<PAGE>
 
                                   FORM 10-Q

                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C.  20549


[X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
     ACT OF 1934
     For the quarterly period ended December 31, 1997


[ ]  TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
     ACT OF 1934


Commission file number:  0-24126



                            FRONTIER AIRLINES, INC.
                            -----------------------
            (Exact name of registrant as specified in its charter)



                Colorado                                   84-1256945
------------------------------------------------  ------------------------------
(State or other jurisdiction of incorporated            (I.R.S. Employer 
or organization)                                       Identification No.)



        12015 E. 46th Avenue, Denver, CO                    80239
       ------------------------------------              -----------
     (Address of principal executive offices)            (Zip Code)


Issuer's telephone number including area code:  (303) 371-7400


Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.  Yes  X   No 
                                        ---     ---     


The number of shares of the Company's Common Stock outstanding as of February
16, 1998 was 9,233,563.
<PAGE>
 
                               TABLE OF CONTENTS

                        PART I.  FINANCIAL INFORMATION


                                                               Page
                                                               ----

ITEM 1.   FINANCIAL INFORMATION

          Financial Statements                                   1


ITEM 2.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF 
          FINANCIAL CONDITION AND RESULTS OF OPERATIONS          5



                          PART II.  OTHER INFORMATION
 
 
ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS   17
 
ITEM 5.   OTHER EVENTS                                          17
 
ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K                      17
 
<PAGE>
 
                        PART I.  FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS
FRONTIER AIRLINES, INC.
CONDENSED BALANCE SHEETS

<TABLE> 
<CAPTION> 
                                                                        DECEMBER 31,
                                                                            1997         MARCH 31,
                                                                        (UNAUDITED)        1997
                                                                        ------------   ------------
<S>                                                                     <C>            <C>
ASSETS
------                                                                  
Current assets:
    Cash and cash equivalents                                           $  2,927,030   $ 10,286,453
    Restricted investments                                                 4,000,000      2,000,000
    Trade receivables, net of allowance for doubtful accounts of
     $89,713 and $71,713 at December 31, 1997 and March 31, 1997           8,287,478      7,451,342
    Maintenance deposits                                                   9,796,799      6,968,379
    Prepaid expenses and other assets                                      5,142,551      3,449,871
    Inventories                                                            1,204,855        997,102
    Deferred lease and other expenses                                        353,019        289,579
    Note receivable - current portion                                         35,413         27,288
                                                                        ------------   ------------ 
            Total current assets                                          31,747,145     31,470,014
 
Security, maintenance and other deposits                                   6,943,889      6,596,660
Property and equipment, net                                                4,784,623      4,340,982
Note receivable - long-term portion                                           11,896         31,762
Deferred lease and other expenses                                            821,418        918,994
Restricted investments                                                     2,484,399        734,133
                                                                        ------------   ------------
                                                                        $ 46,793,370   $ 44,092,545
                                                                        ============   ============
 
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
    Accounts payable                                                    $ 10,383,116   $  8,045,533
    Air traffic liability                                                 17,039,557     13,058,632
    Other accrued expenses                                                 4,125,715      3,318,043
    Accrued maintenance expense                                           13,683,147      8,277,115
    Note payable                                                              57,955          9,812
    Current portion of obligations under capital leases                       37,786         35,700
                                                                        ------------   ------------
            Total current liabilities                                     45,327,276     32,744,835
 
Senior secured notes payable                                               2,629,037              -
Accrued maintenance expense                                                1,780,050      1,408,363
Obligations under capital leases, excluding current portion                   27,571         56,444
                                                                        ------------   ------------
            Total liabilities                                             49,763,934     34,209,642
                                                                        ------------   ------------
 
Stockholders' equity
    Preferred stock, no par value, authorized 1,000,000 shares;
     none issued and outstanding                                                   -              -
    Common stock, no par value, stated value of $.001 per share,
     authorized 20,000,000 shares; 9,233,563 and 8,844,375 shares
     issued and outstanding at December 31, 1997 and March 31, 1997            9,234          8,844
    Additional paid-in capital                                            38,565,037     35,764,710
    Accumulated deficit                                                  (41,544,835)   (25,890,651)
                                                                        ------------   ------------
            Total stockholders' equity                                    (2,970,564)     9,882,903
                                                                        ------------   ------------
                                                                        $ 46,793,370   $ 44,092,545
                                                                        ============   ============
</TABLE>

See accompanying notes to financial statements.

                                     - 1 -
<PAGE>
 
FRONTIER AIRLINES, INC.
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)

<TABLE> 
<CAPTION> 
                                                        THREE MONTHS ENDED             NINE MONTHS ENDED
                                                   DECEMBER 31,    DECEMBER 31,   DECEMBER 31,    DECEMBER 31, 
                                                       1997            1996           1997            1996          
                                                   ------------    -----------    ------------    ------------
<S>                                                <C>             <C>            <C>             <C>               
Revenues:                                                                                                           
    Passenger                                      $ 31,921,525    $24,503,263    $101,564,403    $81,590,883       
    Cargo                                               596,736        501,122       2,008,154      1,317,002       
    Other                                               569,822        188,907       1,685,318        527,347       
                                                   ------------    -----------    ------------    -----------       
                                                                                                                    
            Total revenues                           33,088,083     25,193,292     105,257,875     83,435,232       
                                                   ------------    -----------    ------------    -----------       
                                                                                                                    
Operating expenses:                                                                                                 
    Flight operations                                17,866,945     14,253,361      47,998,124     38,094,385       
    Aircraft and traffic servicing                    8,376,494      6,116,467      22,824,452     18,819,068       
    Maintenance                                       9,052,299      6,958,225      23,606,405     17,105,586       
    Promotion and sales                               7,481,557      4,755,277      21,037,834     15,003,575       
    General and administrative                        1,503,212      1,037,597       4,753,969      3,253,505       
    Depreciation and amortization                       433,350        390,467       1,154,469        885,778       
                                                   ------------    -----------    ------------    -----------       
                                                                                                                    
            Total operating expenses                 44,713,857     33,511,394     121,375,253     93,161,897       
                                                   ------------    -----------    ------------    -----------       
                                                                                                                    
            Operating loss                          (11,625,774)    (8,318,102)    (16,117,378)    (9,726,665)      
                                                   ------------    -----------    ------------    -----------       
                                                                                                                    
Nonoperating income:                                                                                                
    Interest income                                     200,604        268,980         580,935        861,474       
    Other, net                                          (94,098)         6,434        (117,741)       (30,291)      
                                                   ------------    -----------    ------------    -----------       
                                                                                                                    
            Total nonoperating income, net              106,506        275,414         463,194        831,183       
                                                   ------------    -----------    ------------    -----------       
                                                                                                                    
Net loss                                           $(11,519,268)   $(8,042,688)   $(15,654,184)   $(8,895,482)      
                                                   ============    ===========    ============    ===========       
                                                                                                                    
Basic and diluted loss per common share            $      (1.25)   $     (0.91)   $      (1.73)   $     (1.12)      
                                                   ============    ===========    ============    ===========       
                                                                                                                    
Weighted average shares outstanding                   9,228,313      8,813,125       9,048,926      7,932,592       
                                                   ============    ===========    ============    ===========        
</TABLE> 
 
See accompanying notes to financial statements.


