For the past couple of years, Frontier Airlines has been on a mission to become more like ultra-low cost carrier Spirit Airlines . This involved two major tasks. First, Frontier needed to get its unit costs more in line with ultra-low cost carrier standards in order to profit with low fares. Second, it needed to reorient its network to markets where low fares can stimulate lots of new demand.
Frontier is finding that expanding in Florida -- rather than its traditional stronghold of Denver -- can help it meet both of these goals. That shouldn't be too much of a surprise because Florida is also the most important part of Spirit Airlines' route network.
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Upgauging is key to cost reductionAn important tool for airlines to reduce unit costs is to operate planes with more seats. One way to accomplish this is to squeeze additional seats onto each existing plane.
Frontier Airlines has put more seats on each of its planes.
Frontier Airlines has gone all-in on this tactic. A few years ago, it added a row of seats to each of its A320s, increasing their seating capacity from 162 to 168. Now, it is in the midst of projects to cram 158 seats onto A319s that previously had 138 seats, while adding another two rows to each of its A320s, raising their capacity to 180 seats. In some cases, it is now packing in passengers even more tightly than Spirit Airlines.
However, at some point, it's just not possible to add any more seats to a given airplane. Ordering larger planes within the same aircraft family allows an airline to increase the number of seats per departure even further.
Frontier Airlines and Spirit Airlines have both recently started down this road. Spirit Airlines has operated a pair of 218-seat A321s for a decade, but it started adding more A321s -- now configured with 228 seats -- this summer. By the end of 2019, Spirit plans to operate 40 A321s, capturing big unit cost savings.
Meanwhile, in the past year or so, Frontier has ordered 19 A321s, to be configured with 230 seats each. The first two of these planes arrived last month.
Bigger planes means bigger marketsAdding bigger planes has very clear unit cost benefits for carriers like Spirit Airlines and Frontier Airlines. However, that only helps the bottom line if it's possible to fill the extra seats. As they add more A321s, both carriers need to find high-demand markets where they can profitably deploy a plane of this size.
Not surprisingly, Spirit Airlines is putting a lot of its A321 capacity in Fort Lauderdale. Fort Lauderdale is Spirit's biggest market, representing more than 15% of its total capacity, and it's also one of the company's more profitable markets. The airport serves all of South Florida, which is a big tourist destination. It's also somewhat counter-seasonal, attracting lots of visitors looking to escape the cold during the fall and winter (traditionally off-peak periods for airlines).
Spirit Airlines is putting many of its biggest planes in Fort Lauderdale. Image source: Spirit Airlines.
On its busiest route -- from New York to Fort Lauderdale -- Spirit is moving to all-A321 service later this month, in time for Thanksgiving. In the coming months, it will also move to the A321 for many of its flights from Fort Lauderdale to key leisure destinations like San Juan and Cancun and major U.S. cities like Atlanta and Detroit.
Frontier Airlines is adopting a similar strategy for its A321s. For now, it is basing all of its A321s in Orlando, from which they will fly to Cleveland, Denver, Detroit, and Philadelphia. The new A321s are freeing up Frontier's smaller planes for new routes from Orlando to Houston, Kansas City, and Milwaukee.
Like South Florida, Orlando is an extremely popular tourist destination with strong demand across the year. Given that Spirit already has such a strong position in Fort Lauderdale, Orlando is a natural choice for Frontier Airlines to carry out a similar strategy of reducing costs through the use of large, densely packed planes and then stimulating demand with low fares.
Frontier's profitability will keep risingFrontier Airlines still can't match Spirit Airlines on costs, but its aggressive moves to add larger planes to its fleet and to pack more seats onto each plane (among other things) are helping it close the gap. These moves are already starting to pay off. Frontier earned more money last year than in the prior decade!
Since Frontier isn't publicly traded, we may not find out how its latest initiatives are faring for a while. However, the company's growth with the ultra-efficient A321 in markets like Orlando seems like a recipe for strong profitability in the years ahead.
The article Frontier Airlines Follows Spirit's Example in Florida originally appeared on Fool.com.
Adam Levine-Weinberg owns shares of Spirit Airlines and is long March 2016 $40 calls on Spirit Airlines and long June 2016 $30 calls on Spirit Airlines. The Motley Fool recommends Spirit Airlines. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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