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Topic: Forbes: F9 To Cut 10% Of Workforce, Etc.
Username: NZblue
Posted 2007-12-05 16:36:22 and read 5447 times.

Frontier Airlines to cut indirect workforce 10%, cites extreme cost environment[

excerpt:

"Frontier...said late Wednesday it now expects a third-quarter adjusted pretax loss in the range of 58 cents to 68 cents a share, in light of a 'significant increase' in operating costs...The Denver-based carrier also said, that due to the 'extreme cost environment' it plans to reduce its indirect labor workforce by 10%, which is estimated to save the company about $5 million on an annualized basis."

Thoughts? Comments?

[Edited 2007-12-05 16:46:55]

Topic: RE: Forbes: F9 To Cut 10% Of Workforce, Etc.
Username: Eghansen
Posted 2007-12-05 17:50:32 and read 5257 times.

Not very meaningful. Indirect employees means only back office people, not flight attendants, pilots, ramp workers, mechanics.

If the average person cut makes $30,000 per year, then $5 million only adds up to 166 people. These could be cut through attrition.

Topic: RE: Forbes: F9 To Cut 10% Of Workforce, Etc.
Username: Uadc8contrail
Posted 2007-12-05 17:51:52 and read 5258 times.

nzblue,

what is "indirect workforce"????? is this code for "non essential" workers???? sad to hear this, i wonder if the q400 delay and subsequent contracting to republic and expressjet along with the mem flights had anything to do with this?

Topic: RE: Forbes: F9 To Cut 10% Of Workforce, Etc.
Username: Eghansen
Posted 2007-12-05 18:10:39 and read 5180 times.

what is "indirect workforce"????? is this code for "non essential" workers???? sad to hear this, i wonder if the q400 delay and subsequent contracting to republic and expressjet along with the mem flights had anything to do with this?

Actually "indirect labor" is a standard accounting term. You start with Total Revenue, subtract Direct Costs or Expenses which are the costs directly related to production of a product. Since pilots and flight attendents are paid per hour of flight time, they are considered Direct Labor. You can credit the cost of pilots and flight attendents to a specific flight.

The Indirect Labor cannot be applied to any specific flight, so the cost of this administrative or overhead personnel is usually applied as a percentage of other labor. For example, the accountants will add a 10%-20% premium to the flight attendant/pilot expense to distribute the overhead costs to each flight.

Have a BS in Accounting, so I know all this minutiae.

Topic: RE: Forbes: F9 To Cut 10% Of Workforce, Etc.
Username: AirframeAS
Posted 2007-12-05 18:18:21 and read 5141 times.



Quoting Eghansen (Reply 1):
Indirect employees means only back office people, not flight attendants, pilots, ramp workers, mechanics.

My defination is outsourced work?

Topic: RE: Forbes: F9 To Cut 10% Of Workforce, Etc.
Username: CarsAir04
Posted 2007-12-05 18:33:15 and read 5084 times.

Its never fun when people lose there jobs, essential or not. Especially at this time of the year, which seems to be the norm in any industry. I am sure a lot of others have been thru the same type of job cuts, so we all know how sad it can be around the office when people you know are let go.

Topic: RE: Forbes: F9 To Cut 10% Of Workforce, Etc.
Username: Mariner
Posted 2007-12-05 18:48:29 and read 5005 times.



Quoting Uadc8contrail (Reply 2):
i wonder if the q400 delay and subsequent contracting to republic and expressjet along with the mem flights had anything to do with this?

Some, for sure. But the major reason, as Mr. Menke has said many times, is oil at $90 bbl.

mariner

Topic: RE: Forbes: F9 To Cut 10% Of Workforce, Etc.
Username: Stburke
Posted 2007-12-05 18:49:17 and read 5003 times.

Hmm. And they're setting record pax at the same time. I know more pax doesn't directly translate to revenue but I did not see a loss coming. I'm sure Lynx was a large factor in the loss.

Topic: RE: Forbes: F9 To Cut 10% Of Workforce, Etc.
Username: Ytib
Posted 2007-12-05 18:52:35 and read 4977 times.



Quoting Stburke (Reply 7):
Hmm. And they're setting record pax at the same time. I know more pax doesn't directly translate to revenue but I did not see a loss coming. I'm sure Lynx was a large factor in the loss.

In the Nov numbers release they equated the difficult environment to the price of oil.

"Even though we are 40 percent hedged in the December quarter with crude oil derivatives, our current estimate of the price of fuel for the December quarter of $2.53 is a 17.7 percent year over year increase. In light of this significant increase to our operating costs, we are revising our previous guidance and we now anticipate a pre-tax loss for the December quarter in the range of $.58 - $.68 cents per share excluding special items."

Additionally, "We are also evaluating our fleet size and future aircraft deliveries to ensure the fleet is 'right-sized' to endure this difficult cost environment."

