Frontier Airlines 2007 Annual Report Download - page 22

The Frontier Code-Share Agreement
On January 11, 2007, we entered into a fixed-fee code-share agreement with Frontier. Under the terms of the agreement, we
will provide and operate 17 ERJ-170 aircraft for Frontier. As of December 31, 2007 we operated nine ERJ-170 aircraft, the remaining
eight aircraft will be placed into service in 2008. We provided 40 flights per day as Frontier between Denver and designated outlying
cities.
Frontier will purchase all capacity at predetermined rates and will directly pay or reimburse Republic Airline for industry
standard pass-through costs. The first aircraft was placed into service in March 2007 and the last aircraft is expected to be placed into
service in December 2008. The agreement has a term of eleven years from the date of the last aircraft delivery. Frontier has the option
to extend the agreement for up to six additional years. All fuel will be purchased directly by Frontier and will not be charged back to
Republic Airline. Republic Airline is responsible for all costs and expenses of preparing each covered aircraft prior to its being placed
into service.
The term of the agreement became effective as of March 2007, and, unless earlier terminated or extended, will continue until
December 2019.
The agreement may be subject to early termination under various circumstances including:
• immediately, by Frontier, upon the occurrence of an event that constitutes cause, subject to prior written notice to us; or
• if either Frontier or we commit a material breach of the code-share agreement, subject to two business days notice if we
breach the agreement and five business days notice if Frontier breaches the agreement; or
• if there is a change in control of us.
Competition and Economic Conditions
The airline industry is highly competitive. We not only compete with other regional airlines, some of which are owned by or
are operated as code-share partners of major airlines, but also face competition from low-fare airlines and major airlines on some of
our routes.
The principal competitive factors in the airline industry are location, fare pricing, frequent flyer loyalty programs, customer
service, routes served, flight schedules, aircraft types and code-share relationships. Certain of our competitors are larger and have
significantly greater financial and other resources than we do. Moreover, federal deregulation of the industry allows competitors to
rapidly enter our markets and to quickly discount and restructure fares. The airline industry is particularly susceptible to price
discounting because airlines incur only nominal costs to provide service to passengers occupying otherwise unsold seats.
Generally, the airline industry is highly sensitive to general economic conditions, in large part due to the discretionary nature
of a substantial percentage of both business and pleasure travel. In the past, many airlines have reported decreased earnings or
substantial losses resulting from periods of economic recession, heavy fare discounting, high fuel prices and other factors. Economic
down turns combined with competitive pressures have contributed to a number of bankruptcies and liquidations among major and
regional carriers. The effect of economic down turns is somewhat mitigated by our fixed-fee code-share agreements with respect to
our flights. In addition, if our Partners remain financially strained by high fuel prices, they may reduce the number of flights we
operate in order to reduce their operating costs.
Government Regulation
All interstate air carriers are subject to regulation by the Department of Transportation, referred to as the DOT, the Federal
Aviation Administration, or FAA, the TSA, or Transportation Security Administration and certain other governmental agencies.
Regulations promulgated by the DOT primarily relate to economic aspects of air service, those of the TSA to security and those of the
FAA to operations and safety. The FAA requires operating, airworthiness and other certifications; approval of personnel who may
engage in flight maintenance or operations activities; record keeping procedures in accordance with FAA requirements; and FAA
approval of flight training and retraining programs. Generally, governmental agencies enforce their regulations through, among other
mechanisms, certifications, which are necessary for our continued operations, and proceedings, which can result in civil or criminal
penalties or suspension or revocation of operating authority. The FAA can also issue maintenance directives and other mandatory
orders relating to, among other things, grounding of aircraft, inspection of aircraft, installation of new safety-related items and the
mandatory removal, replacement or modification of aircraft parts that have failed or may fail in the future.
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Source: REPUBLIC AIRWAYS HOLDINGS INC, 10-K, February 21, 2008 Powered by Morningstar® Document Research℠