                                     - 2 -
<PAGE>
 
FRONTIER AIRLINES, INC.
CONDENSED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED DECEMBER 31, 1997 AND 1996
(UNAUDITED)


<TABLE> 
<CAPTION> 
                                                                               1997           1996
                                                                           ------------   ------------
<S>                                                                        <C>            <C>
Cash flows from operating activities:
    Net loss                                                               $(15,654,184)   $(8,895,482)
    Adjustments to reconcile net loss to net cash
        used by operating activities:
            Employee stock option plan compensation expense                           -        375,000
            Depreciation and amortization                                     1,386,633      1,066,992
            Loss on sale of equipment                                                 -          4,591
            Changes in operating assets and liabilities:
                Restricted investments                                       (2,250,266)        98,584
                Trade receivables                                              (836,136)       580,652
                Security, maintenance and other deposits                     (3,383,149)    (3,925,029)
                Prepaid expenses and other assets                            (1,890,180)      (511,784)
                Inventories                                                    (207,753)      (321,681)
                Note receivable                                                  11,741          4,348
                Accounts payable                                              2,337,583      2,856,667
                Air traffic liability                                         3,980,925     (1,745,064)
                Other accrued expenses                                          807,672      1,156,069
                Accrued maintenance expense                                   5,777,719      3,529,352
                                                                           ------------   ------------
                     Net cash used by operating activities                   (9,919,395)    (5,726,785)
                                                                           ------------   ------------
 
Cash flows used by investing activities:
    Increase in short-term investments                                                -     (2,144,507)
    Aircraft lease deposits                                                     207,500     (2,292,250)
    Increase in restricted investments                                       (1,500,000)      (600,000)
    Capital expenditures                                                     (1,584,240)    (2,963,271)
                                                                           ------------   ------------
                     Net cash used in investing activities                   (2,876,740)    (8,000,028)
                                                                           ------------   ------------
 
Cash flows from financing activities:
    Net proceeds from issuance of common stock                                  415,357     15,999,107
    Proceeds from sales of senior secured notes including warrants            5,000,000              -
    Proceeds from short-term borrowings                                         170,318         95,911
    Principal payments on short-term borrowings                                (122,176)       (76,776)
    Principal payments on obligations under capital leases                      (26,787)       (46,227)
                                                                           ------------   ------------
                     Net cash provided by financing activities                5,436,712     15,972,015
                                                                           ------------   ------------
 
                     Net increase in cash and cash equivalents               (7,359,423)     2,245,202
 
Cash and cash equivalents, beginning of period                               10,286,453      6,359,254
                                                                           ------------   ------------
 
Cash and cash equivalents, end of period                                   $  2,927,030    $ 8,604,456
                                                                           ============    ===========
</TABLE> 
 
See accompanying notes to financial statements.

                                     - 3 -
<PAGE>
 
FRONTIER AIRLINES, INC.
CONDENSED NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997


(1)  BASIS OF PRESENTATION

     The accompanying unaudited financial statements have been prepared in
     accordance with generally accepted accounting principles for interim
     financial information and the instructions to Form 10-Q and Regulation S-X.
     Accordingly, they do not include all of the information and footnotes
     required by generally accepted accounting principles for complete financial
     statements. In the opinion of management, all adjustments (consisting only
     of normal recurring adjustments) considered necessary for a fair
     presentation have been included. The results of operations for the three
     and nine months ended December 31, 1997 and 1996 are not necessarily
     indicative of the results that will be realized for the full year. For
     further information, refer to the audited financial statements and notes
     thereto for the year ended March 31, 1997 contained in the Form 10-KSB for
     the fiscal year ended March 31, 1997.

(2)  PREPAID EXPENSES AND OTHER ASSETS

     The December 31, 1997 prepaid expenses and other assets is comprised 
     of the following:

     Prepaid travel agency commissions          $2,060,148
     Prepaid aircraft rentals                    1,181,469
     Prepaid credit card fees                      448,119
     Prepaid computer reservation system fees      358,216
     Prepaid insurance                             293,595
     Prepaid rentals - other                       376,110
     Prepaid aircraft fuel                          92,531
     Other                                         332,363
                                             -------------  
                                                $5,142,551
                                             =============

(3)  SENIOR SECURED NOTES


     In December 1997, the Company sold $5,000,000 of 10% senior secured notes
     to Wexford Management LLC ("Wexford"). The notes are due December 15, 2001
     and are secured by substantially all of the assets of the Company. In
     connection with this transaction, the Company issued Wexford warrants to
     purchase 1,750,000 shares of Common Stock at $3.00 per share. The Company
     determined the value of the warrants to be approximately $2,385,000 and
     recorded the value as equity in additional paid-in capital. The balance of
     the notes will be accreted to its face value over the term of the notes and
     included as interest expense.

                                     - 4 -
<PAGE>
 
ITEM 2:  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION 
         AND RESULTS OF OPERATIONS

This report contains forward-looking statements within the meaning of Section
21E of the Securities Exchange Act of 1934 that describe the business and
prospects of Frontier Airlines, Inc. (the "Company") and the expectations of the
Company and management.  When used in this document, the words "estimate,"
"anticipate," "project" and similar expressions are intended to identify
forward-looking statements.  These statements are subject to certain risks and
uncertainties that could cause actual results to differ materially from those
set forth.  These risks and uncertainties include, but are not limited to:  the
Company's cash position and need for additional capital; the timing of, and
expense associated with, expansion and modification of the Company's operations
in accordance with its business strategy or in response to competitive pressures
or other factors such as the Company's commencement of passenger service and
ground handling operations at several airports and assumption of maintenance
operations at DIA with its own employees; general economic factors and behavior
of the fare-paying public and the federal government, such as the crash in May
1996 of another low-fare carrier's aircraft that resulted in a federal
investigation of the carrier, suspension of the carrier's operations and
increased federal scrutiny of low-fare carriers generally that may increase the
Company's operating costs or otherwise adversely affect the Company; actions of
competing airlines, such as increasing capacity and pricing actions of United
Airlines and other competitors, including Western Pacific Airlines ("Western
Pacific"), another low-fare carrier which competed with the Company at DIA from
June 1997 until it ceased operations on February 4, 1998;  the current limited
supply of Boeing 737 aircraft and the higher lease and maintenance  costs
associated with such aircraft, which inhibits the Company's ability to achieve
operating economies and implement its business strategy; recent changes to the
former air transportation excise tax of 10% to a combination of a percentage tax
and flight segment fee; and uncertainties regarding aviation fuel prices.
Because the Company's business, like that of the airline industry generally, is
characterized by high fixed costs relative to revenues and low profit margins,
small fluctuations in the Company's yield per RPM or expense per ASM can
significantly affect operating results.

GENERAL

        The Company is a low-fare, full-service airline based in Denver,
Colorado.  The Company's flight operations began on July 5, 1994 with two Boeing
737-200 aircraft operating eight daily flights between Denver, Colorado and four
North Dakota cities.  The Company leased three additional Boeing 737-200
aircraft in 1994 and added four cities in Montana to its route system.  Since
that time, the Company has increased the number of markets it serves from its
Denver hub to 14 cities in 12 states spanning the western two-thirds of the
United States and certain east coast cities.  The Company presently operates a
fleet of 14 aircraft comprised of seven Boeing 737-200 and seven Boeing 737-300
aircraft.

