Group seeks approval to purchase Frontier Airlines

New Orleans — Baton Rouge businessman John Miller stood before nearly two dozen metro-area elected officials at the Regional Planning Commission earlier this week and presented a bold plan: He and a group of investors are ready to make an offer for Denver-based Frontier Airlines and, if they are successful in their offer, will move the airline’s operations to Louis Armstrong International Airport.

One area in which Miller has not yet been successful is convincing Mayor Mitch Landrieu’s administration of the plan. That, he says, is preventing his fellow investors from moving forward with their $400 million offer.

City officials remain leery of the proposition.

They say they have studied the matter but are waiting on more detailed and precise information before making a decision on something that has the potential to be an economic fiasco if not handled properly.

Miller points out that the state has thrown its support behind the project in the form of a signed memorandum of understanding with Louisiana Economic Development, a state agency, from October 2010. The document is not a legally binding contract.

Miller would not disclose any investors, saying only that his employer, M7 Capital LLC, is one of several “major institutional investors” willing to make the offer for Frontier Airlines. The low-cost carrier, whose hub is in Denver, has been for sale for about a year.

Miller said the investors’ plans call for moving the airlines’ operations to New Orleans, renaming it New Frontier Airlines and running a hub at Armstrong. A $2 billion terminal could be completed by 2018 under the business plan, he said. The Denver hub would remain in operation, Miller said, unless it proves to be a drain on the company.

The memorandum of agreement stipulates that the state would not be on the hook for any money — at first.

If benchmarks, such as reaching 125 daily departures in the first 36 months, are met, Miller said, the state would then pay the airline $50 per incremental passenger, or those people who would not have passed through the New Orleans airport had it not been for Frontier. Miller said each additional passenger would bring $130 in taxes to the state.

In regard to employment, the state would expect the airline to have 825 full-time employees by the end of its first year of operation and 3,000 full-time employees by the end of its fourth year.

Miller said he and his fellow investors are so confident in the plan that they will not only meet but exceed the benchmarks and already envision building the new $2 billion terminal.

Despite Miller’s rosy proposal, city officials have a number of concerns about it, including the potential investors’ commitment to a long-term presence and what would happen to existing airlines if a startup came into the market and eventually operated as a taxpayer-subsidized carrier.

Aimee Quirk, Landrieu’s economic development adviser, said most airlines get only about $2 per person per flight, well below $50. “It’s a pretty hefty competitive advantage,” she said. Also, offering subsidies to one airline over another is not allowed by the Federal Aviation Administration, Quirk added.

Quirk said there are lingering questions about the demand for a hub operation, such as the one Miller and his investment partners propose.

According to the FAA data, Armstrong’s enplanement numbers — that is, the number of people who board a plane and depart from at the Kenner-based airport — only this year rebounded to their pre-Katrina levels. Meanwhile, federal Bureau of Transportation statistics show that the national average of domestic enplanements dropped precipitously from 2007 to 2009. Only in the past three years have those trends begun to rebound, and even then they are at mid-2008 levels. Since 2007, New Orleans’ numbers have shown relatively steady growth but don’t appear to represent new demand.

Iftikhar Ahmad, the airport’s director of aviation, pointed out that the airport has welcomed four new airlines to the facility since 2010: WestJet, Air Canada, Spirit and Frontier. WestJet already has pulled out, he said.

Ahmad said New Orleans already offers a slightly lower average for its fares than the national average — $360 locally versus $373 — and that BTS statistics show the number of seats occupied in flights departing New Orleans are at 80 percent, below the national average of 83 percent.

“In a nutshell, New Orleans has been leaving a lot of room at a fairly good price.”

Bringing in a startup low-cost carrier with a tax subsidy likely would do nothing but antagonize existing carriers, possibly to the point of running them out of the market, Quick and Ahmad said. Wooing back past airlines that left would be nearly impossible, they said, and would greatly affect the $2.6 billion annual impact the airport has on the city.

“This disrupts the market greatly,” Quirk said. “We need to know if the risk is worth it.”

That, according to Nolan Rollins, chairman of the New Orleans Aviation Board, is where the holdup is.

Rollins said he and other city officials are intimately acquainted with the demands of the market. So far, he said, airport leaders don’t see the demand Miller envisions. More importantly, Miller has yet to provide the detailed figures to prove that his numbers of guaranteed flights can happen, Rollins said.

“Simply put, for him it’s an if-then principle: If you give me the money, then it’s going to be successful. For us, it’s like math class: You’ve got to show your work,” Rollins said. “What we’re not seeing right now is the work. We’re not seeing how he’s getting to his answer. ... It’s adding and subtracting without showing how he’s getting it done.”

Miller said in a separate interview on Wednesday that he is not aware of any missing paperwork. “They are not missing any information from us. We have provided them business plans … we have provided them everything.”

Moments after the RPC passed a resolution during Tuesday’s RPC meeting to ask the city to consider the prospect in a “timely manner after their due diligence,” New Orleans City Council Vice President Jackie Clarkson told her counterparts this is not a decision to rush.

“The devil’s in the details,” she said.