October 1, 2013 / 11:25 PM / 4 years ago

Frontier buyer cites global appeal for lower-cost airlines

(Reuters) - Airline pioneer William Franke is looking to bring more low airfares to U.S. air travelers, with his firm agreeing to purchase Frontier Airlines from Republic Airways Holdings RJET.O.

A Frontier Airlines jet waits at the gate prior to departure at the Denver International Airport in Denver, Colorado, February 4, 2012. REUTERS/Nathan Armes

Franke, co-founder of private equity firm Indigo Partners LLC which reached the deal valued at about $145 million to buy Frontier, said his firm would look to make Frontier operate more efficiently to ensure it can offer lower ticket prices to leisure travelers looking for a bargain.

“There will be a push to be more efficient so that the airplanes fly more hours, we better manage maintenance, we work on how to have fuel savings as we fly,” Franke said in an interview on Tuesday after the deal was announced.

Franke has extensive experience in airlines, having been a former chief executive of America West Airlines, which merged with US Airways Group LCC.N.

The list of low-cost carriers Franke has ran or invested in also includes Volaris (VOLARA.MX) of Mexico, Wizz Air in Hungary and Tiger Airways TAHL.SI in Asia.

Indigo “has been around the block a bunch of times with this (ultra low-cost model) and hit a bunch of home runs doing it,” said Robert Mann, an airline consultant in Port Washington, New York.

The Frontier purchase could signal an expansion of the lower-cost sector in the United States, where carriers such as Spirit cater to bargain hunters. They compete with larger carriers such as Delta Air Lines (DAL.N) and United Continental (UAL.N) as well as other discounters like JetBlue Airways (JBLU.O) and Southwest Airlines (LUV.N).

Spirit, based in Miramar, Florida, and Allegiant (ALGT.O) of Las Vegas fit in the ultra low-cost category, offering cheaper ticket prices but charging fees for other services.

“Airfares have continued to go up over the last several years,” Franke said. “A lot of consumers are deterred from travel by those fares.”

Franke said the ultra low-cost model has proven global appeal. In the United States, airline mergers have spurred more opportunities for such airlines to enter underserved markets, he added.

“The objective is to offer a consumer options, so the consumer has low fares and then can choose what he or she wants to add to that base fare in exchange for services,” Franke said. “That has been the manner of running Spirit, for Ryanair in Europe and we’ve taken that model to other markets as well.”

    The sale agreement for Frontier ends a two-year-long effort by Indianapolis-based Republic Airways to unload the carrier, which was bought out of bankruptcy in 2009.

    Phoenix-based Indigo will pay $36 million in cash for the equity of Frontier Holdings and assume Frontier’s debt.

    Republic, which provides regional service for bigger carriers such as Delta Air Lines Inc (DAL.N) and United Continental Holdings Inc (UAL.N), has been restructuring Frontier over the past year to lower its costs.

    Franke said Frontier, which offers flights to more than 80 cities in the United States, Costa Rica, the Dominican Republic, Jamaica, and Mexico, would expand to new markets based on demand, and added the airline would continue to be based in Denver.

    The deal, which is subject to regulatory approvals and labor agreements, is expected to close in December, Republic said.

    Shares of Republic Airways closed up 5.4 percent at $12.54 on Tuesday.

    Reporting by Rohit T.K. in Bangalore and Karen Jacobs in Atlanta; Editing by Jeffrey Benkoe, Bernard Orr

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