Expect to hear this from other airlines who have not stated something similar. WN announced a slower growth rate, UA stated they may park some aircraft, etc.

Topic: RE: Forbes: F9 To Cut 10% Of Workforce, Etc.
Username: Eghansen
Posted 2007-12-05 20:33:42 and read 4765 times.



Quoting AirframeAS (Reply 4):
My defination is outsourced work?

That would be contract workers. They would be laying them off, the contractor would.

Topic: RE: Forbes: F9 To Cut 10% Of Workforce, Etc.
Username: Eghansen
Posted 2007-12-05 20:40:10 and read 4740 times.

This link has a definition of "indirect labor". Sorry no one has heard the term before, but it is extremely commonly used in financial analysis, business courses and accounting.

http://dictionary.bnet.com/definition/indirect+labor.html

Topic: RE: Forbes: F9 To Cut 10% Of Workforce, Etc.
Username: RedFlyer
Posted 2007-12-05 21:02:54 and read 4667 times.



Quoting NZblue (Thread starter):
it plans to reduce its indirect labor workforce by 10%, which is estimated to save the company about $5 million on an annualized basis."



Quoting Eghansen (Reply 1):
If the average person cut makes $30,000 per year, then $5 million only adds up to 166 people.

166 seems to me to be a lot of indirect staff to be whacking. Besides, I think $30,000 is a little on the low side, even for clerical type positions when you include other associated costs. My guess is that if they are indeed eliminating indirect labor then it's going to be a smaller number of personnel, but higher salaried. Perhaps even indirect management types?

Quoting AirframeAS (Reply 4):
My defination is outsourced work?

I think that might be a pretty good guess, although, when they outsourced some staff last year they came right out and said they were being outsourced. This time around they are calling it a labor reduction. So if they are outsourcing then they are not calling it such.

Quoting Mariner (Reply 6):
Quoting Uadc8contrail (Reply 2):
i wonder if the q400 delay and subsequent contracting to republic and expressjet along with the mem flights had anything to do with this?

Some, for sure. But the major reason, as Mr. Menke has said many times, is oil at $90 bbl.

How does $90+/bbl oil impact their cost modeling for Lynx? With the delays and the more turbid operating environment does Lynx even make sense anymore? Or does Lynx become even more critical to enhancing their bottom line?

Topic: RE: Forbes: F9 To Cut 10% Of Workforce, Etc.
Username: Futurecaptain
Posted 2007-12-05 21:08:05 and read 4641 times.



Quoting NZblue (Thread starter):
in light of a 'significant increase' in operating costs...

It is almost worded like the company didn't see this coming. I would hope the company would have the forsight to know oil has only been going up lately.

Quoting Stburke (Reply 7):
And they're setting record pax at the same time.

Crazy isn't it. I wonder how much Southwest serving DEN has impacted yields though?

Quoting Ytib (Reply 8):
Additionally, "We are also evaluating our fleet size and future aircraft deliveries to ensure the fleet is 'right-sized' to endure this difficult cost environment."

Translation: We wish we stuck with Boeing.  Smile  duck 

I'd say this could read that the A318 will be the first to go and other A318 deliveries will become A319's. But lets not jump to conclusions yet.

Topic: RE: Forbes: F9 To Cut 10% Of Workforce, Etc.
Username: Ytib
Posted 2007-12-05 21:10:01 and read 4641 times.



Quoting RedFlyer (Reply 11):
166 seems to me to be a lot of indirect staff to be whacking. Besides, I think $30,000 is a little on the low side, even for clerical type positions when you include other associated costs.

Agree with you here as if you eliminate some IT positions, financial folks it will add up with a salary greater than the 30k identified by another poster. Additionally when calculating the cost for an employee you need to include in the contribution Frontier makes to FICA, Medicare, health insurance, 401k and any other benefit which would be included for the employees.

Quoting RedFlyer (Reply 11):
With the delays and the more turbid operating environment does Lynx even make sense anymore? Or does Lynx become even more critical to enhancing their bottom line?

With a lower operating cost due to the lower CASM it is a key to moving forward. Lynx has employees on a lower pay scale in addition to the aircraft being more fuel efficient than a regional jet. Additionally since they are both under Frontier Airlines Holdings, Inc. there is also a lower cost since the the flying is technically in house and not being contracted to another company.

Topic: RE: Forbes: F9 To Cut 10% Of Workforce, Etc.
Username: Stburke
Posted 2007-12-05 21:19:42 and read 4627 times.



Quoting Futurecaptain (Reply 12):
Crazy isn't it. I wonder how much Southwest serving DEN has impacted yields though?

Passenger yield is down 3 percent from Nov. 2006 and down 1.3 percent on the year. http://news.moneycentral.msn.com/tic...te=20071205&ID=7906894&Symbol=FRNT
Might be safe to say this is from the Southwest effect.

