Daniel Shurz, SVP of Commercial at Frontier Airlines
On Monday, August 14th, I had the privilege to interview Daniel Shurz. Mr. Shurz is the Senior Vice President of Commercial at Frontier Airlines. He has over 20 years of experience in the aviation industry working for United Airlines, Air Canada, and Frontier Airlines. Prevosily, Mr. Shurz served as the Manager of Domestic Planning for United from 1996-2005, and Vice President of Network Planning at Air Canada from 2006-2009. This interview has been edited for length and clarity.
Joshua Kupietzky: Before Frontier, you worked at Air Canada and United. What were some difficulties in switching from a full-service carrier to an ultra-low-cost airline (ULCC)?
Daniel Shurz: I am on the commercial side of the business, so the teams are collectively responsible for generating the revenue for Frontier. In a full-service carrier, certainly, when I worked there, earning revenue and how you could maximize it was the end and be all. At a ULCC [Ultra Low Cost Carrier], the pricing and revenue management is relatively similar from airline to airline, as their sole job is to maximize revenue on a day-to-day basis.
Marketing at a ULCC is not about big, splashy, expensive campaigns. It's about how to most efficiently get the maximum number of people to look at the website and how to attain all the volume needed, as Frontier is a growing airline. That was a change in mindset.
From a network perspective, it is very similar. Network teams at every airline are responsible for three things. This includes building an operational, feasible, and reliable schedule. The next responsibility is to look for efficiencies and drive costs out. Lastly, to develop a schedule and a network that maximizes revenue. The balance between the three responsibilities is skewed heavily between ULCCs and full-service carriers. Frontier has more of a balance between those three items. As a ULCC, Frontier can fly flights at times during the day when airlines with a higher cost would not be able to make money because we can make them work economically.
JK: Frontier had a lot riding on getting the Spirit Airlines deal done as you would add on capacity, routes, and aircraft and bring together two entities. As the Spirit Airline deal unfolded, are you looking for another merger, perhaps Allegiant?
DS: We are comfortable that we are going to succeed organically. Frontier has over 200 aircraft on order and a growth plan for 15% to 17% annual growth rates. In the second half of 2024, we will restabilize in that range. Frontier will be able to take advantage of many opportunities without a partner. There is an excellent plan for Frontier on its own.
JK: Frontier has a massive emphasis on ancillary revenue. In the second quarter of 2023, it averaged $80 per customer, but you have targeted to get it up to $85. How do you raise that, or have you noticed, as the economy has gone through some bumps over the past six months, that people are a little more wary about extra on those add-ons that are part of ancillary revenue for Frontier?
DS: We give customers a complete choice in how we have set up the model, and we can use higher ancillary to have lower base fares, which are generally significantly lower than our competitors. That is how we stimulate demand and, in turn, fill airplanes.
This is essential for all low-cost carriers but particularly important for growth carriers. We like non-ticket revenue and have emphasized ancillary because we have found more stability in the business by doing that. Going back to the worst parts of the pandemic, while our non ticket revenue was lower than what it is today and what it was in 2019, it did not drop anywhere near as significantly as the fare revenue did.
Although there is some effect of the average base fare on the ancillary revenue, a customer buying a $19 ticket is not as likely to spend as much as a customer who buys a $79 ticket. But the relationship is nothing like the relationship between those two fares. Coming off a year in 2022, in the second and third quarters, there was an unusual environment as demand in the United States had essentially fully recovered from the pandemic. The bounce back occurred so quickly that the supply was not fully back to keep up with the demand. In turn, customers were paying higher fares than in 2019.
Nevertheless, it allowed for faster growth on the ancillary revenue side. From where we are now, we will get to the $85 benchmark primarily through new products that we continue to increase and not through raising prices on existing products directly. Currently there are only two fixed bundles, and we will move to dynamic bundling later this year, allowing us to offer more choices to customers. There are many other ways to drive revenue up, and like any other business, if we offer customers things that competitors didn't before, some customers will buy them.
JK: Frontier has previously cited that it has saved consumers over a billion dollars in savings. Where is the money coming from, and how do you generate a billion dollars?
