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 September 30, 2004.   |_|
    TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES
      EXCHANGE ACT OF 1934   Commission file
number: 1-12805   FRONTIER AIRLINES, INC.(Exact name of registrant as specified in its
  charter)  Colorado
    
    84-1256945(State or other jurisdiction of incorporated or
      organization)
    (I.R.S. Employer Identification No.)   7001 Tower Road,
      Denver, CO
    80249(Address of principal executive offices)
    (Zip Code)  Issuers telephone
number including area code: (720) 374-4200  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 |_|  Indicate by check
mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of
the Exchange Act). Yes |X| No |_|  The number of shares
of the Companys common stock outstanding as of October 29, 2004 was
35,612,942.     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
      andResults of Operations
    8
Item 3.
  Quantitative and Qualitative Disclosures About Market Risk
    32
Item 4.
Controls and Procedures
    33

PART II. OTHER INFORMATION


Item 4.
    Submission of Matters to a Vote of Security Holders

    34
Item 6.
    Exhibits and Reports on Form 8-K
    34

FINANCIAL INFORMATION
FRONTIER AIRLINES, INC.Balance Sheets(Unaudited)
September 30,2004
    
    March 31,2004AssetsCurrent
      assets:Cash and cash equivalents
    
    
    $
    160,053,113
    
    $
    188,608,729Short-term investments
    
    
    
    
    
    
    2,000,000Restricted investments
    
    
    
    32,694,165
    
    
    24,732,024Receivables, net of allowance for doubtful
      accounts of $359,000and $225,000 at September 30,
      2004 and March 31, 2004, respectively
    
    
    
    33,865,613
    
    
    26,308,352Income tax receivable
    
    
    
    155,250
    
    
    262,091Security and other deposits
    
    
    
    1,831,250
    
    
    215,000Prepaid expenses and other assets
    
    
    
    18,932,493
    
    
    13,093,499Inventories, net of allowance of $4,154,000
      and $2,991,000at September 30, 2004 and March
      31, 2004, respectively
    
    
    
    7,998,996
    
    
    6,126,573Assets held for sale
    
    
    
    1,862,305
    
    
    Deferred tax assets
    
    
    
    7,625,886
    
    
    8,386,390Total
      current assets
    
    
    
    265,019,071
    
    
    269,732,658Property and equipment, net
    
    
    
    466,542,043
    
    
    440,470,566Security and other deposits
    
    
    
    18,148,128
    
    
    16,261,690Aircraft pre-delivery payments
    
    
    
    14,351,540
    
    
    28,329,370Restricted investments
    
    
    
    11,621,329
    
    
    9,971,212Deferred loan expenses and other assets
    
    
    
    8,439,596
    
    
    4,940,102$
    784,121,707
    
    $
    769,705,598Liabilities and Stockholders' EquityCurrent liabilities:Accounts payable
    
    
    $
    31,971,910
    
    $
    31,167,168Air traffic liability
    
    
    
    93,959,514
    
    
    83,339,560Other accrued expenses
    
    
    
    48,491,832
    
    
    44,660,868Current portion of long-term debt
    
    
    
    17,724,598
    
    
    17,386,538Deferred revenue and other
currentliabilities
    
    
    
    5,553,706
    
    
    5,105,136Total
      current liabilities
    
    
    
    197,701,560
    
    
    181,659,270Long-term debt
    
    
    
    292,048,540
    
    
    280,000,752Deferred tax liability
    
    
    
    26,943,208
    
    
    32,225,150Deferred revenue and other liabilities
    
    
    
    16,344,818
    
    
    17,878,800Total
      liabilities
    
    
    
    533,038,126
    
    
    511,763,972Stockholders equity:Preferred stock, no par value, authorized
      1,000,000 shares; none issued
    
    
    
    
    
    
    Common stock, no par value, stated value of
      $.001 per share,authorized
      100,000,000; 35,609,942 and 35,597,442 issued and outstandingat September 30,
      2004 and March 31, 2004, respectively
    
    
    
    35,610
    
    
    35,597Additional paid-in capital
    
    
    
    185,171,920
    
    
    185,078,386Unearned ESOP shares
    
    
    
    (727,545
    )
    
    (2,182,634
    )Other comprehensive income (loss)
    
    
    
    111,222
    
    
    (137,785
    )Retained earnings
    
    
    
    66,492,374
    
    
    75,148,062251,083,581
    
    
    257,941,626$
    784,121,707
    
    $
    769,705,598See accompanying
notes to financial statements.
-1-FRONTIER
AIRLINES, INC. Statements of Operations (Unaudited)Three Months Ended
    
    Six Months EndedSeptember
      30,2004
    
    September
      30,2003
    
    September
      30,2004
    
    September
      30,2003Revenues:Passenger
    
    
    $
    188,173,402
    
    $
    159,946,008
    
    $
    357,610,883
    
    $
    298,955,554Passenger-regional partner
    
    
    
    21,909,768
    
    
    
    
    
    41,036,213
    
    
    Cargo
    
    
    
    1,246,009
    
    
    2,369,222
    
    
    2,673,504
    
    
    4,058,247Other
    
    
    
    3,105,595
    
    
    3,305,382
    
    
    5,537,244
    
    
    4,972,761Total
      revenues
    
    
    
    214,434,774
    
    
    165,620,612
    
    
    406,857,844
    
    
    307,986,562Operating
      expenses:Flight
      operations
    
    
    
    31,772,649
    
    
    24,347,276
    
    
    63,561,813
    
    
    49,320,594Aircraft
      fuel expense
    
    
    
    44,715,069
    
    
    25,900,551
    
    
    84,718,251
    
    
    48,501,320Aircraft
      lease expense
    
    
    
    22,307,400
    
    
    17,920,718
    
    
    41,198,226
    
    
    35,112,721Aircraft
      and traffic servicing
    
    
    
    31,229,011
    
    
    26,077,456
    
    
    62,921,215
    
    
    50,074,966Maintenance
    
    
    
    19,261,318
    
    
    17,120,004
    
    
    38,155,915
    
    
    34,997,976Promotion
      and sales
    
    
    
    19,250,304
    
    
    16,269,951
    
    
    39,088,980
    
    
    30,989,948General
      and administrative
    
    
    
    12,033,531
    
    
    9,784,376
    
    
    22,327,775
    
    
    18,720,012Operating
      expenses-regional partner
    
    
    
    23,568,339
    
    
    
    
    
    44,861,774
    
    
    Aircraft
      lease and facility exit costs
    
    
    
    
    
    
    4,659,058
    
    
    
    
    
    5,345,353Losses on
      sales of assets, net
    
    
    
    74,404
    
    
    1,883,466
    
    
    604,231
    
    
    1,902,055Impairment and other related charges
    
    
    
    4,213,565
    
    
    
    
    
    4,601,200
    
    
    Depreciation and amortization
    
    
    
    6,606,142
    
    
    5,870,300
    
    
    13,224,581
    
    
    11,057,498Total
      operating expenses
    
    
    
    215,031,732
    
    
    149,833,156
    
    
    415,263,961
    
    
    286,022,443Operating
      income (loss)
    
    
    
    (596,958
    )
    
    15,787,456
    
    
    (8,406,117
    )
    
    21,964,119Nonoperating income (expense):Interest income
    
    
    
    785,699
    
    
    524,468
    
    
    1,356,269
    
    
    937,831Interest expense
    
    
    
    (3,112,843
    )
    
    (4,034,387
    )
    
    (6,020,859
    )
    
    (7,868,780
    )Early Extinguishment of debt
    
    
    
    
    
    
    (8,742,489
    )
    
    
    
    
    (8,742,489
    )Emergency Wartime SupplementalAppropriations Act compensation
    
    
    
    
    
    
    
    
    
    
    
    
    15,024,188Other, net
    
    
    
    (103,353
    )
    
    (30,470
    )
    
    (168,717
    )
    
    (187,974
    )Total nonoperating income (expense), net
    
    
    
    (2,430,497
    )
    
    (12,282,878
    )
    
    (4,833,307
    )
    
    (837,224
    )Income (loss) before in come tax (benefit) expense
    
    
    
    (3,027,455
    )
    
    3,504,578
    
    
    (13,239,424
    )
    
    21,126,895Income tax (benefit) expense
    
    
    
    (945,485
    )
    
    1,506,855
    
    
    (4,583,736
    )
    
    8,195,482Net income (loss)
    
    
    $
    (2,081,970
    )
    $
    1,997,723
    
    $
    (8,655,688
    )
    $
    12,931,413Earnings (loss) per share:Basic
    
    
    $
    (0.06
    )
    $
    0.07
    
    $
    (0.24
    )
    $
    0.43Diluted
    
    
    $
    (0.06
    )
    $
    0.06
    
    $
    (0.24
    )
    $
    0.40Weighted
      average shares ofcommon
      stock outstandingBasic
    
    
    
    35,609,942
    
    
    30,440,589
    
    
    35,606,702
    
    
    30,133,571Diluted
    
    
    
    35,609,942
    
    
    33,620,352
    
    
    35,606,702
    
    
    32,514,599See accompanying
notes to financial statements.
-2-FRONTIER
AIRLINES, INC.Statements of Stockholders' Equity and Other Comprehensive
Income (Loss) For the Year Ended March 31, 2004 and the Six Months Ended
September 30, 2004
CommonStock
    
    Additionalpaid-incapital
    
    UnearnedESOPshares
    
    Accumulatedothercomprehensiveincome (loss)
    
    Retainedearnings
    
    Totalstockholders'equityShares(000s)
    
    Statedvalue**Balances, March 31,
      2003**
    
    29,674
    
    $
    29,674
    
    $
    96,424,525
    
    $
    
    
    $
    
    
    $
    62,512,927
    
    $
    158,967,126Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,635,135
    
    
    12,635,135Other comprehensive loss -unrealized loss on
      derivativeinstruments, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    (137,785
    )
    
    
    
    
    (137,785
    )Total
      comprehensive income
    
    
    
    
    
    
    12,497,350Sale of
      common stock, net ofoffering costs of $257,000
    
    5,050
    
    
    5,050
    
    
    81,072,096
    
    
    
    
    
    
    
    
    
    
    
    81,077,146Exercise of common stock options
    
    227
    
    
    227
    
    
    1,000,487
    
    
    
    
    
    
    
    
    
    
    
    1,000,714Tax benefit from exercises ofcommon stock options
    
    
    
    
    
    
    
    1,261,937
    
    
    
    
    
    
    
    
    
    
    
    1,261,937Equity adjustment for the repricingof warrants issued in
      conjunctionwith a debt agreement
    
    
    
    
    
    
    
    116,701
    
    
    
    
    
    
    
    
    
    
    
    116,701Contribution of common stockto employees stock ownership
      plan
    
    646
    
    
    646
    
    
    5,202,640
    
    
    (5,203,286
    )
    
    
    
    
    
    
    
    Amortization of employee stockcompensation
    
    
    
    
    
    
    
    
    
    
    3,020,652
    
    
    
    
    
    
    
    
    3,020,652**Balances, March 31, 2004**
    
    35,597
    
    $
    35,597
    
    $
    185,078,386
    
    $
    (2,182,634
    )
    $
    (137,785
    )
    $
    75,148,062
    
    $
    257,941,626Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8,655,688
    )
    
    (8,655,688
    )Other comprehensive income -unrealized gain on
      derivativeinstruments, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    249,007
    
    
    
    
    
    249,007Total comprehensive loss(8,406,681
    )Exercise of common stock options
    
    13
    
    
    13
    
    
    63,350
    
    
    
    
    
    
    
    
    
    
    
    63,363Tax benefit from exercises ofcommon stock options
    
    
    
    
    
    
    
    18,212
    
    
    
    
    
    
    
    
    
    
    
    18,212Amortization of employee stockcompensation
    
    
    
    
    
    
    
    
    
    
    1,455,089
    
    
    
    
    
    
    
    
    1,455,089Capital contribution
    
    
    
    
    
    
    
    11,972
    
    
    
    
    
    
    
    
    
    
    
    11,972**Balances, September 30, 2004**
    
    35,610
    
    $
    35,610
    
    $
    185,171,920
    
    $
    (727,545
    )
    $
    111,222
    
    $
    66,492,374
    
    $
    251,083,581See accompanying
notes to financial statements.
-3-FRONTIER
AIRLINES, INC.For the Six Months Ended September 30, 2004 Statements of
Cash Flows (Unaudited)Six Months EndedSeptember
      30,2004
    
    September
      30,2003Cash flows from operating activities:Net
      income (loss)
    
    
    $
    (8,655,688
    )
    $
    12,931,413Adjustments to reconcile net income (loss) tonet cash
      provided by (used in) operating activities:ESOP
      compensation expense
    
    
    
    1,455,089
    
    
    1,197,879Depreciation and amortization
    
    
    
    13,224,581
    
    
    11,057,498Depreciation and amortization - regional partner
    
    
    
    154,448
    
    
    Impairment recorded on long-lived assets
    
    
    
    3,267,145
    
    
    Provision
      recorded on inventories
    
    
    
    1,334,056
    
    
    Accelerated amortization of deferred loan costs
    
    
    
    
    
    
    8,742,489Deferred
      tax expense
    
    
    
    (4,660,292
    )
    
    10,276,774Unrealized derivative gain
    
    
    
    (3,634,452
    )
    
    (358,743
    )Loss on
      disposal of equipment
    
    
    
    635,137
    
    
    2,246,836Changes
      in operating assets and liabilities:Restricted investments
    
    
    
    (11,863,958
    )
    
    (8,841,604
    )Receivables
    
    
    
    (7,557,261
    )
    
    3,670,552Income taxes receivable
    
    
    
    106,841
    
    
    24,295,793Security and other deposits
    
    
    
