Frontier Airlines 2010 Annual Report Download - page 45

During 2010, our operational fleet decreased from 290 to 275. The Company removed eight Q400 aircraft from its Frontier
operations. Five were returned to the lessor, two are held for sale as of December 31, 2010, and one has been subleased. Seven CRJ aircraft
were returned to the lessor from our fixed-fee service with Continental. Four A318 aircraft were removed from our Frontier operation and
sold or returned to the lessor. Two E145 aircraft were subleased offshore and one E170 was sold. Four E190 aircraft and three A320 aircraft
were placed into our Frontier operation during the year.
Our branded operations are comprised of the former operations of Midwest Air Group, Inc. (“Midwest”) and Frontier, both of
which we acquired in 2009. As of October 2010, these operations now fly as a single consolidated branded network under the Frontier brand.
Frontier has the largest market share in Milwaukee and the second largest market share in Denver. Our branded operation has a significant
base of frequent flyer members and strong support in their local communities of Denver and Milwaukee.
Business Strategy
•
Continue to operate a high-quality fleet of aircraft across an efficient network - We intend to maintain a modern, high-quality fleet o
f
aircraft that meets or exceeds stringent industry operating standards and complies with the terms of our fixed-
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ee regional je
t
code-share agreements. We also intend to continue to operate and optimize our existing network and hubs to make our network as
efficient as possible for both our Partners and branded customers.
•
Continue to operate a diversified business model that generates compelling returns on invested capital for our shareholders - Ou
r
business model is unique among US airlines in that it combines the stable cash flow generation of our fixed-
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ee regional je
t
operations with the attractive growth prospects of our branded operations at Frontier. We believe that this diversity of service
offerings provides us with a distinct advantage over our competitors and provides for a very stable base of cash flows as well as
significant upside from our branded Frontier platform.
•
P
ursue a fleet renewal strategy that further improves our cost structure -
A
s previously disclosed, we have placed a firm order with
E
mbraer for the delivery of six E-190 aircraft with the option to purchase another 18 E-190/E-195 aircraft at a later time. This
decision supports our strategy to continue exiting the smaller regional jet aircraft market and focus on larger aircraft at both ou
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regional jet and branded operations which will greatly enhance Republic's unit cost structure.
•
Continue to take advantage of growth opportunities resulting from industry consolidation and continue to grow Frontier's
network -
I
t is our belief that the recent merger activity in the domestic airline sector could lead to further opportunities fo
r
R
epublic to gain market share as the large network carriers consolidate their hubs and reduce their presence in certain markets.
•
P
ursue alliances to broaden our existing network and customer reach - We intend to pursue strategic and long-term alliances with
other airlines in order to broaden our existing network, generate larger economies of scale and provide a greater number o
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attractive destinations to both existing and new customers. We believe that strategic alliances are a cost-effective method to grow ou
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market share and expand our customer base.
Revenue
Fixed-Fee Service - Under our code-share arrangements with our Partners, we receive fixed-fees, as well as reimbursement of
specified costs on a gross basis with additional possible incentives from our Partners for superior performance. For the years ended
December 31, 2010, 2009 and 2008, all of our fixed-fee revenue was earned under our fixed-fee arrangements. The number of aircraft we
operate and aircraft utilization are the most significant drivers of our revenue, as opposed to the number of passengers we carry or the fare
the passengers pay.