inflightboi175
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Indigo Partners LLC agreed in principle late Monday night to buy Denver-based Frontier Airlines from Republic Airways Holdings, the Wall Street Journal is reporting.
It is unclear what the future may be for Frontier, which is Denver's only hometown airline with an estimated economic impact of about $470 million each year on the metro area. Frontier employs 4,000 people nationwide, 3,000 of whom are in Denver.
The deal is primarily based on debt assumption, The Journal reports.
Indigo, formerly the controlling shareholder of ultra-low-cost carrier Spirit Airlines, is based in Phoenix and specializes in aviation, particularly in the ultra-low-cost airline sector. William Franke is co-founder and managing partner of Indigo and the former CEO of America West Airlines.
Indigo bought Spirit in 2006, and with Franke at the helm as chairman, helped change the carrier into an ultra-low-cost airline and one of the fastest growing carriers in the U.S.
Franke and TPG founder David Bonderman partnered on investments in Ryanair Holdings PLC, a discount carrier in Ireland well-known for its irreverent advertisement tactics.
Indigo fueled speculation in July when all shareholders associated with the equity firm sold off their stakes in Spirit at the same time that Franke stepped down as chairman of the airline. Having a large stake in both carriers could be seen as a conflict of interest given Frontier's current transition to an ultra-low-cost carrier.
Negotiations appeared to stall last week over pilot agreements, but the parties came to an agreement just hours before the exclusivity agreement would be lifted between Indigo and Indianapolis-based Republic, reports The Journal.
Details of the sale have yet to be announced and the implications for the carrier's hub remain uncertain.
Denver's worst case scenario is if the airline's new owners find the local market is too competitive ? having both United and Southwest entrenched and fighting for market share ? and decide to pack up its hub and head for a different city.
Not only would this cause upheaval for Frontier's workforce, but Denver passengers on all airlines would likely see ticket prices increase, which has Denver International Airport's chief financial officer Patrick Heck on alert.
In August, Heck said that the greatest risk to DIA's financial health is the loss of a major carrier.
"If Frontier did go away tomorrow, we would see fares go up somewhat, and people who are sensitive to prices are just not going to fly. So you are going to see passenger numbers drop, and we would lose all of Frontier's connecting traffic," Heck told The Post. "It would be bad, but we can withstand it."
With nearly 60 percent of the airport's revenues coming from airlines, DIA has a significant dependency on its carriers. Heck and the DIA leadership are trying to flip that percentage with non-airline revenues ? such as car rental, parking and concessions ? in order to stabilize its finances in the future. But,they know that transition won't happen overnight.
"I think we would see a drop in passenger numbers in the short term but that other carriers would eventually pick up most of those numbers," Heck said.
Airports generally operate under one of two financial models, compensatory and residual, which essentially dictates what costs it pays for versus what its airlines pay for. Heck says that DIA is a hybrid of the two, but has some inherent risks within it.
"We started looking at our risks, and the potential of losing a carrier and we decided we needed more cash in the fund," Heck said. "I think there's room for multiple carriers to exist we just never believed they could exist in their current state."
Since Southwest Airlines re-entered the market in 2006, competition at DIA escalated, driving down ticket prices and increasing passenger counts for the airport.
More passengers equals more revenue, but airport officials knew it was not likely they could support three major carriers forever.
So, DIA began setting aside a rainy day pot of about $600 million to cushion the blow of a major carrier drawdown. According to Heck, it costs approximately $1 million a day to run the airport.
"It's just good business practice to have about a year of cash on hand and we increased that to offset that risk of losing a carrier," Heck said. "The good news about all of this is that we have been very upfront about passenger declines due to the dehubbing of one of our major carriers."
The DIA team has been feverishly implementing new processes for the last couple of years in an attempt to increase non-airline revenues.
DIA's chief commercial officer is currently overseeing a dramatic revamping of the airport's food and retail offerings, recent rate increases on its money-making parking and hopes its new South Terminal Redevelopment project helps rake in cash.