    (117,560
    )
    
    (2,719,470
    )Prepaid expenses and other assets
    
    
    
    (5,838,994
    )
    
    (353,541
    )Inventories
    
    
    
    (3,206,479
    )
    
    178,491Deferred loan expenses and other assets
    
    
    
    504,521
    
    
    2,128,447Accounts payable
    
    
    
    804,742
    
    
    (7,079,641
    )Air
      traffic liability
    
    
    
    10,619,954
    
    
    18,175,098Other accrued expenses
    
    
    
    4,186,561
    
    
    18,421,955Deferred revenue and other liabilities
    
    
    
    (1,085,412
    )
    
    2,957,579Net cash
      provided by (used in) operating activities
    
    
    
    (10,327,021
    )
    
    96,927,805Cash
      flows from investing activities:Decrease in short-term investments
    
    
    
    2,000,000
    
    
    Aircraft lease and purchase deposits, net
    
    
    
    10,592,702
    
    
    1,956,333Decrease in restricted investments
    
    
    
    2,251,700
    
    
    617,700Proceeds from the sale of aircraft and equipment
    
    
    
    63,904,333
    
    
    32,126,940Capital expenditures
    
    
    
    (109,119,426
    )
    
    (126,572,253
    )Net
      cash used in investing activities
    
    
    
    (30,370,691
    )
    
    (91,871,280
    )Cash
      flows from financing activities:Net
      proceeds from issuance of common stock
    
    
    
    75,335
    
    
    81,951,518Proceeds from long-term borrowings
    
    
    
    22,000,000
    
    
    76,500,000Payment of financing fees
    
    
    
    (319,087
    )
    
    (1,039,347
    )Principal payments on long-term borrowings
    
    
    
    (9,614,152
    )
    
    (64,016,792
    )Net cash
      provided by financing activities
    
    
    
    12,142,096
    
    
    93,395,379Net
      increase (decrease) in cash and cash equivalents
    
    
    
    (28,555,616
    )
    
    98,451,904Cash and
      cash equivalents, beginning of period
    
    
    
    188,608,729
    
    
    102,880,404Cash and
      cash equivalents, end of period
    
    
    $
    160,053,113
    
    $
    201,332,308See accompanying
notes to financial statements.
-4-FRONTIER
AIRLINES, INC.
Notes to Financial Statements
September 30, 2004

(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 and should be
read in conjunction with the Companys Annual Report on Form 10-K/A for the year
ended March 31, 2004. 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 six
months ended September 30, 2004 are not necessarily indicative of the results
that will be realized for the full year.

(2)
    Impairment and Other Related Charges
Inventories

Inventories consist of expendable aircraft spare parts, supplies and
aircraft fuel and are stated at the lower of cost or market. Inventories are
accounted for on a first-in, first-out basis and are charged to expense as they
are used. During the fiscal years ended March 31, 2004 and 2003, we recorded a
provision for excess Boeing expendable parts inventory totaling $618,000 and
$2,478,000, respectively. The provision in 2004 was principally the result of
declining resale values of excess Boeing expendable parts. We monitor resale
values for Boeing parts quarterly using estimates obtained from our vendors. We
believe the decline in resale values of parts for the less fuel efficient Boeing
737-200 and Boeing 737-300 aircraft was due in part to increasing fuel prices
during the past six months. The provision in 2003 was principally the result of
returning five Boeing aircraft to the lessors in 2003, and our decision during
the quarter ended March 31, 2003 to discontinue the use of our three remaining
Boeing 737-200 aircraft in advance of the end of the term of their respective
leases. This decision was in response to the significant decline in passenger
demand as a result of the war in Iraq and the continuing economic recession. The
provision was based on estimates of the resale value of the excess expendable
parts, which were obtained from our vendors. We evaluated our estimated usage of
these parts and the current resale value at June 30, 2004 and September 30, 2004
and recorded additional provisions of $388,000 and $946,000, respectively. The
cost of WTI crude oil increased from $36.92 per barrel at June 30, 2004 to
$49.56 per barrel at September 30, 2004. As of October 29, 2004, the cost of
WTI crude oil was $51.78 per barrel. As a result of the increase in the cost of
fuel, we have accelerated the dates that we would cease using the Boeing
aircraft from September 2005 to mid April 2005. Because of the earlier
termination date of the use of the Boeing aircraft, our estimated usage of these
parts decreased, contributing to the amount of the additional provision recorded
during the three months ended September 30, 2004.


Impairment of Long-Lived Assets


We record impairment losses on long-lived assets used in operations when
indicators of impairment are present and the undiscounted future cash flows
estimated to be generated by those assets are less than the carrying amount of
the assets. If an impairment occurs, the loss is measured by comparing the fair
value of the asset to its carrying amount. During the year ended March 31, 2004,
we recorded an impairment charge of $3,047,000 for engines and rotable parts that
support the  Boeing 737-300 aircraft. The impairment charge for rotables
totaling $901,000 was principally the result of declining resale values for
Boeing rotables. We monitor resale values for Boeing rotables quarterly using
estimates obtained from our vendors. The impairment for the two Boeing 737-300
spare engines totaling $2,146,000 was the result of our decision in the fourth
quarter of fiscal 2004 to sell these remaining spare engines. The impairment was
based on three separate quotes from third parties. During the three months ended
September 30, 2004, we recorded an additional impairment totaling $818,000 as a
result of a letter of intent we entered into for the sale of one of the engines
scheduled in December 2004 as a result of a further market decline.
Additionally, we recorded an additional impairment on all other Boeing 737-200
and 300 parts totaling $2,449,000 which we believe is largely a result of the
rising fuel prices the nation has experienced during the period since June 30,
2004 coupled with the Boeing 737 fleet which has high fuel burn rates. No
further indicators of impairment exist at September 30, 2004 based on current
resale values.

The Company uses the criteria in SFAS No. 144 to determine when an asset
is classified as held for sale. Upon classification as held for sale, the
long-lived asset or asset group is measured at the lower of its carrying amount
or fair value less cost to sell, depreciation is ceased and the asset or asset
group is separately presented on the balance sheet.



-5-FRONTIER
AIRLINES, INC.
Notes to Financial Statements
September 30, 2004

Stock-Based Compensation

The Company follows Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees(APB 25) and related Interpretations in
accounting for its employee stock options and follows the disclosure provisions
of Statement of Financial Accounting Standards No. 123 (SFAS 123). The Company
applies APB 25 and related Interpretations in accounting for its plans.
Accordingly, no compensation cost is recognized for options granted at a price
equal to the fair market value of the Common Stock on the date of grant. Pro
forma information regarding net income and earnings per share is required by
SFAS 123, which also requires that the information be determined as if the
Company has accounted for its employee stock options under the fair value method
of that Statement. The fair value of each option grant was estimated on the date
of grant using the Black-Scholes option valuation model. Had compensation cost
for the Companys stock-based compensation plan been determined using the fair
value of the options at the grant date, the Companys pro forma net income
(loss) and earnings (loss) per share would be as follows:

Three Months Ended
    
    Six Months EndedSeptember 30,2004
    
    September 30,2003
    
    September 30,2004
    
    September 30,2003Net income (loss) as reported
    
    
    $
    (2,081,970
    )
    $
    1,997,723
    
    $
    (8,655,688
    )
    $
    12,931,413Less:total compensation expensedetermined under fair value method, net of tax
    
    
    
    418,357
    
    
    618,914
    
    
    1,277,822
    
    
    1,066,657Pro forma
      net income (loss) as reported
    
    
    $
    (2,500,327
    )
    $
    1,378,809
    
    $
    (9,933,510
    )
    $
    11,864,756Earnings
      (loss) per share, basic:As
      reported
    
    
    $
    (0.06
    )
    $
    0.07
    
    $
    (0.24
    )
    $
    0.43Pro
      forma
    
    
    $
    (0.07
    )
    $
    0.05
    
    $
    (0.28
    )
    $
    0.39Earnings
      (loss) per share, diluted:As
      reported
    
    
    $
    (0.06
    )
    $
    0.06
    
    $
    (0.24
    )
    $
    0.40Pro
      forma
    
    
    $
    (0.07
    )
    $
    0.04
    
    $
    (0.28
    )
    $
    0.36
In March 2004, the FASB released an exposure draft of Proposed
Statement of Financial Accounting Standards Share-Based Payment, an amendment of
FASB Statements No. 123 and 95. If adopted, the proposed statement could be
effective for the Company beginning with the fiscal year ending March 31, 2006,
and would require the Company to  record expense for the fair value of stock
options, unless effectiveness is delayed. The Company is currently evaluating any
impact this proposal will have  on stock-based compensation expense and how the
expense under the proposal may differ from amounts currently disclosed under
SFAS 123.

Reclassifications

Certain prior year
amounts have been reclassified to conform to the current year presentation.

(3)
    Long-term Debt
During the six months ended September 30, 2004, the Company borrowed
$22,000,000 for the purchase of one Airbus A318 aircraft. The aircraft loan has
a term of 12 years and is payable in monthly installments of $153,041 as of
September 30, 2004, including interest, payable in arrears, with a floating
interest rate adjusted quarterly based on LIBOR plus a margin of 1.95% for an
overall rate of 3.5% at September 30, 2004. At the end of the term, there is a
balloon payment of $2,640,000. A security interest in the aircraft secures the
loan.


-6-FRONTIER
AIRLINES, INC.
Notes to Financial Statements
September 30, 2004


(4)
    Stockholders Equity
Common Stock
The Company recorded an approximate $12,000 capital contribution paid to
the Company in August 2004 as a result of recovering short-swing profits from a
shareholder in accordance with Section 16(b) of the Securities Exchange Act of
1934. Section 16(b) provides that any profit realized by an insider (defined as
an officer, director or principal shareholder of an issuer) from a purchase and
sale, or any sale and purchase, of an equity security of the issuer within any
period of less than six months are recoverable by the issuer, irrespective of
the intention of the insider in entering into such transaction.

(5)
    Stock Option Plan
On September 9, 2004, the shareholders of the Company approved the
Frontier Airlines, Inc. 2004 Equity Incentive Plan (the 2004 Plan). The 2004
Plan allows the Compensation Committee to grant stock options, stock
appreciation rights, restricted stock or stock units, any or all of which may be
made contingent upon the achievement of performance criteria. Subject to plan
limits, the Compensation Committee has the discretionary authority to determine
the size and timing of an award and the vesting requirements related to the
award. The addition of performance-based requirements will be considered in
light of the Companys total compensation program and the significant level of
pay-for-performance requirements already incorporated into its compensation
practices.





-7-Item2: 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. and the expectations of our company and management. All
statements included in this report that address activities, events or
developments that we expect, believe, intend or anticipate will or may occur in
the future, are forward-looking statements. When used in this document, the
words estimate, anticipate, project and similar expressions are intended
to identify forward-looking statements. Forward-looking statements are
inherently subject to risks and uncertainties, many of which cannot be predicted
with accuracy and some of which might not even be anticipated. These risks and
uncertainties include, but are not limited to: the timing of, and expense
associated with, expansion and modification of our operations in accordance with
our business strategy or in response to competitive pressures or other factors;
failure of our new markets to perform as anticipated; the inability to obtain
sufficient gates at Denver International Airport to accommodate the expansion of
our operations; general economic factors and behavior of the fare-paying public
and its potential impact on our liquidity; terrorist attacks or other incidents
that could cause the public to question the safety and/or efficiency of air
travel; operational disruptions, including weather; industry consolidation; the
impact of labor disputes; enhanced security requirements; changes in the
governments policy regarding relief or assistance to the airline industry; the
economic environment of the airline industry generally; increased federal
scrutiny of low-fare carriers generally that may increase our operating costs or
otherwise adversely affect us; actions of competing airlines, such as increasing
capacity and pricing actions of United Airlines (United) and other competitors
and other actions taken by United either in or out of bankruptcy protection; the
availability of suitable aircraft, which may inhibit our ability to achieve
operating economies and implement our business strategy; the unavailability of,
or inability to secure upon acceptable terms, debt or operating lease financing
necessary to acquire aircraft which we have ordered; issues relating to our
transition to an Airbus aircraft fleet; and uncertainties regarding aviation
fuel prices. Because our business, like that of the airline industry generally,
is characterized by high fixed costs relative to revenues, small fluctuations in
our yield per available seat mile (RASM) or cost per available seat mile
(CASM) can significantly affect operating results.These risks and factors are not exclusive, and we
undertake no obligation to publicly update or revise any forward-looking
statements to reflect events or circumstances that may arise after the date of
this filing. Additional information regarding these and other factors may be
contained in our SEC filings, including without limitation, our Form 10-K for
our fiscal year ended March 31, 2004.

General

Now in our eleventh year of operations, we are a low cost, affordable
fare airline operating in a hub and spoke model connecting cities coast to coast
primarily through our hub at Denver International Airport (DIA). We are the
second largest jet service carrier at DIA based on departures. As of October 29,
2004, we, in conjunction with Frontier JetExpress operated by Horizon Air
Industries, Inc. (Horizon), operate routes linking our Denver hub to 42 U.S.
cities spanning the nation from coast to coast and to five cities in Mexico. In
April 2004, we began our first expansion of point-to-point routes outside of our
DIA hub with three routes from our focus city Los Angeles, California and added
an additional route in May 2004. In July 2004, we began our first point-to-point
routes to Cancun, Mexico with one weekly round-trip frequency from Kansas City
and Salt Lake City.

