Frontier Says its Customers Went to Europe Instead
Frontier Says its Customers Went to Europe Instead
The airline is not reporting the margins it expected.
Dear readers,
Ever since its IPO two years ago, Frontier Airlines has surprised me — and not in a great way. This is a Bill Franke-led airline, with a relentless focus on costs and a fleet of new fuel-efficient airplanes. It operates in what’s perhaps the world’s most robust domestic market, where demand should be near-limitless at prices Frontier charges. And while there's considerable competition, including with legacy airlines with no intention of letting the U.S. market go the ULCC-reliant way like Europe, Frontier is the only large U.S. airline with this model.1
Then the results come, and it's like, 'eh.' In the second quarter, Frontier reported a pre-tax margin of 9.1 percent — a respectable showing, and a post-pandemic record for the airline. Still, this is much lower than a few years ago. In the second quarter of 2019, when it was a private company, Frontier reported a pre-tax margin of 16.5 percent, according to numbers compiled by Melius Research in a note.
Frontier also was the latest airline to cut its guidance. For the full year, the airline’s margin should be between 4 and 6 percent — far lower than the earlier expectation of 7 to 9 percent. In the current quarter representing the bulk of the summer, Frontier said the margin will be between 4 and 7 percent.
To be clear, I’m not knocking Frontier. Unlike JetBlue, which I critiqued earlier this week, I think this Frontier management team can turn things around. Nothing discussed on Frontier's earnings call is unique to the airline, and the other domestic-focused U.S. airlines reported similar trends. Given market conditions, perhaps I should not have been surprised by Frontier’s so-so results. I just thought the model might hold up better than others.
My readers may have other thoughts — and if you do, please tell me – but I don't see why Frontier can't put up Ryanair-style numbers. Do Americans not want cheap airfares? Or have legacy carriers been so successful with their basic economy strategies, which help them match ULCC fares, as to block Frontier’s expansion?
Paid subscribers should read on for a summary of the most interesting parts of the earnings call.