Frontier looks to diversify revenue sources

WASHINGTON (Reuters) - Discount carrier Frontier Airlines Inc. FRNT.O is looking at side businesses such as travel insurance and vacation packages to boost revenue amid stiff competition, its top executive said on Wednesday.

The airline faces strong competition from Southwest Airlines (LUV.N: Quote, Profile, Research, Stock Buzz) and UAL Corp.'s (UAUA.O: Quote, Profile, Research, Stock Buzz) United Airlines, which have increased capacity out of Frontier's home base of Denver, Chief Financial Officer Paul Tate said at Reuters Aerospace and Defense Summit in Washington, D.C.

"The core business is a tough business -- it is a low-margin business; it is volatile," Tate said. "We are looking at other revenue producing opportunities."

Separately on Wednesday, Frontier cut its forecast for the third quarter, citing worse-than-expected November passenger traffic and higher-than-expected December fuel costs. It now sees a loss of between 12 cents to 17 cents per share, down from its previous break-even outlook for the quarter.

"Denver is seeing capacity increases year over year and the East Coast has seen decreases," Tate said. "So we have a little bit more difficult time than the rest of the industry."

Frontier recently started a new subsidiary called Lynx Aviation Inc. to serve smaller markets around Denver and is hoping it would help bring more passengers to its mainline service, Tate said.

"That whole concept is one where we want to enhance the feed into our hub," Tate said. "Southwest does not have the connecting opportunities that we do at Denver ... that is one area where we can outshine Southwest."

Frontier now gets about 10 percent of its revenue from ancillary sources, such as charter operations and a co-branded credit card.

The company is working on other projects to diversify its sources of revenue further and could announce a new business in the next six months, Tate said. He cited European discount carriers, which sell travel insurance, vacation packages, mementos and food to bolster revenue.

"We are interested in that," Tate said. "It's kind of a flawed strategy not to think that way."