On Tuesday morning, I tweeted about what the Southwest/AirTran merger would mean for Frontier. A couple of hours later, I heard from Frontier’s PR department offering me a chance to chat with Daniel Shurz, Republic’s VP of Planning and Strategy. (Three cheers for social media!)
While Daniel’s official title is from Republic, he was with Frontier before the airline was acquired last year, and before that he was VP of Network Planning and Alliances at Air Canada.
Since coming to Frontier, he and his team have had to deal with plenty – a growing third competitor in Denver (Southwest), combining the Midwest and Frontier route maps, and strategically placing the E-Jet fleet that Republic brought to Frontier.
Frontier is no stranger to competing with Southwest, who has grown Denver very quickly – the city only had a handful of flights in January 2006 and is now one of the carrier’s largest operations. Southwest has also overtaken Frontier as the second-largest carrier at Denver in terms of originating O&D traffic – while United continues to hold the top spot.
And the carrier has also faced very tough competition in Milwaukee from AirTran. Southwest started serving Milwaukee a year ago, but the airline has kept its operation relatively small.
So what does Southwest taking over AirTran mean for Frontier?
Daniel said this could be good for Frontier from a cost perspective: “AirTran is the lowest cost network carrier in the country. Southwest’s costs are meaningfully higher….Assuming Southwest’s costs apply, then the costs of the operation increase. In and of itself, it’s easier to compete with airlines that have higher costs.”
One of the big cost questions is labor. Southwest has some of the highest-compensated employees in the business. Assuming all the workgroups successfully integrate, it would be fair to say that AirTran’s labor cost advantage would disappear.
And, obviously, a cost advantage means that Frontier can better survive in a revenue environment with limited pricing power.
Speaking of cost advantages – this is why I think Republic/Frontier can’t get their hands on the CSeries soon enough. If the CS300 can deliver the cost advantage that Bombardier is promising, that will certainly help improve Frontier’s margins.
Another topic of conversation was that of the SkyWest partnership with AirTran – something I have found very interesting lately. But Daniel’s main point was that the current AirTran scope clause allows for this operation, and Southwest’s does not. Depending on how everything shakes out, those destinations might go away if the partnership ends.
Just to provide some history – two of the SkyWest destinations – St. Louis and Pittsburgh – were previously served with mainline aircraft before SkyWest took them over. In addition, the partnership started with five aircraft, but the latest SkyWest 10-Q has it at four CRJs. Hmm.
Daniel also had plenty to say about the products of the two airlines. Naturally, since we’re talking about Southwest here, the topic of bag fees came up. Daniel did note that it’s a bit easier competing with AirTran, since they charge for bags as well.
He then focused on what he thinks is a big advantage over Southwest – Frontier offers more amenities and choices for travelers.
Of course, Midwest’s cookie, which is now being served on all Frontier flights, was brought up.
Daniel mentioned that some passengers had shifted over from Midwest to AirTran due to the latter’s business class offering. (Many of the E-Jets were all-economy with nothing special.) But Southwest will be converting the AirTran fleet to a single class of service, and Frontier now has Stretch seating fleetwide. It’s not first class, for sure – but it is nicer than plain old coach. So that’s an opportunity.
Also on the amenity front – Frontier offers assigned seating, and Southwest says the combined airline will not have it.
And one fee where Frontier wins – same-day changes. Frontier charges economy passengers $50 for a confirmed change. If you’re on a nonrefundbale fare on Southwest – you need to pony up for the full refundable fare, which can be pricey.
Daniel was also pushing Frontier’s Classic fare, which costs $25 to upgrade from economy, and includes two bags, LiveTV, a lower change fee, and some other features.
Bottom line – Frontier has more frills. I get that. Here’s my one problem with that. Customers need to research to figure that out, or it takes a lot of advertising for a company to show off its differences.
Southwest has “Bags Fly Free” down pat, and they’ve been using their large advertising budget to spread that message, which is easy to remember. Personally, I think some of the Frontier advantages are a bit more subtle, and harder to show off in a thirty-second TV spot.
Frontier clearly has their work cut out for them. They already have tough competition at both of their hubs, and one would assume that the Southwest merger has the potential to intensify that further in Milwaukee. The airline might have a nicer product in some areas – but price and schedule remain to be the biggest factors in the purchase decision.
And – looking down the road a few years – things get more interesting for Republic as a whole once some of the existing CPA agreements with mainline carriers begin to expire. But that could be a whole other blog post.
Anyway – thanks to Frontier for this opportunity. I think this post is long enough as-is, so in a couple of days I’ll share some of the other odds and ends that I discussed with Daniel.
(On a side note – Cranky looked into this topic yesterday. Check it out!)
(But I always try to make sure that’s not the case!)
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