Frontier Is Undercutting Legacy Airlines’ Basic Economy: By Cutting Fees?

by Chris Dong

After low-cost carriers like Spirit Airlines and later Frontier began eating into leisure market share, American, Delta and United started introducing their own pared down fares, calling the tickets Basic Economy. The fare class creates a no-frills price bucket below the standard economy fare, allowing big airlines to post dirt cheap fares that can lure customers away from the low-cost carriers, while still collecting standard fare prices from business flyers.

(See: Basic Economy Is Helping Airlines Squeeze More Cash From Passengers.)

Now, Frontier Airlines appears to be hitting back, by actually eliminating some of the fees and restrictions that legacy carriers now impose on basic economy and even most standard economy passengers.

Frontier (Kind of) Eliminated A Fee That Airlines Love

Frontier is shaking things up in the ULCC world.

Frontier is shaking things up in the ULCC world. Image by Frontier

Last week, Frontier Airlines announced they would be restructuring their change and cancellation fees. These days, when airlines restructure or update rules, its often a bad sign for customers—a devaluation, new restriction, or other customer-unfriendly move is on the horizon.

Instead, here’s the big news: Frontier will completely eliminate change and cancel fees if made 90 days out or more from travel date. From two weeks of travel to 89 days, the fee would be $49—half of what it used to be. Finally, within two weeks of travel, the normal fee of $99 would continue to apply for changes and cancellations.

“We’re known for the animals on our aircraft tails, so while a leopard can’t change his spots, now he can change his reservation for free,” said Daniel Shurz, Senior Vice President, Commercial for Frontier Airlines.

Okay, then.

Frontier sort-of joins Southwest Airlines in the no-change-fee club, though Southwest allows fee-free changes all the way up to the day of departure, and Southwest flights can even be cancelled in exchange for travel funds, with no penalty applied.

There will also be no increase in bag fees, even as the other major airlines are ticking up surcharges at the check-in counter. (Side note: Carry-on charge notwithstanding, for all the recent outcry of an increased check-bag fee to $30, Frontier has had this same price point for almost 3 years.)

Note how Frontier charges less for a checked bag than a full-size carry on.

Note how Frontier charges less for a checked bag than a full-size carry on.

How Frontier Makes Its Money

Frontier is a Denver-based ultra low-cost airline that operates a mix of hub-and-spoke and point-to-point flights. While they do have a significant hub presence in Denver, Frontier is increasingly picking up point-to-points that are relatively underserved or that are in an abandoned hub city like Cincinnati (former Delta hub) and Cleveland (former United hub). These types of routes are where Frontier likely makes a significant portion of their fare-based revenue.

Frontier flight taxiing at its hub in Denver. Image by flydenver.com

Frontier flight taxiing at its hub in Denver. Image by flydenver.com

I specifically mention fare-based revenue because Frontier is an airline that makes a significant amount of their revenue from non-fare related items (read: fees, fees, and fees). In fact, in a recent report, the airline ranked third in the entire aviation world in terms of percentage of total revenue as non-fare sources. A whopping 48% of its revenue, or an average of $48.33 per passenger, came from fees.

Frontier Airlines is sometimes ludicrously priced (low)

When United is almost 10x as expensive, it’s kind of a no-brainer for a two hour flight.

Now, the airline is eliminating a seemingly huge component of how they make money. But take a step back and it makes some sense.

Why Frontier Would Drop Change Fees

Before this change, a customer who wanted to cancel or change their flight had little incentive to tell Frontier. After all, with many fares under the $99 mark, it would actually make more financial sense for someone to simply rebook elsewhere and no-show the Frontier flight. Obviously, Frontier wouldn’t be able to sell that ticket since the airline had no idea the customer wasn’t showing up to their flight.

In this scenario, we have an annoyed customer that had to rebook and potential lost revenue for Frontier, which could otherwise have turned one sale into two sales; the first sale being the customer who bought then was able to change their ticket, and the second potential sale being a customer who was able to buy the first passenger’s seat on the original flight.

 

If I told Frontier I wasn’t flying anymore, my seat could go back on sale.

With this elimination of cancellation fees far away from departure, Frontier has created a scheme where the customer is actually incentivized to inform the airline about a change in plans.

Even at $49 to cancel up to two weeks to departure, it makes a lot of sense to inform the airline. Take for example, the $39 flight to Vegas in the screen shot above. Add on a seat selection fee of $25 and it becomes beneficial to tell Frontier that I’m not flying, netting a $15 travel credit. (Hey, it’s something).

American Airlines clearly states no changes can be made to your basic economy ticket.

American Airlines clearly states no changes can be made to your basic economy ticket.

All of this comes to the most likely reason Frontier is doing this: Basic Economy fares on Delta, American, and United don’t even offer the ability to change or cancel tickets—even for a fee. And with most discounted economy fare buckets, the fee is at least $200. Frontier is hoping to lure in customers that want a more flexible ticket from the get-go.

Frontier Revamped Their Credit Card & Loyalty Program

Surprise, Frontier has a loyalty program! In fact, over the summer, Frontier made some positive changes to those (un)lucky enough to be its most frequent flyers with a rebranded program called FRONTIER Miles (formerly known as EarlyReturns). They introduced new elite levels and benefits, including a 100,000 mile tier to entice business travelers away from the legacies.

That’ll be a particularly tough proposition—given Frontier’s limited flight frequencies anywhere outside Denver, and mediocre operational performance.

 

Elite benefits on Frontier Airlines

A free checked bag…after you reach 100,000 miles.

Frontier also partnered with Barclays to introduce a their new co-branded credit card. Most notably, each dollar spent not only becomes redeemable miles, but also elite qualifying miles towards the status levels listed above.

The Upshot

While the legacy airlines are sliding further and further into ultra low-cost territory, Frontier is clearly trying to undercut them with decreased fees, a better loyalty program, and a new credit card partnership.

Change fees are highway robbery so I’m very glad to see this (kind of) eliminated by another airline. Of course, Southwest already does this.

For the average infrequent traveler, this might be enticing enough to switch over and give Frontier a shot. Heck, with such low fares and flexibility, maybe that traveler would turn from a once a year flyer to three or four times per year and even apply for that credit card. That’s Frontier’s hope with these announcements.

 

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Aviakompaniya.Org October 13, 2018 - 4:40 am

This is not Frontier s first family-friendly change this year,  as earlier this summer it also revamped its loyalty program to included higher elite tiers that convey perks (such as included stretch seat assignments) for up to eight people on the reservation and introduced the family pooling of miles to elite customers and cardholders. Earlier this year, Frontier also introduced a way to earn elite status miles entirely by using its cobranded credit card.

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