Topic: RE: Forbes: F9 To Cut 10% Of Workforce, Etc.
Username: Ytib
Posted 2007-12-05 21:39:54 and read 4576 times.



Quoting Futurecaptain (Reply 12):
I'd say this could read that the A318 will be the first to go and other A318 deliveries will become A319's. But lets not jump to conclusions yet.

Hard to change those deliveries when neither of the two aircraft you mention are on order.

Topic: RE: Forbes: F9 To Cut 10% Of Workforce, Etc.
Username: Eghansen
Posted 2007-12-05 21:47:59 and read 4553 times.



Quoting RedFlyer (Reply 11):
166 seems to me to be a lot of indirect staff to be whacking. Besides, I think $30,000 is a little on the low side, even for clerical type positions when you include other associated costs. My guess is that if they are indeed eliminating indirect labor then it's going to be a smaller number of personnel, but higher salaried. Perhaps even indirect management types?

Who knows? What the companies I have worked for usually do is initiate a hiring freeze. Then the extra people are allowed to disappear through attrition. Other times they require managers to fill out additional paperwork in order to hire someone who replaces a person who left. Then staffing in some critical departments gets a little thin, so management starts making exceptions. The whole thing is usually ill-defined and often poorly handled.

Topic: RE: Forbes: F9 To Cut 10% Of Workforce, Etc.
Username: Futurecaptain
Posted 2007-12-05 21:49:22 and read 4550 times.



Quoting Ytib (Reply 15):
Hard to change those deliveries when neither of the two aircraft you mention are on order.

Oops, I just checked Airbus's O&D table and see all the A318's and A319's have been delivered....shows how much I keep up to date.  Smile Just 10 A320's left.
Anyway, the point remains that if FR downsizes, or "right sizes," their fleet I'd expect the A318 to go first. If costs are as imporant as they stress in the press briefings.

Topic: RE: Forbes: F9 To Cut 10% Of Workforce, Etc.
Username: N174UA
Posted 2007-12-05 22:03:31 and read 4504 times.



Quoting Eghansen (Reply 10):
Sorry no one has heard the term before, but it is extremely commonly used in financial analysis, business courses and accounting.

I have. I was going to explain it, but you did a great job and beat me to it.  Smile

Also known as "general and administrative" or "G&A" costs on the income statement.

In the short term, labor is a variable cost, and thus the easiest (unfortunately) to reduce if the company is struggling.

I haven't seen the statement of cash flows for F9, but I would bet operating cash flow figure is negative, and you can't sustain that long term before big things happen. Reducing your indirect labor force will help reduce the outflow of operating cash flows.

Very generally...you can still show a net loss on the income statement for a month or two, but if you're still cash flow positive, you're in a good position overall. However, sustained periods of negative cash flows are bad. For all you investors in F9 out there, watch the statement of cash flows going forward, and in particular the unrestricted available cash that they have.

High oil costs and economic slowdowns don't bode well. See 1991-92 for an example.

Topic: RE: Forbes: F9 To Cut 10% Of Workforce, Etc.
Username: Futurecaptain
Posted 2007-12-06 09:59:33 and read 4527 times.



Quoting TinPusher007 (Reply 27):
And the fact of the matter is that airlines are simply not charging fares that cover the cost of their operations.

Yep, and if the government would step off more then the weak would perish and the whole industry would rebound. But with government money supporting failing airlines all those years ago rather than letting nature take its course we are in our current situation.

Quoting Cubsrule (Reply 21):
It's cheaper to fly a full 318 than a 319 with 16 empty seats...

First, as was said those 16 seats would probably not be empty with record load factors.

Second, the A319 has 23% more bulk hold volume over the A318 according to Airbus, so alot more cargo potential. Cargo is where the money is.

Topic: RE: Forbes: F9 To Cut 10% Of Workforce, Etc.
Username: TinPusher007
Posted 2007-12-06 10:08:32 and read 4477 times.



Quoting MaverickM11 (Reply 30):
When you increase the ticket price, what happens to the passenger numbers, and therefore total revenue?

When you offer rock bottom fares that don't come close to covering your number one cost (fuel), that is skyrocketing, what happens to profit and therefore the financial health of your company? I see your point...do you see mine? It's a big catch 22, I know.

Topic: RE: Forbes: F9 To Cut 10% Of Workforce, Etc.
Username: Bennett123
Posted 2007-12-06 10:16:50 and read 4417 times.

Futurecaptain

FR is Ryanair, and F9 is Frontier.

 Smile

Topic: RE: Forbes: F9 To Cut 10% Of Workforce, Etc.
Username: Futurecaptain
Posted 2007-12-06 12:29:19 and read 3837 times.



Quoting Bennett123 (Reply 33):
FR is Ryanair, and F9 is Frontier.

