10-15 million compared to an earlier estimate.

This is good news, as Frontier earlier had told investors to expect third quarter pre-tax margin of -3 to -6 percent. But I still wonder if it is enough to persuade investors that Biffle has solved the airline's problems, particularly since summer tends to be strong for U.S. airlines. Even Morgan Stanley analyst Ravi Shanker, who I find to be too chummy with executives he questions, pushed back later in the session after Biffle bragged about the airline’s successful cost control. Shanker said: "The jury is not completely out” (though, true to form, he also congratulated Biffle for the "pretty remarkable achievement" of his year-long turnaround).

Anyway, I think it’s early to say the plan is working, particularly because July and August probably weren’t that great — Biffle said that July RASM decreased year-over-year, while August’s “almost broke even.” But I’m also sympathetic. I see why Biffle might be peeved at outsiders like Kirby who question Frontier’s business model and ask if it is sustainable. I believe Biffle when he argues that the lowest-cost provider has a natural advantage, particularly if people decide to trade down for a cheaper price. And while Frontier has a domestic ULCC competitor in Spirit, Frontier is in better shape and is more likely to win the segment.³

Biffle deserves credit for shaking things up. One year ago, at this same conference, Biffle made clear he was not happy with Frontier’s financial performance and told Shanker: “you're going to see changes.” Often, executives make comments like this but make only minor tweaks. But Biffle moves fast and takes chances in an industry in which so many airlines wait too long to react to trends that seem obvious to outsiders.

Let's examine some of Frontier’s changes and what Biffle had to say about them.