On Wednesday, United Airlines president Scott Kirby weighed in on Frontier Airlines’ plan to double the number of its routes and return to a network business model.
During United’s Q2 earnings call, Kirby called the ultra-low-cost carrier’s decision “the best news I’ve heard in 10 years.”
That’s because Kirby sees Frontier’s move as a sign that its point-to-point model has failed to hold up when exposed to price competition from large network carriers through products like basic economy fares.
“I’ve believed for many years that the ultra-low-cost carrier business model can’t work when a network carrier decides to compete on price,” Kirby said in response to a question by Wolfe Research analyst Hunter Ke ay. “This is the first public validation that one of the ULCC’s has thrown in the towel on the point-to-point business model.”
Frontier’s current point-to-point model is focused purely on flying passengers from point A to point B.
However, a network model also takes on connecting traffic going from point A to point C through point B.
As part of its expansion plans, Frontier CEO Barry Biffle noted that his airline’s growing network will provide more than 1,000 new connecting routes for passengers, many of which will be through its home hub at Denver International Airport.
And that’s what triggered Kirby’s strong reply. Denver might be home base for Frontier, but it’s also United’s most profitable hub.
As Frontier ratchets up the competition in Denver, United is expecting pricing pressure in the short to medium term but expects to declare victory in the long-run.
“I can promise you that they are now competing on our turf as a network carrier in Denver,” Kirby said. “That is a battle I guarantee United will win.”
One reason for Kirby’s confidence is the understanding a network model is exponentially more complex to run than a point-to-point.
The United Airlines president used a delayed flight as an example. In a point to point model, if a Frontier flight is delayed two hours, then the passengers and their luggage, while displeased, will arrive simply at their destination two hours late. However, when half of the plane is connecting passengers things get a whole lot trickier.
Now Frontier has to figure out what to do with the connecting passengers and their checked luggage. Do they delay the connecting flights to wait for the passengers? Do they let the flights go ahead and buy the stranded passengers hotel rooms for the night? Or do they book them tickets on another airline?
Kirby, generally regarded as one of the elite strategists in the airline industry, pointed out that these are just some of the operational complexities with which Frontier currently do not have to contend.
In a final jab, Kirby noted that it was unusual for a company to pivot towards a different business model in the middle of an IPO, for which Frontier filed paper work in March.
Frontier Airlines was not immediately available for comment.
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