We were organized in February 1994 and began flight operations in July
1994 with two leased Boeing 737-200 aircraft. We have since expanded our fleet
in service to 47 aircraft as of October 29, 2004 (33 of which we lease and 14 of
which we own), consisting of six Boeing 737-300s, 34 Airbus A319s, and seven
Airbus A318s. In May 2001, we began a fleet replacement plan to replace our
Boeing aircraft with new purchased and leased Airbus jet aircraft, a transition
we now expect to complete by mid-April 2005. As of November 1, 2003, we no
longer operate Boeing 737-200 aircraft. During the three and six months ended
September 30, 2004, we increased mainline capacity by 38.5% and 35.3% over the
prior comparable periods. In the three and six months ended September 30, 2004,
we increased mainline passenger traffic by 31.9% and 35.2% over the prior
comparable periods.

In September 2003, we signed a 12-year agreement with Horizon, under
which Horizon will operate up to nine 70-seat CRJ 700 aircraft under our
Frontier JetExpress brand. The service began on January 1, 2004 with three
aircraft in service and one spare aircraft. This service replaced our codeshare
arrangement with Mesa Airlines which terminated on December 31, 2003. We have
increased JetExpress aircraft to a total of eight aircraft in service and one
spare aircraft. We control the scheduling of this service. We reimburse Horizon
for its expenses related to the operation plus a margin. The agreement provides
for financial incentives, penalties and changes to the margin based on
performance of Horizon and our financial performance. As of October 29, 2004,
Frontier JetExpress provides service to Tucson, Arizona; Little Rock, Arkansas;
Boise, Idaho; Billings, Montana; Omaha, Nebraska; Albuquerque, New Mexico;
Oklahoma City, Oklahoma; El Paso, Texas and Spokane, Washington, and supplements
our mainline service to San Jose, California and Austin, Texas.-8-We currently use up to 18 gates on Concourse A at DIA. Together with our
regional jet codeshare partner, Frontier JetExpress, we use these 18 gates and
share use of up to four common use regional jet parking positions to operate
approximately 198 daily system mainline flight departures and arrivals and 50
Frontier JetExpress daily system flight departures and arrivals.

During the six months ended September 30, 2004 and as of October 29,
2004, we added departures from DIA to the following cities with commencement
dates as follows:

Destination
    Commencement DateWashington, D.C. (Dulles International)
    April 11, 2004Anchorage, Alaska (1)
    May 9, 2004Billings, Montana (2)
    May 23, 2004Spokane, Washington (2)
    May 23, 2004Philadelphia, Pennsylvania
    May 23, 2004Nashville, Tennessee
    June 20, 2004Little Rock, Arkansas (2)
    October 10, 2004(1)
    Service is seasonal and terminated on September 25,
      2004.(2)
    Flights operated exclusively by Frontier JetExpress.
On April 11, 2004, we began our first significant point-to-point routes
from our focus city Los Angeles, California. We began service from Los Angeles
International Airport to the following cities with commencement dates as
follows:

Destination
    Commencement DateKansas City, Missouri
    April 11, 2004Minneapolis/St. Paul, Minnesota
    April 11, 2004St. Louis, Missouri
    April 11, 2004Philadelphia, Pennsylvania
    May 23, 2004
In August 2004, we terminated non-stop service between Los Angeles
International Airport and Minneapolis/St. Paul and reduced non-stop service to
St. Louis and Kansas City to adjust for seasonal demand and poor operating
results. We terminated service to St. Louis in October 2004.

On July 3, 2004, we began our first point-to-point routes to Mexico with
one weekly round-trip frequency to Cancun, Mexico from Kansas City and from Salt
Lake City. We intend to increase service to Cancun from Kansas City to three
weekly round-trip frequencies in November 2004 and to begin three weekly
round-trip frequencies from Nashville and Austin in November 2004. We have also
filed an application with the U.S. Department of Transportation (DOT) for
authorization to serve Cancun from St. Louis.

We began Frontier JetExpress service to Little Rock, Arkansas from our
DIA hub with two daily round-trip frequencies and terminated our service to
Ontario, California on October 10, 2004.

Our filings with the Securities and Exchange Commission are available at
no cost on our website, www.frontierairlines.com, in the Investor
Relations folder contained in the section titled About Frontier. These reports
include our annual report on Form 10-K, our quarterly reports on Form 10-Q,
current reports on Form 8-K, Section 16 reports on Forms 3, 4 and 5, and any
related amendments or other documents, and are typically available within two
days after we file the materials with the SEC.

Our corporate headquarters are located at 7001 Tower Road, Denver,
Colorado 80249. Our administrative office telephone number is 720-374-4200 and
our reservations telephone number is 800-432-1359.

-9-Overview

We intend to continue our focused growth strategy, which includes a fleet
transition from a Boeing fleet to an all Airbus fleet. We intend to operate an
all Airbus fleet by mid-April 2005. One of the key elements of this strategy is
to produce cost savings because crew training is standardized for aircraft of a
common type, maintenance issues are simplified, spare parts inventory is
reduced, the Airbus aircraft are more fuel efficient, and crew scheduling is
more efficient. As of October 29, 2004, we have remaining firm purchase
commitments for 13 Airbus aircraft and intend to lease as many as 10 additional
A318 or A319 aircraft from third party lessors over the next three years. We
intend to use these additional aircraft to either replace Boeing aircraft being
retired, provide service to new markets and/or to add frequencies to existing
markets that we believe are underserved.

The airline industry continues to be intensely competitive. We expect
competition will remain intense. Business and leisure travelers continue to
reevaluate their travel budgets and remain highly price sensitive. Increased
competition has prompted aggressive strategies from competitors through
discounted fares and sales promotions. Additionally, the intense competition has
created financial hardships for some of our competitors that have been forced to
reduce capacity, seek debt restructuring and wage and salary concessions, or
have been forced into bankruptcy protection.

We believe we have a proven management team and a strong company culture
and will continue to focus on differentiating the product and service we provide
to our passengers. We intend for our product and service to be affordable,
flexible, accommodating, and comfortable. This begins with our employees who
strive to offer friendly customer service and keep operations running
efficiently, which we believe leads to lower operating costs.

Quarter in
Review

During the three months ended September 30, 2004, we had a net loss of
$2,082,000. This was driven by rising fuel costs and a decline in our average
fare as we continue to operate in a highly competitive environment. We have seen
a sharp rise in fuel costs since January 2004, and fuel costs may continue to
increase. Our average fuel cost per gallon was $1.29 during the three months
ended September 30, 2004 compared to $1.01 during the three months ended
September 30, 2003, an increase of 27.7%. The average cost of fuel for the three
months ended September 30, 2004 includes an unrealized derivative gain of
$4,111,000 or 11.9¢ per gallon compared to an unrealized loss of $276,000 reflected
in the  average cost of fuel for the three months ended September 30, 2003 of
less than 1¢ per gallon for the three months ended September 30, 2003.

Fleet and
Operational Upgrades

In October 2004, the Federal Aviation Administration authorized us to
conduct Category II and limited Category III instrument approaches with our
Airbus fleet. This reduces the previous landing minimums from 200 feet decision
height and 1,800 feet runway visual range (RVR) to 100 feet decision height
and 1,200 feet RVR for Category II approaches and 100 feet decision height and
1,000 feet RVR for Category III approaches. In six months, the approach minimums
for Category III will be further reduced to 700 feet RVR and by October 2005 we
anticipate authority to conduct Category III approaches to 300 feet RVR. We
expect these new landing minimum criteria to substantially reduce the number of
diversions required because of low visibility at a number of the cities we
serve.

We have entered into separate agreements with CFMI and Airbus to increase
the engine thrust and maximum take-off weight on ten of our owned A319 aircraft
to improve the operational performance of these aircraft. This sub-fleet of ten
aircraft is comprised of eight aircraft that are currently in service and two
aircraft that will be delivered in the summer of 2005. The agreement with CFMI
calls for an increase in the maximum rated thrust from a base of 22,000 to
23,500 pounds per engine. The agreement with Airbus calls for an increase in the
maximum take-off weight from a base of 70 tons to 75.5 tons. The improved
operational performance will allow us to serve longer haul markets (i.e., Denver
to Anchorage and Los Angeles to Philadelphia) while carrying a full passenger
load. We expect the modifications on the eight aircraft currently in our fleet
to be completed by March 2005. The two aircraft scheduled for delivery in the
summer of 2005 will be delivered from the factory with the additional thrust and
take-off weight upgrades.



-10-Highlights from the Quarter


    We celebrated our ten year anniversary of flight operations in July
      2004.
    We celebrated 25 million passenger enplanements.
    We took delivery of two new Airbus A319 aircraft and retired three
      Boeing B737 aircraft, for a net decrease of one aircraft and a fleet total
      of 45 available for revenue service by quarters end.
    We announced plans to serve Little Rock, Arkansas with two daily
      found-trip flights.
    We received authorization to fly from Austin and Nashville to Cancun,
      Mexico, bringing the only scheduled non-stop service to those
      markets.
    We entered into a three-year agreement as the official airline of the
      University of Wyomings Athletic Department.
    We received Federal Aviation Administration approval to begin Category
      II/III certification, which allows our pilots to land in reduced
      visibility.
    We commenced W!ld Blue Yonder Magazine and programming, an
      enhancement to our on-board DIRECTV
  offering.
Delivery of one of our new Airbus aircraft scheduled for September 2004
was delayed as it sustained minor damage during a test flight. Our need to
assess the damage and determine what, if any, repairs were needed delayed the
delivery of this aircraft. As a result of this delay, we removed this aircraft
from our flight schedule, resulting in a reduction in our ASMs. While we
took delivery of this aircraft at the end of October 2004, it will not be built
into our flight schedule until December 2004. In the interim, it is being used
as a spare aircraft and will be available for ad hoc charters.


-11-Results of
Operations

The following table provides certain of our financial and operating data
for the three and six months ended September 30, 2004 and 2003.

Three Months EndedSeptember 30,
    
    Six Months Ended September 30,2004
    
    2003
    
    2004
    
    2003Selected Operating Data:Passenger
      revenue (000s) (1)Mainline
    
    
    $
    188,173
    
    $
    159,946
    
    $
    357,611
    
    $
    298,956Regional
      Partner(2)
    
    
    
    21,910
    
    
    
    
    
    41,036
    
    
    System
      Combined
    
    
    $
    210,083
    
    $
    159,946
    
    $
    398,647
    
    $
    298,956Revenue
      passengers carried (000s)Mainline
    
    
    
    1,750
    
    
    1,457
    
    
    3,334
    
    
    2,684Regional
      Partner(2)
    
    
    
    233
    
    
    
    
    
    436
    
    
    System
      Combined
    
    
    
    1,983
    
    
    1,457
    
    
    3,770
    
    
    2,684Revenue
      passenger miles (RPMs) (000s) (3)Mainline
    
    
    
    1,738,682
    
    
    1,318,020
    
    
    3,303,269
    
    
    2,443,253Regional
      Partner(2)
    
    
    
    142,157
    
    
    
    
    
    273,711
    
    
    System
      Combined
    
    
    
    1,880,839
    
    
    1,318,020
    
    
    3,576,980
    
    
    2,443,253Available
      seat miles (ASMs) (000s) (4)Mainline
    
    
    
    2,383,573
    
    
    1,721,397
    
    
    4,595,225
    
    
    3,396,447Regional
      Partner(2)
    
    
    
    190,771
    
    
    
    
    
    368,349
    
    
    System
      Combined
    
    
    
    2,574,344
    
    
    1,721,397
    
    
    4,963,574
    
    
    3,396,447Passenger
      load factor (5)Mainline
    
    
    
    72.9
    %
    
    76.6
    %
    
    71.9
    %
    
    71.9
    %Regional
      Partner(2)
    
    
    
    74.5
    %
    
    
    
    
    74.3
    %
    
    System
      Combined
    
    
    
    73.1
    %
    
    76.6
    %
    
    72.1
    %
    
    71.9
    %Mainline
      break-even load factor (6)
    
    
    
    73.4
    %
    
    67.7
    %
    
    73.5
    %
    
    66.6
    %Mainline
      block hours (7)
    
    
    
    47,086
    
    
    33,908
    
    
    91,060
    
    
    67,035Mainline
      departures
    
    
    
    18,937
    
    
    15,078
    
    
    36,587
    
    
    29,688Mainline
      average seats per departure
    
    
    
    130
    
    
    133
    
    
    130
    
    
    133Mainline
      average stage length
    
    
    
    968
    
    
    858
    
    
    966
    
    
    860Mainline
      average length of haul
    
    
    
    994
    
    
    905
    
    
    991
    
    
    910Mainline
      average daily block hour utilization (8)
    
    
    
    11.2
    
    
    10.0
    
    
    11.4
    
    
    10.1Yield per
      RPM (cents) (9) (10)Mainline
    
    
    
    10.74
    
    
    12.09
    
    
    10.76
    
    
    12.19Regional
      Partner(2)
    
    
    
    15.41
    
    
    
    
    
    14.99
    
    
    System
      Combined
    
    
    
    11.10
    
    
    12.09
    
    
    11.09
    
    
    12.19Total
      yield per RPM (cents) (11)Mainline
    
    
    
    11.07
    
    
    12.57
    
    
    11.07
    
    
    12.61Regional
      Partner(2)
    
    
    
    15.41
    
    
    
    
    
    14.99
    
    
    System
      Combined
    
    
    
    11.40
    
    
    12.57
    
    
    11.37
    
    
    12.61Yield per
      ASM (cents) (10) (12)Mainline
    
    
    
    7.84
    
    
    9.26
    
    
    7.74
    
    
    8.77Regional
      Partner(2)
    
    
    
    11.48
    
    
    
    
    
    11.14
    
    
    System
      Combined
    
    
    
    8.11
    
    
    9.26
    
    
    7.99
    
    
    8.77Total
      yield per ASM (cents) (13)Mainline
    
    
    
    8.08
    
    
    9.62
    
    
    7.96
    
    
    9.07Regional
      Partner(2)
    
