Frontier Airlines 2005 Annual Report Download - page 19

The American Code-Share Agreement
As of December 31, 2005, we operated 15 ERJ-140 regional jets for American under a fixed-fee code-share agreement and provided
90 flights per day between St. Louis and designated outlying cities.
American provides reservation services, tickets, baggage handling, ticket jackets and similar items with respect to such flights and also
controls scheduling, ticket prices and seat inventories with respect to such flights. In exchange for providing the designated number of
flights and performing our other obligations under the code-share agreement, we receive from American a fixed-fee per block hour
flown in revenue service. We are also eligible to receive semi-annual per passenger incentives based upon on-time performance, flight
completion rates, lack of complaints and correct baggage handling. Conversely, we must pay semi-annual per passenger penalties
should our performance not meet minimum standards for on-time performance, flight completion rates, complaints and correct
baggage handling. Under the code-share agreement, American retains all passenger, certain cargo and other revenues associated with
each flight, and is responsible for all revenue-related expenses. We share revenue with American for certain cargo shipments.
Additionally, certain operating costs are considered "pass through" costs and American has agreed to reimburse us the actual amount
of costs we incur for these items. Fuel, landing fees, property and liability insurance and aircraft property tax costs are pass through
costs. Aircraft lease payments are also considered a pass through cost, but are limited to a specified limit with respect to the first 20
aircraft put into service for American. American pays us periodically throughout the month on an agreed schedule, subject to
American's right to offset amounts we owe them under the code-share agreement.
The fixed rates for each scheduled block hour that we receive from American under the code-share agreement have been determined
through the term of the code-share agreement, subject to certain revisions and an agreed annual escalation rate. In March 2003, we
agreed to a one-time waiver of certain escalations in exchange for American's termination of a warrant to purchase shares of our
common stock that we had previously issued to American. In addition, in October 2003, we agreed to grant American a one-time
waiver of certain escalations and economic concessions in the form of a monthly rebate in exchange for an extension of the date of
American's early termination right. Certain costs, including fuel costs, aircraft ownership and financing costs (subject to a limitation),
landing fees, property and liability insurance, aircraft property taxes and de-icing costs, are "trued-up" for differences between actual
costs and the assumed costs included in our fixed rates. In addition, a reconciliation payment will be made by American to us if
uncontrollable cancellations exceed a specified level of scheduled block hours during any calendar quarter. We are reimbursed for all
third party ground handling costs at certain airport locations, and there is a reconciliation for shared ground services between us and
American. We are responsible for certain training, automation and other charges and costs.
The block hour rate we are paid varies based on the number of scheduled block hours per day to be flown in revenue service, subject
to a minimum rate without regard to actual number of hours flown. This means that even if we fly less than the specified minimum
number of scheduled block hours a day, we are paid as if we had flown the minimum number of block hours. The block hour rate can
only be adjusted in connection with schedule changes that change the scheduled block hour utilization, but the minimum number of
scheduled block hours cannot be changed. American has agreed to schedule the aircraft under the code-share agreement for no less
than the specified minimum number of block hours per aircraft per day on average.
Under the terms of the code-share agreement, we are required at specified locations to provide ground support and other passenger
services at our expense, and American is required to provide those services at their expense at other locations. At the hub in St. Louis,
we are responsible for providing gate operations, security and leasing facilities (which are leased from American) until March 5, 2006,
when we will no longer provide these services and American is responsible for providing ticketing services and de-icing for the
aircraft. Certain costs of personnel training are shared with American.
The code-share agreement provides that, during its term, we will provide regional airline services exclusively for American at the St.
Louis hub and within 50 statute miles of that hub, and we are prohibited from providing competing regional hub services at Memphis,
Nashville and Kansas City. This means that, without American's consent, we are prohibited from operating flights under our own code
or on behalf of any other air carrier providing hub services in or out of these airports. In addition, during the term of the agreement, we
are prohibited from operating any of our aircraft subject to the code-share agreement on behalf of any other carrier. Otherwise, the
agreement does not prohibit us from flying aircraft on behalf of other airlines utilizing the airport facilities of those airlines or other
airport facilities that we may obtain in the future.
Source: REPUBLIC AIRWAYS HOLDINGS INC, 10-K, February 27, 2006 Powered by Morningstar® Document Research℠