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Frontier Airlines: Analyzing Its History

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Apr. 5 2017, Published 11:48 a.m. ET

Traded in the 2000s

It isn’t the first time that Frontier Airlines will be traded publicly. It was listed on the NASDAQ stock exchange in the early 2000s and it traded under the symbol “FRNT.” However, it couldn’t cope with rising fuel and labor costs. It filed for bankruptcy protection in 2008.

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Bankruptcy

In 2009, Frontier was brought out of bankruptcy by Republic Airways. Republic Airways provided regional carrier service for legacy players Delta Air Lines (DAL) and United Continental (UAL). Republic had to file for bankruptcy in 1Q16. It’s expected to come out of bankruptcy in 1Q17. In October 2013, Republic Airways sold Frontier to Indigo Partners for a deal valued at $145 million—$36 million in cash and $109 million debt.

Shift in business model

Indigo Partners was co-founded and led by William Franke, who was Spirit Airlines’ (SAVE) former chairman. He’s also known as the pioneer of the ultra-low-cost airline model. It wasn’t surprising that Frontier Airlines also went the low-cost carrier way.

It added extra seats to its planes—it can seat more passengers on its all-Airbus fleet, than any other US airline. It outsourced a lot of jobs and cut many employees with high-paying salaries. It also did away with many amenities including free sodas, carry-on luggage, and advanced seat assignment. The basic fare only included the air ticket cost. There were additional charges for everything else, famously known as the “unbundling of charges.”

We’ll see how the business model change helped improve Frontier’s financials. Investors can gain exposure to airlines by investing in the SPDR S&P Transportation ETF (XTN). XTN invests ~3% of its holdings in Southwest Airlines (LUV), ~3% in Alaska Airlines (ALK), 2.8% in Allegiant Travel (ALGT), 2.7% in United Continental, 2.7% in American Airlines (AAL), and 2.7% in Delta Air Lines.

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