    
    
    11.48
    
    
    
    
    
    11.14
    
    
    System
      Combined
    
    
    
    8.33
    
    
    9.62
    
    
    8.20
    
    
    9.07

-12-Three Months Ended September 30,
    
    Six Months Ended September 30,2004
    
    2003
    
    2004
    
    2003Selected Operating Data (continued):Cost per
      ASM (cents)Mainline
    
    
    
    8.03
    
    
    8.70
    
    
    8.06
    
    
    8.42Regional
      Partner(2)
    
    
    
    12.35
    
    
    
    
    
    12.18
    
    
    System
      Combined
    
    
    
    8.35
    
    
    8.70
    
    
    8.37
    
    
    8.42Mainline
      fuel expense per ASM (cents)
    
    
    
    1.87
    
    
    1.50
    
    
    1.84
    
    
    1.43Mainline
      cost per ASM excludingfuel
      (cents) (14)
    
    
    
    6.16
    
    
    7.20
    
    
    6.22
    
    
    6.99Mainline
      average fare (15)
    
    
    $
    100.05
    
    $
    103.40
    
    $
    100.26
    
    $
    103.98Mainline
      average aircraft in service
    
    
    
    45.5
    
    
    37.0
    
    
    43.5
    
    
    36.3Mainline
      aircraft in service at end of period
    
    
    
    44.0
    
    
    38.0
    
    
    44.0
    
    
    38.0Mainline
      average age of aircraft at end of period
    
    
    
    2.7
    
    
    4.6
    
    
    2.7
    
    
    4.6

(1)
    Passenger revenue includes revenues for non-revenue passengers,
      charter revenues, administrative fees, and revenue recognized for unused
      tickets that are greater than one year from issuance date. The incremental
      revenue from passengers connecting from regional flights to mainline
      flights is included in our mainline passenger revenue.(2)
    In September 2003, we signed a 12-year agreement with Horizon,
      under which Horizon operates up to nine 70-seat CRJ 700 aircraft under our
      Frontier JetExpress brand. The service began on January 1, 2004 and
      replaced our codeshare with Mesa Airlines which terminated on December 31,
      2003. In accordance with Emerging Issues Task Force No. 01-08,
      Determining Whether an Arrangement Contains a Lease (EITF 01-08), we
      have concluded that the Horizon agreement contains leases as the agreement
      conveys the right to use a specific number and specific type of aircraft
      over a stated period of time. Therefore, we record revenues and expenses
      related to the Horizon agreement gross. Under the Mesa agreement, we
      recorded JetExpress revenues reduced by related expenses net in other
      revenues. JetExpress operations under the Mesa agreement from April 1,
      2003 to December 31, 2003 are not included in regional partner statistics
      in 2003 as the Mesa arrangement was effective prior to May 28, 2003, the
      effective date of EITF 01-08.
Amounts included in other revenues for Mesa for the three and six months
ended September 30, 2004 and 2003 were as follows:

Three Months EndedSeptember 30,
    
    Six Months EndedSeptember 30,2004
    
    2003
    
    2004
    
    2003Mesa revenues (000s)
    
    
    $
    
    
    $
    9,795
    
    $
    
    
    $
    17,642Mesa
      expenses (000s)
    
    
    
    
    
    
    (8,261
    )
    
    
    
    
    (16,036
    )Net
      amount included in other revenues
    
    
    $
    
    
    $
    1,534
    
    $
    
    
    $
    1,606
Mesas revenue passenger miles (RPMs) and available seat miles (ASMs) for
the three months ended September 30, 2004 and 2003 were as follows:

Three
      Months Ended September 30,
    
    Six Months
      EndedSeptember 30,2004
    
    2003
    
    2004
    
    2003Mesa RPMs (000s)
    
    
    
    
    
    
    56,756
    
    
    
    
    
    104,529Mesa ASMs
      (000s)
    
    
    
    
    
    
    69,660
    
    
    
    
    
    138,302
(3)
    Revenue passenger miles, or RPMs, are determined by multiplying
      the number of fare-paying passengers carried by the distance
      flown.(4)
    Available seat miles, or ASMs, are determined by multiplying the
      number of seats available for passengers by the number of miles
      flown.(5)
    Passenger load factor is determined by dividing revenue passenger
      miles by available seat miles.(6)
    Mainline break-even load factor is the passenger load factorfor
      our mainline operations that will result in operating revenues being equal
      to operating expenses, net of certain adjustments, assuming constant yield
      per RPM and no change in ASMs. Break-even load factor as presented
      above may be deemed a non-GAAP financial measure under regulations issued
      by the Securities and Exchange Commission. We believe that presentation of
      break-even load factor calculated after certain adjustments is useful to
      investors because the elimination of special or unusual items allows a
      meaningful period-to-period comparison. Furthermore, in preparing
      operating plans and forecasts we rely on an analysis of break-even load
      factor exclusive of these special and unusual items. Our presentation of
      non-GAAP results should not be viewed as a substitute for our financial or
      statistical results based on GAAP, and other airlines may not necessarily
      compute break-even load factor in a manner that is consistent with our
      computation.


-13-A
      reconciliation of the components of the calculation of the mainline
      break-even load factor is as follows:Three Months Ended September 30,
    
    Six Months Ended September 30,2004
    
    2003
    
    2004
    
    2003(In
      thousands)
    
    (In
      thousands)Net (Income) loss
    
    
    $
    2,082
    
    $
    (1,998
    )
    $
    8,656
    
    $
    (12,931
    )Income tax (expense) benefit
    
    
    
    945
    
    
    (1,507
    )
    
    4,584
    
    
    (8,195
    )Passenger revenue
    
    
    
    188,173
    
    
    159,946
    
    
    357,611
    
    
    298,956Revenue - regional partner
    
    
    
    21,910
    
    
    
    
    
    41,036
    
    
    Charter revenue
    
    
    
    (1,384
    )
    
    (580
    )
    
    (2,040
    )
    
    (1,194
    )Operating expenses - regional partner
    
    
    
    (23,568
    )
    
    
    
    
    (44,862
    )
    
    Passenger revenue - mainline (excluding charter and regional
      partner revenue)required to break even (based on GAAP amounts)
    
    
    $
    188,158
    
    $
    155,861
    
    $
    364,985
    
    $
    276,636Non-GAAP adjustments:Emergency Wartime Supplemental AppropriationsAct compensation, net of bonuses
    
    
    
    
    
    
    
    
    
    
    
    
    13,842Aircraft and facility lease exit costs, net of bonuses
    
    
    
    
    
    
    (4,292
    )
    
    
    
    
    (4,924
    )Early retirement of debt costs, net of bonuses
    
    
    
    
    
    
    (8,624
    )
    
    
    
    
    (8,624
    )(Gains) losses on sales of assets,net of bonuses
    
    
    
    (74
    )
    
    (1,735
    )
    
    (604
    )
    
    (1,752
    )Impairment and other related charges
    
    
    
    (4,214
    )
    
    
    
    
    (4,601
    )
    
    Unrealized derivative gain (loss), net of bonuses
    
    
    
    4,111
    
    
    (254
    )
    
    3,634
    
    
    438Passenger revenue- mainline (excluding charter and regional partner
      revenue)required to break-even (based on adjusted amounts)
    
    
    $
    187,981
    
    $
    140,956
    
    $
    363,414
    
    $
    275,616The
      calculation of the mainline break-even load factor follows:Three Months Ended September 30,
    
    Six Months Ended September 30,2004
    
    2003
    
    2004
    
    2003(In
      thousands)
    
    (In
      thousands)Calculation of mainline break-even load factor using GAAP
      amounts:Passenger revenue (excluding charter and regional partner revenue)
      requiredto
      break even (based on GAAP amounts) ($000s)
    
    
    $
    188,158
    
    $
    155,861
    
    $
    364,985
    
    $
    276,636Mainline yield per RPM (cents)
    
    
    
    10.74
    
    
    12.09
    
    
    10.76
    
    
    12.19Mainline revenue passenger miles (000s) to break even
      assumingconstant yield per RPM
    
    
    
    1,751,937
    
    
    1,289,173
    
    
    3,392,054
    
    
    2,269,368Mainline available seat miles (000s)
    
    
    
    2,383,573
    
    
    1,721,397
    
    
    4,595,225
    
    
    3,396,447Mainline break-even load factor using GAAP amounts
    
    
    
    73.5
    %
    
    74.9
    %
    
    73.8
    %
    
    66.8
    %Calculation of mainline break-even load factor using non-GAAP
      amounts:Passenger revenue (excluding charter and regional partner revenue)
      requiredto
      break even (based on adjusted amounts) ($000s)
    
    
    $
    187,981
    
    $
    140,956
    
    $
    363,414
    
    $
    275,616Mainline yield per RPM (cents)
    
    
    
    10.74
    
    
    12.09
    
    
    10.76
    
    
    12.19Mainline revenue passenger miles (000s) to break even
      assumingconstant yield per RPM
    
    
    
    1,750,289
    
    
    1,165,889
    
    
    3,377,454
    
    
    2,260,993Mainline available seat miles (000's)
    
    
    
    2,383,573
    
    
    1,721,397
    
    
    4,595,225
    
    
    3,396,447Mainline break-even load factor using non-GAAP amounts
    
    
    
    73.4
    %
    
    67.7
    %
    
    73.5
    %
    
    66.6
    %
(7)
    Mainline block hours represent the time between aircraft gate
      departure and aircraft gate arrival.(8)
    Mainline average daily block hour utilization represents the
      total block hours divided by the number of aircraft days in service,
      divided by the weighted average of aircraft in our fleet during that
      period. The number of aircraft includes all aircraft on our operating
      certificate, which includes scheduled aircraft, as well as aircraft out of
      service for maintenance and operational spare aircraft, and excludes
      aircraft removed permanently from revenue service or new aircraft not yet
      placed in revenue service.(9)
    Yield per RPM is determined by dividing passenger revenues
      (excluding charter revenue) by revenue passenger miles.


-14-(10)
    For purposes of these yield calculations, charter revenue is
      excluded from passenger revenue. These figures may be deemed non-GAAP
      financial measures under regulations issued by the Securities and Exchange
      Commission. We believe that presentation of yield excluding charter
      revenue is useful to investors because charter flights are not included in
      RPMs or ASMs. Furthermore, in preparing operating plans and
      forecasts, we rely on an analysis of yield exclusive of charter revenue.
      Our presentation of non-GAAP financial measures should not be viewed as a
      substitute for our financial or statistical results based on GAAP. The
      calculation of passenger revenue excluding charter revenue is as
      follows:
Three
      Months EndedSeptember 30,
    
    Six Months
      EndedSeptember 30,2004
    
    2003
    
    2004
    
    2003Passenger revenues - mainline, as reported
    
    
    $
    188,173
    
    $
    159,946
    
    $
    357,611
    
    $
    298,956Less: charter revenue
    
    
    
    1,384
    
    
    580
    
    
    2,040
    
    
    1,194Passenger
      revenues - mainline excluding charter
    
    
    
    186,789
    
    
    159,366
    
    
    355,571
    
    
    297,762Add: Passenger revenues - regional partner
    
    
    
    21,910
    
    
    
    
    
    41,036
    
    
    Passenger
      revenues, system combined
    
    
    $
    208,699
    
    $
    159,366
    
    $
    396,607
    
    $
    297,762
(11)
    Total yield per RPM is
      determined by dividing total revenues by revenue passenger
      miles.(12)
    Yield per ASM is determined
      by dividing passenger revenues (excluding charter revenue) by available
      seat miles.(13)
    Total yield per ASM is
      determined by dividing total revenues by available seat
      miles.(14)
    This may be deemed a
      non-GAAP financial measure under regulations issued by the Securities and
      Exchange Commission. We believe the presentation of financial information
      excluding fuel expense is useful to investors because we believe that fuel
      expense tends to fluctuate more than other operating expenses, it
      facilitates comparison of results of operations between current and past
      periods and enables investors to better forecast future trends in our
      operations. Furthermore, in preparing operating plans and forecasts, we
      rely, in part, on trends in our historical results of operations excluding
      fuel expense. However, our presentation of non-GAAP financial measures
      should not be viewed as a substitute for our financial results determined
      in accordance with GAAP.(15)
    Mainline average fare excludes revenue included in passenger
      revenue for charter and non-revenue passengers, administrative fees, and
      revenue recognized for unused tickets that are greater than one year from
      issuance date.


-15-The following table provides our operating revenues and expenses for our
mainline operations expressed as cents per total mainline ASMs and as a
percentage of total mainline operating revenues, as rounded, for the three and
six months ended September 30, 2004 and 2003. Regional partner revenues, expenses
and ASMs were excluded from this table to provide comparable amounts to the prior
period presented.

