Republic Airways announced Tuesday that it plans to separate Frontier from Republic and may even be looking for a buyer.
Republic acquired Frontier out of bankruptcy in 2009. The company beat out Southwest for the buy. It then combined Frontier with another purchase, Midwest Airlines, both of which now fly under the name Frontier.
Republic attempted to make Frontier profitable by cutting smaller planes and routes. The company did come just $10 million short of achieving its goal in cutting $120 million from the Frontier budget. However, Frontier still lost $102.4 million this year. Republic Holdings blames the loss on a heavy hailstorm damaging planes in Denver, fuel hedges, and larger airlines moving into Frontier's major hub.
Republic believes Frontier will be profitable by next year.
It is time to start to separate the two businesses, Republic Chairman and CEO, Bryan Bedford, said in a third quarter Web cast. We think that the airline is going to be attractive either to private equity or to our shareholders or potentially to a strategic investor.
Republic said it'll hire a financial advisor by the end of the month to decide the best next step - to either separate or sell Frontier outright.
We intend to engage financial advisors to determine the most shareholder-friendly method to return Frontier Airlines to a healthy, well-capitalized and independent low cost airline, Bedford told Bloomberg.
The sale of Frontier could hurt Denver if the buyer decides to move the headquarters. Frontier also expects to have an unspecified number of layoffs and cut back flight service by 10 percent to 12 percent, even before the buy takes place. Bedford gave no timeline for the potential sale.
On the other hand, Republic posted one of the best operating margins in the airline industry. Republic Airlines plans to get back to its roots, flying regional routes contracted by major airlines like Delta and American.
Before buying Frontier, Republic Airways was known for its regional routes feeding passengers to major hubs and airlines, such as US Airways or Delta. Through these contracts, the larger airlines pay the fuel costs and provide the customers. Although contract flying often has thin profit margins, it's also more stable than competing head-to-head with larger airlines.
News of the looming split sent shares of Republic Airways Holding Inc. soaring to $4.31, up 61 percent. This is the biggest gain in shares since the company went public in 2004.
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