TRENDS: Frontier has shown solid economic performance recently at a time when many carriers are still struggling. What do you think distinguishes airlines that have held their own in these difficult times?
SISLOWSKI: First, I think it's important to distinguish between "low cost" carriers and "low fare" carriers. These days, everyone is a "low fare" carrier. The real question is, in the midst of a depressed revenue market, can you still make money? If you look at how Frontier structures its business, in everything from compensation to airport space, we always keep an eye on controlling costs. Our pilot pay versus the major airlines is significantly different. So is our executive compensation.

You hear a lot from legacy carriers about the need for concessions and give-backs in order to be cost competitive. We're don't want to get into that situation. You don't want to have to ask for things back. If it doesn't work economically, don't agree to it in the first place.

TRENDS: You mentioned space. How does your cost structure compare at the airport level?

SISLOWSKI: Airlines pay a lot of rates and charges for using airport facilities: rent, shared costs of joint space, baggage systems, etc. You typically analyze these expenses in terms of cost per enplane passenger. Our 2004 estimated cost per enplane passenger at Denver International Airport, where we hub, is just under USD 10. One of the other major airlines at DIA is estimated to pay almost USD 18 per enplaned passenger. So wages and benefits are a factor, but it's also how you run your operation - how much square footage do you need, how much office space, and the like. That's what drives cost per passenger. The bottom line is, you have to do a top to bottom examination of costs and keep them as low as possible. That's how you survive.

TRENDS: How does it change the competitive landscape to have larger players like Delta and United launching their own discount carriers?

SISLOWSKI: It's been done before with Shuttle by United and Continental Lite, and it hasn't worked very well. Consumers tend to confuse their products. A business person might expect a full-service United product and get a Ted product instead, and not be able to upgrade to first class like they would expect. Delta recently said that they will continue to operate Song, their discount carrier, but its anticipated growth is on hold.

So we approach the process by saying, let's stick to our knitting. Let's run the airline as best as we can, as efficiently as we can, be as nice to the passengers as we can, and keep a key focus on maintaining costs. If we do all that, we don't care as much about what the other guy does, as long as it's legally competitive. We'll do fine and get our fair share of business.

TRENDS: What are the most significant economic and social trends that airlines are watching these days with an eye on the future?

SISLOWSKI: For obvious reasons, everyone is watching fuel prices and forecasts. That's one of the biggest expenses we have. If you look at how much fuel an aircraft uses, you can figure out the economic impact of an increase in prices. We're probably burning about 1.4 billion gallons of fuel a year with 43 aircraft. So a penny increase in the price of fuel is a USD1.4 million jump in costs.

TRENDS: How do you see the outlook for business travel?

SISLOWSKI: The industry as a whole has seen a decline in the high-fare business segment. You can speculate that this has been the result of the economic downturn and a lack of funds for last-minute meetings. The question is whether the high-fare business passenger will return as the economy recovers. Will people start paying USD 1,200 or more for a last-minute ticket? Or is there a permanent shift in business mentality? We've chosen to view it conservatively and forecast that it will stay at today's levels. That way, we'll be happily surprised if it goes the other way.

TRENDS: Tell us a bit about your own background in the industry.

SISLOWSKI: After law school, I was in private practice in a large firm in downtown Seattle. In those days, you either represented Boeing or represented parties doing business with Boeing. At one point, I helped a senior partner on an aircraft delivery deal, and I found myself at the delivery center on Boeing Field representing a customer in the closing. I began working increasingly in aircraft leasing and finance and eventually moved in-house to MetLife, where I oversaw the company's structuring of leveraged lease investments and monitored the fleet in which we had ownership interests. That included a fleet of about 45 aircraft, everything from turboprops to 747s. So I hadn't worked for an airline before coming to Frontier, but I knew aircraft and aircraft finance.

I started at Frontier on April 1, 2002 - April Fool's Day! And I soon learned that the industry as a whole is more convoluted and wacky than I ever could have imagined.

TRENDS: You obviously get pulled in a lot of different directions. Where do you find you spend most of your time?

SISLOWSKI: When I was interviewing at Frontier, I identified about 25 operational areas where I thought legal issues would arise. Most of those were about right. What I didn't anticipate was the complexity of each of them. Plus, when I started, I discovered on my business card that I was "Vice President, Administration," in addition to being general counsel. That means properties and facilities report to me: our headquarters facility, airport gates, ticket counters, and office space, maintenance facilities - people responsible for these areas report to me. At any given point, there are five or six airports where we have issues in these areas. So on most days, I have about thirty minutes in the morning to start on my task list before all hell breaks loose!

Given the time constraints, my job is often triage - to see what issues are facing us and decide whether to handle them in-house or use outside counsel.

TRENDS: How do you make that decision?

SISLOWSKI: Generally, it's a question of whether it's an esoteric area of law or one that requires substantial knowledge and depth. I'm not going to pass myself off as a securities lawyer, for example. That's a critical area where you need to be exactly correct, not just "kind of" correct. So I'll go to Doug Wright at Faegre and have him look at those issues for me or provide guidance on the rapidly changing corporate governance landscape.

