Frontier and other airlines offer impossibly inexpensive prices. Frontier is so much cheaper than other carriers it’s unclear with whom they are competing.
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Case Study
Frontier Airlines runs fare sales that bring airfare costs under $20 from time-to-time. Spirit, Allegiant, and others have gotten in on the action too, but Frontier seems to fly farther distances for unthinkably low prices. On one such example, I found $6 advertised rates from Seattle to Denver.
While I was unable to secure a flight for $6 that more than doubled by the time I went to ticket the fare to $14 ($15 shows here but it landed at $14, not a mistake fare just bad technology). There were three of us flying and we opted to check our two carry-on bags for less money than bringing them on the plane with us. The total expenditure was less than $92 in total, $16.80 of which was tax.
As a result, the question occurred to me that as cheap as these flights are, with whom is Frontier competing?
Other Airlines
I often reference Herb Kelleher’s book about starting Southwest Airlines, where he talks about the paradigm shift for which Southwest was operating at the time, “We aren’t competing with other airlines, we are competing with driving.” This statement in response to a reporter’s question about how he intends to compete with other carriers demonstrated that he wasn’t looking for a fraction of current market share, but rather creating a new market segment for his airline.
Several decades later, that is no longer Southwest’s aim. I covered here the Southwest fallacy which suggests that Southwest is the cheapest domestic carrier (they once were) but now find themselves higher than their competitors (60%) or within $5 of their competitors (5%) of the time. Now, however, they still compete with driving in some instances as you will see below.
But this post isn’t about Southwest, it is however about a paradigm shift. The CEO of Southwest was proving a point, everyone was thinking about Southwest the wrong way. But I will shortly demonstrate how Frontier isn’t capturing market share from any other mode of transportation at all. Frontier was so much lower than any other carrier that they clearly are not competing with other air carriers even when those carriers offer a direct flight (lower cost) and offer a basic economy ticket. On each of the competing fares whereby Delta and United offered rates of $69, the extras for carry-on bags, drinks, and checked luggage would still apply. Even in the case of Delta who includes a small carry-on in their basic economy fares, come in more than 50% higher than the Frontier fair including a checked piece of luggage.
Other Modes of Transportation
So, if Frontier isn’t competing against other airlines, who are they competing against? If you were to drive, what does the cost look like at current average gas prices?
Wowza! Excluding the time that it would take to drive more than 1,000 miles, the wear and tear on a vehicle driving through the mountains, you could come out ahead driving if you had more than three people and everyone had a bag to check but that’s a lot of conditions. On a purely per person basis with no bags, flying Frontier is less expensive by almost 90% than driving.
What about the train? Maybe Frontier is competing with Amtrak.
Nope, Amtrak isn’t competing with anyone, least of whom could be Frontier. While the romance of a train through the Pacific Northwest and into the Rockies is alluring, it’s not economical when compared with Flying or driving. Frontier outpaces Amtrak by 20x.
Lastly, the ever-reliable Greyhound. While I tried to secure Megabus because they operate like the Ryan Air or Frontier of buses, they do not serve Seattle so Greyhound was the obvious option. It too was not close to the $14 rate that Frontier offered. Even with a checked bag on Frontier which would be included on Greyhound, they are still much less expensive.
I couldn’t find a single example with whom Frontier was competing, but I do have a theory. Like the hotel business, movie theaters, and other set time services, after the opportunity passes the inventory expires. Once the airplane door closes, any unsold seats can never be sold again.
Ryan Air charges less to book seats the closer that a flight comes to departure assuming that they have a surplus of unsold inventory. There is a cost to each extra pound Frontier puts on the aircraft so unlike a movie theater whereby there is no additional cost to put a person in a seat, there is an additional cost to fly each passenger. I can’t find an accurate source as to how much per passenger/per pound of jet fuel is (one would also have to factor in overhead costs that are affected per passenger too).