        The Company significantly rescheduled its flights in 1995 and eliminated
two of its original North Dakota cities and all four of its Montana
destinations. Flights to Bismarck and Fargo, North Dakota, the last two of the
Company's eight original markets, were suspended on September 10, 1996. The
Company's current route system extends from Denver to Los Angeles and San
Francisco, California; Chicago and Bloomington/Normal, Illinois; Boston,
Massachusetts; Baltimore, Maryland; Seattle/Tacoma, Washington; Phoenix,
Arizona; Minneapolis/St. Paul, Minnesota; Salt Lake City, Utah; Omaha, Nebraska;
Albuquerque, New Mexico, New York (LaGuardia), New York; and El Paso, Texas. At
present, the Company utilizes four gates at Denver International Airport ("DIA")
for approximately 60 daily flight departures and arrivals.

        Subject to the availability of aircraft and capital resources, the
Company plans to lease additional jets in the Boeing 737 series to permit the
Company to further expand its lines of service. Demand and competition for
Boeing 737 aircraft has increased significantly in the past two years. With the
bankruptcy of Western Pacific and that carrier's cessation of all flight
operations on February 4, 1998, 18 Boeing 737-300s will become available for
lease, which may partially ameliorate the demand and competition for Boeing 737-
300 aircraft.

        The Company expanded operations during the three and nine months ended
December 31, 1996 and 1997. Therefore, the Company's results of operations for
the three and nine months ended December 31, 1996 and 1997 are not necessarily
comparable or indicative of future operating results. Effective in September
1996, the Company began performing scheduled maintenance on its aircraft using
its own mechanics, with the exception of major maintenance cycles which continue
to be performed by FAA approved contractors.

                                     - 5 -
<PAGE>
 
     On June 30, 1997, the Company signed an Agreement and Plan of Merger (the
"Merger Agreement") providing for the merger of the Company with Western
Pacific. On September 29, 1997, the Company and Western Pacific mutually agreed
to terminate the Merger Agreement.  At the same time, the two companies also
reported the termination, effective November 16, 1997, of a code share agreement
the companies entered into upon signing the Merger Agreement.  On October 5,
1997, Western Pacific filed for protection under Chapter 11 of the U.S.
Bankruptcy Code.  Western Pacific, which originally began service to and from
Colorado Springs, Colorado, commenced service from DIA on June 29, 1997.  On
February 4, 1998, Western Pacific ceased flight operations and has since
announced its intention to liquidate its business.

RESULTS OF OPERATIONS

     The Company incurred a net loss of $15,654,000 or $1.73 per share for the
nine months ended December 31, 1997 as compared to a net loss of $8,895,000 or
$1.12 per share for the nine months ended December 31, 1996. The Company expects
losses to continue at least through the month of January 1998. The Company
incurred a net loss of $11,519,000 or $1.25 per share for the three months ended
December 31, 1997 as compared to a net loss of $8,043,000 or $.91 per share for
the three months ended December 31, 1996. Management believes that its operating
results were adversely affected during the nine months ended December 31, 1997
by a code share agreement with Western Pacific which the Company entered into on
June 30, 1997 and was effective August 1, 1997 in connection with the proposed
merger with Western Pacific. The code share was designed to mesh the Company's
schedule with Western Pacific's schedule at DIA. The code share agreement was
terminated on October 1, 1997 effective November 15, 1997 in connection with
termination of the Western Pacific Merger Agreement. As a result of the schedule
implemented under the code share agreement, the Company had flights scheduled in
certain markets that were not at peak travel times. The Company does not believe
this arrangement benefited the Company as an independent airline. As a result of
termination of the Merger Agreement and code share agreement, the Company
introduced a new, independent schedule, terminated service to San Diego,
California and St. Louis, Missouri and added routes to Baltimore, Maryland and
to New York City's La Guardia Airport in November 1997 and December 1997,
respectively. Competition from Western Pacific on several of the Company's
routes adversely affected the Company's yields and load factors. Additionally,
during the nine months ended December 31, 1997 as compared to the prior
comparable period, the Company experienced higher average aircraft lease
expenses on its newer larger aircraft, higher maintenance expenses associated
with its in-house maintenance operation which began in September 1996, increased
maintenance expenses associated with the Boeing 737-200 aircraft, and one time
general and administrative expenses associated with the Western Pacific merger.

     Small fluctuations in the Company's yield per RPM or expense per ASM can
significantly affect operating results because the Company, like other airlines,
has high fixed costs and low operating margins in relation to revenues. Airline
operations are highly sensitive to various factors, including the actions of
competing airlines and general economic factors, which can adversely affect the
Company's liquidity, cash flows and results of operations.

                                     - 6 -
<PAGE>
 
     The following table sets forth certain quarterly financial and operating
data regarding the Company for the fifteen months of operations ended December
31, 1997.

                     SELECTED FINANCIAL AND OPERATING DATA
<TABLE>
<CAPTION>
                                                        THREE MONTHS ENDED
                                                        ------------------
                              DECEMBER 31,     MARCH 31,      JUNE 30,     SEPTEMBER 30,    DECEMBER 31,
                                  1996           1997           1997            1997            1997
                              ------------   ------------   ------------   -------------   -------------
 
<S>                           <C>            <C>            <C>            <C>             <C>
Passenger revenue             $ 24,503,000   $ 32,167,000   $ 33,622,000    $ 36,021,000   $  31,922,000
Revenue passengers carried         272,000        329,000        339,000         347,000         301,000
Revenue passenger
    miles (RPMs)(1)            193,316,000    235,100,000    249,436,000     282,190,000     259,443,000
Available seat miles
  (ASMs)(2)                    354,103,000    388,734,000    405,395,000     490,810,000     524,686,000
Passenger load factor(3)              54.6%          60.5%          61.5%           57.5%           49.4%
Break-even load factor(4)             73.1%          66.9%          65.6%           61.1%           67.5%
Block hours(5)                       8,089          8,689          9,087          10,507          11,059
Average daily block hour
  utilization(6)                      9.86          10.09          10.28            9.89           11.24
Yield per RPM (cents)(7)             12.68          13.68          13.48           12.76           12.30
Yield per ASM (cents)(8)              6.92           8.27           8.29            7.34            6.08
Expense per ASM (cents)               9.46           9.39           9.08            8.12            8.52
Passenger revenue per
  block hour                  $   3,029.18   $   3,702.04   $   3,700.01    $   3,428.29   $    2,886.52
Average fare(9)               $         86   $         94   $         94    $         99   $         101
Average aircraft in fleet             10.3           11.0           11.0            11.8            13.0
 
Operating income (loss)        ($8,318,000)   ($3,434,000)   ($2,238,000)    ($2,253,000)   ($11,626,000)
Net income (loss)              ($8,043,000)   ($3,290,000)   ($2,087,000)    ($2,048,000)   ($11,519,000)
</TABLE>

(1)  "Revenue passenger miles," or RPMs, are determined by multiplying the
     number of fare-paying passengers carried by the distance flown.
(2)  "Available seat miles," or ASMs, are determined by multiplying the number
     of seats available for passengers by the number of miles flown.
(3)  "Passenger load factor" is determined by dividing revenue passenger miles
     by available seat miles.
(4)  "Break-even load factor" is the passenger load factor that will result in
     operating revenues being equal to operating expenses, assuming constant
     revenue per passenger mile and expenses.
(5)  "Block hours" represent the time between aircraft gate departure and
     aircraft gate arrival.
(6)  "Average daily block hour utilization" represents the total block hours
     divided by the weighted average number of aircraft days in service.
(7)  "Yield per RPM" is determined by dividing passenger revenues by revenue
     passenger miles.
(8)  "Yield per ASM" is determined by dividing passenger revenues by available
     seat miles.
(9)  "Average fare"  excludes revenue included in passenger revenue for non-
     revenue passengers, administrative fees, and revenue recognized for unused
     tickets that are greater than one year from issuance date.