Doh.  banghead   blush 

Topic: RE: Forbes: F9 To Cut 10% Of Workforce, Etc.
Username: United319
Posted 2007-12-06 15:34:36 and read 3207 times.



Quoting Ytib (Reply 8):
UA stated they may park some aircraft

They aren't parking any aircraft...that was just a rumor. They dont have any plans to do so right now.

Topic: RE: Forbes: F9 To Cut 10% Of Workforce, Etc.
Username: Ytib
Posted 2007-12-06 15:49:49 and read 3146 times.



Quoting United319 (Reply 35):
They aren't parking any aircraft...that was just a rumor. They dont have any plans to do so right now.

When the CFO of United Airlines states they may park some aircraft I wouldn't call it a rumor. Like all airlines they are identifying ways to handle the unexpected increase in fuel costs. If the load factors drop in the first of the year we may be hearing this from numerous airlines.

Topic: RE: Forbes: F9 To Cut 10% Of Workforce, Etc.
Username: Lightsaber
Posted 2007-12-06 18:16:51 and read 2853 times.



Quoting Stburke (Reply 14):
Passenger yield is down 3 percent from Nov. 2006 and down 1.3 percent on the year. http://news.moneycentral.msn.com/tic...te=20071205&ID=7906894&Symbol=FRNT
Might be safe to say this is from the Southwest effect.

Its not just WN. The current market is brutal. Rising CASM (due to oil) with flat RASM. I'm surprised the airlines aren't contracting more. Personally, I'm happy to see F9 cutting non-direct expenses rather than shrinking. However, with their already low CASM... ouch.

Quoting Ytib (Reply 36):
When the CFO of United Airlines states they may park some aircraft I wouldn't call it a rumor.

 checkmark 
UA can generate better RASM due to their international connections and the large 'network effect.' However... we're hearing about more and more airlines downsizing. e.g., AS Are we in another year like 2002 where its just brutal?


Mariner, what's your current financial insight on F9? Specifically:
1. How is their health compared to other airlines (e.g., can they outlast other airlines in this tough time)
2. When might they have to constrict flight operations due to high oil prices/low yeild?
3. Do you see a turn-around ahead?
4. Are you buying Frontier stock?  Wink

Lightsaber

Topic: RE: Forbes: F9 To Cut 10% Of Workforce, Etc.
Username: Mariner
Posted 2007-12-06 19:36:22 and read 2745 times.



Quoting Lightsaber (Reply 37):
1. How is their health compared to other airlines (e.g., can they outlast other airlines in this tough time)

That's a toughie in hard numbers. The big airlines have a lot more cash in hand, $2 or $3 billion or more, compared with about $200 million at Frontier.

Otoh, Frontier has zero debt, other than the aircraft mortgages. They could also sell leaseback the owned aircraft (16?) if things got too tight.

I doubt it would come to that, because I think Mr. Menke is doing exactly what he was brought in to do. I am slightly surprised that he hasn't slashed more. Three months ago, on Yahoo, I suggested that up to 500 jobs could go.

It has often been the case that Frontier, because of its small size, has been the canary in the mineshaft for the airlines. Three years ago, when Mr. Menke was still there as COO, he was the first (US) airline exec to warn of the rising price of oil - then at $30 barrel. Frontier shares were slammed because of it, but later everyone started singing from the same hymn book.

Quoting Lightsaber (Reply 37):
2. When might they have to constrict flight operations due to high oil prices/low yeild?

They're already doing that, in the sense of cutting under-performing flights. They discussed it yesterday, and it is ongoing. And I imagine we might see the end of a couple more routes. I have a question mark over two.

Quoting Lightsaber (Reply 37):
3. Do you see a turn-around ahead?

A turnaround of the price of oil? Not yet. Everyone got excited last week because oil fell to $88, but I note it is up $3 again today. I believe the speculators will try and drive it to $100 to show they can and that it will take some bear-ish (for oil) news to stop it. I hope I am wrong, but we are a long way from the fundamentals of supply and demand.

Can airlines survive with this? Yes. Some better than others.

In that sense, Frontier is again well-placed because of the single hub, hub and spoke. If necessary, they can reduce to core profitability, there are no knock-on effects across the network.

Frontier can cancel an under-performing flight out of DEN. United or Southwest may have to fly because the aircaft is needed elsewhere.

Quoting Lightsaber (Reply 37):
4. Are you buying Frontier stock?

I bought a few at $5. Now I'll wait a wee while until I get a clearer view of oil.  Smile

mariner

Topic: RE: Forbes: F9 To Cut 10% Of Workforce, Etc.
Username: B757capt
Posted 2007-12-06 19:40:46 and read 2726 times.



Quoting Petteri (Reply 25):
Yeah, but who goes first? If your competition on a route is WN, they won't raise tkt prices, they are buffered by the hedges for now.

Amen


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