We know that at least $5.60 of the $14 fare is tax, so the airline is either taking a loss on that passenger or making very little money depending on the weight of the passenger and the weight of their personal item. Or, more likely, they are gambling that the passenger will buy a drink or pay for other ancillary charges which are profitable. And that bet is probably paying off for now. But for how much longer? In a post that will publish later today, I discuss the rising rate of fuel and how prices like these, which may have made sense at $30/bbl oil, can’t possibly make sense now that the price of fuel has more than doubled in the US and is even higher abroad (Frontier flies some international destinations where fuel may be more expensive than in the US).
When Kelleher said that Southwest was competing with driving he was making the claim that they were capturing a market that would otherwise have not flown at all. That rings true here. Frontier is putting people on to airplanes that would not have gone at all, by any means.
Is This Good or Bad?
On the surface, while their pricing appears to compete with logic rather than other carriers, I think it’s beneficial for consumers and the industry as a whole. Air Asia’s slogan is Now Everyone Can Fly, but as often as we travel in Asia I have never seen prices that low. RyanAir routinely offers €9.99/each way flights, nominally lower than Frontier’s $14 fare, however, those flights are for short, dense routes. London based on distance alone to Paris is less than 300 miles and connects nearly 30 million people, Seattle to Denver, by comparison, is less than third of the combined metro populations and more than three times the distance. If those were the only two factors, Frontier would be 9x cheaper than a Ryan Air flight with nearly the same service levels, and more convenient airport choices.
Consumers of any budget can afford to fly considerable distances, using major airports, on safe, reliable planes for less than their Uber Cost to get to the airport. The great democratization of the skies is upon us thanks to Frontier.
But the bad news is that I suspect the competitive nature of the ULCC carriers will force a change in business model. Even if Frontier is just filling otherwise empty seats with nominal cash gains on the ticket and playing for a chance that those consumers spend more on ancillary products (we did) – they are still so far away from the competition that they can’t possibly win with $14 seats.
I fear that the overexuberance of their sale model will end the airline (they have been in bankruptcy before) or these outsized values will go away. There is a phrase in Japanese culture, “The nail that sticks up gets pounded down.” and I am afraid the market may have just such an effect on Frontier’s incredible fare sales.
What do you think? With whom is Frontier competing? Does this model work to fill seats and gamble that passengers will buy ancillary products?
They are competing with United. I wouldn’t touch Frontier, haven’t for 15 years when they were different. However, a very low fare would temp me to try them. If so, I could be converted.
I am not a regular Frontier flyer, but at $14 it makes me a willing customer. The flight was easy, on time, and safe. If you spot a fare like this, why not?
Living in low fare heaven (Denver), I will take Frontier at the $15/$20 flight level. However above that tier, with add ons, they do start pricing comparable to WN and UA, sometimes with the more famous carriers actually coming out lower when you factor in the extra costs for features I use.
I agree to a certain extent, but in this example, that wouldn’t be the case. United ($69) for the fare would still require the addition of a checked bag ($25) Frontier was lower ($21), would not earn miles (Frontier would) nor come with a seat or boarding amenity. Assuming you would add a bag the total price would come in at $94/person on UA to $35 and applying any amount of value to the earned miles on Frontier would lower it slightly more. If the $69 fare had not been basic economy, the difference is still more than 20% worse with UA than Frontier.
That being said, I will clear United 1K this year and won’t transition fully to Frontier. I think you and I (and anyone) should be a buyer for tickets at $14-20/each way. Why not right? Maybe we will end up in the same row on one of those incredible deals.
THanks for the comment and for reading.
Given their expansion beyond the hub-spoke model with Denver as the main hub, I think some of Frontier’s appeal is that they are picking up point-to-point routes where there is actually a market and operating on thin margins that are still profitable. Also they have developed focus cities in airports that used to be hubs and were abandoned by the legacy airlines as they merged into the big 3.
