While Frontier has contracted with Express Jet (XJT) to fly Lynx routes through January, it is hopeful to have the fledgling carrier launch by the end of the year, according to management statements during its recent investor’s conference. In addition to the $2.3 million in start-up costs during the third quarter, the airline is expecting it will spend another $5 million in start-up costs in the fourth quarter.
The airline has spent between $8 million to $10 million since the first quarter of 2006 on the launch of its FAA-delayed airline. In addition, its previous guidance on start-up costs was another $6 million to $8 million versus the $5 million the airline is predicting in the fourth quarter. “That assumes no Lynx start up in the fourth quarter,” said Sean E. Menke, the company’s new president and CEO, who added the airline has been doing significant belt tightening. “We tightened all indirect expenses to ensure we are as conservative as possible. In addition, we pushed out some of the expense to a more realistic start date but most of it is as a result of belt tightening. We are working very hard with the FAA and are very hopeful that operations will begin in December.”
He credited the Republic and XJT substitutions for allowing it to gain revenue during the critical Thanksgiving and Christmas periods to the point that the impact on its profit and loss statement will be neutral. One analyst said it would be an “extraordinary result” if it were neutral.
All the training programs have been approved by the FAA and the training for its employees has already been completed, reported Tom Nunn, president of Lynx. FAA is delivering its final questions to the airline concerning general manual and operating specifications and a meeting has been scheduled for today, November 5, to deliver the answers. “We are entering the third phase of certification, the operational assessment phase, as soon as we complete those questions,” he said, predicting that would take four to five weeks, putting launch in mid-December.
He also noted that its Horizon partnership was winding down to its close at the end of November when Horizon’s CRJ 700s will all be operating in its native network. In the meantime, it already has six of Republic’s Embraer ERJ 170s in operation and expects another three to be added to its Frontier Jet Express operations by the end of the year. Related Story
Much of its capacity increase in 2008 will be from the additional of Lynx’s Q400s and Republic, with mainline capacity growing in the low single digits. Menke said the addition of Lynx is expected to enable it to better manage its yield. “We face the question of how niche carriers can grow out of their home markets,” he said in response to a question about the consolidation being pushed by the investment community. “Our partnership with AirTran is one way. As we look into the future our ability to create partnerships will leverage our networks. Getting the synergies of a merger by connecting networks from the marketing standpoint, does bring a lot of power to the table. However, we will look at any merger activity on whether or not it is the right thing to do.”
Frontier Jet Express contributed $32.9 million, up 31 percent, to Frontier’s $372.9 in total revenues, according the Frontier’s fiscal second quarter results, which indicated a significant rise in regional revenue from $25.1 million. For the six months, regional operations contributed $61.7 million, up from $52.4 million to the $717.7 billion in total revenues at the low-cost, Denver-based carrier. Operating expenses for the FL’s partner reached $36.6 million, up from 25.1 million in the year-ago period and for the six months was $71 million compared to $57.5 million.
Perhaps its greatest disappointment was the delay in certification of its Lynx Aviation subsidiary which forced start-up expenditures of $2.8 million in the quarter and $5 million for the six months. It posted a loss of Lynx Aviation-related charter revenues during the quarter of $2.3 million.
The Jet Express operation carried 330,000 passengers in the quarter, up 36.4 percent. Revenue passenger miles reached 210.4 million, up 43.4 percent while available seat miles rose 34.2 percent to 269.2 million. Passenger load factor rose five points to 78.2 percent.
Passenger yield dropped 8.6 percent to 15.65 cents while yield per ASM dropped only 2.4 percent to 12.23 cents. Cost per ASM also dropped, by 2.5 percent to 13.62 cents. Average fare dropped 4.1 percent to $99.65. The operation posted a 33.3 percent increase in aircraft from nine to 12.
For the six months regional partners posted $61.7 million in passenger revenues, up 17.7 percent. Passengers rose 22.7 percent to 621,000 while RPMs rose 388.3 million, up 22.4 percent and ASMs increased 23.5 percent to 512.9 million.
Calyon Analyst Ray Neidl called Frontier’s new strategy of point-to-point routes to nearby resort destinations and its new Lynx Aviation remains untested. “The company produced a surprisingly solid September quarter,” said Neidl, questioning whether or not it can be sustained. “Even with the solid results, it was the company's best seasonal quarter and produced an operating margin of six percent, which may be difficult to match in the coming winter season.