Jeff Potter’s Letter to Frontier Employees

From the Denver Post, this is worth posting in its entirety.

From: Potter, Jeff
Sent: Thursday, October 20, 2005 11:19 AM
To: All Frontier Employees
Subject: Southwest Announces Service in Denver
As you may have heard, and no doubt will hear repeatedly in the press over the next few days, Southwest Airlines announced today that they will begin service in Denver in the early part of 2006. We know that Southwest has a reputation that is sometimes larger than life so we wanted to address any potential concerns you might have about what this means to Frontier and what our strategy will be against a competitor like Southwest. While we didn’t know when, and we aren’t 100 percent positive as to where yet, it was an inevitability that Southwest would initiate service here. However, whether it’s Southwest or anyone else, we can all take solace in the fact that we have spent the past 12 years preparing to compete with any and all airlines, by building an amazing company, and offering the industry’s best product. So, in essence, it is each of you that has helped us prepare for Southwest.
That being said, from a management standpoint, we too have been preparing ourselves for Southwest’s entry, and I think it is important to note that not everything you have heard about Southwest is necessarily true. It’s worth mentioning that we already compete with Southwest on about 75-80% of all F9 connecting markets (about 500 city pairs) and are competitive with them in pricing. While there is certainly no arguing their success, it may surprise you to know that based on the most recent DOT statistics (June quarter 2005), Southwest’s fares were actually about 12 percent higher than Frontier’s on a per-mile basis, in markets where we compete directly. Obviously, pricing power is one of Southwest’s primary competitive advantages in the markets it enters, but that won’t necessarily be the case here in Denver. In other words, we have been competing quite effectively for a long time.
Just as the pricing “myth” is not necessarily always true, it is also important to recognize that at the end of the day, Southwest is just an airline. And, just as we would view any airline entering our home market, we will watch them closely. But we are not about to cower or back away. This is OUR home, and Southwest’s entry is just another opportunity for us to shine. It is an opportunity for us to show Southwest, as well as our passengers, what it really means to make a difference. Fact is, we have a better product with DirecTV, new A/C, more legroom AND, of course, assigned seating. But, more importantly, we have you. I have said it time and time again, our employees make the difference, and you will continue to be our competitive secret weapon. The loyalty you have helped create in this market with the level of service you provide our customers cannot be matched–by Southwest, TED or anyone.
We are going to move forward as we always have–by running our own race. Yes, Southwest’s entry will have in impact in the markets they choose to serve from Denver, just as you would expect any additional capacity would. But, our goal is to continue to do what we all do so well–run a great airline and that requires each of you to continue doing what you have always done–keeping your focus on our customers, and not the competition. Again, they are the new kids on the block in Denver, and we should be ready to circle the wagons and protect our hub by continuing to run one of the most on-time airlines in the country; by consistently going above and beyond for all our passengers; and by never losing the intensity of our focus on offering an experience that is “a whole different animal.”
However, I want to reiterate a statement we have made many times in the past-we MUST continue our diligent focus on CASM. Products, employees and loyalty aside, we are indeed doing battle on the cost side against all airlines, and Southwest is a staunch competitor when it comes to costs. We heard Gary Kelly, CEO of Southwest say it today on their conference call-they consider themselves the cost leader, and this industry is currently being won and lost on costs. We have done amazingly well on the cost side, particularly given that we operate out of one of the most expensive airports in the country, but there is much work to be done to remain competitive. So I urge each of you to scrutinize every financial decision you make for this company and view it in the context of cost containment.
I personally want to thank each and every one of you for creating the best airline in the industry, and I assure you that our ability to compete with any airline, in any market, is a direct reflection of your efforts. Much as we did when TED launched, we will continue to keep everyone updated on any competitive measures taken by Southwest, or by Frontier, and if you have any questions in the meantime, please don’t hesitate to speak with your manager and as always, feel free to contact me directly.
Jeff

Well said.
The Denver Post has more, including a list of possible routes Southwest (LVB) could fly to Denver International Airport. This move by Southwest is a direct response to Katrina.
From Investor’s Business Daily, J.P. Morgan upgrades Frontier. It’s nice to see that not all analysts think alike.

J.P. Morgan upgraded Frontier Airlines, Inc. (FRNT) to overweight from neutral and added it to its focus list. The broker told clients it believes the market has over-penalized Frontier for Southwest Airlines‘ (LUV) entry into Denver, while significantly underestimating Frontier’s earnings potential in fiscal 2007.

And from the Colorado Springs Gazette:

Mike Boyd, an Evergreen-based airline industry consultant, said fares will drop in Denver but likely not by much.
“Denver is no longer a highfare market,” Boyd said. “Southwest will lower them somewhat more. But the other carriers will match (Southwest’s) fares, and they already offer a better product than Southwest does, including an assigned seat and satellite TV.”

Frontier is up about 7% today, and oil is now below $60 a barrel.

Posted by on October 21st, 2005 at 11:10 am


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