For example, Frontier has a fairly large presence in both Cincinnati (ex-DL) and Cleveland (ex-CO). While neither city had the O&D traffic on their to support the much larger hub operations at their peak, they still are relatively large markets that lost a lot of service that would have still probably been viable. My parents live in Phoenix and over the past few years my sister has spent a year in each of CVG and CLE. Previously PHX had non-stop flights on legacy carriers to both those cities, and now Frontier is the only airline operating a nonstop PHX-CVG and competes only with Southwest (and they fly at very different times, so its not really a competition) on PHX-CLE. While my dad is a DL Diamond and an AA lifetime plat, he and my mom would still rather just fly the non-stop on F9, even if it ends up costing the same or more (not to mention foregoing the status points/miles) as a connection on DL/AA once they add on the extras to make it workable for them in terms of comfort/carry-ons/flexibility. While I’m sure that most people on those flights are paying the lowest fares available (which are never that much lower than the legacy carriers or Southwest on those routes), there probably are a slightly higher proportion of people like my parents who would rather take the non-stop flight and are willing to pay the fees than on a typical ULCC flight.
To more directly address the example in your post, however, as far as I can tell looking at their route network, even though they have added more point-to-point travel from underserved focus cities, most of the focus cities still have a flight to Denver. Their business model probably is more designed to transfer people from SEA through DEN to such an underserved city (many of which are more underserved than CLE/CVG and where the Big 3 often charge much higher premiums). So while they probably lose money on highly competitive routes like SEA-DEN, they make up for it by those connecting to other places where they can charge more and still undercut the legacy carriers.
Finally, I also have to imagine that many of the underserved focus cities that Frontier has opened up gave Frontier some amount of subsidies to come to their airports, which likely lowers the costs for Frontier.
Chasgoose – You brought up a lot of good points and it is clear you commented thoughtfully, and thoroughly. I will just add a couple items to this discourse.
We have a similar preference for the nonstop flights forgoing status or allegiance even if the ULCCs were not cheaper (though they often are, an added bonus for us); CLE-RSW and PIT-MCO are just such routes.
While I don’t differ with your assessment that the carrier is likely subsidized by smaller airport with new service, Seattle and Denver would fall outside of that.
Thanks for reading, great comments!
Frontier is OK if you’re just taking a trip on a whim, and if you don’t make it on time its no big deal. If you have somewhere important to be, its not a good idea, I know several people who missed weddings, interviews etc because Frontier encountered issues and offered no re-accomodation. So just be aware you get what you pay for.
I have always found the carrier to be pretty reliable in my experience, but the schedule a little light because point-to-point outside of a hub usually means limited options. I will always push for an EU261 equivalent in the US as airlines are held blameless for manageable problems.
I think your theory and chasgoose’s post hit the mark. I think their goal is to fill every seat based on supply and demand, and they pick their routes to facilitate that. I don’t fly Frontier or Southwest much, but part of that is that I am usually flying for business, and not having an alliance, their reaction in a major weather event or IRROPs is it optimal.
I’ve been lucky, though I don’t doubt it would be tough for them in an outpost station.
Frontier is competing with “staying at home.” Any destination can be interesting. 6:00 a.m. departures and 12-plus hour layovers can be interesting too.
Sara J – If that’s the case and they can make money doing it, then I love them for it. Ryan Air won our business when we lived in Europe because they competed with staying at home for us, it was cheap and easy to hop a flight to Milan, Rome, or Dublin (we once flew for £7 from Manchester).
Amongst all the analysis, you buried the clear conclusion: “Frontier is putting people on to airplanes that would not have gone at all”
ULCCs in Europe have clearly done this: Brits going for stag/hen weekends in southern Spain is one example of an entirely new customer profile thanks to Ryanair. In any business, rather than competing furiously over a share of the pie, it’s better if you can find a way to grow the pie. Pricing that’s lower by an order of magnitude is a way to do this.
Lenin: I think some of that is true, but they are so much cheaper than the competition that certainly the same market that is available at $14/each way is available at $40/each way. They are still well below the competition, but unlike Ryan Air, they are flying less crowded city pairs much farther distances. Bristol to Prague is probably more expensive than this at a fraction of the cost.