Three Months Ended September 30,
    
    Six Months Ended September 30,2004
    
    2003
    
    2004
    
    2003PertotalASM
    
    %ofRevenue
    
    
    PertotalASM
    
    %ofRevenue
    
    
    PertotalASM
    
    %ofRevenue
    
    
    PertotalASM
    
    %ofRevenueRevenues:Passenger - mainline
    
    
    
    7.90
    
    
    97.7
    %
    
    9.29
    
    
    96.6
    %
    
    7.78
    
    
    97.8
    %
    
    8.80
    
    
    97.1
    %Cargo
    
    
    
    0.05
    
    
    0.7
    %
    
    0.14
    
    
    1.4
    %
    
    0.06
    
    
    0.7
    %
    
    0.12
    
    
    1.3
    %Other
    
    
    
    0.13
    
    
    1.6
    %
    
    0.19
    
    
    2.0
    %
    
    0.12
    
    
    1.5
    %
    
    0.15
    
    
    1.6
    %Total
      revenues
    
    
    
    8.08
    
    
    100.0
    %
    
    9.62
    
    
    100.0
    %
    
    7.96
    
    
    100.0
    %
    
    9.07
    
    
    100.0
    %Operating
      expenses:Flight operations
    
    
    
    1.33
    
    
    16.5
    %
    
    1.41
    
    
    14.7
    %
    
    1.38
    
    
    17.4
    %
    
    1.45
    
    
    16.0
    %Aircraft fuel expense
    
    
    
    1.87
    
    
    23.2
    %
    
    1.50
    
    
    15.7
    %
    
    1.84
    
    
    23.1
    %
    
    1.43
    
    
    15.7
    %Aircraft lease expense
    
    
    
    0.94
    
    
    11.6
    %
    
    1.04
    
    
    10.8
    %
    
    0.90
    
    
    11.3
    %
    
    1.03
    
    
    11.4
    %Aircraft and traffic servicing
    
    
    
    1.31
    
    
    16.2
    %
    
    1.52
    
    
    15.8
    %
    
    1.37
    
    
    17.2
    %
    
    1.47
    
    
    16.3
    %Maintenance
    
    
    
    0.81
    
    
    10.0
    %
    
    0.99
    
    
    10.3
    %
    
    0.83
    
    
    10.4
    %
    
    1.03
    
    
    11.4
    %Promotion and sales
    
    
    
    0.81
    
    
    10.0
    %
    
    0.95
    
    
    9.8
    %
    
    0.85
    
    
    10.7
    %
    
    0.91
    
    
    10.1
    %General and administrative
    
    
    
    0.50
    
    
    6.3
    %
    
    0.57
    
    
    5.9
    %
    
    0.49
    
    
    6.1
    %
    
    0.55
    
    
    6.1
    %Aircraft lease and facility exitcosts
    
    
    
    
    
    
    
    
    
    0.27
    
    
    2.8
    %
    
    
    
    
    
    
    
    0.16
    
    
    1.7
    %Losses on sales of assets, net
    
    
    
    
    
    
    
    
    
    0.11
    
    
    1.1
    %
    
    0.01
    
    
    0.2
    %
    
    0.06
    
    
    0.6
    %Impairment and other relatedcharges
    
    
    
    0.18
    
    
    2.2
    %
    
    
    
    
    
    
    
    0.10
    
    
    1.3
    %
    
    
    
    
    Depreciation and amortization
    
    
    
    0.28
    
    
    3.4
    %
    
    0.34
    
    
    3.6
    %
    
    0.29
    
    
    3.6
    %
    
    0.33
    
    
    3.6
    %Total
      operating expenses
    
    
    
    8.03
    
    
    99.4
    %
    
    8.70
    
    
    90.5
    %
    
    8.06
    
    
    101.3
    %
    
    8.42
    
    
    92.9
    %
Three Months
ended September 30, 2004 and 2003

General

We had a net loss of $2,082,000 or 6¢ per diluted share for the three
months ended September 30, 2004 as compared to net income of $1,998,000, or 6¢
per diluted share for the three months ended September 30, 2003. Included in our
net loss for the three months ended September 30, 2004 were the following
special items on a pre-tax basis: a write down of $4,214,000 of the carrying
value of Boeing expendable inventory, rotable parts, and a spare engine, $74,000
on the sale of assets, offset by an unrealized gain on fuel hedges of
$4,111,000. These items, net of income taxes, decreased our net loss by 1¢ per
diluted  share. Included in our net income for the three months ended September
30, 2003 were the following special items on a pre-tax and profit sharing basis:
write-off of deferred loan costs of $8,742,000 associated with the prepayment of
all but $11,582,000 remaining principal of the government guaranteed loan; a
charge for Boeing aircraft and facility lease exit costs of $4,659,000; loss of
$1,883,000 on the sale of an Airbus aircraft in a sale-leaseback transaction, a
sale of a spare engine, and other assets; and an unrealized derivative loss of
$276,000. These items, net of income taxes and profit sharing, totaled $0.27 per
diluted share.

Our mainline passenger yield per RPM was 10.74¢ and 12.09¢ for the three
months ended September 30, 2004 and 2003, respectively, or a decrease of 11.2%.
Our mainline average fare was $100.05 for the three months ended September 30,
2004 as compared to $103.40 for the three months ended September 30, 2003, a
decrease of 3.2%. Our mainline length of haul was 994 and 905 miles for the
three months ended September 30, 2004 and 2003, respectively, or an increase of
9.8%. Our mainline passenger revenue per available seat mile (RASM) for the
three months ended September 30, 2004 and 2003 was 7.84¢ and 9.26¢,
respectively, a decrease of 15.3%. We believe that our average fare during the
quarter ended September 30, 2004 was negatively impacted as a result of
aggressive pricing actions by our competitors in all of the markets we serve and
is systemic across the entire industry.



-16-Our mainline CASM for the three months ended September 30, 2004 and 2003
was 8.03¢ and 8.70¢, a decrease of .67¢, or 7.7%. Mainline CASM excluding fuel
for the three months ended September 30, 2004 and 2003 was 6.16¢ and 7.20¢, a
decrease of 1.04¢, or 14.4%. Included in mainline CASM excluding fuel for the
three months ended September 30, 2004 and 2003 were special items totaling .18¢
and .38¢, respectively. Mainline CASM excluding fuel and special items for the
three months ended September 30, 2004 and 2003 was 5.98¢ and 6.82¢, a decrease
of .84¢, or 12.3%. Our mainline CASM excluding fuel decreased during the three
months ended September 30, 2004 as a result of an increase in the average number
of owned aircraft from 9.8 to 14.0, which generated a corresponding decrease of
..10¢ in aircraft lease expense, a decrease in traffic and servicing costs of
..21¢, a decrease in the maintenance cost per ASM of .18¢ as a result of the
reduction in our Boeing fleet that were replaced with new Airbus A319 aircraft,
and a decrease in promotion and sales expenses of .14¢. Mainline CASM also
decreased as a result of an increase in our daily block hour utilization and
economies of scale associated with lower increases in indirect costs as compared
to the 38.5% increase in mainline ASMs over the prior comparable. Included in
mainline CASM for the three months ended September 30, 2003 was .08¢ per ASM for
profit sharing bonuses. As a result of our net loss for the three months ended
September 30, 2004, we did not accrue for bonuses.

An airlines mainline 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 September 30, 2004, our mainline break-even load factor adjusted for
special items was 73.4% compared to our achieved mainline passenger load factor
of 72.9%.  Our mainline break-even load factor adjusted for special items for the
three months ended September 30, 2003, was 67.7% compared to our achieved mainline
passenger load factor of 76.6%. Our mainline break-even load factor increased from
the prior comparable period as a result of a decrease in our RASM to 7.84¢ during
the period ended September 30, 2004 from 9.26¢ during the period ended September
30, 2003, partially offset by a decrease in our mainline CASM.

During the three months ended September 30, 2004, our mainline average
daily block hour utilization increased to 11.2 from 10.0 for the three months
ended September 30, 2003. The calculation of our block hour utilization includes
all aircraft that are on our operating certificate, which includes scheduled
aircraft, as well as aircraft out of service for maintenance and operational
spare aircraft, and excludes aircraft removed permanently from revenue service
or new aircraft not yet placed in revenue service. It also excludes Frontier
JetExpress aircraft operated by Horizon. During the three months ended September
30, 2004, we decreased our average daily block hour utilization to 11.2 from
11.7 during the three months ended June 30, 2004. Our planned block hour
utilization during the three months ended December 31, 2004 is 11.0. We have
decreased our utilization as a result of the excess capacity offered by the
industry coupled with the high fuel costs we continue to experience.

Small fluctuations in our RASM or CASM can significantly affect operating
results because we, like other airlines, have high fixed costs 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 our liquidity, cash flows and results of operations.

Revenues

Our revenues are highly sensitive to changes in fare levels. Competitive
fare pricing policies have a significant impact on our revenues. Because of the
elasticity of passenger demand, we believe that increases in fares may at
certain levels result in a decrease in passenger demand in many markets. We
cannot predict future fare levels, which depend to a substantial degree on
actions of competitors and the economy. When sale prices or other price changes
are initiated by competitors in our markets, we believe that we must, in most
cases, match those competitive fares in order to maintain our market share.
Passenger revenues are seasonal depending on the markets locations.

Mainline Passenger Revenues. Mainline passenger
revenue totaled $188,173,000 for the three months ended September 30, 2004
compared to $159,946,000 for the three months ended September 30, 2003, an
increase of 17.6%. Mainline passenger revenue includes revenues for reduced rate
standby passengers, administrative fees, revenue recognized for tickets that are
not used within one year from their issue dates, and revenue recognized from our
co-branded credit card arrangement. We carried 1,750,000 mainline revenue
passengers during the three months ended September 30, 2004 compared to
1,457,000 in the three months ended September 30, 2003, an increase of 20.1%. We
had an average of 45.5 mainline aircraft in service during the three months ended
September 30, 2004 compared to an average of 37.0 mainline aircraft during the three
months ended September 30, 2003, an increase of 23.0%. Mainline ASMs increased
to 2,383,573,000 for the three months ended September 30, 2004 from
1,721,397,000 for the three months ended September 30, 2003, an increase of
38.5%. Our mainline average fare was $100.05 for the three months ended
September 30, 2004 as compared to $103.40 for the three months ended September
30, 2003, a decrease of 3.2%. Our mainline length of haul was 994 and 905 miles
for the three months ended September 30, 2004 and 2003, respectively, or an
increase of 9.8%, causing some downward pressure on our yield.


-17-Passenger Revenues  Regional Partner. Regional
partner revenues, consisting of revenues from Frontier JetExpress operated by
Horizon, totaled $21,910,000 for the three months ended September 30, 2004,
and none for the three months ended September 30, 2003. The incremental revenue
from passengers connecting from regional flights to mainline flights is included
in our mainline passenger revenue. For the three months ended September 30, 2003,
revenues of $9,795,000 from regional jet operations, were netted against related
expenses and included in Other revenues. See footnote (2) in Selected Financial
Data, which explains the different accounting methods for our Frontier JetExpress
operations with Horizon and Mesa.

Cargo Revenues.Cargo revenues totaled $1,246,000
and $2,369,000 for the three months ended September 30, 2004 and 2003,
representing .7% and 1.4% of total mainline revenues, respectively, or a
decrease of 47.4%. During the three months ended June 30, 2004, we determined
that carrying mail for the United States Postal Service was not profitable and
we terminated our contract effective July 1, 2004. 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.Other revenues, comprised
principally of interline handling fees, liquor sales, LiveTV sales and excess
baggage fees, totaled $3,106,000 and $3,306,000 or 1.6% and 2.0% of total
mainline revenues for the three months ended September 30, 2004 and 2003,
respectively, a decrease of 6.0%. Other revenues during the three months ended
September 30, 2003 included the net revenue from our regional jet operations
totaling $1,534,000. Revenues and expenses associated with our JetExpress
operations are now reported separately and are not included in Other revenues.
This decrease in other revenues was offset by increases in other passenger
related revenues of LiveTV sales, liquor and excess baggage fees.

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. Total mainline operating
expenses for the three months ended September 30, 2004 and 2003 were
$191,463,000 and $149,833,000 and represented 99.4% and 90.5% of total mainline
revenues, respectively. Operating expenses increased as a percentage of revenue
during the three months ended September 30, 2004 largely a result of a 27.7%
increase in our aircraft fuel cost per gallon for the three months ended
September 30, 2004 as compared to the three months ended September 30,
2003.

Salaries, Wages and Benefits.We record salaries,
wages and benefits within the specific expense category identified in our
statement of operations for which they are relevant. Salaries, wages and
benefits totaled $49,803,000 and $39,429,000, an increase of 26.3%, and were
25.9% and 23.8% of total mainline revenues for the three months ended September
30, 2004 and 2003, respectively. Salaries, wages and benefits increased over the
prior comparable periods largely as a result of overall wage increases and an
increase in the number of employees to support our continued ASM growth as well
as the ASM growth that we expect for the remainder of fiscal year 2005. Our
mainline ASMs increased 38.5% for the three months ended September 30, 2004 as
compared to the three months ended September 30, 2003. Our employees increased
from approximately 3,570 in September 2003 to approximately 4,510 in September
2004, or 26.3%. We pay pilot and flight attendant salaries for training,
consisting of approximately six weeks for each prior to scheduled increases in
service, which can cause the compensation expense during such periods to appear
high in relationship to the average number of aircraft in service. We do not
anticipate hiring any more pilots for the next six months.


-18-Flight Operations.Flight operations expenses of
$31,773,000 and $24,347,000 were 16.5% and 14.7% of total mainline revenues for
the three months ended September 30, 2004 and 2003, respectively, an increase of
30.5%. Flight operations expenses include all expenses related directly to the
operation of the aircraft excluding depreciation of owned aircraft and lease
expenses and including insurance expenses, pilot and flight attendant
compensation, in-flight catering, crew overnight expenses, flight dispatch and
flight operations administrative expenses.

Aircraft insurance expenses totaled $2,634,000 (1.4% of total mainline
revenues) for the three months ended September 30, 2004. Aircraft insurance
expenses for the three months ended September 30, 2003 were $2,258,000 (1.4% of
total mainline revenues). Aircraft insurance expenses were .15¢ and .17¢ per
mainline RPM for the three months ended September 30, 2004 and 2003,
respectively. Aircraft insurance decreased per mainline RPM as a result of a 25%
decrease in our basic hull and liability insurance rates effective June 7, 2004.
The FAA currently provides war risk coverage at a less expensive rate as
compared to the coverage that was previously provided by commercial
underwriters. The current FAA war risk policy is in effect until December 31,
2004. We do not know whether the government will extend the coverage beyond
December 2004, and if it does, how long the extension will last. We expect that
if the government stops providing excess war risk coverage to the airline
industry, the premiums charged by aviation insurers for this coverage will be
substantially higher than the premiums currently charged by the government or
the coverage will not be available from reputable underwriters.