Frontier's departure from Denver is the airport's worst-case scenario, but Heck said, "we really want Frontier to make it and we want Denver to be a good market for them."
Several airline analysts predict Frontier staying in Denver, but overhauling its image into the ULCC model, while others suggest the steep competition at DIA will drive the carrier elsewhere.
Republic, a publicly-traded carrier that flies small aircraft on behalf of large airlines, bought Frontier out of bankruptcy in 2009 for $109 million, plus the assumption of $1 billion in debt and aircraft lease obligations and was its foray into running a brand-name carrier.
Frontier was a money-suck for Republic at the beginning of the relationship but saw an improved financial performance following restructuring and cost-trimming efforts.
The Denver-based airline had a pre-tax income in 2012 of $23.9 million compared with a loss of $95.3 million the year prior. Revenue grew from $1.3 billion in 2011 to $1.4 billion last year.
Republic carried long-term debt of $2.1 billion, a significant portion of it acquired when it purchased Frontier.
Frontier has more than 200 daily flights with nearly 120 of them departing out of its hub at Denver International Airport. Meanwhile, Dallas-based Southwest Airlines surpassed Frontier last year in the airport's market share, snatching the No. 2 spot.
The shift was is a direct result of Frontier's cost-cutting measures, including decreasing the number of flights while squeezing more passengers on each flight.
The Denver carrier operates 57 aircraft, primarily Airbus. Its fleet includes 17 A320, 35 A319, and one A318.
Florida-based Spirit Airlines' fleet is strikingly similar to Frontier, consisting of 35 Airbus ? 26 A319s, 7 A320s, 2 A321s.
The sale has been a long time in the making with Republic missing several target sale dates over the past year. Republic hired bankers at Barclays Capital in April 2012 to court potential buyers.
Frontier, in its 20th year of operations, is a recently-turned ultra-low-cost carrier servicing more than 75 destinations in the U.S., Mexico, Costa Rica, Jamaica and the Dominican Republic.
http://www.denverpost.com/breakingn...frontier-airlines-be-sold-indigo-partners-llc
It is unclear what the future may be for Frontier, which is Denver's only hometown airline with an estimated economic impact of about $470 million each year on the metro area. Frontier employs 4,000 people nationwide, 3,000 of whom are in Denver.
The deal is primarily based on debt assumption, The Journal reports.
Indigo, formerly the controlling shareholder of ultra-low-cost carrier Spirit Airlines, is based in Phoenix and specializes in aviation, particularly in the ultra-low-cost airline sector. William Franke is co-founder and managing partner of Indigo and the former CEO of America West Airlines.
Indigo bought Spirit in 2006, and with Franke at the helm as chairman, helped change the carrier into an ultra-low-cost airline and one of the fastest growing carriers in the U.S.
Franke and TPG founder David Bonderman partnered on investments in Ryanair Holdings PLC, a discount carrier in Ireland well-known for its irreverent advertisement tactics.
Indigo fueled speculation in July when all shareholders associated with the equity firm sold off their stakes in Spirit at the same time that Franke stepped down as chairman of the airline. Having a large stake in both carriers could be seen as a conflict of interest given Frontier's current transition to an ultra-low-cost carrier.
Negotiations appeared to stall last week over pilot agreements, but the parties came to an agreement just hours before the exclusivity agreement would be lifted between Indigo and Indianapolis-based Republic, reports The Journal.
Details of the sale have yet to be announced and the implications for the carrier's hub remain uncertain.
Denver's worst case scenario is if the airline's new owners find the local market is too competitive ? having both United and Southwest entrenched and fighting for market share ? and decide to pack up its hub and head for a different city.
Not only would this cause upheaval for Frontier's workforce, but Denver passengers on all airlines would likely see ticket prices increase, which has Denver International Airport's chief financial officer Patrick Heck on alert.
In August, Heck said that the greatest risk to DIA's financial health is the loss of a major carrier.
