Forward fuel curves showing a price per gallon of roughly $3.50 throughout the remainder of the year has triggered Frontier to revamp its business plan to handle the run-up in fuel expense that includes a $100 million "business improvement programme".
Speaking during a 3 May earnings call, the CEO of Frontier's parent company Republic Airways Holdings Bryan Bedford explained the company's estimates of a break-even year for 2011 were based on fuel prices of $3.00 per gallon.
The 50 cent rise creates a $90 million increase in expenses, Bedford explains, emphasising there is something "galvanising" about fuel at the $3.50 gallon mark that makes decisions to cut fleet and eliminate under-performing flying much easier.
Frontier by year end plans to place all 17 of its Embraer E-170s in Republic's contract flying for US network partners. Through two previously announced deals 14 aircraft are being placed at Delta Air Lines in two tranches, and the remaining three should be placed with a network partner during the fourth quarter, says Bedford, who adds the E-Jets are being reconfigured in a two-class configuration.
Bedford reasons the E-170s can shift from unprofitable flying with Frontier to profitable operations in Republic's fixed fee operations with network partners without "too much impact" on Frontier's employees.
Frontier now plans flat 2011 capacity growth compared with previous estimates of 4-5%. The carrier plans to achieve the flat growth through changes in its fleet and network adjustments, including cutting 16 lines of flying from its 96 planned for the peak summer period as the E-170s exit Frontier's fleet. Some Airbus A320 family and E-190 deliveries will offset some of the planned changes in the network, Bedford says, and estimates the net change should be a 10% reduction in Frontier's overall footprint.
The adjustments in Republic's fleet and flight cuts should account for about 20% of Frontier's $100 cost improvement goal, Bedford explains. But he stresses he is not underestimating the aggressive cost reductions Frontier aims to achieve.
Supply chain disruptions triggered by the earthquake and tsunami that struck Japan in March of this year have pushed back deliveries of six E-190s Frontier aimed to add to its fleet from July through December. Bedford states the company is meeting with Embraer later this week, and should have a clearer picture of the delivery stream at that time. But he anticipates a revised delivery profile that should result in three to four aircraft being operational by year-end.