If they can do it at $14/ticket, they could probably do it at $10, but why choose to take the extra $4 (not six, or eight or 10)?
We agree that Ryan Air, Southwest, and Air Asia have all made markets out of the stay at home crowd, but by a factor of nearly 10, Frontier is so much cheaper on a per mile flown basis than any of those.
A number below $20 each way is just so cheap, everyone remembers it, like the $1 Megabus fare. I live in Denver, and everyone I know hates Frontier, but they’ve all also taken it at least once, because it’s just such an astonishing proposition.
Like Amazon, others’ margins are their opportunity. Once they get the growth and stickiness they want, they can ratchet it up to that $40 level you propose and let it ride.
QUOTE> I can’t find an accurate source as to how much per passenger/per pound of jet fuel is
The extra weight of a passenger is trivial (basically zero dollars) to the $ amount of fuel to push the plane through the air. As with cars driving down an interstate at constant speed, most of the fuel is
Not used for the weight of the car. The burned fuel is used to to overcome resistance from the air that is being pushed aside by the manmade object.
ASIDE: If I drive my tiny car at “normal” speeds I get 40 mpg. If I slow to 50 then I get 80 mpg. The car is still the same weight, so what changed? The air resistance was dramatically reduced. For both car and planes traveling at a constant speed, the fuel burned to push the air out of the way is FAR more important than the weight of the vehicle.
Depending on how many seats they sell. If an A321 holds 200 seats (round numbers) and they sell half the flight leaving half empty it has to cost the airline less to fly (though the amount could be fairly low). If the average adult was 150 pounds, carrying 10 pounds of clothing, coats, whatever, and another 40 pounds in their carry-on, the plane is 20,000 lbs heavier. While a single passenger might increase costs a negligible amount, the airline offered plenty of seats at that price so it is possible that they added 20,000 lbs of weight at a net price to them of just $9.40/per (after 9/11 fee). There are other minimal costs that factor in as well to having more passengers than less that eat at the measly $9.60 leftover. Paper tickets, the time it takes to checkin and board 200 passengers instead of 100 (any overtime or hourly variable savings), increased catering weight (regardless if they sell any), increased waste disposal from the toilets, etc. I agree we aren’t talking about much variable cost, but we also aren’t talking about much variable revenue either.
FRONTIER is very cheap, but not always convenient. When I fly from Minnesota to Santa Ana (or vice versa) for a mere $75 that sounds like a great bargain, but then I have to deal with a one-night tayover at Denver. That means any savings are erased by taxi/hotel expenses.
And if I decide NOT to say overnight, and fly the same-day, then the price is $100 more expensive. At that point I might as well take a traditional carrier like Delta or American, for the same price.
Sure, but if it was $14 compared with $69 for a direct flight, would you feel the same way?
They are not competing with anyone. I took more vacation because of the low fare offered by Frontier. I didn’t want to go to Raleigh, but with the $19 fare, I decided to go.
Also, Frontier’s schedule is not as extensive. There was one time I took a Frontier flight to Denver, because it is $200 cheaper than the cheapest legacy airline. Although it required me to take one extra day off work, the $200 discount is worth the lost wage.
if you look at that time, they’re competing with human behavior here – sat night landing at @2246 is hardly attractive for any airport not named Las Vegas
(even LAS bound flights are lightly loaded then, but other airports in general fare worse)
the slow speeds, trains with lots of interior wear and tear, and general unreliability make Amtrak completely out of the question. Even an experience rivaling glass tops scenic routes on board SBB CFF FFS would start to become long in the tooth when we’re talking about SEA-DEN distances.
NYC to Florida at $50-60 all winter. I fly every month. Flew to Denver for weekend just because it was $26. NYC planes are fairly full.
Times are off leak. Flights to Denver or Miami leave at 11pm.
They have very few flights but manage to fill them up.
Cab fare to airport costs more than the flight. That of course makes all the sense in the world. 🙂
Question – how much does it cost to fly LGA-MIA. Or Denver to Seattle?