Airbus Updates No.3493

 

Frontier Signs For 10 More Airbus A321s

Frontier Airlines has recorded a slim second-quarter net profit of $19 million. Though not quite back to pre-pandemic profitability and benefiting from government support, Frontier Airlines is starting to look beyond the crisis. The carrier has signed a letter of intent to take on ten additional Airbus A321ceo aircraft.

Frontier Airlines has announced it intends to acquire ten additional Airbus A321ceos. Photo: Airbus

Frontier reports a net profit

For the second quarter of 2021, Frontier Airlines reported a net income of $19 million. This compares to a $17 million net income reported in the second quarter of 2020 and a $72 million net income in the same quarter of 2019. This profit includes $87 million in government support received by the airline in the quarter.

This year, during the quarter running from April through June, the airline recorded passenger revenue of $536 million as leisure travelers booked their summer plans and paid heavily for ancillary fees. The carrier recorded approximately $60 of ancillary revenue per passenger, which was 6.1% higher than the same metric during the second quarter of 2019.

As of June 30th, the airline had $936 million in unrestricted cash and cash equivalents. Given the substantial increase in demand and strong continuing trends, the airline allowed its loan facility with the US Treasury Department to lapse. It will now focus on repaying the $150 million outstanding Treasury Loan to unencumber the airline’s co-branded credit card program and related brand assets that serve as collateral for that transaction.

Frontier Airlines to take on ten more aircraft

In July, Frontier Airlines signed a letter of intent with two of its leasing partners. Through direct leases, the carrier will bring on ten additional Airbus A321ceo aircraft. The deliveries are expected to begin in the second half of 2022 and continue into the first half of 2023. These incremental aircraft will allow the airline to boost its capacity growth rate amid the ongoing recovery.

One of the big boosts the new aircraft will provide is more seats per departure. James Dempsey, EVP and Chief Financial Officer at Frontier Airlines, stated the following on the carrier’s second-quarter earnings call about the incremental aircraft:

“Our average seats per departure from today’s announcement, for example – that we added 10 aircraft – our average seats per departure in 2023 will go to just over 200 seats. I mean that’s really positive from a unit cost perspective in the business, and it actually opens up opportunities for us, and destinations around the United States that we think are interesting.”

We’ve deployed our current fleet of A321s, for example, accross most of our network. We’ve tried it in various markets. They work in big markets, they work in small markets, they bring lower unit cost. The marginal costs on the extra seats is very low. We believe we can successfully deploy the additional A321s in almost every airport in our system. There are a few airports where, operationally, we have to use 320. But, broadly speaking, the 321 can fly almost everywhere in our system and as a mix of our fleet continues to move towards the 321, you’ll see us deploying it system wide.”

Frontier’s A321 fleet is quite young. It only received its first of the type in 2015. Photo: Airbus

Frontier’s fleet plans

Five more Airbus A320neos are set to join Frontier’s fleet in the third quarter of 2021, rounding out deliveries for this year. Next year, it will take nine A320neos and five A321neos. Then, in 2023 and 2024, it will take 19 A321neos each year.

Couple this with the ten Airbus A321ceos set to join the Frontier fleet, then by the end of 2023, the airline will have 34 additional higher gauge aircraft in its fleet compared to the end of 2020. The airline also accelerated the drawdown of its Airbus A319 fleet.

Frontier typically targets peak-day flying only a few times per week between cities in a largely point-to-point fashion. While other carriers may come into markets with daily or more frequencies, Frontier would rather fly leisure passengers on larger aircraft on specific days than flying smaller aircraft once per day.

From an economics point of view, there is a lot of promise for Frontier’s A321ceos and A321neos in the fleet. Barry Biffle, the CEO of Frontier Airlines, stated that the airline plans to hit ancillary revenue per passenger of $63 come 2023. This enables Frontier to have a breakeven fare of about $30, which means the airline has a lot of power to do price stimulation.

Where other airlines have higher cost structures and limited abilities to earn ancillary revenues, Frontier sells a completely unbundled product and tries to coax passengers to get onboard an aircraft with low fares and then sells them ancillary options to enhance their travel experience to turn a profit.

One interesting move from Frontier could be to convert 18 A320neo orders into A321XLR firm orders. Photo: Airbus

With a breakeven fare of $30, this means Frontier can run even lower fares in more markets and then aggressively market its ancillary options. Even with adding $63 in ancillary options, $93 is generally a pretty decent one-way fare for most travel in the United States.

The Airbus A321s are going to be a significant part of Frontier’s growth strategy. It is also worth noting that Frontier has the option to convert 18 A320neo aircraft to A321XLR jets. Frontier has not acted on those conversion rights, but if it chooses to move in that direction and exercise those rights, it will certainly further its mission of flying higher gauge aircraft across its network.