                                     - 7 -
<PAGE>
 
     The following table provides information regarding the Company's operating
revenues and expenses for the nine months ended December 31, 1996.

<TABLE>
<CAPTION>
 
                                               PERCENT OF    REVENUE/
                                    AMOUNT       REVENUE    BLOCK HOUR  YIELD/ASM  YIELD/RPM
                                  -----------  -----------  ----------  ---------  ---------
<S>                               <C>          <C>          <C>         <C>        <C>
REVENUES
--------                          $81,591,000        97.8%   $3,428.19      7.91c     13.49c
Passenger                           1,317,000         1.6%       55.34      0.13c      0.22c
Cargo                                 527,000         0.6%       22.14      0.05c      0.09c
Other                             -----------       -----    ---------  ---------  ---------
                                  $83,435,000       100.0%   $3,505.67      8.09c     13.80c
Total operating revenues          ===========       =====    =========  =========  =========
</TABLE> 
<TABLE> 
<CAPTION> 
 
                                               PERCENT OF    EXPENSE/   EXPENSE/
                                    AMOUNT      REVENUE     BLOCK HOUR     ASM
                                  -----------  ----------   ----------  ---------
<S>                               <C>          <C>          <C>         <C> 
EXPENSES
--------                          $38,094,000        45.7%   $1,600.59      3.69c
Flight operations                  18,819,000        22.5%      790.71      1.82c
Aircraft and traffic servicing     17,106,000        20.5%      718.74      1.66c
Maintenance                        15,004,000        18.0%      630.42      1.46c
Promotion and sales                 3,253,000         3.9%      136.68       .32c
General and administrative            886,000         1.1%       37.23       .09c
Depreciation and amortization     -----------       -----    ---------  ---------
                                  $93,162,000       111.7%   $3,914.37      9.04c
Total operating expenses          ===========       =====    =========  =========
</TABLE>

     The following table provides information regarding the Company's operating
revenues and expenses for the nine months ended December 31, 1997.

<TABLE>
<CAPTION>
 
                                                PERCENT OF    REVENUE/
                                     AMOUNT       REVENUE    BLOCK HOUR  YIELD/ASM  YIELD/RPM
                                  ------------  -----------  ----------  ---------  ---------
<S>                               <C>           <C>          <C>         <C>        <C>
REVENUES
--------                          $101,565,000        96.5%   $3,313.58      7.15c     12.84c
Passenger                            2,008,000         1.9%       65.51      0.16c      0.25c
Cargo                                1,685,000         1.6%       54.97      0.12c      0.21c
Other                             ------------       -----    ---------  ---------  ---------
                                  $105,258,000       100.0%   $3,433.86      7.41c     13.30c
Total operating revenues          ============       =====    =========  =========  =========
</TABLE> 

<TABLE> 
<CAPTION> 
 
                                                PERCENT OF    EXPENSE/   EXPENSE/
                                     AMOUNT      REVENUE     BLOCK HOUR    ASM
                                  ------------  ----------   ----------  --------
<S>                               <C>           <C>          <C>         <C> 
EXPENSES
---------
Flight operations                 $ 47,998,000        45.6%   $1,565.85    3.38c
Aircraft and traffic servicing      22,825,000        21.7%      744.63    1.61c
Maintenance                         23,606,000        22.4%      770.10    1.66c
Promotion and sales                 21,038,000        20.0%      686.33    1.48c
General and administrative           4,754,000         4.5%      155.09     .33c
Depreciation and amortization        1,154,000         1.1%       37.65     .08c
Total operating expenses          ------------       -----    ---------  -------
                                  $121,375,000       115.3%   $3,959.65    8.54c
                                  ============       =====    =========  =======
</TABLE>

REVENUES

     General. Airline revenues are primarily a function of the number of
passengers carried and fares charged by the airline. The Company believes that
revenues will gradually increase in a new market over a 60 to 120 day period as
market penetration is achieved. The Company added three new markets during the
nine months ended December 31, 1996 and three during the nine months ended
December 31, 1997.

                                     - 8 -
<PAGE>
 
  The Company's results are highly sensitive to changes in fare levels. Fare
pricing policies have a significant impact on the Company's revenues. Given the
elasticity of passenger demand, the Company believes that increases in fares
will result in a decrease in passenger demand. The Company cannot completely
predict future fare levels, which depend to a substantial degree on actions of
competitors. When sale prices or other price changes are made by competitors in
the Company's markets, the Company believes that it must, in most cases, match
these competitive fares in order to maintain its market share. Passenger
revenues are seasonal in leisure travel markets depending on the markets'
locations and when they are most frequently patronized.

  During the nine months ended December 31, 1997 and 1996, the Company faced
extreme competitive actions by two competitors that maintained hubs at DIA.
During the nine months ended December 31, 1996, the Company competed with United
Airlines with respect to fare competition. During the nine months ended December
31, 1997, the Company, as well as competing with United Airlines for passenger
traffic and on fares, also was forced to compete with Western Pacific in six of
the Company's markets where Western Pacific was offering extremely low fares in
an effort the Company believes was targeted toward increasing load factor and
revenues. The effect of this competition during the nine months ended December
31, 1996 was a low average fare and to a lesser degree, fewer revenue passengers
carried, and during the nine months ended December 31, 1997 fewer revenue
passengers were carried and there was a slight downward effect on the average
fare. Western Pacific discontinued all flight operations on February 4, 1998 and
has announced its intention to liquidate its business.

  The Company's average fares for the three months ended December 31, 1997 and
1996 were $101 and $86, respectively.  Management believes that the increase in
the average fare during the three months ended December 31, 1997 over the prior
comparable period was largely a result of the Company's focus on increasing
business travelers, an increase in the average length of haul and stage length,
and reduced fare competition from United Airlines, offset by low pricing by
Western Pacific.  Effective October 1, 1997, the U.S. Congress reduced the 10%
excise tax  to 9% but added a per-flight-segment fee of $1 on domestic flights.
The tax decreases to 8% October 1, 1998 and to 7.5% on October 1, 1999.  The
per-flight-segment fee increases to $2 effective October 1, 1998, $2.25
effective October 1, 1999 and thereafter increases in annual amounts of 25 cents
until it reaches $3 effective October 1, 2002.


  Passenger Revenue.  Passenger revenues totaled $101,564,000 for the nine
months ended December 31, 1997 compared to $81,591,000 for the nine months ended
December 31, 1996, or an increase of 24.5%. Competition increased dramatically
during the months of July through December, 1997 when Western Pacific began
operations at DIA and even more significantly during the months of October
through December 1997 once the Company's merger and code share agreements with
Western Pacific were terminated.  This increased competition had a negative
impact on the number of revenue passengers carried. The number of revenue
passengers carried was 987,000 for the nine months ended December 31, 1997
compared to 851,000 for the nine months ended December 31, 1996 or an increase
of 16%.  The Company had an average of  11.8 aircraft in service during the nine
months ended December 31, 1997 compared to an average of 9.1 aircraft in service
during the nine months ended December 31, 1996 for an increase in ASMs of
389,905,000 or 37.8%.  The average fare for the nine months ended December 31,
1997 was $98 compared to the average fare for the nine months ended December 31,
1996 of $92.

