Budget airline backer Franke spends a bundle on jets

SINGAPORE/DUBAI – 15 November 2017: No-frills airline tycoon Bill Franke, the investor behind a record deal for 430 jets, built his fortune as a champion of unbundled or “a la carte” charges that come on top of rock-bottom ticket prices.

Passengers may grumble about paying extra for baggage, seats and meals, but the 80-year-old industry veteran - the co-founder and managing partner of Phoenix-based private equity firm Indigo Partners LLC - offers no apologies.

“The consumer is essentially like your teenager: a spoiled brat,” Franke said after agreeing the giant Airbus (AIR.PA) deal - worth up to $50 billion at list prices - at the Dubai Airshow on Wednesday.

He said passengers had become used to flying premium carriers with lots of amenities, but they were not willing to pay a higher price for them. “So if you want the lowest possible fares, you have to have some trade-offs,” he said.

Franke is betting the aviation industry is evolving toward the European model where bare-bones carriers like Hungary’s Wizz Air (WIZZ.L) and Ireland’s Ryanair (RYA.I) have made greater inroads in taking market share from legacy airlines on short flights than in the United States.

Franke said the idea was to make air travel affordable enough so that it could attract people who wanted to avoid a longer journey on a bus or train. “The reason they don’t or haven’t been able to (fly) is because of the high cost of the airfare,” he said. “So if we are able to produce a model that has low fares, we have had great success in attracting customers.”

PORTFOLIO OF AIRLINES

Indigo, founded in 2003, controls Denver-based budget carrier Frontier Airlines as well as new Chilean airline JetSmart and part of Mexico’s Volaris. The private equity firm sold an 18.7 percent stake in Wizz Air in June and once held stakes in Singapore’s Tiger Airways and U.S.-based Spirit Airlines.
The huge Airbus order includes A320neos and A321neos for Wizz Air, Frontier, Volaris and JetSmart.

Franke said it underscored his optimism about their growth potential. He began his airline career at then-bankrupt America West Airlines, which later acquired U.S. Airways and was then bought out by American Airlines (AAL.O).

At America West, he took lessons from low-cost carriers Southwest Airlines (LUV.N) and Ryanair about flying aircraft as many hours of the day as possible and charging extra fees, he said in an interview with the Los Angeles Times last month.

“Not staying disciplined about the business model and allowing other costs to leak in is the ‘path to hell’,” Franke said on Wednesday. Budget airlines partly save money by buying large numbers of jets at low prices when manufacturers are eager to fill up their order books, and then generally sticking with one type.

Industry sources say Indigo Partners takes a fee on aircraft allocated to airlines, making it effectively four deals in one. But finance sources said the cost to Airbus in last-minute concessions to bring lengthy and secret talks to a head in time to promote the order at the air show may have been significant.

“We are not going to discuss the pricing of the aircraft but as they say in the West, where I am from, we didn’t just arrive in town on the watermelon truck,” Franke said. “We know how to buy airplanes and we are pretty good at it.”