Frontier Airlines Suffers Third Quarter Loss, Blames ‘Uneven’ Recovery

Denver-based Frontier Airlines suffered a $32 million net loss in the normally strong third quarter. Its operating margin was negative 6%, a sharp reversal from the positive 5% it earned in the same quarter a year earlier and the 16% it earned in 2019.

The troubling results are not a total surprise. In mid-September, Frontier warned investors that “sales have been trending below historical seasonality patterns,” adding that fuel prices were coming in ahead of forecast. In addition, it was canceling more flights than anticipated, in part because of Tropical Storm Hilary and Hurricane Idalia. It also blamed “continued challenges with the operating environment.” At the time, it said third quarter pretax margin would register somewhere between negative 4-7%. The actual figure revealed Thursday was negative 5%.

During a conference call with Wall Street analysts, Frontier’s executives blamed the weaker-than-expected sales on an “uneven” demand recovery following the pandemic. Some markets like Las Vegas and Florida, explained CEO Barry Biffle, have seen a large increase in capacity from 2019, while others—he gave Minneapolis-St. Paul as an example—have seen the opposite. Demand was particularly weak during offpeak periods, including September, the final month of the third quarter. Peak periods, management said, remain resilient.

Biffle is confident that demand and capacity trends across different geographies will normalize next year. Last fall, domestic demand to leisure-heavy markets like Las Vegas and Florida increased far beyond pre-pandemic norms. This fall, a surge in international demand persisted after booming during the summer, diverting fliers away from domestic markets. International is currently “in vogue,” Biffle said. But it “isn’t going to last.”

Biffle repeatedly rejected the argument that Frontier is growing too fast, though it has moderated growth somewhat in the current October-to-December quarter. He did acknowledge the need to change the airline’s operating model given extreme weather and air traffic control disruptions. At one point, more than a third of Frontier’s planes were ending up in the wrong place at the end of the day. This strained its ability to maximize aircraft utilization, a key practice by which low-cost carriers, well, keep their costs low. It’s now “dramatically simplifying” its model, running planes out and back from the same airport, so that they’re overnighting in the same place every day. That’s not always the most productive way to operate an airline, but Frontier thinks it’s the best way given the current operational constraints, which will only get worse according to Biffle.

Once demand and capacity normalize, management argued, and once operational reliability is restored, Frontier will return to profitability and strong margins. Helpfully, most of its Airbus A320neo-family aircraft are powered by CFM International LEAP engines, not the Pratt & Whitney geared turbofan engines that are giving Spirit Airlines and others a hard time this fall. Frontier did, however, switch from CFM to P&W during the pandemic, taking its first GTF-powered A320neo last fall. Future deliveries will be GTF-equipped.

Separately, Frontier says it will benefit from investments in its loyalty program, along with the program’s accompanying co-branded credit card offered jointly with Barclays. Ancillary revenues remain a strength for the airline. And it still claims to have industry-leading unit costs. Frontier does, however, have its two main labor contracts up for amendment in 2024; its pilot agreement in January and its flight attendant agreement in May. These two work groups account for more than 80% of the airline’s total workforce.