Perhaps we could see the trend of charging for carry-on luggage continue once William A. Franke and his team at Indigo invest $36 million in cash into Frontier Airlines. Indigo recently began divesting its stake in Spirit Airlines with Franke and Indigo principal John Wilson resigning from the Spirit board of directors last month.
Indigo was instrumental in transforming Spirit into an Ultra Low Cost airline with a heavy a-la-carte fee structure that put the carrier at the top of the airline profitability list in the US. According to Republic Airways Holdings, the current owner of Frontier, Indigo will also take on $109 million in debt.
Indigo and TGP Capital figured out a long time ago that airlines can be viable investments as long as costs are relentlessly controlled and service offerings are optimized to move more passengers faster – an attribute that begins with optimizing stage lengths. It is difficult to argue with Indigo’s financial results albeit at the expense of customer satisfaction.
Much like infamous Ultra Low Cost Ryanair, customer satisfaction takes a back seat to opportunistic marketing and a-la-carte options. Once the goal of winning on core ticket price is achieved, this business model offers no apologies for charging for just about anything else. A phenomenon that is often described as giving the customer a “choice”. This is arguable since most of us find ourselves in the position of needing additional services or amenities besides affordable passage – reasonable legroom, carry-on luggage, and speaking to an agent, immediately come to mind.
Indigo leaves Spirit with a CASM (adjusted ex fuel) of 6 cents, Frontier’s CASM (ex fuel) is around 8 cents, we can be sure to see aggressive cost controls and network/fleet optimization. In fact Frontier has been working very hard as optimization for the past year in order to look more attractive to suitors. But going the extra mile by finding more things to lower costs into the Ultra Low Cost Carrier zone will be undoubtedly unpleasant.