If, on the other hand, it's an issue with a contract that requires an in-depth knowledge of technical nature, like an aircraft or engine issue, we try to do that in-house. It's easier and more efficient for us to manage those issues by combining our legal skills with the internal technical expertise of our maintenance and engineering staff.

TRENDS: Frontier has grown very rapidly in its first decade of operation. What has fueled or enabled this significant growth? What kind of pressure does that create in terms of managing legal risk?

SISLOWSKI: We're scheduled to take delivery of 15 new Airbus aircraft this year. At the same time, we're returning 7 Boeings. Each transaction requires some legal involvement just with respect to the documentation. And with returns, there's always a debate with regard to interpreting a given return requirement.

With asset growth, you also have growth in personnel. Two years ago we had 3,200 employees and now we have 4,300. More people means more complexity, just like you'd have with any growing enterprise. Growth creates pressure. You have all the typical issues related to employee and HR policies. Yes, we may be low-cost, but going from a fleet of 28 aircraft to 43 aircraft means you're going to have to add pilots, flight attendants, mechanics, etc. So there's a careful balance in planning and managing that growth in a cost-effective manner.

TRENDS: What model do you use for interacting with the business people, whether in marketing, HR, maintenance, etc.? How do you balance the kind of entrepreneurial business footing you need with the proper legal oversight?

SISLOWSKI: My background is as a transactional lawyer. You're usually in a significant business transaction in which the company stands to make money, but you're at the table negotiating the deal and allocating risk. I won't get in the way of a deal unless I see a truly significant legal issue or risk. Realistically, that rarely happens - maybe an environmental problem on a real estate deal, for example. To my mind, you have to understand the transaction and the market risk for that kind of deal. And then you have to advise your business people accordingly. I tell them: You may think it's a good deal, but you're taking on risk. Is that worked into your pricing? Is our expected gain worth the risk? If it is, if they've taken it into account, then you do the deal and cross your fingers. At the end of the day, you try to make the deal happen.

TRENDS: Frontier has a unique and popular advertising campaign. What can you tell us about the history of your "animals" positioning? What feedback or results are you seeing based on your creative marketing approach?

SISLOWSKI: The early focus of the company was simply to have an airline and make it run by growing with our basic core services. We spent the first six or seven years focused on that. Everyone was intent on doing the job right and running a good airline.

About a year and a half ago, we hired a local firm to do some baseline surveys in our market, conducting random interviews at the airport and getting people to participate in focus groups. We were shocked to find out that in Denver, our home town and our core business region, the unaided awareness of Frontier was very low. That was an eye opener. We had been operating on the theory that if you build it, they will come. But in this industry, you have to tell people you built it. So we began to get much more involved in the Denver community. We're now the official airline of the Rockies, the Nuggets, the Avalanche, the Crush and the Mammoth, and we're involved with several of the college teams, also. We're also out there advertising the brand. The "animals" are readily identifiable and they're fun. We've gotten a lot of positive feedback on our ad campaign using them to create more awareness of Frontier.

Airlines measure how they're doing in the market by load factor - that is, how full your flights are on average. We've found that our load factors are up about 10 percent compared to prior periods. We think the branding campaign has helped make Frontier an airline of choice, not just a backup if someone has a bad experience or can't get a flight elsewhere.We do feel people are reacting to our ads and are becoming aware of us.

TRENDS: Is there anything you wish more travelers understood about what it takes to run an airline?

SISLOWSKI: There's a reality show called Airline on one of the cable networks. Its cameras follow Southwest agents and ticket people in their dealings with passengers. It's an eye opener. Obviously, you wish people realized the complexity of the airline business and how much of what happens related to delays is outside your control. Earlier this year, for example, DIA had a problem with its traffic control radar. You can't land or take off when radar isn't working, so there were significant delays. And, of course, you'd like to say, "Don't blame us." But I've been a passenger, and the bottom line is you want to be at a given place at a given time. And the airline person you see at the ticket counter or customer service desk is the one you blame.

TRENDS: What are the characteristics you look for in outside counsel? What kind of relationship adds the most value for you?

SISLOWSKI: I remember a conversation I had with outside counsel not long ago when I was retaining them. I said we had 43 aircraft, 4,300 employees, three unions, and facility issues. I said I was telling them this because I wanted them to understand a basic fact: I don't have time. What I need in outside counsel is someone to manage a project - not just look at legal issues and draft documents. I'm usually in the middle of 15 different things and look to outside counsel to take the project from start to finish. If there are things I need to know along the way, tell me, but otherwise, go and get it done.

There is a spectrum of outside lawyers, from the technically capable who know the law inside and out, to those who can be both lawyers, entrepreneurs, and project managers. The nature of private practice gives you exposure to legal issues and transactions - but it's often very hard to get enough knowledge of your client's business to truly add value. That takes a long time. I know it's hard, for example, to justify sending an associate free to a client's office for a week to learn the business. But when you find a firm or attorney with both technical experience, knowledge of your business, and good judgment, that's the basis of a good relationship. And a lot flows from it.

By Faegre&Benson
http://www.faegre.com