Photographer: David Zalubowski/AP

No-Frills Airline Frontier Files for U.S. Initial Offering

Updated on
  • Carrier, owner Indigo Partners plan to sell stock in IPO
  • Airline has cut cost per seat per mile by 27% since 2013

After three years of slashing costs and shaking up its flight routes, Frontier Group Holdings Inc. is ready to pitch its story to public investors.

The no-frills carrier filed for a rare U.S. airlines IPO with an offering size of $100 million, according to a filing Friday, which is a placeholder amount used to calculate fees and will change. Frontier and Indigo Partners, the private equity firm that acquired it in December 2013, plan to sell shares in the offering.

The company is aiming to go public as soon as the second quarter, people familiar with the matter have said.

Airline IPOs in the U.S. are few and far between. Virgin America Inc. was the last to go public, raising $353 million in November 2014, including an over-allotment. The carrier has since agreed to be acquired by Alaska Air Group Inc. for $2.6 billion, continuing a flurry of consolidation within the industry over the past decade.

Indigo is led by veteran airline executive William Franke, who has extensive experience overseeing discount carriers. The firm once controlled Spirit Airlines Inc., which went public in 2011, and is the largest shareholder in Wizz Air Holdings Plc, a low-fare operator in Eastern Europe.

Ultra Low Cost

After the Indigo buyout, Frontier’s new owner transformed it into what’s known as an ultra-low-cost carrier -- an airline that offers inexpensive base fares and adds fees for everything else.

Frontier has cut its cost to fly each seat per mile -- a measure of efficiency -- by 27 percent since the end of 2013 by flying its planes more, shifting to larger aircraft, replacing its reservation system and boosting employee productivity, the airline said in the filing. The changes made its so-called unit cost among the lowest in the industry.

Frontier competes against other ultra-low-cost carriers, which include Spirit and Allegiant Airlines in the U.S. Such carriers could stimulate enough passenger growth over the next 25 years for 850 additional single-aisle aircraft covering more than 650 new routes from medium-sized U.S. markets, Frontier said.

The airline said it’s reduced its reliance on Denver, where it competes against a United Continental Holdings Inc. hub and discounter Southwest Airlines Co. The number of Frontier flights either starting or ending in Denver has declined to 45 percent from 90 percent in 2013, helping increase revenue and boost profits the past three years, according to the filing.

Bears, Foxes

While annual operating expenses have remained consistently at just under $1.4 billion for the past three years, revenue has increased 7.6 percent. That’s helped net income climb 43 percent to $200 million in the same period.

Frontier, whose planes sport images of animals such as bears and foxes, operates a fleet of Airbus Group SE jets on more than 275 daily flights within the U.S. and to Mexico and Jamaica. Indigo acquired the Denver-based airline from Republic Airways Holdings Inc. for $36 million in cash. The total transaction value was $145 million including debt.

Frontier has changed hands twice since filing for bankruptcy protection in April 2008. Republic bought the carrier in October 2009 for $108.8 million, agreeing not to pursue a $150 million unsecured bankruptcy claim.

It’s not the only carrier moving to list its stock. Last month, Azul SA, the Brazilian airline led by JetBlue Airways Corp. founder David Neeleman, filed for a U.S. IPO, following at least two previous delays because of slumping Brazilian stocks. The deal is scheduled to price April 6, according to a person familiar with the matter.

Citigroup Inc., Deutsche Bank AG, Evercore Partners Inc. and JPMorgan Chase & Co. are leading Frontier’s offering. The company intends to list under the symbol FRNT, it said in the filing without specifying a stock exchange.

(Updates with selling entities in second paragraph.)
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