DS: Looking at the average fare paid by consumers on other airlines and then comparing it with the average fare paid by customers who flew Frontier and assuming that Frontier did not exist, the customers who flew Frontier would have paid the average fare on the other airlines. The differences in the average fare including ancillary, are substantial. Frontier runs with a $70 per passenger cost advantage, and we run approximately with a $70 revenue shortfall. But that is a $70 revenue benefit for consumers, meaning they pay $70 less to fly Frontier. Since we are more efficient and have lower costs, we can pass that on to customers.
JK: By 2026, Frontier has stated that it will hire 10,000 employees. What jobs will these people fill? How will you find employees with the current staff shortages, and what does your pilot pipeline look like moving forward?
DS: There are three big categories of staffing that we will be filling: pilots and flight attendants, mechanics, and management and headquarters staff.
Staff shortages exist, but the pilot shortage in the United States is real, and we have been taking significant action. In the summer of 2022, we announced a cadet program with ATP flight schools and have direct entry programs with many universities, including Purdue and Embry-Riddle. There is a rotor transition program for helicopter pilots. Today, more than half of the classes of new hire Frontier pilots come from non-traditional channels. We are conscious of the need to get more creative in how we source.
There isn't a shortage of flight attendants as we have had no issue hiring flight attendants. But there are challenges hiring mechanics. We have raised wages significantly for our insourced mechanics, represented by the IAM [International Association of Machinists and Aerospace Workers], and for our third-party mechanics, who work through our business partners. There's been significant wage increases since the pandemic. Ultimately, wages will solve the issue.
JK: Just over a year ago, you ended your bid to buy Spirit Airlines, and now, seeing what has transpired over the past year between JetBlue and Spirit, the DOJ is fighting them, and it may not even go through. I know you wanted the deal to go through, but is there some part of you that believes that you dodged a bullet and, in hindsight, all things worked out best for Frontier?
DS: We believed that a merger between Frontier and Spirit would be the best for consumers as it combined two similar airlines, which both have low-cost structures and offer very competitive fares. Ultimately, merging the two airlines would have created a true nationwide ULCC to act as a competitive force in the marketplace.
We have a robust organic growth plan, and the advantage of organic growth is entirely within our control. Frontier is comfortable that it has a promising future.
JK: The first two rows on Spirit Airlines planes have these wider and more spacious seats dubbed The Big Front Seats. Why did Spirit implement that as a ULCC, and why has Frontier shied away from that market?
DS: Before becoming a full-fledged ULCC, Spirit had those seats as their version of a first-class product. They have kept them and figured out how to make money on it. Frontier has never had anything like that before it became a ULCC; since then, we have not seen its value. That being said, as we continue to grow, there is a potential to attract a wider variety of customers to the airline, and there may be product changes that make sense to do that.
JK: Frontier had a lot riding on getting the Spirit Airlines deal done as you would add on capacity, routes, and aircraft, bring together two entities, and, as you stated, create a nationwide ULCC. How has your growth strategy changed, and how have you moved forward from the planned merger?
DS: Since we withdrew the merger bid at the end of June 2022, we have opened two new crew bases since then, with one in Phoenix in November 2022 and one in Dallas in May 2023. It has allowed us to grow our route network significantly in both of these cities, and by the 2022 winter, we have more than doubled our route network in Phoenix and doubled over the last year in Dallas.
We are continuing to grow in the cities where we see opportunity, and if we see good results, we can put more airplanes in the city. Frontier is focused on increasing whatever works in the current network and growing where the demand is. The great thing about the big cities in the Southern United States: Tampa, Orlando, Dallas, Atlanta, and Phoenix, is that those markets perform better overall. Since the beginning of the pandemic, the migration patterns have gone south, and when people move, their buying patterns change. If someone moves from a city where Frontier is not relevant to one where Frontier is relevant, customers will suddenly consider new airlines. These southern tier cities have been strong in the VFR (visiting friends and relatives) market. We watch all migration data as we build the route network because it indicates where we can grow.
JK: There is a possibility that in order for JetBlue to get regulatory approval from the DOJ to acquire Spirit, they may be forced to sell some of those planes. If that does happen, will you look to acquire those additional aircraft?