Pilot and flight attendant salaries before payroll taxes and benefits
totaled $17,303,000 and $12,510,000 or 9.2% and 7.8% of mainline passenger
revenue for the three months ended September 30, 2004 and 2003, an increase of
38.3%. Pilot and flight attendant compensation for the three months ended
September 30, 2004 also increased as a result of a 23.0% increase in the average
number of mainline aircraft in service, an increase of 38.9% in block hours, a
general wage increase in flight attendant and pilot salaries and additional crew
required to replace those who were attending training on the Airbus equipment.
We pay pilot and flight attendant salaries for training, consisting of
approximately six weeks for each, prior to scheduled increases in service, which
can cause the compensation expense during such periods to appear high in
relationship to the average number of aircraft in service.

Aircraft Fuel Expenses.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 expenses of $44,715,000 for
34,641,000 gallons used and $25,901,000 for 25,543,000 gallons used resulted in
an average fuel expense of $1.29 and $1.01 per gallon for the three months ended
September 30, 2004 and 2003, respectively. Aircraft fuel expenses represented
23.2% and 15.7% of total mainline revenues for the three months ended September
30, 2004 and 2003, respectively. The average fuel cost per gallon increased
27.7% over the prior comparable period. Fuel prices are subject to change
weekly, as we purchase a very small portion in advance for inventory. The
results of operations for the three months ended September 30, 2004 include an
unrealized derivative gain of $4,111,000. The results of operations for the
three months ended September 30, 2003 include an unrealized derivative loss of
$276,000 and a realized gain of approximately $240,000 in cash payments received
from a counter-party recorded as a net increase in fuel expense. Fuel consumption
for the three months ended September 30, 2004 and 2003 averaged 736 and 753
gallons per mainline block hour, respectively, or a decrease of 2.3%. Fuel
consumption per mainline block hour decreased because of the more fuel-efficient
Airbus aircraft added to our fleet coupled with the reduction in our Boeing fleet,
which has higher fuel burn rates.

Aircraft Lease Expense.Aircraft lease expenses
totaled $22,307,000 (11.6% of total mainline revenues) and $17,921,000 (10.8% of
total mainline revenues) for the three months ended September 30, 2004 and 2003,
respectively, an increase of 24.5%. The average number of leased aircraft
increased to 31.5 from 26.4, an increase of 19.3%. Aircraft lease expense
increased as a result of newer and larger aircraft leased during the three
months ended September 30, 2004 compared to the aircraft leased during the three
months ended September 30, 2003.

Aircraft and Traffic Servicing.Aircraft and
traffic servicing expenses were $31,229,000 and $26,077,000 (an increase of
19.8%) for the three months ended September 30, 2004 and 2003, respectively, and
represented 16.2% and 15.8% of total mainline revenues. Aircraft and traffic
servicing expenses include all expenses incurred at airports including landing
fees, facilities rental, station labor, ground handling expenses, and
interrupted trip expenses associated with delayed or cancelled flights.
Interrupted trip expenses are amounts paid to other airlines to protect
passengers as well as hotel, meal and other incidental expenses. Aircraft and
traffic servicing expenses will increase with the addition of new cities to our
route system. As of September 30, 2004, we served 39 cities with mainline
service compared to 36 cities as of September 30, 2003, or an increase of 8.3%.
During the three months ended September 30, 2004, our mainline departures
increased to 18,937 from 15,078, an increase of 25.6%. Aircraft and traffic
servicing expenses decreased $80 per mainline departure from $1,729 per
departure to $1,649 per mainline departure for the three months ended September
30, 2004 a decrease of 4.6%. Aircraft and traffic servicing expenses decreased
per mainline departure as a result of economies of scale associated with our
Denver hub. During the three months ended September 30, 2004 we no longer
carried U.S. mail and our ground handling expenses decreased accordingly.


-19-Maintenance.Maintenance expenses of $19,261,000
and $17,120,000 were 10.0% and 10.3% of total mainline revenues for the three
months ended September 30, 2004 and 2003, respectively, an increase of 12.5%.
These include all labor, parts and supplies expenses related to the maintenance
of the aircraft. Maintenance is charged to maintenance expense as incurred.
Maintenance cost per block hour was $409 and $505 for the three months ended
September 30, 2004 and 2003, respectively, a decrease of 19.0%. Maintenance cost
per mainline block hour decreased as a result of a decrease in our Boeing fleet
coupled with the additional new Airbus aircraft that are less costly to maintain
than our older Boeing aircraft. Our mainline average age of aircraft was 2.7 years
as of September 30, 2004 as compared to 4.6 years as of September 30, 2003. The
owned Airbus fleet comprising about 31.8% of our total Airbus fleet is new and
we are experiencing lower maintenance costs as compared to the older aircraft
that are in our fleet. Maintenance reserves are required to be paid on a monthly
basis to lessors of our leased Boeing and Airbus fleet and are expensed monthly
as incurred. As the Airbus aircraft age, they will require more maintenance and
maintenance expenses per block hour will increase. During the three months ended
September 30, 2003, we recorded a reduction to maintenance expenses totaling
$614,000 as a result of the cockpit door reimbursement under the Appropriations
Act, or $18 per mainline block hour.

Promotion and Sales.Promotion and sales expenses
totaled $19,250,000 and $16,270,000 and were 10.0% and 9.8% of total mainline
revenues for the three months ended September 30, 2004 and 2003, respectively,
an increase of 18.3%. These expenses include advertising expenses,
telecommunications expenses, wages and benefits for reservation agents and
related supervision as well as marketing management and sales personnel, credit
card fees, travel agency commissions and computer reservations costs. During the
three months ended September 30, 2004, promotion and sales expenses per mainline
passenger decreased to $11.00 from $11.17 for the three months ended September
30, 2003.

General and Administrative.General and
administrative expenses for the three months ended September 30, 2004 and 2003
totaled $12,034,000 and $9,784,000 (an increase of 23.0%) and were 6.3% and 5.9%
of total mainline revenues, respectively. General and administrative expenses
include the wages and benefits for several of our executive officers and various
other administrative personnel including legal, accounting, information
technology, aircraft procurement, corporate communications, training and human
resources and other expenses associated with these departments. Employee health
benefits, accrued vacation and bonus expenses, general insurance expenses
including workers compensation, and write-offs associated with credit card and
check fraud are also included in general and administrative expenses. Our
employees increased from approximately 3,570 in September 2003 to approximately
4,510 in September 2004, an increase of 26.3%. Accordingly, we experienced
increases in our human resources, training, information technology, health
insurance benefit expenses, and workers compensation insurance. During the three
months ended September 30, 2003, we accrued $1,298,000 for employee performance
bonuses, or .8% of total revenue. Bonuses are based on profitability. As a
result of our pre-tax loss for the three months ended September 30, 2004, we did
not accrue bonuses.

Regional Partner Expense.Regional partner
expense for the three months ended September 30, 2004 totaled $23,568,000 and
was 107.6% of total regional partner revenues. Regional partner expenses include
all direct costs associated with Frontier JetExpress operated by Horizon.
Horizon began service January 1, 2004 and replaced the JetExpress service
formerly provided by Mesa. During the three months ended September 30, 2003,
$8,261,000 in Mesa expenses were netted against related revenues and included in
Other revenues. See footnote (2) in Selected Financial Data, which explains
the different accounting methods for our Frontier JetExpress operations for
Horizon and Mesa.

Aircraft Lease and Facility Exit Costs.During
the three months ended September 30, 2003, we ceased using two of our Boeing
737-200 leased aircraft, one of which had a lease termination date in October
2003 and one with a lease termination date in October 2005. In August 2003, we
closed our maintenance facility in El Paso, Texas, which had a lease termination
date in August 2007. As a result of these transactions we recorded a pre-tax
charge of $4,659,000. This amount recognizes the remaining fair value of the
lease payments and the unamortized leasehold improvements on the aircraft and
facility.


Losses on Sale of Assets, Net. During the three
months ended September 30, 2003, we incurred losses totaling $1,883,000 on the
sale of assets. We incurred a loss of $1,238,000 on the sale-leaseback of an
Airbus A319 aircraft and a loss totaling $483,000 on the sale of an aircraft
engine.

-20-Impairment and other related charges.During the
three months ended September 30, 2004, we recorded an additional impairment and
other related charges totaling $4,214,000 on the carrying value of our Boeing
737 expendable inventory, rotable parts and a spare engine as a result of
further market declines. Included in this amount are estimated selling costs
that we expect to pay on the sale of our assets held for sale totaling $541,000.
The cost of WTI crude oil increased from $36.92 per barrel at June 30, 2004 to
$49.56 per barrel at September 30, 2004.  As of October 29, 2004 the cost of
WTI crude oil was $51.78 per barrel. As a result of the increase in the cost of
fuel, we have accelerated the dates that we would cease using the Boeing
aircraft from September 2005 to mid April 2005. Because of the earlier
termination date of the use of the Boeing aircraft, our estimated usage of these
parts decreased, contributing to the amount of the additional provision recorded
during the three months ended September 30, 2004.We believe the decline in resale
values of parts for the less fuel efficient Boeing 737 aircraft was due in part
to increasing fuel prices during the past three months.

Depreciation and Amortization.Depreciation and
amortization expenses of $6,606,000 and $5,870,000 were approximately 3.4% and
3.6% of total mainline revenues for the three months ended September 30, 2004
and 2003, respectively, an increase of 12.5%. These expenses include
depreciation of aircraft and aircraft components, office equipment, ground
station equipment, and other fixed assets. Depreciation expense increased over
the prior year largely as a result of an increase in the average number of
Airbus A319 and A318 aircraft owned from 9.8 during the three months ended
September 30, 2003 to 14.0 during the three months ended September 30, 2004, an
increase of 42.9%.

Nonoperating Income (Expense).Net nonoperating
expense totaled $2,430,000 for the three months ended September 30, 2004
compared to net nonoperating expense of $12,283,000 for the three months ended
September 30, 2003. Interest income increased to $786,000 from $524,000 during
the three months ended September 30, 2004 from the prior comparable period as a
result of an increase in invested cash coupled with an increase in interest
rates.

Interest expense decreased to $3,113,000 for the three months ended
September 30, 2004 from $4,034,000 for the three months ended September 30,
2003. Interest expense for the three months ended September 30, 2003 included
the interest expense associated with a $70,000,000 government guaranteed loan we
obtained in February 2002 and subsequently repaid in December 2003. The decrease
in interest expense from the government guaranteed loan for the three months
ended September 30, 2004 from the prior comparable period is partially offset by
the interest expense as a result of interest expense associated with the
financing of additional aircraft purchased since September 30, 2003.

We completed a public offering of 5,050,000 shares of common stock in
September 2003. Under the terms of our government guaranteed loan by the ATSB,
we were required to make a prepayment of the loan equal to 60% of the net
proceeds from the offering. As a result, we prepaid approximately $48,418,000 on
the loan and wrote off approximately $8,742,000 of deferred loan costs
associated with the prepayment amount. Of the $8,742,000, approximately
$7,239,000 represented the value assigned to the warrants issued to the ATSB and
to two other guarantors in connection with the loan transaction. The warrants
had an estimated fair value of $9,282,000 when issued. The fair value for these
options was estimated at the date of grant using a Black-Scholes option pricing
model.

Six Months
ended September 30, 2004 and 2003

General

We had a net loss of $8,656,000 or 24¢ per diluted share for the six
months ended September 30, 2004 as compared to a net loss of $12,931,000 or 40¢
per diluted share for the six months ended September 30, 2003. Included in our
net loss for the six months ended September 30, 2004 were the following special
items before the effect of income taxes: a loss of $604,000 on the sale of two
Airbus A319 aircraft in sale-leaseback transactions and other sales of assets, a
write down of $4,601,000 of the carrying value of Boeing spare parts, and an
unrealized gain on fuel hedges of $3,634,000. These items, net of income taxes,
decreased our net loss by 3¢ per diluted share. Included in our net income for
the six months ended September 30, 2003 were the following special items on a
pre-tax and profit sharing basis: $15,024,000 of compensation received under the
Appropriations Act; write-off of deferred loan costs of $8,742,000 associated
with the prepayment of all but $11,582,000 remaining principal of the government
guaranteed loan; a charge for Boeing aircraft and facility lease exit costs of
$5,345,000; loss of $1,902,000 on the sale of an Airbus aircraft in a
sale-leaseback transaction, a sale of a spare engine, and other assets; and an
unrealized derivative gain of $475,000. These items, net of income taxes and
profit sharing, totaled 2¢ per diluted share.

-21-Our mainline passenger yield per RPM was 10.76¢ and 12.19¢ for the six
months ended September 30, 2004 and 2003, respectively, or a decrease of 11.7%.
Our mainline average fare was $100.26 for the six months ended September 30,
2004 as compared to $103.98 for the six months ended September 30, 2003, a
decrease of 3.6%. Our length of haul was 991 and 910 miles for the six months
ended September 30, 2004 and 2003, respectively, or an increase of 8.9%. Our
mainline passenger revenue per available seat mile (RASM) for the six months
ended September 30, 2004 and 2003 was 7.74¢ and 8.77¢, respectively, a decrease
of 11.7%.