  An airline's break-even load factor is the passenger load factor that will
result in operating revenues being equal to operating expenses, assuming
constant revenue per passenger mile and expenses.  For the three months ended
December 31, 1997, the Company's break-even load factor was 67.5% compared to a
passenger load factor of 49.4%.  For the three months ended December 31, 1996,
the Company's break-even load factor was 73.1% compared to a passenger load
factor of 54.6%.  The Company's break-even load factor decreased from the prior
comparable period largely as a result of an increase in its average fare to $101
during the three months ended December 31, 1997 from $86 during the three months
ended December 31, 1996.

  The Company's load factor decreased from 58.7% to 55.7% for the nine months
ended December 31, 1997 from the prior comparable period.  Management believes
that its load factor for the nine months ended December 31, 1997 was adversely
affected by increased competition from Western Pacific and new routes added
during November and December 1997.  Management believes that the Company's load
factors will increase as a result of  

                                     - 9 -
<PAGE>
 
Western Pacific's termination of all air service effective February 4, 1998 but
is unable to predict the extent of such load factor improvement.

  Cargo revenues, consisting of revenues from freight and mail service, totaled
$2,008,000 and $1,317,000 for the nine months ended December, 1997 and 1996,
representing 1.9% and 1.6% of total operating revenues, respectively. This
adjunct to the passenger business is highly competitive and depends heavily on
aircraft scheduling, alternate competitive means of same day delivery service
and schedule reliability.

  Other revenues, comprised principally of interline handling fees, liquor sales
and excess baggage fees, totaled $1,685,000 and $527,000 or 1.6% and .6% of
total operating revenues for the nine months ended December 31, 1997 and 1996,
respectively.  The increase for the nine months ended December 31, 1997 over the
prior comparable period is due to the increase in ticket handling fees
associated with the code share agreement with Western Pacific.  Ticket handling
fees are earned by the ticketing airline to offset ticketing costs incurred on
segments ticketed on the flight operated by the Company's code share partner.
The Company recognized approximately $857,000 in ticket handling fees associated
with its code share agreement with Western Pacific during the nine months ended
December 31, 1997.  The costs which offset this revenue are included in sales
and promotion expenses.  These interline handling fees and related costs were
insignificant following the termination of the code share agreement with Western
Pacific effective November 16, 1997.

OPERATING EXPENSES

  Operating expenses include those related to flight operations, aircraft and
traffic servicing, maintenance, promotion and sales, general and administrative
and depreciation and amortization. Operating expenses as a percentage of revenue
for the three months ended December 31, 1997 and 1996 were 135.2% and 133%,
respectively. Total operating expenses increased to 115.3% of revenue for the
nine months ended December 31, 1997 compared to 111.7% of revenue for the nine
months ended December 31, 1996. Operating expenses increased as a percentage of
revenue as the Company's revenue was adversely effected by lower load factors
caused by increased competition and the Company also experienced higher average
aircraft lease expenses on its newer larger aircraft, higher maintenance
expenses associated with its in-house maintenance operation which began in
September 1996, and increased maintenance expenses associated with the Boeing
737-200 aircraft, and increased general and administrative expenses associated
with the Western Pacific merger.

  Flight Operations.  Flight operations expenses include all expenses related
directly to the operation of the aircraft including fuel, lease and insurance
expenses, pilot and flight attendant compensation, in flight catering, crew
overnight expenses, flight dispatch and flight operations administrative
expenses. Flight operations expenses of $47,998,000 and $38,094,000 were 45.6%
and 45.7% of total revenue for the nine months ended December 31, 1997 and 1996,
respectively, or an increase of 26%.

  Aircraft fuel expenses include both the direct cost of fuel including taxes as
well as the cost of delivering fuel into the aircraft.  Aircraft fuel costs of
$17,478,000 for 23,918,000 gallons used and $15,839,000 for 19,028,000 gallons
used resulted in an average fuel cost of 73.1c and 83.2c per gallon and
represented 36.4% and 41.6% of total flight operations expenses for the nine
months ended December 31, 1997 and 1996, respectively.  The average fuel cost
per gallon decreased for the nine months ended December, 1997 from the
comparable prior period due to an overall decrease in the cost of fuel.  Fuel
prices are subject to change weekly as the Company does not purchase supplies in
advance for inventory.  Fuel consumption for the nine months ended December 31,
1997 and 1996 averaged 780 and 801 gallons per block hour, respectively.  Fuel
consumption per block hour decreased as a result of more fuel efficient aircraft
and an increase in the average length of haul.

  Aircraft lease expenses, excluding short-term aircraft lease expenses, totaled
$17,041,000 (16.2% of total revenue) and $9,159,000 (11% of total revenue) for
the nine months ended December 31, 1997 and 1996, respectively, or an increase
of 86.1%.  The increase is partially attributable to the increase in the average
number of aircraft in service to 11.8 from 9.1, or 29.7%, for the nine months
ended December 31, 1997 and 1996, respectively, and largely due to higher lease
expenses for larger and newer Boeing 737-300 aircraft added to the fleet.  In
August 1996, the Company entered into short-term lease agreements in order to
add a partial spare to its fleet to improve the Company's on-time performance
and completion factors and to substitute for aircraft in the Company's fleet
that 

                                    - 10 -
<PAGE>
 
were rotated out of service for scheduled maintenance.  Total expenses
associated with the short-term lease agreements totaled $2,231,000 for the
months of August through December 1996 and none during the nine months ended
December 31, 1997.  Because of the increase in the Company's fleet size, the
Company at certain times uses one of its aircraft as a spare and has rescheduled
its major maintenance cycles to coincide with lesser traveled months.

  Aircraft insurance expenses totaled $2,075,000 (2% of total revenue) and
$1,950,000 (2.3% of total revenue) for the nine months ended December 31, 1997
and 1996, respectively, or an increase of  6.4%.  Aircraft insurance expenses
decreased as a percentage of revenue as a result of competitive pricing in the
aircraft insurance industry, the Company's favorable experience rating since it
began flight operations in July 1994 and economies of scale due to the increase
in fleet size.

  Pilot and flight attendant salaries totaled $6,948,000 and $5,434,000 or 6.8%
and 6.7% of passenger revenue for the nine months ended December 31, 1997 and
1996, respectively, or an increase of 27.9%.  Pilot and flight attendant
compensation increased principally as a result of a 29.7% increase in the
average number of aircraft in service and an increase of 28.8% in block hours.
During each of the nine months ended December 31, 1997 and 1996, the Company
added three leased aircraft to its fleet.   The Company pays pilot and flight
attendant salaries for training consisting of approximately six and three weeks,
respectively, prior to scheduled increases in service, causing the compensation
expense for the nine months ended December 31, 1997 and 1996 to appear high in
relationship to the average number of aircraft in service.  When the Company is
not in the process of adding aircraft to its system, it expects that pilot and
flight attendant expense per aircraft will normalize.  With a scheduled
passenger operation, and with salaried rather than hourly crew compensation, the
Company's expenses for flight operations are largely fixed, with flight catering
and fuel expenses the principal exception.