DS: Taking aircraft secondhand from other airlines is not something Frontier does a lot of. All things equal, Frontier would prefer new aircraft. If opportunities arise, we will look at what they are and consider them. It is too early to know how things will play out and whether the merger will be approved.
JK: If the deal goes through between Spirit and JetBlue, do you believe they will have a monopoly in key markets, and what will it mean for Spirit and JetBlue customers? What does Frontier's future look like if the deal does in fact go through?
DS: JetBlue had already proposed divestiture of assets before Spirit shareholders approved the deal. We have signed an agreement dependent on the merger closing to take Spirits slots in New York LaGuardia. While JetBlue and Spirit do overlap on the East Coast, they will not have monopolies even after the merger. The merger will create a larger competitor, but it will be a higher net cost competitor than the current average of the two airlines' costs. Frontier will be able to find opportunities in markets where we can perform better.
JK: JetBlue has stated that the ethos behind a merger with Spirit is to expand its presence in the West Coast and Midwest. Do you plan on getting into those West Coast and Midwest markets and establishing a presence in markets that JetBlue will target?
DS: Frontier is growing relatively rapidly in lots of places. Regarding the merger, JetBlue has put out investor materials where they have displayed cities on their route map of locations where the merger hubs will get them relevant. There are cities not listed where Frontier has grown. We are only focused on where the opportunity is. Frontier's brand is still better known in the Western United States and has propelled us to grow in Phoenix, Denver, and San Francisco. We are not explicitly focused on what may happen if the merger happens; if the merger does indeed go through, we will have the opportunity to react once it has happened.
JK: With what happened with Southwest in December and their winter meltdown, they have announced they will shift to a more of a hub-spoke model instead of point-to-point. Do you believe a point-to-point model benefits Frontier more than a hub-to-spoke model?
DS: Different geographies affect the route network differently, especially during the winter. One of the cities where Southwest truly melted down in December was Denver. Frontier had a challenging operation in Denver during that same period for a few days, but it was nothing like what was happening at Southwest.
At the pandemic's beginning, we redesigned our network to be more modular. Most of our planes fly out and back or on a triangle route where they end up back in the same place. Our network has been designed to be flown on either one-day or two-day crew pairings.For many European ULCCS, each airplane goes back and forth from the base, so if something goes wrong, you can cancel a round trip, and the plane is still in the right place, and the next crew is available to fly that flight. There is less to go wrong. The full-service carriers that use the hub and spoke model have simplified their approach. Although they sometimes fly between different hubs, far more planes fly back and forth from the same hub.
Southwest has powerful optimization tools, but they have a nationwide network where planes go in daisy chains. Southwest had a challenging December, but they have learned from it. If Frontier had a network as complicated as Southwest, we would have the same problem. It is harder to solve a disruption for an airline if you have a point-to-point network with planes going all around the country. Frontier's network was designed to be more resilient than that, and it has generally worked in major weather events.
Compared to our pre-pandemic network before we shifted, we are canceling fewer flights away from the weather event because the airplanes are more contained. In January, there was a one-day winter event in Denver, and Southwest canceled flights preemptively after what occurred, but United canceled no mainline flights. The key for Frontier is not the day of the weather; it is what happens the next day, and for us, the correct answer may be to cancel flights. But the next day, we ran a hundred percent completion in Denver as we managed to contain, and the network was designed to contain the disruption more easily in one day.
Although Frontier does operate point-to-point, we have nine crew bases across the United States. Most of our flying is in and out of those crew bases. We are not trying to serve hundreds of non-crew base markets, although we do have markets that do not touch crew bases. We skew the network around these crew bases, and as we grow, there will be another crew base in 2024.
JK: In May, Frontier opened its ninth crew base at DFW, and before that, you opened one in Phoenix. I know Cleveland is on the shortlist, but what other airports are next on your radar in terms of boosting capacity and opening up a crew base?
DS: Our next crew base will likely be in the Midwest or the Ohio Valley. With the opening of Dallas in May, we have great geographic convergence of crew bases across the country in terms of time zones from East to West. We are now looking for markets that are large enough; there is growth potential, places where we have had a history of profitability, and some lines made easier by having a crew base. A decision will be made over the next couple of months. We are more concerned about where we have the growth potential and where we benefit from having a crew base.
