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Frontier Airlines' May 2009 yields fall over the precipice

  • May 2009 yields fall 12.5% year-on-year;
  • Revenues and yields softening in the US domestic market;
  • Frontier passenger traffic falls as a result of continued capacity cuts;
  • Deadline for bankruptcy plan proposal extended.

Frontier revealed a 12.5% year-on-year yield (per RPM) reduction in May-2009 to USD 8.96 cents, with revenue per ASM also strongly down, by 13.4% to USD 7.29 cents. For a carrier seeking to put together bankruptcy exit financing, the timing couldn't be worse.

    Frontier Airlines passenger yield (USD cents): Jun-2007 to May-2009

    Frontier Airlines passenger yield growth (% change year-on-year): Jun-2007 to May-2009

    Revenues and yields softening in the US domestic market

    Also during the month, Southwest, JetBlue and WestJet, the other North American LCCs that release unit revenue statistics, reported disturbing reductions in revenues. Southwest estimates May-2009 passenger revenue per ASM decreased in the 9% range year-on-year.

    WestJet warned that the pricing environment showed "no signs of improvement" in the month, with the carrier anticipating a "significant" decline in year-on-year 2Q09 revenue per ASM of 16-18%, reflecting current economic weakness and aggressive competitive prices which are leading to a reduced fare levels. This situation contrasts to WestJet's 2Q08 operating environment, in which the Canadian LCC benefited from a healthier Canadian economy and a fuel surcharge that contributed to its RASM levels.

    WestJet CEO, Sean Durfy, stated these challenges are "comparable" with the situation facing the entire North American airline industry, with the CEO adding, "we believe we are better positioned than most to return to stronger RASM results when the economy begins to rebound."

    US domestic yields started to slow notably in Sep-2008, slipping into negative territory in Dec-2008 for the first time since Sep-2007. US airlines' domestic yields in Apr-2009 continued their downward trajectory, falling 10.7% year-on-year, after a 14.0% reduction in Mar-2009, which was also the largest reduction since prior to Jul-2005.

    US airlines' passenger numbers growth (% year-on-year) and yield growth (% year-on-year) on domestic services: May-2008 to Apr-2009

    The reductions in yield occurred even as US carriers enacted significant domestic capacity reductions, of 8.8% year-on-year in the month.

    US airlines' capacity (ASM) growth (% year-on-year) on domestic services: Jan-2008 to Apr-2009

    Frontier's passenger traffic falls as a result of continued capacity cuts

    Frontier's unit yield and revenue reductions occurred despite the LCC continuing its drastic capacity cuts in May-2009. The LCC lowered capacity (ASMs) by 14.9%, following capacity reductions of 16.1% in Apr-2009, 19.7% in Mar-2009 and 15.4% in Feb-2009.

    Frontier Airlines traffic highlights: Apr-2009

    % change




    Traffic RPMs (mill)



    Capacity ASMs (mill)



    Load factor (%)


    (0.9 ppts)

    Yield per ASM (cents)



    Revenue per ASM (cents)



    The capacity reductions enacted by Frontier in May-2009 were the most significant among the major North American carriers. American Eagle, United Airlines and American Airlines also reported notable capacity reductions of 14.5%, 14.4%, and 12.4% year-on-year, in the month.

    North American carriers' domestic passenger capacity growth (% change year-on-year): May-2009

    Frontier, which reduced capacity by 20.3% year-on-year in 2008, plans to continue cuts of this magnitude for the remainder of 2009, although some targeted route expansion is planned.

    As a result of the capacity reductions, Frontier handled 12.3% fewer passengers in May-2009, at 832,367 passengers, as traffic (RPMs) fell 15.7%. This resulted in a 0.9 ppt fall in load factor to 81.3%.

    Frontier monthly passenger traffic (millions) and load factor (%): 12 months to 31-May-08 vs 12 months to 31-May-09

    Lynx yields smashed

    Meanwhile, regional subsidiary Lynx Aviation handled 84,130 passengers in May-2009, an 8.7% increase year-on-year. Traffic (RPMs) rose 20%, on a 18.1% increase in capacity, resulting in a 1.0 ppt load factor increase to a still low 59.3%. Yield, however, plunged 21.7% year-on-year, to USD 18.42 cents, as passenger revenue per ASM sank 20.4%, to USD 10.91 cents.

    Lynx Aviation traffic highlights: May-2009

    % change




    Traffic RPMs (mill)



    Capacity ASMs (mill)



    Load factor (%)


    +1.0 ppt

    Yield per ASM (cents)



    Revenue per ASM (cents)



    Deadline for bankruptcy plan proposal extended

    Frontier's worrying yield reductions - and the spike in oil prices - are a further setback in the carrier's bankruptcy reorganisation plans.

    In May-2009, a bankruptcy judge extended Frontier's deadline to propose its bankruptcy reorganisation plan, from 04-Jun-09 to 09-Oct-09. The LCC stated it has completed the majority of its reorganisation, but is still seeking exit financing.

    The carrier, which filed for bankruptcy protection in Apr-2008, requires a plan sponsor to invest USD125-150 million to emerge from Chapter 11, which the carrier still expects to occur this year. According to CEO, Sean Menke, the carrier has been in talks with "a number" of potential investors. Stay tuned to Peanuts! Weekly for further developments.

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