Frontier Airlines faces some nasty turbulence

Perhaps if Larry the Lynx, Jack the Rabbit, Grizwald the Bear and the other animals depicted on the tails of Frontier Airlines’ planes could really speak, they might be asking where their next meal will come from.

Indianapolis-based Republic Airways Holdings Inc. acquired Frontier Airlines of Denver and Midwest Airlines of Oak Creek in 2009. In doing so, the company entered into two of the most competitive airports in the country.

The competition has only grown more intense.

Southwest Airlines is making power plays in the Denver and Milwaukee markets, which serve as Frontier’s hubs.

In April, Southwest surpassed Frontier’s market share in Denver, where United Airlines continues as the dominant player. According to the Denver Post, the Denver International Airport is preparing for the possible departure of one of the facility’s hubbed airlines.

In Milwaukee, Republic is in a price war with Southwest, which acquired AirTran Holdings Inc., the parent company of AirTran Airways. Southwest is gradually folding AirTran into the Southwest brand.

Facing rising fuel costs and intensified competition, Republic is suffering.

In May, Republic reported a fiscal first quarter net loss of $22.4 million, or 46 cents per share.

Meanwhile, Republic’s stock hit a new 52-week low of $4.21 in June, below its previous 52-week high of $9.58.

Republic’s ill-fated decision to invest in fuel-guzzling E170 and E190 jets has left it at a competitive disadvantage with AirTran in Milwaukee.

Desperate for cost reductions, the company sought for and received concessions from Frontier Airlines pilots, who voted 498-58 to delay pay increases and accept cuts in vacation, sick days and company 401(k) contributions in exchange for an unspecified equity stake in Frontier.

The union’s approval clears the way for Republic to seek concessions from other Frontier employees and vendors and to raise $70 million in new capital. Republic plans “to attract equity investment(s) in Frontier that would reduce the company’s ownership of Frontier to a minority interest by December 31, 2014,” according to a filing with the U.S. Securities & Exchange Commission (SEC).

“Our investors are very frustrated,” Republic chief executive officer Bryan Bedford acknowledged at the June 2 Republic annual shareholders meeting.

“As you recall, our disappointing first quarter results and the continued impact of high fuel costs mean we have to make some fundamental changes in how we do business,” Bedford stated in a June 10 letter to employees.

As a show of good faith, Bedford also announced he is reducing his own pay by 20 percent and will forego any bonuses until all employee groups receive bonus payments.

Thus, the final chapter of the legacy of Oak Creek’s former Midwest Airlines has yet to be written.

Sign up for BizTimes Daily Alerts

Stay up-to-date on the people, companies and issues that impact business in Milwaukee and Southeast Wisconsin

No posts to display