BA
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Joined: Fri May 19, 2000 11:06 am

Frontier Not Doing So Well. Shares Drop 18%

Wed Jul 03, 2002 7:39 am

"thanks to a challenging pricing environment, we now think profitability may not be in Frontier's near future. ... We think Frontier's aggressive growth strategy has taken its toll both on costs and on management time. And last, given the weak fare environment and Frontier's aggressive growth strategy, there is very little earnings visibility."


I really hate to bring bad news about an airline that has been extremely successful up to this point.

Unfortunately, due to Frontier's recent aggressive growth strategy and difficult pricing environment, Frontier will post it's first quarterly loss this summer in 4 consecutive years.

This year alone, Frontier added service to New Orleans, Sacramento, Ft. Lauderdale, Indianapolis, Boise, and Tampa. Frontier also started a code-share agreement with Mesa Air to operate routes from Denver to San Jose, Ontario, and St. Louis under the Frontier JetExpress name.

Frontier has always been a cautious airline and expanded slowly and added 2 to 3 new destinations per year max.

Last Friday, Frontier applied for a Federal Loan Guarantee.

If Frontier is ever profitable again, it will be quite a while.

It's too early to determine the future of Frontier. But Frontier will not become the next ATA or AirTran Airways like we were all predicting.

The full story can be read here:
http://www.bizjournals.com/denver/stories/2002/07/01/daily9.html

Regards

"Generosity is giving more than you can, and pride is taking less than you need." - Khalil Gibran
 
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mariner
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RE: Frontier Not Doing So Well. Shares Drop 18%

Wed Jul 03, 2002 10:02 am

BA:

A few thoughts.

(i) Frontier (FRNT) continues to do well in the most challenging business environment for airlines. The loss this quarter is likely to be a few cents at most, and most analysts are still predicting a profit for the next quarter.

Most (not all) other airlines are losing squillions.

(ii) This same analyst rated FRNT as a "Strong Buy" when the share price was $20 - while the expansion was occurring.

Was FRNT too highly priced at $20? For sure. I posted this, frequently, on the FRNT message board at Yahoo - and I'm a FRNT shareholder.

(iii) FRNT is not alone in the fall of it's stock price. The airline sector is getting hammered by the market. Today, for example, both AMR and DAL were trading below their post 9/11 lows. CAL isn't far away from that low, nor is LUV.

(iv) Most of the financial risk of Jet Express is carried by Mesa, not by FRNT. It is not your usual "fee for departure" arrangement.

(v) FRNT has applied to the ATSB - but not for a loan guarantee. They have asked for a guarantee for a line of credit (LOC), which is entirely different.

The difference between a loan (such as AWA received) is that you pay interest on the full amount, like a mortgage on a house. On a LOC, you only pay interest on the money you use, a bit like a credit card. The reason for a LOC is not necessarily to use the money, but to have it there in case of emergencies. Most major airlines have this.

But I very much doubt that FRNT would have applied to the ATSB if UAL hadn't done so. UAL has asked for a couple of billion. This would make the playing field at DIA, for FRNT, extremely uneven.

(vi) ATA has also applied to the ATSB for a loan guarantee. And if AAI does make a profit this quarter, it will be a tiny one. I think 5 cents a share is predicted, but that was before the slump in revenue that all the airlines are experiencing.

AWA said, in April and May, that it's new price structure meant that it's business had fallen off less than the other airlines. Today they said that their June revenue had fallen at the same rate as the other airlines.

At the moment, there is almost no good news for airlines in the stock market.

(vii) All of the A 319's that FRNT is buying this year are already fully funded, which suggests that some fairly hefty banks have faith in FRNT.

I certainly do. I bought a few more shares today.

cheers

mariner



aeternum nauta
 
BA
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RE: Frontier Not Doing So Well. Shares Drop 18%

Wed Jul 03, 2002 10:30 am

"Generosity is giving more than you can, and pride is taking less than you need." - Khalil Gibran
 
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mariner
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RE: Frontier Not Doing So Well. Shares Drop 18%

Wed Jul 03, 2002 1:06 pm

BA

Yes, I'd already read that. I think it confirms most of what I said. We've known since April that revenue is down - based on year over year average airfares (FRNT is one of the few airlines to report these).

This is one of the reasons that all the airline stocks are getting hammered at the moment - there are, simply, too many seats, or too many airlines, chasing a static number of passengers.

Again, even LUV's load factor was down in June, as reported today.

One of the reasons that FRNT is so well placed - which even the Merrill Lynch analyst accepts in his full report - is that they have been able to contain costs, with a deal of help from the new planes.

Sooner or later - everyone thought it would be sooner but it looks like later - two things will happen.

The major airlines which are losing untold fortunes will eventually have to stop dumping seats and there will be some consolidation in the industry.

If true market forces were at work, at least three airlines would no longer be in existence, but the ATSB has changed that.

I would expect this summer to sort it out to some extent, because no one thought that this summer would be so bad for revenue.

cheers

mariner

aeternum nauta
 
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RE: Frontier Not Doing So Well. Shares Drop 18%

Wed Jul 03, 2002 2:16 pm

Does anyone know how good the load factors are on DEN-STL, TPA
Thx,
TWA4EVER
 
flashmeister
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RE: Frontier Not Doing So Well. Shares Drop 18%

Thu Jul 04, 2002 12:15 am

I do not think that it's time to doubt the success of Frontier. They still run a tight ship, they still are one of the best-managed airlines out there.

Yes, they have grown aggressively this year, but part of that is taking advantage of a weak United while they're not in a position to bleed money to respond. This is smart business.

I also am a FRNT shareholder, and I've also picked up shares. I'll continue to do so...
 
DCA-ROCguy
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RE: Frontier Not Doing So Well. Shares Drop 18%

Thu Jul 04, 2002 1:14 am

The major airlines which are losing untold fortunes will eventually have to stop dumping seats and there will be some consolidation in the industry.
If true market forces were at work, at least three airlines would no longer be in existence, but the ATSB has changed that.


On the East Coast, the pending failure of US Airways will probably help this situation. As I've argued in numerous US threads, PHL and CLT hub operations will survive at other airlines, but PIT won't. The amount of high-CASM Cartel seat capacity in the region will be reduced accordingly, and that should help yields.

But that only deals with the East Coast, and the eastern portions of the Midwest. What 'tectonic shifts' would happen in Frontier territory, I wonder? Some have argued that DL's SLC hub is weak. Might that one close? That would strengthen both UA and Frontier at DEN, and WN/ HP at PHX.

Bob Crandall's solution to excess capacity in the '70s--"super savers"--is unraveling. The Cartel could afford to carry a certain percentage of lower (certainly not "low") fare leisure pax to carry a capacity cushion....until now. 9/11 and those pesky well-managed, high-quality low-fare carriers have forced the issue. DOJ won't allow mass consolidation, but the Cartel still has to shed more capacity before it reaches economic stability.

Jim

Need a new airline paint scheme? Better call Saul! (Bass that is)

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