Frontier’s $15 Fares and Airline Profits

By Douglas A. McIntyre Published Sep 9, 6:32AM EDT

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Former American Airlines Group Inc. (NASDAQ: AAL) CEO Bob Crandall used to say that the airline industry was the only one in which the worst-run companies set prices. If so, Frontier Airlines’ executives must not be very smart or very skilled. Its temporary $14.99 fares are a sign that, as the industry becomes more competitive, the temptation to harm margins has returned to the business.

The $14.99 fare was only available for a day, to celebrate the carrier’s entry into new markets. All the new markets have powerful competition–Dallas/Ft. Worth, Orlando, Las Vegas, Phoenix and Fort Lauderdale–that are also well established. Fares may be the only edge Frontier has, other than the fact that it will apparently repaint its planes, as Southwest Airlines Co. (NYSE: LUV) did recently. As if the paint matters.

Frontier and Southwest are also among the carriers that encourage their customers to buy tickets online through their sites and not bigger online travel sites. That saves the airlines the toll they pay to these sites, or the expense they incur if people book tickets over the phone (although this often carries a premium on top of the ticket price).

One of the hurdles airlines face, ironically, is their own successes. Mergers that created United Continental Holdings Inc. (NYSE: UAL) and Delta Air Lines Inc. (NYSE: DAL) have allowed them to cut redundant costs. The price of jet fuel has fallen with dropping oil prices. Some carriers hedge fuel prices anyway. The comeback of the economy, and its effects on consumers and business fliers, has helped fill seats. The game is on for which carrier can capture the most passengers.

Granted, airlines have become more aggressive in capturing revenue. Customers have to pay for bags, meals and better seats. The golden age in which the flier came first is over. Airline boarding now looks like a cattle call.

No matter how smart airline managements appear to have become, fares have been, and will always be, the battleground for market share. Many carriers have paid the price for that, in terms of financials, in the past. The $14.99 fare is not a good sign for the industry, except for fliers on their way to Las Vegas.

About the Author Douglas A. McIntyre →

Douglas A. McIntyre is the co-founder, chief executive officer and editor in chief of 24/7 Wall St. and 24/7 Tempo. He has held these jobs since 2006.

McIntyre has written thousands of articles for 24/7 Wall St. He is an expert on corporate finance, the automotive industry, media companies and international finance. He has edited articles on national demographics, sports, personal income and travel.

His work has been quoted or mentioned in The New York Times, The Wall Street Journal, Los Angeles Times, The Washington Post, NBC News, Time, The New Yorker, HuffPost USA Today, Business Insider, Yahoo, AOL, MarketWatch, The Atlantic, Bloomberg, New York Post, Chicago Tribune, Forbes, The Guardian and many other major publications. McIntyre has been a guest on CNBC, the BBC and television and radio stations across the country.

A magna cum laude graduate of Harvard College, McIntyre also was president of The Harvard Advocate. Founded in 1866, the Advocate is the oldest college publication in the United States.

TheStreet.com, Comps.com and Edgar Online are some of the public companies for which McIntyre served on the board of directors. He was a Vicinity Corporation board member when the company was sold to Microsoft in 2002. He served on the audit committees of some of these companies.

McIntyre has been the CEO of FutureSource, a provider of trading terminals and news to commodities and futures traders. He was president of Switchboard, the online phone directory company. He served as chairman and CEO of On2 Technologies, the video compression company that provided video compression software for Adobe’s Flash. Google bought On2 in 2009.