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Looking for cheap airfares? You might consider flying to Denver, or at least connecting there.
Frontier Airlines, one of two larger U.S. discount airlines, said this week it will expand in Denver, beginning later this year and continuing into summer 2018. From Denver, Frontier plans to launch 21 new destinations, including Albuquerque, Oklahoma City, and Ontario, California, with fares on some routes as low as $39, each way. It’s part of a broader Frontier expansion, in which the airline will fly 85 new routes within a year.
But for competitive reasons, Denver is probably the most interesting market. Denver is among United’s most profitable hubs, the airline’s president, Scott Kirby, said last year, and United is expected to aggressively defend it. Southwest, which operates a large focus city there, likely will do the same — and that should lead to lower fares on competitive routes. United may match Frontier’s pricing, offering its own cheap no-frills fares, called Basic Economy, in markets the two airlines fly.
“In the near to medium term, any time you have capacity growth from anyone, but particularly a low-cost carrier, it’s going to lead to some pricing pressure,” Kirby said Wednesday on United’s second quarter earnings call.
For Frontier, the expansion seems like a logical move. It is based in Denver, and before it was purchased in late 2013 by a private equity firm, which turned it into a ultra low-cost airline, Frontier flew many of these routes. Over time, though, it canceled many flights to medium-sized and smaller cities, preferring larger markets, including Miami and Philadelphia. It’s generally easy to fill planes between two big cities at cheap prices.
Relying on connecting passengers
Before it changed its model, Frontier was a full-service airline, and it connected a significant number of passengers through the hub. However, after it changed its strategy, it stopped facilitating most connections, instead selling point-to-point fares. Operationally, it’s simpler for an airline to sell nonstop fares from, say, Miami to Denver, than sell one-stops from Miami to Jackson, Wyoming. Among other things, with point-to-point sales, an airline need not worry about moving checked luggage from one flight to another.
However, with the Denver expansion, United’s Kirby said Frontier again will need to rely on connecting passengers. That’s probably the only way Frontier can fill many new flights, especially to smaller markets like Fargo, North Dakota and Fresno, California.
And Kirby, who generally speaks candidly, said he’s not sure cost-conscious Frontier can pull it off. There’s a reason, he said, that ultra low-cost carriers often don’t sell connections. In the United States, Spirit occasionally offers connecting itineraries, but Allegiant Air does not. In Europe, many discount airlines historically required passengers to purchase two tickets to connect, though that’s changing. Ryanair said earlier this year that would allow passengers to make connections on one ticket.
“When you’re trying to run a connecting model, you have to slow down the aircraft utilization,” Kirby said. “You have to wait for passengers and employees to connect and airplanes to be timed correctly. You have to staff up. You have peaks and valleys. You’ve got to connect bags, which is one of the most operationally complex things we do.”
As an example, Kirby mentioned a Frontier flight from Orlando to Denver that might be two hours late. Today, while it may annoy the passengers, it doesn’t matter much for the airline. But in the future, Frontier may have make a calculation. Does it hold flights to Albuquerque or Ontario to wait for connecting passengers from Orlando? Does it find hotel rooms for passengers and put them on a Westbound flight the next day? Or does it let the Albuquerque or Ontario flights depart on time, and then buy tickets for customers on United later the same day?
“It is exponentially more complex to run a connecting model,” Kirby said.
Kirby guaranteed to the analysts that United will win in Denver.
“I have watched the ULCC growth for the last decade,” he said, referring to ultra low cost airlines, “and this is the best news i have heard in the last 10 years.”
A Frontier spokesman did not immediately reply to a request for comment.