Frontier Airlines: A Simple and Elegant Flight Pattern
When Samuel D. Addoms launched Frontier Airlines Inc. (FRNT ) in 1994, he knew that most startup carriers never make it. But Addoms believed he had a can't-miss plan that would allow his little venture to beat the odds: Frontier would become a low-cost regional feeder to one of the two big carriers that dominated Denver. Within months, however, Continental Airlines Inc. (CAL ) abandoned its money-losing Denver hub. And without a rival, UAL Corp. (UAL ) saw no reason to link up with Frontier or anyone else. So much for Addoms' sure thing. "I thought we would join the list in the big book of airlines that have vanished," recalls the chief executive.
You wouldn't guess that from Frontier's numbers today. The Denver-based carrier ranks No. 14 on this year's list of Hot Growth companies. Frontier's revenues have soared an annual average 46% over the past three years, while earnings have gone up nearly 33%. It has returned a stellar 47% on invested capital. Its shares, which went public at $2.46 apiece in May, 1994, now fetch about $16.
PLAN B. How did Addoms pull it off? On the fly, he drew up a Plan B. Rather than gathering up passengers from small towns in North Dakota only to pass them off to UAL's United Airlines in Denver, Frontier morphed into a more typical discount airline aimed at vacationers and the subset of business travelers who put cheap fares ahead of convenience and frequent-flyer points. Frontier kept some of its early routes, such as those to El Paso and Albuquerque. But its schedule soon began to look more like United's, with service added to Chicago and Los Angeles in 1995, New York in 1997, and Atlanta, San Diego, and Dallas in 1998.
Like most low-fare airlines, Frontier admittedly is handicapped in head-to-head competition with United. It offers just two or three daily flights to big-city markets. None of its two-dozen Boeing 737 jets has business-class seating. And passengers are served only cold sandwiches or bagels on its no-frills flights. But Frontier's last-minute ticket prices are generally 40% to 60% below United's, thanks to its mainly nonunion workforce and tough attitude toward costs--employees, for instance, need permission from Addoms himself to use the color printer at headquarters. The result? United's walk-up fare between Denver and New York is $2,173 round-trip. Frontier charges only $844.
The airline also has a secret weapon: Addoms. Before signing on at Frontier, Addoms, now 61, spent 35 years taking young companies public or stepping in as a Mr. Fixit at established outfits in trouble. Frontier needed his turnaround touch. A previous Frontier Airlines went belly-up in 1986 after 39 years in business. Many flyers remembered that. But Addoms' skills helped build a new image. "We have a positive, energizing environment," says Jeff S. Potter, who resigned as Vanguard Airlines Inc. CEO on May 1 after 11 months to return to Frontier as chief operating officer. "A lot of it comes from Sam."
LOW PROFILE. Frontier just logged its 12th straight month of sales growth and is still in the black, even as UAL and most other carriers are posting losses. But it isn't entirely in the clear. With more than 70% of the traffic at Denver, United has been able to ignore Frontier, which has only an 8% share. Some analysts warn, however, that United might feel threatened by further Frontier growth and strike back by slashing fares and adding flights. That, along with high fuel costs, could cripple Frontier. "Their whole strategy depends on staying under United's radar," cautions Michael E. Levine, a Harvard University professor and former airline executive.
For now, UAL has its hands full trying to win antitrust approval of its takeover of US Airways Group Inc. If it wins, analysts say that it will take UAL years to mesh the two airlines. By then, Frontier could be too big to go down without a fight. It's already switching to a fleet of new Airbus planes and instituting a frequent-flyer program. If air traffic in Denver continues to rise, Frontier can keep growing at a fast clip without cutting into United's share. After a rough takeoff, Frontier may be airborne for good.
By Michael Arndt in Chicago