Frontier’s CEO Blames ‘Credit Card Subsidies’ For Inability To Compete. The Real Problem Is What Passengers Want

Frontier CEO Jimmy Dempsey says major airlines are using credit card cash to subsidize basic economy fares. That gets the economics wrong and misses why Frontier itself is adding first class and Starlink wifi. The big airlines have gotten better at competing for Frontier’s passengers while protecting what they charge everyone else. They’ve also invested in products that more customers want to buy. Those products help sell credit cards. Frontier chose a cheaper, simpler airline, and now has to give more people a reason to choose it. Speaking with Scott McCartney on Airlines Confidential this week, Dempsey also acknowledges overexpansion. But his account of competitors’ loyalty economics is wrong. A Profitable Loyalty Program Isn’t Evidence Of A Subsidy Airlines sell miles, access to their customers, and benefits that help banks attract cardholders and get them to spend. Customers want the rewards, banks want the customers, and airlines make money supplying them. Dempsey was explaining what went wrong to move Frontier from profits to losses after the pandemic, and major airline card economics certainly were not a new development. Delta reported $4.1 billion from its American Express relationship in 2019, although growth has accelerated since then with their Amex remuneration reaching $8.2 billion in 2025. Loyalty can change where an airline should fly because a route that’s weak on ticket revenue may help acquire cardholders, capture their spending, and keep them from switching airlines. That just means the airline needs to do accounting that incorporates the full affect of a flight on its bottom line. An airline can also make award seats available on flights that aren’t selling well, without advertising a lower cash fare to everyone. That lets them liquidate unsold inventory in an opaque manner without undercutting revenue pricing. Dempsey wants to describe one business (loyalty) as funding the other (flying) as a cross-subsidy. But allocating every dollar of cost to flying, while treating the loyalty revenue the network makes possible as unrelated money, isn’t how that business works. The two work together. And it certainly doesn’t establish that a particular basic economy ticket loses money, in any case. Basic Economy Is An Old Pricing Strategy With Different Restrictions When a flight takes off with an empty seat, selling it for any amount more than the additional cost of carrying the passenger helps the airline’s profits. The challenge is selling that incremental cheap seat without letting the person willing to pay more buy it instead. That’s what fare restrictions are for. I explained this about basic economy a decade ago. The airline wants to match a low fare and still persuade other customers to pay more for seat selection, flexibility, or benefits they don’t want to give up. The history goes back even before deregulation. American introduced advance purchase SuperSaver fares in 1977. In 1985, Ultimate Super Saver required advance purchase, round trips and a Saturday night stay. A leisure passenger could plan ahead and stay over Saturday. A business traveler who needed to leave the next day and be home for the weekend couldn’t. That way the airline could sell them seats on the same plane to different passengers with a different willingness to pay at very different prices. Low-cost competitors made that harder. If another airline sold cheap one-way tickets without those restrictions, the business traveler had somewhere else to go. Airlines like Frontier undercut the ability of major carriers to use roundtrip, Saturday stay and advance purchase requirements to segment customers. So basic economy uses differences in the product rather than the trip to accomplish much the same thing. Frontier Is Finding That Its Own Customers Will Pay For More Dempsey says UpFront Plus (blocked middle seat with extra legroom) doubled revenue from the space it occupies. I argued this was a smart product when Ryanair CEO Michael O’Leary dismissed it in 2024. O’Leary was engaging in sloppy thinking, or had pondered stand-only seating and pay toilets for too long. You can charge both the aisle and window passenger for the same empty middle. When the plane would otherwise have empty seats, that can be a very good trade. On a full flight, you need enough extra revenue to make up for the passenger and ancillary sales you’ve displaced. Success depends on pricing it properly. This is part of a broader shift that began before Covid and accelerated afterward. More customers are willing to spend for a better experience. That doesn’t mean everyone wants first class, or that low fares have stopped mattering. But an airline that only competes for the cheapest sale doesn’t have anything for the customer who wants to pay more and get more. Legacy airlines can take the lowest fare and also offer buy up opportunities They can also match the lowest price on seats that would otherwise go empty, since their cost for those is near-zero And passengers are going to prefer the legacy carrier because even at basic economy the experience is better in meaningful ways (better reaccommodation during flight interruptions, more comfortable seats even when those seats are uncomfortable, better mobile app experience). At the same price, many customers would rather fly United than Frontier. United can offer a broader schedule, connections, international partners, premium cabins and a loyalty program that can take them around the world. Frontier needs a meaningful discount or other reasons to choose it. Frontier’s former CEO Barry Biffle understood this when announcing first class. He said that “the affluent leisure customer would like to have a better product.” That’s why UpFront Plus, first class and wifi make sense. I’ll be more willing to consider Frontier with a comfortable seat and working internet. Time spent unable to work due to lack of wifi makes the lowest fare more expensive than competitors in total cost. But a ‘better Frontier’ is still a ways off. First class was supposed to be introduced last year. Wifi won’t be on the first plane until next year. And they’re still mostly selling a better seat. Frontier’s current first class FAQ says food and drinks will be available for purchase and their galleys don’t have ovens. A ‘big front seat’ is fine, but isn’t a product to match competitors and they aren’t advertising how they’re going to deliver consistently better service either. Frontier still won’t offer a global award network or lie flat seats to Europe and Asia. Maybe they shouldn’t, but complaining about airlines offering those things as ‘subsidizing’ competition with Frontier makes little sense. Low Costs Still Matter—And So Does Giving People A Reason To Be Be Repeat Buyers Dempsey says “it’s not that Spirit got something wrong per se” but that isn’t true. As I laid out when examining Spirit’s failure, its cost per available seat mile rose from 7.97 cents in 2019 to 11.28 cents in the first nine months of 2025. That’s an increase of 41.5%. Spirit was hurt by labor cost inflation and engine groundings (though they got compensation for the engines and were losing so much money flying this may have been a benefit). They also lost cost discipline. An 11-acre headquarters campus was a strange investment for an airline whose advantage depended on being relentlessly cheap. Frontier can sell more comfort at lower cost. But they also need enough customers to prefer flying them that when considering a more expensive product Frontier will be in their choice set. It’ll be tough to make money on premium products while relying solely on the discount of those products relative to competitors. That’s why their recent loyalty cuts are so vexxing. Ordinary members without their credit card went from earning 10 miles per dollar to 1 on base purchases. And for bookings from January 1, 2027, complimentary UpFront Plus and first class upgrades for elites require buying a ancillary bundles. Making a customer buy back benefits they thought they’d earned isn’t a strong argument to spend on the card. Frontier’s CEO sees cards as subsidizing his competitors but doesn’t seem to realize their succes with card is a function of the product, and that he’s making his own card relatively unattractive. Topics on this page