Frontier and other airlines offer impossibly inexpensive prices. Frontier is so much cheaper than other carriers it’s unclear with whom they are competing.
Frontier Airlines runs fare sales that bring airfare costs under $20 from time-to-time. Spirit, Allegiant, and others have gotten in on the action too, but Frontier seems to fly farther distances for unthinkably low prices. On one such example, I found $6 advertised rates from Seattle to Denver.
While I was unable to secure a flight for $6 that more than doubled by the time I went to ticket the fare to $14 ($15 shows here but it landed at $14, not a mistake fare just bad technology). There were three of us flying and we opted to check our two carry-on bags for less money than bringing them on the plane with us. The total expenditure was less than $92 in total, $16.80 of which was tax.
As a result, the question occurred to me that as cheap as these flights are, with whom is Frontier competing?
I often reference Herb Kelleher’s book about starting Southwest Airlines, where he talks about the paradigm shift for which Southwest was operating at the time, “We aren’t competing with other airlines, we are competing with driving.” This statement in response to a reporter’s question about how he intends to compete with other carriers demonstrated that he wasn’t looking for a fraction of current market share, but rather creating a new market segment for his airline.
Several decades later, that is no longer Southwest’s aim. I covered here the Southwest fallacy which suggests that Southwest is the cheapest domestic carrier (they once were) but now find themselves higher than their competitors (60%) or within $5 of their competitors (5%) of the time. Now, however, they still compete with driving in some instances as you will see below.
But this post isn’t about Southwest, it is however about a paradigm shift. The CEO of Southwest was proving a point, everyone was thinking about Southwest the wrong way. But I will shortly demonstrate how Frontier isn’t capturing market share from any other mode of transportation at all. Frontier was so much lower than any other carrier that they clearly are not competing with other air carriers even when those carriers offer a direct flight (lower cost) and offer a basic economy ticket. On each of the competing fares whereby Delta and United offered rates of $69, the extras for carry-on bags, drinks, and checked luggage would still apply. Even in the case of Delta who includes a small carry-on in their basic economy fares, come in more than 50% higher than the Frontier fair including a checked piece of luggage.
Other Modes of Transportation
So, if Frontier isn’t competing against other airlines, who are they competing against? If you were to drive, what does the cost look like at current average gas prices?
Wowza! Excluding the time that it would take to drive more than 1,000 miles, the wear and tear on a vehicle driving through the mountains, you could come out ahead driving if you had more than three people and everyone had a bag to check but that’s a lot of conditions. On a purely per person basis with no bags, flying Frontier is less expensive by almost 90% than driving.
What about the train? Maybe Frontier is competing with Amtrak.
Nope, Amtrak isn’t competing with anyone, least of whom could be Frontier. While the romance of a train through the Pacific Northwest and into the Rockies is alluring, it’s not economical when compared with Flying or driving. Frontier outpaces Amtrak by 20x.
Lastly, the ever-reliable Greyhound. While I tried to secure Megabus because they operate like the Ryan Air or Frontier of buses, they do not serve Seattle so Greyhound was the obvious option. It too was not close to the $14 rate that Frontier offered. Even with a checked bag on Frontier which would be included on Greyhound, they are still much less expensive.
I couldn’t find a single example with whom Frontier was competing, but I do have a theory. Like the hotel business, movie theaters, and other set time services, after the opportunity passes the inventory expires. Once the airplane door closes, any unsold seats can never be sold again.
Ryan Air charges less to book seats the closer that a flight comes to departure assuming that they have a surplus of unsold inventory. There is a cost to each extra pound Frontier puts on the aircraft so unlike a movie theater whereby there is no additional cost to put a person in a seat, there is an additional cost to fly each passenger. I can’t find an accurate source as to how much per passenger/per pound of jet fuel is (one would also have to factor in overhead costs that are affected per passenger too).
We know that at least $5.60 of the $14 fare is tax, so the airline is either taking a loss on that passenger or making very little money depending on the weight of the passenger and the weight of their personal item. Or, more likely, they are gambling that the passenger will buy a drink or pay for other ancillary charges which are profitable. And that bet is probably paying off for now. But for how much longer? In a post that will publish later today, I discuss the rising rate of fuel and how prices like these, which may have made sense at $30/bbl oil, can’t possibly make sense now that the price of fuel has more than doubled in the US and is even higher abroad (Frontier flies some international destinations where fuel may be more expensive than in the US).
When Kelleher said that Southwest was competing with driving he was making the claim that they were capturing a market that would otherwise have not flown at all. That rings true here. Frontier is putting people on to airplanes that would not have gone at all, by any means.
Is This Good or Bad?
On the surface, while their pricing appears to compete with logic rather than other carriers, I think it’s beneficial for consumers and the industry as a whole. Air Asia’s slogan is Now Everyone Can Fly, but as often as we travel in Asia I have never seen prices that low. RyanAir routinely offers €9.99/each way flights, nominally lower than Frontier’s $14 fare, however, those flights are for short, dense routes. London based on distance alone to Paris is less than 300 miles and connects nearly 30 million people, Seattle to Denver, by comparison, is less than third of the combined metro populations and more than three times the distance. If those were the only two factors, Frontier would be 9x cheaper than a Ryan Air flight with nearly the same service levels, and more convenient airport choices.
Consumers of any budget can afford to fly considerable distances, using major airports, on safe, reliable planes for less than their Uber Cost to get to the airport. The great democratization of the skies is upon us thanks to Frontier.
But the bad news is that I suspect the competitive nature of the ULCC carriers will force a change in business model. Even if Frontier is just filling otherwise empty seats with nominal cash gains on the ticket and playing for a chance that those consumers spend more on ancillary products (we did) – they are still so far away from the competition that they can’t possibly win with $14 seats.
I fear that the overexuberance of their sale model will end the airline (they have been in bankruptcy before) or these outsized values will go away. There is a phrase in Japanese culture, “The nail that sticks up gets pounded down.” and I am afraid the market may have just such an effect on Frontier’s incredible fare sales.
What do you think? With whom is Frontier competing? Does this model work to fill seats and gamble that passengers will buy ancillary products?