Dear Valued Visitor,

We have noticed that you are using an ad blocker software.

Although advertisements on the web pages may degrade your experience, our business certainly depends on them and we can only keep providing you high-quality research based articles as long as we can display ads on our pages.

To view this article, you can disable your ad blocker and refresh this page or simply login.

We only allow registered users to use ad blockers. You can sign up for free by clicking here or you can login if you are already a member.

Republic Airways Holdings Inc. (RJET): Frontier Airlines Is Really Packing In Passengers

On Monday, Republic Airways Holdings Inc. (NASDAQ:RJET) subsidiary Frontier Airlines reported its operating statistics for the month of June and the second quarter. Frontier reported a load factor of 94% in June; that number represents the percentage of seats filled by paying passengers (adjusting for the length of each flight). For the full quarter, that figure was 91%.

Photo courtesy of Frontier Airlines

By airline industry standards, both numbers are stunningly high. This indicates that customers have embraced Frontier’s new “ultra-low-cost carrier”, or ULCC, operating model so far. By filling more seats on each plane, Frontier can make money with lower ticket prices than competitors that have more seats flying empty. For example, Southwest Airlines Co. (NYSE:LUV) — one of Frontier’s main competitors at its hub in Denver — reported a load factor of just 85% for June.

Republic Airways Holdings Inc. (NASDAQ:RJET)While Frontier’s industry-leading load factor is something to be proud of, the company still has work to do in order to approach the profitability of its ultra-low-cost-carrier rivals — Allegiant Travel Company (NASDAQ:ALGT) and Spirit Airlines Incorporated (NASDAQ:SAVE). In April, Republic Airways Holdings Inc. (NASDAQ:RJET)’s management forecast that Frontier would achieve an operating margin of 2%-4% in Q2. By contrast, Spirit’s Q2 2012 adjusted operating margin was 16.3%, while Allegiant’s Q2 2012 operating margin was a whopping 18.1%. This shows how far Frontier is behind the other ULCCs, but it also highlights the promise of the ULCC operating model.

Fill ‘em up
One of the hallmarks of ultra-low-cost carriers is that they push down base airfare prices in order to stimulate demand and fill more seats. Still, even Frontier’s ULCC competitors cannot manage to produce comparable load factors. Allegiant, which typically has some of the highest load factors in the industry, trailed Frontier by more than three percentage points with a load factor of 90.6% in June. (Spirit has not yet reported June traffic.)

Moreover, Frontier’s outperformance has been fairly consistent recently. Frontier achieved load factors of 87% in April and 91% in May. By contrast, Spirit’s load factors in April and May were 81.6% and 86.9% respectively, while Allegiant’s load factors for scheduled service were 88.7% and 89.1% in April and May.

Secrets to success
Typically, it is very difficult for airlines to achieve load factors above 90%. Inevitably, some flights are scheduled for off-peak days and times when demand is lower. Additionally, airlines usually try to have some seats available for last-minute travelers who are willing to pay higher fares. How has Frontier managed to boost its load factor to stratospheric levels in spite of those impediments?

DOWNLOAD FREE REPORT: Warren Buffett's Best Stock Picks

Let Warren Buffett, George Soros, Steve Cohen, and Daniel Loeb WORK FOR YOU.

If you want to beat the low cost index funds by 19 percentage points per year, look no further than our monthly newsletter.In this free report you can find an in-depth analysis of the performance of Warren Buffett's entire historical stock picks. We uncovered Warren Buffett's Best Stock Picks and a way to for Buffett to improve his returns by more than 4 percentage points per year.

Bonus Biotech Stock Pick: You can also find a detailed bonus biotech stock pick that we expect to return more than 50% within 12 months.
Subscribe me to Insider Monkey's Free Daily Newsletter
This is a FREE report from Insider Monkey. Credit Card is NOT required.