"If Frontier did go away tomorrow, we would see fares go up somewhat, and people who are sensitive to prices are just not going to fly. So you are going to see passenger numbers drop, and we would lose all of Frontier's connecting traffic," Heck told The Post. "It would be bad, but we can withstand it."
With nearly 60 percent of the airport's revenues coming from airlines, DIA has a significant dependency on its carriers. Heck and the DIA leadership are trying to flip that percentage with non-airline revenues ? such as car rental, parking and concessions ? in order to stabilize its finances in the future. But,they know that transition won't happen overnight.
"I think we would see a drop in passenger numbers in the short term but that other carriers would eventually pick up most of those numbers," Heck said.
Airports generally operate under one of two financial models, compensatory and residual, which essentially dictates what costs it pays for versus what its airlines pay for. Heck says that DIA is a hybrid of the two, but has some inherent risks within it.
"We started looking at our risks, and the potential of losing a carrier and we decided we needed more cash in the fund," Heck said. "I think there's room for multiple carriers to exist we just never believed they could exist in their current state."
Since Southwest Airlines re-entered the market in 2006, competition at DIA escalated, driving down ticket prices and increasing passenger counts for the airport.
More passengers equals more revenue, but airport officials knew it was not likely they could support three major carriers forever.
So, DIA began setting aside a rainy day pot of about $600 million to cushion the blow of a major carrier drawdown. According to Heck, it costs approximately $1 million a day to run the airport.
"It's just good business practice to have about a year of cash on hand and we increased that to offset that risk of losing a carrier," Heck said. "The good news about all of this is that we have been very upfront about passenger declines due to the dehubbing of one of our major carriers."
The DIA team has been feverishly implementing new processes for the last couple of years in an attempt to increase non-airline revenues.
DIA's chief commercial officer is currently overseeing a dramatic revamping of the airport's food and retail offerings, recent rate increases on its money-making parking and hopes its new South Terminal Redevelopment project helps rake in cash.
Frontier's departure from Denver is the airport's worst-case scenario, but Heck said, "we really want Frontier to make it and we want Denver to be a good market for them."
Several airline analysts predict Frontier staying in Denver, but overhauling its image into the ULCC model, while others suggest the steep competition at DIA will drive the carrier elsewhere.
Republic, a publicly-traded carrier that flies small aircraft on behalf of large airlines, bought Frontier out of bankruptcy in 2009 for $109 million, plus the assumption of $1 billion in debt and aircraft lease obligations and was its foray into running a brand-name carrier.
Frontier was a money-suck for Republic at the beginning of the relationship but saw an improved financial performance following restructuring and cost-trimming efforts.
The Denver-based airline had a pre-tax income in 2012 of $23.9 million compared with a loss of $95.3 million the year prior. Revenue grew from $1.3 billion in 2011 to $1.4 billion last year.
Republic carried long-term debt of $2.1 billion, a significant portion of it acquired when it purchased Frontier.
Frontier has more than 200 daily flights with nearly 120 of them departing out of its hub at Denver International Airport. Meanwhile, Dallas-based Southwest Airlines surpassed Frontier last year in the airport's market share, snatching the No. 2 spot.
The shift was is a direct result of Frontier's cost-cutting measures, including decreasing the number of flights while squeezing more passengers on each flight.
The Denver carrier operates 57 aircraft, primarily Airbus. Its fleet includes 17 A320, 35 A319, and one A318.
Florida-based Spirit Airlines' fleet is strikingly similar to Frontier, consisting of 35 Airbus ? 26 A319s, 7 A320s, 2 A321s.
The sale has been a long time in the making with Republic missing several target sale dates over the past year. Republic hired bankers at Barclays Capital in April 2012 to court potential buyers.
Frontier, in its 20th year of operations, is a recently-turned ultra-low-cost carrier servicing more than 75 destinations in the U.S., Mexico, Costa Rica, Jamaica and the Dominican Republic.
http://www.denverpost.com/breakingn...frontier-airlines-be-sold-indigo-partners-llc