Republic shows confidence in Frontier achieving profitability in 2012

Washington DC
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Executives at Frontier Airlines parent Republic Airways Holdings believe the Denver-based carrier will turn a profit this year even if fuel costs continue their climb.

Frontier in 2011 undertook a $120 million cost improvement programme, with the full benefits being realised this year.

The carrier also initiated a network overhaul that resulted in significant pull-downs in Kansas City and Milwaukee.

During a 1 March call with analysts, Republic CEO Bryan Bedford said Frontier would achieve $15-$20 million in cost reductions during the first quarter of 2012 largely through trimming distribution and marketing expense and certain maintenance costs the carrier "did not address last year".

Although the current $3.50 all-in price per gallon cited by Bedford would create a $40 million cost headwind in Frontier's 2012 business plan, he said customer demand remained solid. He still expects Frontier to post a profit for the year despite higher fuel costs.

Bedford said it is "reasonable" to assume Frontier could regain half of the $3.50 price per gallon in ticket price increases, but did admit fare increases so far in 2012 were not as forthcoming as in 2011.

Assuming an all-in fuel price of $3.35 to $3.40 per gallon, Bedford estimated Republic's consolidated revenues would fall between $680 million and $690 million during the first quarter, a $20-$30 million rise over the first quarter of 2011.

Impairment charges recorded to reduce the carrying value of 32 37-50 seat regional jets and higher fuel prices drove Republic to post a $123.5 million loss for the fourth quarter of 2011 compared with a $1.3 million loss for the year prior.

Frontier recorded a $37 million loss while the company's losses in its fixed fee business were $22.6 million.

Republic's consolidated revenues increased 7.4% during the fourth quarter to $697.8 million.

For the full year 2011 Republic's losses grew to $151.8 million compared with a loss of $13.8 million for the year prior.

Frontier's revenues in 2011 grew 10% to $1.76 billion, but its pre-tax losses grew from $29.8 million to $70.4 million. Fixed fee revenues grew 4.5% to $270 million.