Frontier CEO Barry Biffle Is Out Today — With A Strategy Reset Ahead

Frontier Airlines CEO Barry Biffle is out. It doesn’t read as voluntary. Biffle declined to comment. The airline appointed their President, James Dempsey, as interim CEO effective immediately – and Biffle stays on as an advisor only through end of month.

• It seems like a disagreement between Biffle and the Board (i.e. chair Bill Franke), or
  
• Franke no longer having confidence in Biffle to turn around the financial performance of the airline

Frontier was as strong or stronger than any airline in the industry seven years ago. Their costs were low and their margins were great. But several things happened.

• Their cost advantage eroded, as pandemic wage inflation affected everyone
  
• Consumer preferences changed, looking to pay for more differentiated service, and also wanting to travel to places that Frontier doesn’t service (and Frontier lacks partners who do)
  
• Major carriers became better competitors, dropping prices to match Frontier without cannibalizing their higher fare revenue (tuning basic economy so that high fare customers don’t want it, while letting them pick up business that might have gone to ultra-low cost carriers).

The industry’s profit driver is credit card, and Frontier was creative early in trying to make up for not having much aspirational to offer to cardholders. They revamped their loyalty program to offer status credit for every dollar of card spend before any other airline. But they can’t give you a lie flat seat, they can’t give you travel to Europe and Asia, and they have no lounges. They don’t even have wifi.

While legacy airlines found a way to compete on fare without cannibalizing their revenue base, they also have upsells to offer. Frontier has actually done a good job with extra legroom seats and blocked middles, but hasn’t had first class, which is something they’re adding.

Biffle has promised a lot in terms of performance. Much of their performance has come from a big aircraft order book and sale-leasebacks, rather than actually generating revenue from flying passengers. Of course other U.S. airlines don’t earn much flying, either! They generate high margin revenue selling miles to banks.

• Frontier is ‘targeting’ $6 in loyalty revenue per passenger
  
• But they’re only generating around $3 per passenger today
  
• And that compares to ~ $30 – $40 for legacy carriers

At the same time, Frontier has been projecting a fourth quarter profit and reiterated their November 5th guidance of $0.04 to $0.20 earnings per share. That’s positive, but probably not enough and not fast enough. Still, elevating the President to CEO is a continuity move, not a disruptive one.

Biffle served as CEO since 2016. He was President before that. Previously, he served as CEO of VivaColombia (2013–2014), Chief Marketing Officer and Executive Vice President at Spirit, and had been an executive at US Airways and American. I met him at a happy hour when he was at US Airways Dividend Miles under Ben Baldanza (later CEO of Spirit) back in 2004. He had been a champion of acquiring Spirit Airlines, both before JetBlue outbid them and more recently.

Frontier’s new CEO had served as CFO for nearly a decade before becoming President. He certainly has experience on the airline’s cost controls side. Before Frontier he had been at Ryanair for overa decade. We can expect him to lean into the airline’s cost advantage.

It’s not clear, though, what this move means for airline strategy beyond that – either in terms of bidding on Spirit or its assets, or walking away from or accelerating changes to business model and product like first class and wifi.

It seems like opportunity comes from:

• Careful cost discipline, which is Frontier’s core advantage
  
• Offering more options for customers to spend, to address revenue shortcomings
  
• Reaping benefits from Spirit’s drawdown in capacity (giving up over half its fleet)

There’s room for an ultra-low cost carrier and Frontier should benefit from being the stronger player than Spirit, no matter what happens to them. It’ll be interesting to see what changes happen, and eventually learn why Biffle is ultimately departing.