Frontier Swaps to A321neo as ULCC Business Models Change

News last week that Frontier, a ULCC, is returning 13 A320neos early and taking on ten A321neos to maintain existing capacity. This move is indicative of two elements. First, the ultra-low-cost carrier business model remains quite challenging

, and second, larger aircraft offer opportunities for additional premium seating and revenue that move away from the traditional ULCC model, which is evolving.

Replacing a relatively young fleet of A320S with A321S means Frontier has recognized that market changes require it to redouble its focus on overall economics, not simply on achieving the lowest possible costs. The changeover to the A321 can provide similar capacity with fewer frequencies without moving to a more expensive wide-body operation that would likely result in more capacity than demand.

The ULCC Business Model is Challenging

Frontier competes with United and Southwest at its major hub, Denver. United, as a full-service carrier, earns significantly higher yields through its premium traffic in First and Economy Plus classes that Frontier cannot easily match. Although premium seating is now available, comparable amenities such as lounges and Star Alliance loyalty membership cannot easily be matched. In short, United can take the same A321neo aircraft as Frontier and earn significantly more revenue on a flight, even while matching Frontier’s fares in Basic Economy.