Over the past several years, we’ve seen the ultra low cost carrier business model in the United States under immense stress. With costs going up and the legacy carriers better competing, they’ve found themselves in a really challenging situation. Obviously Spirit Airlines is in the worst position, but Frontier Airlines isn’t exactly doing great either. Along those lines, there’s an interesting development on that front.
Frontier returns, defers, and sells planes, to improve financials
Before we get into the details, let me mention that Frontier currently has a fleet of around 160 Airbus A320-family aircraft, with a similar number of planes on order. The airline operates the A320ceo, A321ceo, A320neo, and A321neo, with the general idea being that the new planes (neos) replace the old planes (ceos).
However, that’s not exactly how things are playing out, as the airline is significantly shrinking its planned fleet of new generation aircraft. Specifically:
- Frontier will return 24 leased A320neos to AerCap early, and they’ll leave the fleet in the second quarter of 2026; these are planes that were on lease for anywhere from two to eight additional years
- For deliveries in 2028 and 2029, AerCap has agreed to 10 future sale-leaseback transactions; in other words, this helps Frontier’s short term financial situation, but the airline will pay for it in the long run
- Frontier is deferring 69 A320neo and A321neo deliveries; the planes were supposed to be delivered in 2027 through 2030, but will instead be delivered in 2031 through 2033
Frontier very much seems like it’s in a “screwed if you do, screwed if you don’t” situation. The airline is losing money, and one way to reduce losses is to make the fleet smaller, and focus on the most profitable routes.
At the same time, the entire ultra low cost carrier business model is reliant on growth and scale to keep unit costs down. When an airline shrinks, unit costs typically go way up, in terms of economies of scale, and also in terms of labor costs (since the most junior employees, who are paid the least, typically get furloughed).
Presumably this means there’s no Spirit deal, unsurprisingly
We know that Spirit Airlines is obviously in a very rough financial situation, as it’s currently in Chapter 11 bankruptcy for the second time in around a year. Spirit continues to lose lots of money, and seems to be on the verge of liquidation, or something.
For a long time, there has been talk of Frontier and Spirit merging. Keep in mind that before JetBlue swooped in and tried to buy Spirit, that was the plan. But ever since, we’ve seen repeated discussions take place between the airlines, with the idea being that Frontier could sort of become the “dominant” ultra low cost carrier in the country.
Presumably with Frontier looking to shrink significantly, it’s also less likely that it would try to acquire Spirit (or whatever is left of it), given that one of the main points of acquiring Spirit would be to enable growth, in order to drive down unit costs. Now, Frontier could still come in with a much smaller fleet and try to take over some of Spirit’s more profitable routes, but I imagine that’s about it, at this point.
Bottom line
Frontier Airlines plans to considerably shrink its fleet, as the airline will be returning 24 leased aircraft early, while deferring delivery of 69 aircraft. Ultra low cost carriers have had a tough time, and while the business model is usually reliant on growth, that’s hard to do when that growth isn’t profitable.
We’ll see how this all plays out, especially with Spirit also being in such a rough situation.
What do you make of Frontier’s plans to shirnk?