The nice thing about the two cities of the two corners of Ohio is that we have had a large presence in both cities (Cleveland and Cincinnati) for almost nine years, and they have been consistently good cities for us as well. Chicago Midway is much newer; we recently moved most of our operations from O'Hare. We have a flight attendant base in Chicago because we had a full-sized crew base in Chicago, and we closed the pilot base. Chicago is a city where the merger will have relatively more impact. Before making further decisions, we want to see more evidence of how things play out in Chicago.
JK: Why did Frontier move most of its operations from Chicago O'Hare to Chicago Midway?
DS: We ran a project in late 2021 and early 2022 where we unsurprisingly saw significant airport cost increases during the pandemic. Lower passenger volumes led to the cost being spread across fewer passengers. We talked to airport authorities, and again, we won't worry about an airport that went from $3 to $4.50. In cities with high-cost airports, we talked to the airport authorities, looked at the opportunity and where the cost would end up post-pandemic, and decided if airports would be economical for us. Frontier pulled out of LAX, Newark, Washington Dulles. In Chicago, there is a major cost difference between the two airports. If you fly a minimal operation at Midway, the cost difference is minor, but if you fly the scale of operation we're flying at Midway, it is a meaningful difference in cost.
Southwest grew substantially at Midway for a long time and took over almost all of the capacity. The airport fares were low, and a competitive balance to having relatively high fares at O'Hare. Fast forward to today, one Southwest is at O'Hare, but secondly, fares at Midway and O'Hare are fares at Midway and O'Hare are much closer in terms of domestic traffic then just ten or twenty years ago. We can bring lower fares to the Midway market and the southern and western suburbs of Chicago. Frontier has kept some presence at O'Hare for a couple of international and domestic routes to support them. But we will continue to run two airport operations in Chicago. If you've got a large enough catchment and customers want to use both airports, we can serve two airports.
JK: It has been reported that Frontier has looked at starting transatlantic flights with the A321XLR. Over the past few years, multiple ULCCs have tried to fly transatlantic flights, such as Prima Air, WOW Air, and Norwegian, among others. If you do enter the market, why will Frontier succeed where others have failed?
DS: We have not yet decided if we will take the Airbus A321XLR. We have purchase rights for the aircraft but they have not yet been converted into firm orders. We must determine if we can generate enough revenue on more extended missions the XLR would take.
Our primary aircraft is the Airbus A321neos, and we take the 93 ½ metric ton version of the aircraft and they offer a meaningful performance improvement over the A321ceo. But we do not have an airplane today that can carry a full payload 12 months a year on all lower 48 transcontinental routes. The XLR would offer additional range into South America and the opportunity to serve Hawaii. It will also enable us to serve a portion of Europe from Philadelphia, our farthest northeast base. We have still not figured out if there is enough revenue to justify taking the airplane.
Indeed, flying to Hawaii and Europe requires us to get ETOPS [Extended Range Twin Operations Approval] certification. Hawaii would require 180-minute ETOPS, while Europe could do 120 or 138 at most. Significant extra investment is needed to make these markets work, and there's definitely some opportunity. But we have to be careful. For Europe, peak summers are generally good, but if you are buying these planes, you need to use them 12 months a year, and if we end up using the XLRs to fly our existing network in the winter, then it is a heavier airplane flying the same routes that could have just flown with a standard A321neo.
JK: Recently, we have seen ultra-low-cost carriers in South and Central America become very strong in their local markets. And now carriers are looking outside their home markets, creating a 'boom' in the ultra-low-cost sector. Are you considering expanding your operations or opening new operations throughout South and Central America, and how far south in South America would you consider going?
DS: During the pandemic, we expanded service, and we opened service to Guatemala, El Salvador, Costa Rica, St. Martin, and St. Thomas. We will continue to look at opportunities, and there are opportunities available within the range of our current aircraft to go further South.
Columbia is the largest market we currently do not serve in the region, and there is an opportunity there. With the increasing relative stability in the country, it continues to grow as a tourist destination, and there is a healthy VFR market between Columbia and the United States.
JK: Last year, Frontier started the GoWild! pass and has since launched other versions, such as monthly, winter, and spring versions. How many people have taken advantage of the pass, and which version has been the most popular?