  Aircraft and Traffic Servicing. Aircraft and traffic servicing expenses were
$22,825,000 and $18,819,000 for the nine months ended December 31, 1997 and
1996, respectively, and represented 21.7% and 22.5% of total revenue. These
include all expenses incurred at airports served by the Company, as well as
station operations administration and flight operations ground equipment
maintenance.  Station expenses include landing fees, facilities rental, station
labor and ground handling expenses.  Station expenses as a percentage of revenue
decreased during the nine months ended December 31, 1997 over the nine months
ended December 31, 1996 as a result of the Company's rental costs (in
particular, gate rentals at DIA), which are largely fixed costs, remaining
relatively constant as compared to the increase in revenue and more of its
"above wing" (including passenger check-in at ticket counters, concourse gate
operations and cabin cleaning) operations being performed by Company personnel
rather than by third party suppliers. The Company began its own "above wing"
operations at Los Angeles International Airport in June 1996, Chicago (Midway)
in July 1996, Seattle-Tacoma in August 1996, and El Paso, Texas effective
October 1996. Aircraft and traffic servicing expenses will increase with the
addition of new cities; however, the increased existing gate utilization at DIA
is expected to reduce per unit expenses.

  Maintenance.  Maintenance expenses of $23,606,000 and $17,106,000 were 22.4%
and 20.5% of total revenue for the nine months ended December 31, 1997 and 1996,
respectively. These include all maintenance, labor, parts and supplies expenses
related to the upkeep of the aircraft. Routine maintenance is charged to
maintenance expense as incurred while major engine overhauls and heavy
maintenance checks are accrued each quarter.  Maintenance cost per block hour
was $770 and $719 for the nine months ended December 31, 1997 and 1996,
respectively.  Continental Airlines had been providing routine aircraft
maintenance services for the Company at Denver.  Continental discontinued this
service in mid-September 1996.  As a result of the discontinued service, the
Company hired its own aircraft mechanics to perform routine maintenance and
subleased a portion of a hangar from Continental at DIA in which to perform this
work.  The performance of this work by the Company, together with the cost of
leasing adequate hangar space, initially increased the Company's maintenance
cost per block hour.  Management believes that these costs will normalize as it
adds additional aircraft to its fleet.  Additionally, maintenance expenses have
increased with respect to routine maintenance on the Boeing 737-200 aircraft,
which are older, higher maintenance aircraft.

During the three months ended December 31, 1997 and 1996, the Company revised
the timing of its scheduled maintenance and related estimates for its engine
maintenance reserves.  The revised estimate resulted in an additional reserve
accrual of approximately $835,000 and $533,000, respectively, which approximates
$75 and 

                                    - 11 -
<PAGE>
 
$66 of the total maintenance cost per block hour of $818 and $860 for the three
months ended December 31, 1997 and 1996, respectively.

  Promotion and Sales.  Promotion and sales expenses totaled $21,038,000 and
$15,004,000 and were 20.7% and 18.4% of passenger revenue for the nine months
ended December 31, 1997 and 1996, respectively.  These include advertising
expenses, telecommunications expenses, wages and benefits for reservationists
and reservations supervision as well as marketing management and sales
personnel. Credit card fees, travel agency commissions and computer reservations
costs are included in these costs. The promotion and sales expenses per
passenger were $21.32 and $17.63 for the nine months ended December 31, 1997 and
1996, respectively.  The Company's promotion and sales expenses per passenger
increased largely as a result of the code share agreement with Western Pacific,
under which the Company incurred additional communications, computer
reservation, credit card and interline handling fees for the code share
agreement, and increased advertising expenses. These expenses were offset, in
part, by interline handling fees earned which are included in other revenues.
Expenses associated with the code share agreement will be insignificant after
December 31, 1997. The Company offers mileage credits on Continental Airlines
OnePass mileage program. The Company's expense associated with the OnePass
program has increased as it has become more mature and more passengers have
become aware of the Company's participation in the OnePass program.
Additionally, the increase in business travelers, who generally participate in
mileage programs more than leisure travelers, has also caused an increase in the
OnePass expense.

  Advertising expenses of $2,336,000 were 2.3% of passenger revenue for the nine
months ended December 31, 1997, compared to approximately $1,491,000 or 1.8% of
passenger revenue for the nine months ended December 31, 1996. Advertising
expenses increased as a percentage of passenger revenue as the Company increased
advertising in response to increased fare competition from the entry into DIA
and continuing operations of Western Pacific and the Company's entry into three
east coast cities.

  General and Administrative. General and administrative expenses for the nine
months ended December 31, 1997 and 1996 totaling $4,754,000 and $3,253,000 were
4.5% and 3.9% of total revenue, respectively.  These expenses include the wages
and benefits for the Company's executive officers and various other
administrative personnel. Legal and accounting expenses, supplies and other
miscellaneous expenses are also included in this category.  Included in general
and administrative expenses during the nine months ended December 31, 1997 are
one time expenses of approximately $513,000 associated with the terminated
Merger Agreement with Western Pacific.

  Depreciation and Amortization. Depreciation and amortization expense of
$1,154,000 and $886,000 were approximately 1.1% of total revenue for the nine
months ended December 31, 1997 and 1996, respectively.  These expenses include
depreciation of office equipment, ground station equipment, and other fixed
assets of the Company.  Amortization of start-up and route development costs are
not included as these expenses have been expensed as incurred.

  Nonoperating Income (Expenses).  Total net nonoperating income totaled
$463,000 for the nine months ended December 31, 1997 compared to $831,000 for
the nine months ended December 31, 1996, or a decrease of 44.3%, principally a
result of a decrease in interest income.  Interest income decreased from the
prior comparable period as a result of a decrease in cash associated with the
net loss incurred during the nine months ended December 31, 1997.

  Expenses per ASM.  The Company's expenses per ASM for the nine months ended
December 31, 1997 and 1996 were 8.54c and 9.04c, respectively, or a decrease of
5.5%.  Expenses per ASM decreased from the prior comparable period as a result
of  the economies of scale as the fixed costs were spread across a larger base
of operations and the average ASMs per aircraft have increased as the Company
adds planes with more seating capacity as compared to its earlier fleet
additions.  Expenses per ASM are influenced to some degree by the utilization of
aircraft and by the seating configuration that each airline employs. For
example, with the 108 seat all coach seating configuration selected by the
Company on its first five Boeing 737-200 aircraft, the expenses per ASM of the
Company are higher by 11% when compared with the 120 seat alternative used by
many carriers.  The Company's average seats per aircraft for the nine months
ended December 31, 1997 were 122 as compared to 117 seats per aircraft for the
nine months ended December 31, 1996.

                                    - 12 -
<PAGE>
 
LIQUIDITY AND CAPITAL RESOURCES

  The Company's balance sheet reflected cash and cash equivalents of $2,927,000
at December 31, 1997 and $10,286,000 at March 31, 1997.  At December 31, 1997,
total current assets were $31,747,000 as compared to $45,327,000 of total
current liabilities, resulting in a working capital deficit of $13,581,000.  At
March 31, 1997, total current assets were $31,470,000 as compared to $32,745,000
of total current liabilities, resulting in a working capital deficit of
$1,275,000.  The $12,306,000 increase in the working capital deficit is a result
of the Company's operating losses during the nine months ended December 31,
1997.