Our mainline CASM for the six months ended September 30, 2004 and 2003
was 8.06¢ and 8.42¢, a decrease of .36¢, or 4.3%. Mainline CASM excluding fuel
for the six months ended September 30, 2004 and 2003 was 6.22¢ and 6.99¢, a
decrease of .77¢, or 11.0%. Included in mainline CASM excluding fuel for the
six months ended September 30, 2004 and 2003 were special items totaling .11¢
and .21¢, respectively. Mainline CASM excluding fuel and special items for the
six months ended September 30, 2004 and 2003 was 6.11¢ and 6.78¢, a decrease
of .67¢, or 9.9%. Our mainline CASM excluding fuel decreased during the six
months ended September 30, 2004 as a result of an increase in the average number
of owned aircraft from 9.8 to 14.0, which generated a corresponding decrease of
..13¢ in aircraft lease expense, a decrease in traffic and servicing costs of
..10¢, and a decrease in the maintenance cost per ASM of .20¢ as a result of the
reduction in our Boeing fleet that were replaced with new Airbus A319 aircraft.
Mainline CASM also decreased as a result of an increase in our daily block hour
utilization and economies of scale associated with lower increases in indirect
costs as compared to the 35.3% increase in mainline ASMs over the prior
comparable period.

An airlines mainline 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 six months
ended September 30, 2004, our mainline break-even load factor adjusted for
special items was 73.5% compared to our achieved mainline passenger load factor
of 71.9%. Our mainline break-even load factor adjusted for special items for the
six months ended September 30, 2003, was 66.6% compared to our achieved
passenger load factor of 71.9%. Our mainline break-even load factor increased
from the prior comparable period as a result of a decrease in our mainline RASM
to 7.74¢during the period ended September 30, 2004 from 8.77¢ during the six
months ended September 30, 2003, partially offset by a decrease in our mainline
CASM.

During the six months ended September 30, 2004, our mainline average
daily block hour utilization increased to 11.4 from 10.1 for the six months
ended September 30, 2003. The calculation of our block hour utilization includes
all aircraft that are on our operating certificate, which includes scheduled
aircraft, as well as aircraft out of service for maintenance and operational
spare aircraft, and excludes aircraft removed permanently from revenue service
or new aircraft not yet placed in revenue service. It also excludes Frontier
JetExpress aircraft operated by Horizon.

Revenues

Mainline Passenger Revenues. Mainline passenger revenues
totaled $357,611,000 for the six months ended September 30, 2004 compared to
$298,956,000 for the six months ended September 30, 2003, an increase of 19.6%.
We carried mainline 3,334,000 revenue passengers during the six months ended
September 30, 2004 compared to 2,684,000 during the six months ended September 30,
2003, an increase of 24.2%. We had an average of 43.5 mainline aircraft in our
fleet during the six months ended September 30, 2004 compared to an average of
36.3 mainlne aircraft during the six months ended September 30, 2003, an increase
of 19.8%. Mainline ASMs increased to 4,595,225,000 for the six months ended
September 30, 2004 from 3,396,447,000 for the six months ended September 30, 2003,
an increase of 35.3%. Mainline RPMs for the six months ended September 30, 2004
were 3,303,269,000 compared to 2,443,253,000 for the six months ended September 30,
2003, an increase of 35.2%. Our mainline RASM decreased from 8.77¢ to 7.74¢, a
decrease of 11.7%. Our mainline average fare was $100.26 for the six months ended
September 30, 2004 as compared to $103.98 for the six months ended September 30,
2003, a decrease of 3.6%. Our mainline length of haul was 991 and 910 miles for
the six months ended September 30, 2004 and 2003, respectively, or an increase
of 8.9%, causing some downward pressure on our yield.

-22-Passenger Revenues  Regional Partner. Regional
partner revenues, consisting of revenues from Frontier JetExpress operated by
Horizon, totaled $41,036,000 for the six months ended September 30, 2004, and
none for the six months ended September 30, 2004. For the six months ended
September 30, 2003, revenues of $17,642,000 from regional jet operations, were
netted against related expenses and included in Other revenues. See footnote
(2) in Selected Financial Data, which explains the different accounting
methods for our Frontier JetExpress operations for Horizon and Mesa.

Cargo Revenues.Cargo revenues totaled $2,674,000
and $4,058,000 for the six months ended September 30, 2004 and 2003,
respectively, representing .7% and 1.3% of total mainline revenues, a decrease
of 34.1%. During the six months ended September 30, 2004, we determined that
carrying mail for the United States Postal Service was not profitable and we
terminated our contract effective July 1, 2004.

Other Revenues.Other revenues totaled $5,537,000
and $4,973,000, or 1.5% and 1.6% of total mainline revenues for the six months
ended September 30, 2004 and 2003, respectively, an increase of 11.3%. During
the six months ended September 30, 2003, we netted our revenues from regional
jet operations against related expenses resulting in net revenue of $1,606,000
and included it in Other revenues. This decrease in other revenues was offset by
increases in other passenger related revenues of LiveTV sales, liquor and excess
baggage fees.

Operating
Expenses

Total mainline operating expenses were $370,402,000 and $286,022,000 for
the six months ended September 30, 2004 and 2003 and represented 101.3% and
92.9% of total mainline revenues, respectively. Operating expenses increased as
a percentage of revenue during the six months ended September 30, 2004 largely a
result of a 30.8% increase in our aircraft fuel cost per gallon for the six
months ended September 30, 2004 as compared to the six months ended September
30, 2003.

Salaries, Wages and Benefits.Salaries, wages and
benefits totaled $97,377,000 and $76,431,000 and were 26.6% and 24.8% of total
mainline revenues for the six months ended September 30, 2004 and 2003,
respectively, an increase of 27.4%. Salaries, wages and benefits increased over
the prior comparable periods largely as a result of overall wage increases, and
an increase in the number of employees to support our ASM growth of 35.3% during
the six months ended September 30, 2004.

Flight Operations.Flight operations expenses of
$63,562,000 and $49,321,000 were 17.4% and 16.0% of total mainline revenues for
the six months ended September 30, 2004 and 2003, respectively, an increase of
28.9%.

Aircraft insurance expenses totaled $5,280,000 (1.4% of total mainline
revenues) for the six months ended September 30, 2004. Aircraft insurance
expenses for the six months ended September 30, 2003 were $5,004,000 (1.6% of
total mainline revenues). Aircraft insurance expenses were .16¢ and .20¢ per
mainline RPM for the six months ended September 30, 2004 and 2003, respectively.

Pilot and flight attendant salaries before payroll taxes and benefits
totaled $34,192,000 and $24,995,000 or 9.6% and 8.4% of mainline passenger
revenue for the six months ended September 30, 2004 and 2003, an increase of
36.8%. Pilot and flight attendant compensation for the six months ended
September 30, 2004 also increased as a result of a 19.8% increase in the average
number of mainline aircraft in service, respectively, an increase of 35.8% in
mainline block hours, respectively, a general wage increase in flight attendant
and pilot salaries and additional crew required to replace those who were attending
training on the Airbus equipment. We pay pilot and flight attendant salaries for
training, consisting of approximately six weeks each, prior to scheduled
increases in service, which can cause the compensation expense during such
periods to appear high in relationship to the average number of aircraft in
service.


Aircraft Fuel Expenses.Aircraft fuel expenses of
$84,718,000 for 66,759,000 gallons used and $48,501,000 for 49,955,000 gallons
used resulted in an average fuel cost of $1.27 and 97.1¢ per gallon, for the six
months ended September 30, 2004 and 2003, respectively. Aircraft fuel expenses
represented 23.1% and 15.7% of total mainline revenues for the six months ended
September 30, 2004 and 2003, respectively. The results of operations for the six
months ended September 30, 2004 include an unrealized net derivative gain of
$3,634,000 and  a realized net gain of $543,000 in cash payments received from a
counter-party recorded as a decrease in fuel expense. The results of operations
for the six months ended September 30, 2003 include an unrealized derivative gain
of $475,000 and a realized net gain of $28,000 in cash payments recorded as an
decrease in fuel expense. Fuel consumption for the six months ended September
30, 2004 and 2003 averaged 733 and 745 gallons per mainline block hour,
respectively, or a decrease of 1.6%. Fuel consumption per mainline block hour
decreased as a result of the increase in Airbus aircraft coupled with the
reduction in our Boeing fleet, which has higher fuel burn rates.


-23-Aircraft Lease Expense.Aircraft lease expenses
totaled $41,198,000 (11.3% of total mainline revenues) and $35,113,000 (11.4% of
total mainline revenues) for the six months ended September 30, 2004 and 2003,
respectively, an increase of 17.3%. The average number of leased aircraft
increased 11.3% from 26.5 to 29.5 during the six months ended September 30,
2004.

Aircraft and Traffic Servicing.Aircraft and
traffic servicing expenses were $62,921,000 and $50,075,000 (an increase of
25.7%) for the six months ended September 30, 2004 and 2003, respectively, and
represented 17.2% and 16.3% of total mainline revenues. During the six months
ended September 30, 2004, our mainline departures increased to 36,587 from
29,688 for the six months ended September 30, 2003, or 23.2%. Aircraft and
traffic servicing expenses were $1,720 per mainline departure for the six months
ended September 30, 2004 as compared to $1,687 per mainline departure for the
six months ended September 30, 2003, or an increase of $33 per mainline
departure. Aircraft and traffic servicing expenses increased per departure as a
result of overall wage increases, increase in airport facilities at existing
cities and costs associated with the start-up of six new cities in the six
months ended September 30, 2004.

Maintenance.Maintenance expenses of $38,156,000
and $34,998,000 were 10.4% and 11.4% of total mainline revenues for the six
months ended September 30, 2004 and 2003, respectively, a decrease of 9.0%.
Maintenance cost per mainline block hour for the six months ended September 30,
2004 and 2003 were $419 and $522, respectively, a decrease of 19.7%.

Promotion and Sales.Promotion and sales expenses totaled $39,089,000
and $30,990,000 and were 10.7% and 10.1% of total mainline revenues for the six
months ended September 30, 2004 and 2003, respectively, an increase of 26.1%.
During the six months ended September 30, 2004, promotion and sales expenses per
mainline passenger increased to $11.72 compared to $11.55 for the six months
ended September 30, 2003. Promotion and sales expenses per mainline passenger
increased as a result of our branding awareness campaign, which began May 2003
and includes television, print and radio components. Additionally, we have
increased our involvement in professional and collegiate sports team
sponsorships resulting in increased promotion expense during the six months
ended September 30, 2004 as compared to the six months ended September 30, 2003.

General and Administrative.General and
administrative expenses for the six months ended September 30, 2004 and 2003
totaled $22,328,000 and $18,720,000 (an increase of 19.3%) and were 6.1% of
total mainline revenues for each of the six months ended September 30, 2004 and
2003, respectively. During the six months ended September 30, 2003, we accrued
for employee performance bonuses totaling $2,423,000, or .8% of total revenue.

Regional Partner Expense.Regional partner
expense for the six months ended September 30, 2004 totaled $44,862,000 and was
109.3% of total regional partner revenue. Regional partner expenses include all
direct costs associated with Frontier JetExpress operated by Horizon. Horizon
began service January 1, 2004 and replaced the JetExpress service formerly
provided by Mesa. During the six months ended September 30, 2003, $16,036,000 in
Mesa expenses were netted against related revenues and included in other
revenues. See footnote (2) in Selected Financial Data, which explains the
different accounting methods for our Frontier JetExpress operations for Horizon
and Mesa.

Losses on Sale of Assets, Net. During the six
months ended September 30, 2004 and 2003 we incurred losses on the sale of
assets of $604,000 and $1,902,000, respectively. During the six months ended
September 30, 2004, we incurred a loss totaling $489,000 on the sale-leaseback
of two Airbus A319 aircraft. Additionally, we began to sell our excess Boeing
spare parts during the six months ended September 30, 2004. During the six
months ended September 30, 2003, we incurred losses totaling $1,902,000 on the
sale of assets. We incurred a loss of $1,238,000 on the sale-leaseback of an
Airbus A319 aircraft and a loss of $483,000 on the sale of an aircraft
engine.

Aircraft Lease and Facility Exit Costs.During
the six months ended September 30, 2003, we ceased using three of our Boeing
737-200 leased aircraft, two of which had lease terminations in October 2003 and
one with a lease termination date in October 2005. In August 2003, we closed our
maintenance facility in El Paso Texas, which had a lease termination date in
August 2007. As a result of these transactions, we recorded a pre-tax charge of
$5,345,000. This amount recognizes the remaining fair value of the lease
payments and the unamortized leasehold improvements on the aircraft and
facility.

Depreciation and Amortization.Depreciation and
amortization expenses of $13,225,000 and $11,057,000 were approximately 3.6% of
total mainline revenues for each of the periods ended the three months ended
September 30, 2004 and 2003, respectively, an increase of 19.6%.


-24-Nonoperating Income (Expense).Net nonoperating
expense totaled $4,833,000 for the six months ended September 30, 2004 compared
to net nonoperating expense totaling $837,000 for the six months ended September
30, 2003.

Interest income increased to $1,356,000 from $938,000 during the six
months ended September 30, 2004 from the prior period. Interest expense
decreased to $6,021,000 for the six months ended September 30, 2004 from
$7,869,000 for the six months ended September 30, 2003. Interest expense for the
six months ended September 30, 2003 included the interest expense associated
with a $70,000,000 government guaranteed loan we obtained in February 2002 and
subsequently repaid in December 2003.

Offsetting these nonoperating expenses during the six months ended
September 30, 2003 was pre-tax compensation of $15,024,000 as a result of
payments under the Appropriations Act for expenses and revenue foregone related
to aviation security. We received a total of $15,573,000 in May 2003, of which
we paid $549,000 to Mesa for the revenue passengers Mesa carried as Frontier
JetExpress.