DS: The product came out of the idea that we have a lot of empty seats even at an 86% and 87% load factor, equivalent to almost 30 empty seats. We wanted to find a product that could give customers access to those seats because they generate no revenue. Incremental revenue is better than nothing.
The standard product version allows you to book a flight up to one day before departure for domestic and ten days before international flights. It has caught people's attention and succeeded beyond our expectations. We've continued developing new products, which signifies more opportunity.
We are taking advantage of our low costs. Our marginal costs are lower than a lot of our competitors. There has never been a product quite like this. The previous passes have been confirmed travel passes, meaning they've had to be a lot more expensive. Our Fall & Winter Pass, available for $299, offers unlimited travel from September through February with a relatively short list of blackout dates.
Some people use it a lot, and some use it less. We are not looking at individual customer behavior the same way. We've got high customer satisfaction with the product and positive word-of-mouth customers who are getting creative on how to use the product.
JK: Last year, Frontier had 5 million empty seats, and in the third quarter of 2022, you averaged 30 empty seats per aircraft. Has the GoWild! pass helped fill those seats, or are you still seeing a lot of empty capacity? Which of the versions of the GoWild! passes have been the most successful?
DS: It has increased our load factor by a couple of points. The longer-term passes, the annual and the two-season products have been the ones to attract the most attention. We initially introduced early access on a promotional basis where customers can pay a fee to confirm a flight earlier than the initial window.
It is close to the airline standby experience, except that you get to confirm travel and take full advantage of the network. As the airline continues to grow, these products get more attractive to customers.
JK: Would you look at an all-inclusive version of the GoWild! pass that would include extras such as checked luggage and priority boarding?
DS: There have been no specific decisions. But seeing how successful it's been, we will certainly explore. We want GoWild! to be as successful as possible. There are opportunities to broaden the product offering.
JK: At the 2022 Dubai Air Show, Frontier placed a massive order of 93 aircraft for your fleet expansion for a total of 158 aircraft. Are you looking to expand your fleet further?
DS: Frontier has confirmed orders through 2029, and we have enough growth to meet our targets in our current order book through 2028. It has been less than 12 months since we placed our last order, and we are not in a rush right now. At some point, we will need to order more aircraft, and market dynamics might change, and we need to wait and see.
JK: By the end of the decade, Frontier will be triple its current size in terms of passengers. How do you plan to achieve this, and will you look to add bigger gauge planes to your fleet in the future to attain your goal?
DS: From where we were in late 2022, our average seat per departure was about 193. Since the predominance of this new order and the remaining orders will be A321neos, we expect to end the decade with an average seats per departure of around 225. Some of it comes from a 15% or more increase in gauge. The rest of it comes through aircraft. We are contracted to take approximately 13 new aircraft from Airbus each year for the next few years. The airplanes are bigger, and more airplanes are being added to the fleet, meaning more frequencies, routes, and lower fares for more Americans.
JK: Frontier claims to be a national airline, but how can you be a national airline with a fleet of just 118 aircraft and some 500 daily departures? What percentage of passengers connect on Frontier, or are most of your traffic point to point, and would Frontier look at establishing relationships with other IndiGo Partner-owned airlines?
DS: On average, 17% of passengers connect on Frontier. We have a codeshare with Volaris, primarily suspended due to Mexico's downgrade by the Federal Aviation Administration (FAA) to Category 2. Frontier no longer codeshares on Volaris, but Volaris still codeshares on Frontier flights.
If we end up with a network overlap with IndiGo Partner airlines, we will look at the opportunities for cooperation. There are no current plans for any codeshares, but we will have to wait and see how things develop over time. Regarding code sharing with other airlines, we are generally not interested as it adds complexity and cost to the business, and we need to be sure that we will earn the revenue to justify it.
JK: What are your goals for Frontier, short- and long-term?
DS: One of the goals at Frontier is to get business back to the profitability level we saw in 2019. We still have work to do in that regard, but we are making good progress, as we had our highest post-pandemic margin in Q2 at over 9%. The main goal for this airline is to continue operating successfully and grow profitably. Frontier has a lot of airplanes on order, many destinations we want to fly to, and many opportunities to take advantage of.
