AirTran, Frontier Eye Bigger U.S. Role

"We much prefer a Delta trying to make money than one that really doesn't care about making money," he said. "If they return to profitability, that's fine. If they take their lower costs and say 'let's try to kill [AirTran],' which is what they've been trying to do for the last seven years, they'll lose hundreds of millions of dollars."

As an example, Leonard said that three years ago, after AirTran announced twice-daily Atlanta-Los Angeles service, Delta responded by matching its fares. As a result, according to AirTran estimates, Delta turned a route that had been producing $30 million in annual profits to one that lost $80 million annually.

Earlier this month, in response to AirTran's announcement that it will begin Atlanta-Seattle service, a Delta market, Delta said it would fly regional jets on six AirTran routes from Orlando.

Leonard said he expects Delta to incur substantial losses on those routes as well, since the regional jets cost 16 cents a mile to operate, while AirTran's bigger jets have an operating cost of 9 cents a mile.

Potter said that Frontier competes effectively with UAL's (UAUA) United Airlines, which also has a Denver hub but has higher costs. He said that when Southwest Airlines(LUV) began Denver service in January, launching 13 daily flights to Chicago, Las Vegas and Phoenix, Frontier was widely assumed to be in serious trouble, but that hasn't been the case.

Frontier responded to the incursion by boosting capacity by 22% in Southwest's three Denver routes. On those routes, round-trip fares fell by up to $100. At the same time, Frontier's traffic grew by 33%. And while revenue generated by Frontier's local passengers fell by 6%, revenue from its connecting passengers rose by 32%.

"It's better than we expected," Potter said. While the fares on the two carriers are the same, he said that Frontier has been able to retain and attract passengers because, unlike Southwest, it offers wider-than-normal seats, above-average seat pitch, advance seat assignments and onboard entertainment.

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