Photo credit: Denver Airport / Courtesy of Denver Airport
Leisure-focused Frontier Airlines stood poised to benefit from this summer’s pent-up demand for vacations. But the airline’s buoyant season has taken a dark turn as the Delta variant of the coronavirus crimps forward bookings and deters passengers from planning trips.
The Denver-based discounter said demand for trips has shown some softening in recent weeks as the Delta variant took hold and caused outbreaks in many parts of the country, especially the leisure hotspots of Florida and Las Vegas. In response, cities and states have re-imposed mask mandates, with many jurisdictions considering following New York’s lead in requiring proof of vaccination for indoor dining or entertainment. The result has been that Frontier trimmed its third-quarter growth plans by a few percentage points, now expecting to increase capacity by between 2-4 percent.
Both fear of contracting the disease as well as concerns about what venues may be open at the destination are contributing to the decline in demand, Frontier CEO Barry Biffle said during the company’s second-quarter earnings call on Tuesday. But he expects the slump to be temporary, given how the disease progressed in other countries, like the UK and Israel, where the latest outbreaks lasted between six to eight weeks. The Delta variant will delay the recovery but not derail it, he said.
But Biffle stressed that vaccines are key to both the duration of the Delta variant-fueled outbreaks and to the full recovery of the airline industry. Travelers now are “confused” by conflicting reports about the prevalence of “breakthrough cases,” or infections of already fully vaccinated people. The data show, however, that breakthrough cases are rarer than the media report. “People who are vaccinated are getting a little freaked out in the last week,” he said. “Everybody got scared a little bit, but as people start to understand, they’ll go back to their normal lives.”
Biffle thinks the majority of passengers traveling now are vaccinated, and said informal “quiet” polling of Frontier passengers has shown that people are more likely to plan trips only after getting their shots. The carrier supports vaccine mandates, especially for international visitors. Mandates can stimulate demand, Biffle said, pointing to the example of Broadway, which has a mandate and has seen reservations for performances soar. “Everybody is concerned about protecting the unvaccinated’s feelings,” he said. “Let’s talk about the vaccinated.”
Frontier’s caution is a marked departure from other U.S. airline leaders, who expressed almost untrammeled optimism during their companies’ second-quarter results. The difference? Most U.S. airlines reported their second-quarter earnings two weeks ago, before the breadth and severity of the Delta variant outbreak had been fully assessed, Biffle said.
Frontier is less likely to see the operational mayhem that Spirit and American recently have, because Frontier predicted a busy summer and had its staff and aircraft in place before the advent of the season, Biffle said. “We are not immune from workforce challenges,” he noted, but he said the company is encouraged by recruitment activity at job fairs and by the number of applications it’s getting for open jobs. This shows that more people are rejoining the workforce as the pandemic subsides, he said.
The competitive landscape also will change as the recovery takes hold, which Biffle thinks will happen in October, when the Delta variant ebbs. Legacy carriers like United, Delta, and American, which made much of their revenue from business travel before the pandemic, will go back to chasing that market as it heats up. This means they will reallocate aircraft from some of the leisure routes they added during the pandemic, giving Frontier an opening. “Our competitors are doing irrational things,” he said.
Longer-term, Frontier plans to grow aggressively. The carrier plans to add as much as 12-14 percent more capacity in the fourth quarter, rising to almost 20 percent next year, all fueled by aircraft deliveries. Frontier took delivery of five Airbus A320neos in the quarter and plans to take delivery of an additional five in the third quarter. From the second half next year, Frontier will take delivery of 10 A321s. The carrier ended the quarter with 109 aircraft.
The June quarter was only Frontier’s second as a public company, after its stock market debut on April 6. The carrier reported $266 million in proceeds from its public offering. It also benefited from $171 million in federal payroll support. Excluding those items, revenues from operations generated $550 million in the quarter, resulting in a $19 million profit.