  Cash used by operating activities for the nine months ended December 31, 1997
was $9,919,000.   This is largely attributable primarily to the Company's net
loss for the period, an increase in restricted investments, trade receivables,
security, maintenance and other deposits, and prepaid expenses and other assets,
offset by increases in accounts payable, air traffic liability, other accrued
expenses and accrued maintenance expenses.  Cash used by operating activities
for the nine months ended December 31, 1996 was $5,727,000. This is attributed
primarily to the Company's net loss for the period, increases in security,
maintenance, and other deposits, and a decrease in air traffic liability, offset
by increases in accounts payable, other accrued expenses and accrued maintenance
expenses.

  Cash used in investing activities for the nine months ended December 31, 1997
was $2,877,000, largely a result of capital expenditures for rotable aircraft
components and aircraft leasehold costs and improvements for the aircraft
delivered in May, August and September 1997.  Additionally, the Company secured
the aircraft delivered in August 1997 and February 1998 with letters of credit
totaling $1,500,000.  In turn the Company received $650,000 during the nine
months ended December 31, 1997 from the aircraft lessor that was previously on
deposit to secure these aircraft.  The Company's restricted investments
increased $1,500,000 to collateralize the letter of credit. Cash used in
investing activities for the nine months ended December 31, 1996 was $8,000,000.
The Company invested $2,145,000 in short-term investments comprised of
government backed agencies with maturities of one year or less.  Restricted cash
increased $600,000 for collateral for a letter of credit given to an aircraft
lessor in lieu of a cash security deposit for the Boeing 737-300 aircraft leased
in November 1996.  The Company spent $2,292,000 for security deposits for the
two Boeing 737-200 aircraft leased during the nine months ended December 31,
1996 and partial security deposits for the four aircraft that were delivered
during the Company's fiscal year ending March 31, 1998.  The Company also
acquired property and equipment totaling $2,963,000 for equipment, spare engine
and aircraft parts, and improvements to the Boeing 737-300s and the two
additional Boeing 737-200s leased during the nine months ended December 31,
1996, maintenance equipment for its maintenance facility which began operations
in September 1996, ground equipment, computer equipment, and leasehold
improvements.

  Cash provided by financing activities for the nine months ended December 31,
1997 and 1996 was $5,437,000 and $15,999,000, respectively. During the nine
months ended December 31, 1997, the Company received $415,000 from the exercise
of stock options.  In December 1997, the Company sold $5,000,000 of 10% senior
secured notes.  In connection with this transaction, the Company issued warrants
to purchase 1,000,000 shares of Common Stock at $3.00 per share, and an
additional 750,000 warrants were issued in February 1998.  The Company completed
a private placement of its Common Stock that resulted in net proceeds of
approximately $2,721,000 in April 1996.  In May 1996, the Company notified the
warrant holders of the Company's intent to exercise its redemption rights with
respect to warrants not exercised on or before June 28, 1996.  The Company
received net proceeds from the exercise of these warrants of approximately
$13,278,000.

  Five of the Company's Boeing 737-200 aircraft are leased under operating
leases which originally expired in 1997.  The leases provide for up to two
renewal terms of two years each with no increase in basic rent.  The Company
renewed the leases for the first two-year renewal period and these leases now
expire in 1999. Under these leases, the Company was required to make security
deposits and makes deposits for maintenance of these leased aircraft. Security
and maintenance deposits totaled $625,000 and $3,361,000, respectively, at
December 31, 1997.

                                    - 13 -
<PAGE>
 
  The Company in November 1995 leased two Boeing 737-300 aircraft under
operating leases which expire in 2000.  The Company was required to make
security deposits and makes deposits for maintenance of these leased aircraft.
Security and maintenance deposits for these aircraft totaled $1,505,000 and
$3,420,000, respectively, at December 31, 1997. These aircraft are compliant
with FAA Stage 3 noise regulations.  The Company has issued to each of the two
Boeing 737-300 aircraft lessors a warrant to purchase 100,000 shares of the
Company's Common Stock at an aggregate purchase price of $500,000.  These
warrants, to the extent not earlier exercised, expire upon the expiration dates
of the aircraft leases.

  In June 1996, the Company leased two additional Boeing 737-200 aircraft under
operating leases which expire in 2001.  In November 1997, the Company
renegotiated one these leases and extended the lease term one year to 2002 and
received a slight reduction in the monthly rental payment.  The Company was
required to make security deposits for these aircraft totaling $858,000.
Commencing July 1996, the Company was required to make monthly deposits for
maintenance of these leased aircraft.  At December 31, 1997, these deposits
totaled $2,220,000.  These aircraft were "hush-kitted" by the lessor at its
expense during 1996 making them compliant with FAA Stage 3 noise regulations.
The Company has issued to the aircraft lessor two warrants, each of which
entitles the lessor to purchase 70,000 shares of the Company's Common Stock at
an aggregate purchase price of $503,300 per warrant.

  In November 1996, the Company took delivery of a leased Boeing 737-300
aircraft which it placed in scheduled service in December 1996.  The lease term
for this aircraft is eight years from date of delivery.  The Company was
required to secure the aircraft lease with a letter of credit totaling $600,000.
The Company is also required to make monthly cash deposits for maintenance of
this aircraft.  As of December 31, 1997, the Company had made maintenance
deposits associated with this leased aircraft totaling $1,054,000.

  During the fiscal year ended March 31, 1997, the Company entered into four
operating lease agreements for four additional new Boeing 737-300 aircraft with
scheduled deliveries during the Company's fiscal year ended March 31, 1998.  The
Company took delivery of these aircraft in May, August, and September 1997 and
in February 1998.  In connection with the Boeing 737-300 aircraft delivered in
September 1997, the Company has issued to the lessor a warrant to purchase
55,000 shares of Common Stock at an aggregate purchase price of $385,000.  As of
December 31, 1997, the Company had made cash security deposits totaling
$1,616,000 with respect to these aircraft.  During the nine months ended
December 31, 1997, the Company secured two of these aircraft with letters of
credit totaling $1,500,000 and, in turn, $650,000 of cash security deposits was
returned to the Company.  The Company's restricted cash increased by $1,500,000
to collateralize the letters of credit. Two each of the four lease agreements
have seven and eight year terms from date of delivery, respectively.  Two of the
four leases have up to two one year renewal terms and a third may be renewed for
up to three one year terms. The Company is required to pay monthly cash deposits
to each aircraft lessor based on flight hours and cycles operated to provide
funding of future scheduled maintenance costs.  As of December 31, 1997, the
Company had deposits associated with these aircraft totaling $2,248,000.

  Management is continuing to take steps designed to improve the Company's
operating performance. Effective January 28, 1997, the Company introduced
electronic ticketing.  Passengers who call the Company directly are given the
option of receiving a paper ticket or a confirmation number in lieu of a paper
ticket.  Electronic ticketing will decrease certain costs including postage and
handling costs, ticket stock, and reduced revenue accounting fees because the
accounting for electronic ticketing is automated. The Company intends to provide
passengers the option to book flight reservations through the Company's Internet
site.

