Finally, Frontier

Nov. 11--When Colorado Springs Airport officials began courting Frontier Airlines 2 1/2 years ago, they wanted the carrier to begin local air service. But when a Frontier executive mentioned last summer that the airline was studying whether to build a new maintenance hangar, the stakes went up. Winning the hangar would mean 225 high-paying jobs and the potential for nonstop flights to several cities.

Colorado Springs got both last week, when the Denver-based airline announced it will build the hangar here and launch daily flights late next spring.

For city and business leaders, the announcement represented one of the city's biggest economic development projects in recent years. The deal will bring not only jobs and a $25 million construction project to the airport, but also Frontier flights to Denver and the potential for expanded air service to other cities later.

"This is certainly the biggest and the most important aviation development in Colorado Springs since" Western Pacific Airlines began operating here in the mid-1990s, said Mike Kazmierski, president of the Colorado Springs Economic Development Corp.

Frontier now leases a maintenance hangar for its planes at Denver International Airport from Continental Airlines. Frontier officials first studied building their own hangar in 2000, but shelved those plans after the Sept. 11 attacks. The carrier revived those plans in 2005 as a result of its rapid growth and stability in the industry, said Joe Hodas, a Frontier spokesman.

DIA, the Springs and five other Front Range airports submitted bids in May and Frontier officials spent four months analyzing them and visiting many of the airports before narrowing the selection to DIA and the Springs in early October, Hodas said.

Frontier President Sean Menke said the carrier selected the Springs over DIA for the hangar because it offered "the best combination of incentives, financial support and proximity to our Denver hub" and that the city's bid was "a better financial fit for our needs."

Airport officials lured Frontier with a combination of tax breaks and other incentives valued at more than $300,000 a year. The incentives include rebating all property taxes on the hangar and equipment in it and exempting from sales tax aircraft parts used in the hangar.

Frontier also won't have to pay sales tax on construction materials used in the hangar and will get landing fees rebated and extra revenuesharing payments from the airport. The city also will issue tax-exempt bonds to finance construction of the hangar. The hangar is expected to open in 2009.

The incentive package was developed in meetings with airport managers and top city officials, including those from the city's finance and economic development offices, and later sent to Frontier by the city manager, said Mark Earle, the city's aviation manager.

A similar but less generous package convinced Utah-based SkyWest Airlines in 2004 to build a $20 million maintenance hangar that opened in August. As a result, SkyWest has added several flights to the Springs, in part to get aircraft to its hangar.

Frontier will perform heavy maintenance at its hangar, while SkyWest focuses on routine overnight maintenance at its facility, which employs 90.

Heavy maintenance involves major repairs made when an aircraft is taken out of service. Overnight maintenance can include changing tires, replacing seats and checking a variety of mechanical, electrical and hydraulic parts and systems.

"They are very similar projects both strategically and in size of the investment," Earle said. "It is important to create the jobs (in the maintenance hangar), but we want to do it in a way that also increases the level of air service in the community."

SkyWest will receive the same tax breaks offered to Frontier once the Frontier hangar opens. Those breaks are available to any airline that agrees to build a maintenance facility here while also offering local passenger service, Earle said.

The landing fee rebates and extra revenue sharing payments are available to any airline launching new local service; ExpressJet Airlines is expected to receive an estimated $225,000 next year in such payments after launching flights to three California cities in April.

Airport officials and business leaders are looking for big air service dividends from the Frontier hangar. They hope for nonstop flights to New York, Orange County, Calif., and Washington, D.C., popular destinations no airline serves from the Springs.

"If this plays out the way we believe it will, the link to Denver will cause other carriers to reconsider their fares here," said Kazmierski, the EDC president. "I expect it will affect fares across the board."

Average fares in the Springs were nearly 18 percent higher than at DIA during the second quarter, according to data compiled by the U.S. Bureau of Transportation Statistics.

Local fares averaged $378.89 in the second quarter, 14th highest among the nation's 100 largest airports but down 3.9 percent from a year earlier. Average fares at DIA ranked 57th at $311.62 in the second quarter and were down 6.8 percent from a year ago.

Average local fares in the second quarter were 16.2 percent above the average for the 100 airports, while DIA's fares were 4.5 percent below that average.

Local air service, especially the lack of nonstop flights to East Coast cities, is among the top concerns raised by business executives looking at moving their operations to the Springs, Kazmierski said.

Menke said last week that the carrier likely will begin serving Colorado Springs with four or five flights a day to Denver on 78-seat regional jets flown by partner Republic Airlines, switching to Frontier's Airbus aircraft once the maintenance hangar opens.

Flights from the Springs could expand to other destinations, depending on local travel demand and opportunities available elsewhere to Frontier, Menke said. The airline wants to use its planes on routes where it can generate the most profit, he said.

Menke said he sees potential for Frontier in Colorado Springs -- a city he knows well. Menke was an executive with Springs-based WestPac in the mid-1990s before it went bankrupt.

"There is an opportunity for Frontier to have additional service out of Colorado Springs," Menke said. "I am probably one of the most educated on those opportunities from my time at" WestPac.

Western Pacific operated nonstop local flights to more than 30 cities, helping more than double passenger traffic at the Springs airport.

Local consumers and business passengers must first use Frontier's flights to Denver if they want the carrier to expand service to other destinations, said Tom DeNardin, a former WestPac marketing executive who owns Allegory Marketing, a local advertising agency.

"The significant impact WestPac had on local service could return if the businesses and citizens of Colorado Springs embrace Frontier," De-Nardin said. "But if we don't support them, they'll leave and fares will go up again -- you'll have to drive to Denver."

Dave Csintyan, interim president of the Greater Colorado Springs Chamber of Commerce, doesn't think that will be much of a problem.

"I don't worry about that too much. I do believe the Frontier service will be supported," Csintyan said. "We already have a close relationship with Frontier and will do our best to build an environment to help make this service extremely successful."

Other cities have used contracts, letters of intent and written commitments from businesses to secure and keep air service, Kazmierski said. He said he'd like to see some or all of those alternatives discussed to ensure whatever service Frontier launches is successful, he said.

AT A GLANCE

Headquarters:

Denver

Ownership: Stock traded on Nasdaq under symbol FRNT, trading $6.27 to $7.10 in the past month.

Founded: 1993 (offered flights starting in July 1994)

Chief Executive:

Sean Menke

Employees: 6,000 Fleet: 49 Airbus 319 aircraft seating 132 passengers and 11 Airbus 318 aircraft seating 114 passengers

Destinations: 60 in the United States, Canada and Mexico.

2006 revenue:

$1.2 billion

2006 loss:

$20.4 million

SOURCE:

Frontier Airlines


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