Republic Airways Holdings Inc. (RJET): Frontier Airlines Is Really Packing In Passengers

One important factor helping Frontier is that the carrier has been mercilessly cutting capacity. For Q2, Frontier cut its mainline capacity by 10%, while it virtually eliminated the regional flying that it had contracted out to Republic Airlines (another Republic Airways Holdings Inc. (NASDAQ:RJET) subsidiary). All in all, system capacity dropped 20% for the quarter.

In the course of these dramatic cuts, Frontier eliminated many underperforming routes, including all service at its former Colorado Springs focus city. Capacity cuts tend to boost load factor on the remaining flights, since travelers have fewer options.

Frontier’s flexible approach to scheduling has also boosted load factors. The company has been mimicking Allegiant by flying many of its new routes less than once a day. For example, Frontier recently began service from Wilmington, Del., to five destinations; all five routes are operated with a single airplane. This is doable because each route has two to four round-trip flights per week. By tweaking the number of flights per week on each route, Frontier can more accurately match capacity to demand.

Foolish bottom line
Frontier has made a remarkable turnaround, considering that it filed for bankruptcy back in 2008 and a number of industry experts expected it to file for bankruptcy yet again in 2011. Recently, the company has consistently maintained one of the highest load factors in the country, which suggests that passengers are eagerly embracing Frontier’s low fares.

That said, Frontier needs to continue reducing its cost structure in order to match the profitability of Allegiant and Spirit, its ULCC rivals. If it can do so, Frontier’s earnings will skyrocket, benefiting Republic Airways Holdings Inc. (NASDAQ:RJET) shareholders or a potential acquirer. However, it will take several years to push through all of the necessary cost cuts to reach that point, so patience is a must for investors.

The article Frontier Airlines Is Really Packing In Passengers originally appeared on Fool.com and is written by Adam Levine-Weinberg.

Adam Levine-Weinberg is long Aug 2013 $10 Calls on Republic Airways Holdings Inc. (NASDAQ:RJET). The Motley Fool recommends Southwest Airlines. The Motley Fool owns shares of SPIRIT AIRLINES INC. (NASDAQ:SAVE)

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