  The Company is exploring various means to increase revenue and reduce
expenses.  The Company is considering revenue enhancement initiatives which
would include the introduction of first class service, developing new marketing
alliances, and ad hoc charters.  Expense reduction programs include the
installation of an upgraded flight operations, maintenance, and parts inventory
management information system which will be installed during the first six
months of 1998.  Other potential cost savings programs include an in-house
revenue accounting system, performing its own "below-wing" operations at DIA,
and bringing certain heavy maintenance checks in-house.  These items will
require capital expenditures and will be implemented if the Company is able to
increase its capital resources.  The Company believes that it can reduce its
airport operating expenses at certain cities by performing its 

                                    - 14 -
<PAGE>
 
own "above wing" operations rather than continuing to contract out these
services. Since April 1996, conversions to the Company's own "above wing"
operations occurred at nine of the Company's 14 stations.

  The Company has a contract with a credit card processor that requires the
Company to provide a letter of credit to match the total amount of air traffic
liability associated with credit card customers if the Company does not meet
certain financial covenants and if the credit card processor requests that the
collateral be increased.  As of September 30, 1997, the Company was in default
with respect to these financial covenants.  In November 1997, the credit card
processor required an increase in the collateral amount from its present level
of $2,000,000 to $4,000,000 which increased the Company's current restricted
investment balance accordingly.  As of February 9, 1998, the Company could be
required to increase the collateral amount to $5,238,000.

  Most of the Company's suppliers currently provide goods, services and
operating equipment on open credit terms.  If such terms were modified to
require immediate cash payments, the Company's cash position would be materially
and adversely affected.

  The Company's goal is to lease a number of additional aircraft to serve
additional cities from Denver. The Company believes that such a route system
would facilitate a greater volume of connecting traffic as well as a stable base
of local traffic and offset the impact of higher DIA-related operating costs
through more efficient gate utilization.  The expansion of the Company's
operations will entail the hiring of additional employees to staff flight and
ground operations in its new markets and significant initial costs such as
deposits for airport and aircraft leases. Because of the expansion of the
Company's business, and competition within the airline industry, which often
requires quick reaction by management to changes in market conditions, the
Company likely will require additional capital to maintain or further expand its
business.

  Effective February 11, 1997, United Airlines commenced service using its low
fare United "Shuttle" between Denver and Phoenix, Arizona, and on October 31,
1997 service to Salt Lake City was added,  markets in which the Company provides
service, as well as additional United Airlines flights in certain of the
Company's other markets. This additional competition, as well as other
competitive activities by United and other carriers, have had and could continue
to have a material adverse effect on the Company's revenues and results of
operations.

  Western Pacific has filed a motion in its bankruptcy case to recover 
approximately $334,000 from the Company.  The disputed amount was collected by 
the Company in October 1998 through the Airline Clearing House ("ACH") and 
represents expenses incurred by the Company during its code share arrangement 
with Western Pacific.  Western Pacific maintains that the Company was not 
authorized to recover pre-petition expenses through the ACH.  The Company does 
not dispute the assertion that the expenses were incurred pre-petition.  
However, the Company maintains that it was authorized to collect the expenses by
certain orders entered by the Bankruptcy Court in connection with Western 
Pacific's assumption of its agreement with the ACH and by the Bankruptcy 
Code's provisions on setoffs.  A hearing has not been scheduled in connection 
with this matter, and, if later scheduled, Management is unable to determine 
what the result of the hearing might be.

  The Company has incurred substantial operating losses in 1997 and 1996 and has
a substantial working capital deficit at December 31, 1997. In addition, the
Company has substantial contractual commitments for leasing and maintaining
aircraft. Because of the Company's losses in 1997, the Company likely will
require, and is actively seeking to obtain, additional capital or other
financing to fund its operations. The Company and a lender that made a
$5,000,000 loan to the Company in December 1997 had been engaged in negotiations
regarding up to $10,000,000 additional financing. These negotiations terminated
in February 1998 without a commitment for additional financing. Management
believes that Western Pacific's recent cessation of service and its announced
intention to liquidate its business should facilitate the Company's ability to
raise capital. The Company is engaged in discussions with several other
potential financing sources and is considering other financing options. However,
there can be no assurance that additional capital would be available when needed
or available on acceptable terms. If the Company's operating performance does
not improve in the near term, or if the Company is unable to obtain additional
capital, it may need to curtail operations or may be unable to continue as a
going concern.

YEAR 2000 COMPLIANCE

  The Company uses information systems in managing and conducting certain
aspects of its business. The Company's systems are currently not Year 2000
compliant, and the Company is in the process of ascertaining the modifications
that will be necessary for its systems to attain Year 2000 compliance. While the
Company believes it will be able to perform or obtain the necessary
modifications on a timely basis, the Company has not determined the costs that
will be necessary for attaining compliance, and there is no assurance that such
costs will not be significant Failure by the Company or its suppliers to achieve
Year 2000 compliance on a timely basis could have a significant impact on the
Company's business, financial condition and operating results.

                                    - 15 -
<PAGE>
 
                          PART II.  OTHER INFORMATION


Item 4:   Submission of Matters to a Vote of Security Holders
          ---------------------------------------------------

          The annual meeting of shareholders of the Company was held on December
          11, 1997, at which a quorum for the transaction of business was
          present. Three matters were voted upon, as described below.

          (a) Members of the Company's Board of Directors elected at the meeting
              were Samuel D. Addoms, B LaRae Orullian, Paul S. Dempsey, William
              B. McNamara and D. Dale Browning. The votes cast with respect to
              each nominee were as follows:

                 8,459,626 "For" Mr. Addoms;         159,435 "Withheld"
                 8,453,160 "For" Ms. Orullian;       165,901 "Withheld"
                 8,458,739 "For" Mr. Dempsey;        160,322 "Withheld"
                 8,452,958 "For" Mr. McNamara;       166,104 "Withheld"
                 8,455,953 "For" Mr. Browning;       163,109 "Withheld"

          (b) Shareholders voted to ratify an increase in the number of shares
              of authorized common stock from 20,000,000 to 40,000,000. There
              were 8,106,824 votes "for" this proposal, 436,044 "against", and
              76,193 abstentions.
              
          (c) Shareholders ratified the appointment of KPMG Peat Marwick LLP as
              the Company's independent public accountants for the year ending
              March 31, 1998. There were 8,490,336 votes "for" this proposal,
              84,322 "against", and 44,403 abstentions.

Item 5:   Other Information
          -----------------

          On December 12, 1997, Arthur H. Amron was appointed as a member of the
          Company's board of directors.

Item 6:   Exhibits and Reports on Form 8-K
          --------------------------------

          (a) Exhibits

              27.1   Financial Data Schedule

          (b) Reports on Form 8-K

              On December 12, 1997 the Company filed a Report on Form 8-K, Item
              5, Other Events.


                                     - 16 -
<PAGE>
 
                                  SIGNATURES

In accordance with the requirements of the Exchange Act of 1934, the registrant
has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.


                                 FRONTIER AIRLINES, INC.


Date: February 16, 1998          By: /s/ Samuel D. Addoms
                                     -------------------------------------------
                                 Samuel D. Addoms, Principal Executive
                                 Officer and Principal Financial Officer


Date: February 16, 1998          By: /s/ Elissa A. Potucek
                                     -------------------------------------------
                                 Elissa A. Potucek, Principal Accounting Officer