Frontier executives didn’t say much about the status of a bid for Spirit Airlines during an earnings call this week. It was more about the here and now business, which for Frontier was about ancillary revenue.
Frontier Airlines achieved 11% more revenue in the first three months of this year compared to the comparable quarter of 2019. But its revenue mix looks very different now, as the company shifts its strategy to focus on ancillary revenue. .
Ultra-low-cost airlines like Frontier have long prioritized fees, analysts tell how they planned to increase non-ticket revenue in perpetuity. But before the pandemic, Frontier adhered to an informal rule. He was looking for a roughly equal mix between ticket revenue and non-ticket revenue.
Not anymore. In the first quarter, Frontier said its ancillary revenue was $69 per passenger, a figure that accounted for 62% of total revenue per passenger. Its ancillary revenue per passenger was 21% higher than the airline before Covid and $4 above its quarterly target.
“Over the past few years, we’ve thought a 50/50 split of non-tickets and tickets was a good idea,” CEO Barry Biffle told analysts on Frontier’s first-quarter earnings call this week. week. “We kind of learned during the pandemic that the no-ticket is a lot stickier. And if you’re creative and work on really incremental things that don’t result in any ticket degradation, that’s where the real profit potential is.
Frontier is counting on ancillary revenue to boost revenue in the current quarter, when it expects to return to profitability for the first time since the pandemic. Biffle called it the “strongest” recovery of his career, but noted he only started in March – not early enough to reverse the first quarter. Frontier reported a net loss of $121 million, with a negative operating margin of 20%.
Despite the first-quarter loss and rising fuel prices, Frontier also expects a full-year profit, Biffle said.
“With each passing day, we see demand continue to recover even more,” Biffle said. He said he expects a further rebound as more passengers in the Northeast and California, where travelers have remained jittery due to Covid concerns, return to airlines in greater numbers.
“You still have that benefit ahead as well as the return to the office and the full robustness of business travel, which I think will continue to improve through the summer and certainly into the fall,” said Biffle said. There are a lot more legs from here.
Focus on the accessory
Frontier Chief Commercial Officer Daniel Shurz leads the strategy to create new products, including a new priority boarding option, and extract more revenue from existing products, such as baggage fees and bundles, such as as “The Perks” and “The Works,” which allow customers to match attributes of an incumbent’s offering.
The airline has worked to “optimize the price” of products, he said. “A lot of what we’re doing now is finding things that really don’t impact pricing. We’re introducing new products that customers love.
If the airline grows, Shurz said, it may also attract more revenue from credit cards and paid loyalty programs. Clearly it will expand by acquiring Spirit Airlines and its customer base, although executives have acknowledged that JetBlue Airways has made a bigger bid for the airline, putting the deal in jeopardy.
Executives were mostly mum on the issue, with Biffle saying he didn’t want to go on to explain why Frontier’s offer is best for shareholders, employees and consumers. “There’s not much else to say,” he told analysts.
The prices are only going up
Frontier’s strategy encourages customers to book when they buy their tickets, rather than just before departure. It’s easier to sell to customers who book directly into the booking path, Shurz said.
“That’s where they get the best value,” he said. “We encourage paying for your accessory as soon as possible. The longer you wait, the more you will pay. “
Customers who book through third parties tend to wait, often until check-in, Shurz said. “But we’re doing everything we can to encourage earlier payment and communicate that customers will save money if they buy sooner.”
Shurz said the airline is targeting $70 this quarter in ancillary revenue. In response to an analyst question, he acknowledged this was a slight increase from the first quarter, but said the airline is still focused on it and expects to increase the metric.
“We don’t know where the line is,” Shurz said. “We set goals last year of $63, then $65, and we kept pushing the needle up and delivering more than that.”
Biffle said he agreed.
“All I can tell you is that they haven’t finished,” he said. “They’re very busy and very excited about what we’re doing, but 50-50 is no longer ideal. We believe it will be much higher and we will deliver much more sustainable profitability in the years to come, if we can increase this percentage. »