In the history of airline pioneers, William Franke is a name most airline passengers have probably never heard.
But the 80-year-old managing partner of Indigo Partners in Phoenix is considered by many industry experts as the man most responsible for the creation of the ultra-low-cost carrier in the U.S. His private equity group has invested in and overhauled airlines including Spirit and Frontier, which offer dirt-cheap fares with a long menu of passenger fees.
The success of such carriers has forced American, United, Delta and other major airlines to re-examine how they do business to compete.
Although the fees have raised complaints from passengers, Franke says he is confident that Americans eventually will become accustomed to the new model.
Q: How did you first get involved in the airline industry?
A: I was known as "Mister Fix-It." I was on the board of the largest bank in the region. The controlling shareholder of the Circle K Corp. called me and said, "I think there are some issues. Would you mind taking a look?" And I did and there were issues and I ended up putting Circle K through a bankruptcy restructuring.
I had just finished that when the governor of Arizona called and said, "Our local airline, America West Airlines, is in bankruptcy, the creditors have filed a motion to convert the Chapter 11 to a Chapter 7 liquidation. We are going to lose 6,000 or more jobs here in Arizona. I would appreciate it if you would go out and take a look at the airline." I told the governor, "Look, all I know about airlines is that the boarding pass tells me I'm seat 16B."
Q: You eventually took charge at America West and reorganized the carrier. The carrier eventually acquired US Airways and ultimately merged with American Airlines to create the world's largest carrier. What did you find was wrong with the industry?
A: I'm hesitant to tell other people what they do is right or wrong, but at the end of the day, it's clear that the airline industry in general has historically operated in a this-is-the-way-you-do-it box. I didn't come from the business so I would say, "That doesn't make sense for me, so explain to me why and what might be done and what are the alternatives." And that created some alternatives that were not in that box.
Q: Would it be fair to say you saved America West and created a new business model by combining some of the business practices of Southwest Airlines and Ryan Air, the ultra-low-cost Irish carrier that charges for a slew of services?
A: In the case of Southwest, they did a terrific job of being efficient with their use of their resources. They used their airplanes well. They have a very efficient crew. They knew how to manage low fares and customer expectations. Ryan Air built on that. Ryan Air added some increment of passengers sharing in the cost of service, which we were interested in. So, I think it's fair to say we took ideas from both.
Q: As the head of Indigo Partners, you took control of Spirit Airlines in 2006 and turned it from a small, struggling Midwestern airline to a highly profitable ultra-low-cost carrier based in Florida. That change included adding dozens of passenger fees for extras that were previously rolled into the ticket price. But you got pushback from passengers. Why?
A: In effect, what we were doing was giving you a lower overall price while at the same time giving you the right to take those things or not take those things. We didn't do a good enough job in explaining that to the consumers. The consumer got off on the wrong foot with the model.
Q: Indigo Partners purchased Denver-based Frontier Airlines in 2013 with plans to convert it into an ultra-low-cost carrier like Spirit. How did your experience with Spirit change how you proceeded with Frontier?
A: We tried to approach the market differently. In the case of Frontier we spent some time advertising in general media around the product and how it worked and educating the public on the model. We also offered, in the case of Frontier, a fare that included all of those ancillaries, called "the Works." You can buy it and get all of that stuff. That fare with all of those [extras] is still the lowest fare in the market 90 percent of the time.
Q: Can you give some examples of how you made Spirit and Frontier more efficient?
A: You would agree that the most expensive asset of an airline is the airplane? Large airlines flew those historically six to eight hours a day. We fly ours 12 and 13 hours a day.
Q: Major carriers such as American, Delta and United have added bare-bones fares on some routes to keep from losing passengers to your ultra-low-cost carriers. Should they be worried?
A: The majors are worried because they have seen what has happened in Europe, where now over 40 percent of the traveling public travels on low-cost carriers. The fact of the matter is the market in general has expanded. So the ultra-low-cost carriers have invited people who wouldn't otherwise fly to get off the bus, get off the train, get out of the car and fly. I think that is what'll happen here in the U.S.
Q: You hired Doug Parker at America West. He is now chief executive of American Airlines. You also hired Scott Kirby, who is president of United Airlines, among other top industry executives. What do you look for in an airline executive?
A: First thing they have to be is bright and open-minded and coachable. There are people in our business who are bright but are very set in their ways. They are not coachable. They probably don't fit our mold. In the early days, I was pretty direct with them. Today, the model has gained enough acceptance that I don't have to be.
Q: An analyst I spoke to said your focus is more about the bottom line than about customer service. Is that fair to say?
A: I think it's a fair general comment. There is a certain push-comes-to-shove between customer service and the low-cost model that the market needs to understand. In Europe, they do understand. That's the model.
Q: Can you get good customer service on an ultra-low-cost carrier?
A: As long as you walk up and expect that you are going to be charged for that bag. If you walk up and you think you are going to check that bag and away it goes and the crew goes, "That's $25 or $45 or whatever the airline charges," you are going to go, "What are you talking about?" Now you are engaged in a different way with that employee.