Income Tax Expense.We recorded an income tax
benefit of $4,584,000 during the six months ended September 30, 2004 at a 34.6%
rate, compared to income tax expense of $8,195,000 for the six months ended
September 30, 2003, at a 38.8% rate. During the year ended March 31, 2004, our
tax expense was at a federal rate of 35% plus the blended state rate of 2.6%
(net of federal benefit) and was decreased by the tax effect of permanent
differences of 2.7%. The benefit was offset by $38,000 in taxes expensed during
the six months ended September 30, 2004 for prior periods.

Liquidity and
Capital Resources

Our liquidity depends to a large extent on the number of passengers who
fly with us, the fares we charge, our operating and capital expenditures, our
financing activities, and the cost of fuel. We depend on lease or mortgage-style
financing to acquire all of our aircraft, including 23 additional Airbus
aircraft that as of October 29, 2004 are scheduled for delivery through March
2008.

We had cash, cash equivalents and short-term investments of $160,053,000
and $190,609,000 at September 30, 2004 and March 31, 2004, respectively. At
September 30, 2004, total current assets were $265,019,000 as compared to
$197,702,000 of total current liabilities, resulting in working capital of
$67,317,000. At March 31, 2004, total current assets were $269,733,000 as
compared to $181,659,000 of total current liabilities, resulting in working
capital of $88,074,000. The decrease in our working capital from March 31, 2004
is largely a result of an increase in restricted investments principally caused
by the increase in our air traffic liability, capital expenditures and debt
principal payments.

Cash used in operating activities for the six months ended September 30,
2004 was $10,327,000. This is attributable to our net loss adjusted for non-cash
charges and credits and changes in working capital accounts. Our restricted
investments increased largely as a result of increased collateral requirements
for our bankcard processor associated with the increase in our air traffic
liability and an increase in collateral for our workers compensation insurance.
Receivables increased as a result of an increase in maintenance reserve
reimbursement receivables for recent engine overhauls performed and timing with
respect to credit card receivables. Prepaid expenses increased principally as a
result of an increase in fuel deposits due to the increase in the price of fuel
and an increase in fuel consumption associated with the increase in block hours
flown. Inventories increased as a result of an increase in the value of our fuel
inventory and for the increase in the number of aircraft in our fleet. Our air
traffic liability increased as a result of the growth of our business associated
with the increase in the number of aircraft in our fleet and the associated
increase in the number of passengers we carried. Our accrued expenses increased
as a result of increases in employee benefits associated with the increase in
the number of employees, increases in health care expenses, and increases in
passenger related taxes associated with our increase in revenue and passengers
carried. Cash provided by operating activities for the six months ended
September 30, 2003 was $96,928,000. This is attributable to our net income
adjusted for reconciling items to net cash and cash equivalents. Our air traffic
liability increased as a result in the growth of our business associated with
the increase in the number of aircraft in our fleet and the associated increase
in the number of passengers we carried. Our accrued liabilities increased as a
result of increases in employee benefits associated with the increase in the
number of employees and increases in health care expenses, the bonus accrual for
our employees as a result of our profitability and increases in passenger related
taxes associated with our increase in revenue and passengers carried. During the
three months ended September 30, 2003 we received an income tax refund from the
Internal Revenue Service totaling $26,574,000.


-25-Cash used in investing activities for the six months ended September 30,
2004 was $30,371,000. Net aircraft lease and purchase deposits decreased by
$10,593,000 during the period. Capital expenditures were $109,119,000 for the
six months ended September 30, 2004 and included the purchase of one Airbus A318
aircraft and two Airbus A319 aircraft that were delivered to us and that we sold
in sale-leaseback transactions. Additionally, capital expenditures included the
purchase of LiveTV equipment, rotable aircraft components, aircraft improvements
and ground equipment. We applied pre-delivery payments totaling $6,412,000 for
the purchase of an Airbus A318 aircraft to the purchase of that aircraft, and
the pre-delivery deposits totaling $14,716,000 for the two Airbus A319 aircraft
were returned to us upon sale of the aircraft. We received $63,904,000 from the
sale of the two A319 aircraft and other equipment. Cash used in investing
activities for the six months ended September 30, 2003 was $91,871,000. Net
aircraft lease and purchase deposits decreased by $1,956,000 during this period.
We used $126,572,000 for the purchase of three additional Airbus aircraft,
aircraft leasehold improvements, ground equipment to support increased
below-wing operations, and computer equipment which included scanning equipment
for the new mail transportation requirements. During the six months ended
September 30, 2003, we took delivery of three purchased Airbus A318 aircraft and
applied their respective pre-delivery payments to the purchase of those
aircraft. Additionally, we completed a sale-leaseback transaction on one of our
purchased aircraft that was delivered to us in September 2003, generating cash
proceeds of approximately $4,374,000 from the sale and the return of the
pre-delivery payments relating to the purchase commitment.

Cash provided by financing activities for the six months ended September
30, 2004 was $12,142,000. During the six months ended September 30, 2004, we
borrowed $22,000,000 for the purchase of one Airbus A318 aircraft and paid
$9,614,000 of debt principal payments on our 14 owned aircraft. Cash provided by
financing activities for the six months ended September 30, 2003 was
$93,395,000. During the six months ended September 30, 2003, we completed a
stock offering of 5,050,000 shares of our common stock. We received $81,085,000,
net of offering expenses, from the sale of these shares. We used $48,418,000 of
the proceeds to prepay the government guaranteed loan. During the six months
ended September 30, 2004 and 2003, we received $75,000 and $349,000 from the
exercise of common stock options, respectively. During the six months ended
September 30, 2003 we borrowed $76,500,000 to finance the purchase of Airbus
aircraft, of which $5,599,000 was paid as principal payments during the
respective periods. During the six months ended September 30, 2003, we prepaid
an additional $10,000,000 on the government guaranteed loan as required by the
loan agreement from a tax refund we received.

We have been working closely with DIA, our primary hub for operations,
and the offices of the Mayor of the City and County of Denver, in which DIA is
located, to develop plans for expanding Concourse A where our aircraft gates are
located in order to accommodate our anticipated growth over the next several
years. In the interim, we have gained temporary rights to two gates, and
permanent rights to one gate, previously used by United on the east end of
Concourse A. We are currently obligated to return the two temporary gates to
United in October 2005. DIA has also completed construction of two temporary
gates on the west end of Concourse A. We are currently using all five of these
temporary gates until a permanent expansion can be completed. Upon completion of
the permanent expansion to Concourse A we would be obligated to lease the
additional gates, thereby increasing our overall rates and charges paid to the
airport. Because our overall rates and charges will be based on the final
project costs as well as the number of passengers and gross weight landed at the
airport, it is impossible at this time to determine what our future rates and
charges at DIA will be.

As part of the lease restructure between the City and County of Denver
and United, we believe that United has been provided certain concessions and
reductions in the rents, rates and charges arising from their lease of
facilities at DIA. The City and County of Denver has indicated that it will seek
to prevent the reduced rates and charges being paid by United from increasing
the rates and charges being paid by other airlines. However, the City and County
of Denver has also made it clear that in certain circumstances it will have no
choice but to increase rates and charges being paid by other airlines in order
to comply with their own cash flow, reserve account and bond financing
requirements. Because we are the second largest airline operating out of DIA, we
may incur a larger impact of any increase in rates and charges imposed by DIA.
At this time, we cannot quantify what the increase in our rates and charges
would be, if any, due to the concessions being provided to United.


-26-In April 2004, we entered into a services agreement with Sabre, Inc. for
itsSabreSonicpassenger
solution to power our reservations and check-in capabilities along with a broad
scope of technology for streamlining our operations and improving revenues. This
solution replaces Electronic Data SystemsShares, a system we have used since our inception
in 1994. WithSabreSonic, we
will have access to real-time passenger data including the customers history
with Frontier and any EarlyReturns frequent flyer activity, current travel plans
and any changes made to an existing reservation. The data can be accessed by our
customer service agents via an open-source, Windows-based interface at all
customer touch points including the website, reservations, the ticket counter
and the gate, providing a seamless customer service experience from the time the
customer books the ticket until they arrive at their final destination. We
expect to complete implementation ofSabreSonicin our fiscal fourth quarter 2005. We
estimate that the transition costs for the implementation, which includes
training of our customer service and reservation agents, to be approximately
$2,600,000 and will largely fall in the third and fourth quarters of our fiscal
year ended March 31, 2005.

In July 2003, the International Brotherhood of Teamsters filed an
application with the National Mediation Board (NMB) for an accretion of the
Companys aircraft appearance agents and maintenance cleaners into the mechanics
union. On October 9, 2003, the NMB issued a decision that the aircraft
appearance agents and maintenance cleaners should be accreted into the mechanics
union. We appealed this decision, and in February 2004 the NMB denied the
appeal. Negotiations with these two employee groups began in May 2004.

On July 22, 2004, the NMB reported that our 20 materials specialists
elected not to join the International Brotherhood of Teamsters (IBT) Union. On
July 30, 2004, the IBT filed an allegation of election interference with the
NMB, requesting a new election. We believe the IBTs allegations are without
merit and we will file our response with the NMB in the near future. Our
materials specialists are part of the materials management group, which is under
the finance department. Materials specialists are involved in the receiving,
shipping, transporting, issuing, handling and relocating of parts and equipment
to the appropriate internal customers.

During the six months ended September 30, 2004, we entered into an
agreement with two vendors to market and sell all of our Boeing 737-200 and
certain Boeing 737-300 spare parts inventories. We have completed the process of
transferring the initial inventory package to these vendors. The inventories
include all of the Boeing 737-200 expendables and rotables and certain spares
that support the Boeing 737-300 fleet. We began to actively sell these parts in
August 2004. During the three months ended September 30, 2004, our impairment for
the rotables included estimated selling costs totaling $541,000 for the Boeing 737
rotables held for sale. As we continue to have Boeing parts available for sale to
these vendors, we will be required to reflect the fair value of the rotables less
selling costs.

We have been assessing our liquidity position in light of our aircraft
purchase commitments and other capital requirements, the economy, our
competition, and other uncertainties surrounding the airline industry. Prior to
applying for a government guaranteed loan under the Stabilization Act, we filed
a shelf registration with the Securities and Exchange Commission in April 2002
that allows us to sell equity or debt securities from time to time as market
conditions permit. In September 2003, we completed a public offering of
5,050,000 shares of our common stock. Although the stock offering and our
results of operations have improved our liquidity, we may need to continue to
explore avenues to enhance our liquidity if our current economic and operating
environment changes. We intend to continue to examine domestic or foreign bank
aircraft financing, bank lines of credit and aircraft sale-leasebacks, the sale
of equity or debt securities, and other transactions as necessary to support our
capital and operating needs. For further information on our financing plans and
activities and commitments, see Contractual Obligations and Commercial
Commitments below.

Contractual
Obligations

The following table summarizes our contractual obligations as of
September 30, 2004:

Less
      than1 year
    
    1-3years
    
    4-5years
    
    After5
      years
    
    TotalLong-term debt (1)
    
    
    $
    17,725,000
    
    $
    38,517,000
    
    $
    42,998,000
    
    $
    210,533,000
    
    $
    309,773,000Operating leases (2)
    
    
    
    125,036,000
    
    
    241,206,000
    
    
    237,036,000
    
    
    679,201,000
    
    
    1,282,479,000Unconditional purchase obligations (3) (4)
    
    
    
    95,588,000
    
    
    308,849,000
    
    
    92,164,000
    
    
    
    
    
    496,601,000Total contractual cash obligations
    
    
    $
    238,349,000
    
    $
    588,572,000
    
    $
    372,198,000
    
    $
    889,734,000
    
    $
    2,088,853,000

(1)
    At September 30, 2004, we had 14 loan agreements for nine Airbus
      A319 aircraft and five Airbus A318 aircraft. Two of the loans have a term
      of 10 years and are payable in equal monthly installments, including
      interest, payable in arrears. These loans require monthly principal and
      interest payments of $215,000 and $218,000, bear interest with rates of
      6.71% and 6.54%, with maturities in May and August 2011, at which time a
      balloon payment totaling $10,200,000 is due with respect to each loan. The
      remaining 12 loans have interest rates based on LIBOR plus margins that
      adjust quarterly or semi-annually. At September 30, 2004, interest rates
      for these loans ranged from 2.50% to 4.12%. Each of these loans has a
      term of 12 years, and each loan has balloon payments ranging from
      $2,640,000 to $7,770,000 at the end of the term. All of the loans are
      secured by the aircraft.
-27-(2)
    As of September 30, 2004, we lease 24 Airbus A319 type aircraft,
      one Airbus A318 aircraft, and ten Boeing 737 type aircraft under operating
      leases with expiration dates ranging from 2004 to 2016. Four of the Boeing
      737 type aircraft are no longer in service, one is being stored until the
      lease return date of October 2005, two were returned to their lessors in
      October 2004, and the fourth aircraft will be returned to its lessors in
      November 2004. Under all of our leases, we have made cash security
      deposits or arranged for letters of credit representing approximately two
      months of lease payments per aircraft. At September 30, 2004, we had made
      cash security deposits of $14,757,000 and had arranged for letters of
      credit of $3,058,000 collateralized by restricted cash balances.
      Additionally, we are required to make supplemental rent payments to cover
      the cost of major scheduled maintenance overhauls of these aircraft. These
      supplemental rent payments are based on the number of flight hours flown
      and/or flight departures and are not included as an obligation in the
      table above.
As a complement to our Airbus purchase agreement, in April 2000 we signed
an agreement, as subsequently amended, to lease 15 new Airbus aircraft for a
term of 12 years. As of September 30, 2004, we had taken delivery of 14 of these
aircraft and have a letter of credit on the last aircraft delivered in October
2004 totaling $205,900 to secure these leases, collateralized by restricted cash
balances.

During the fiscal year ended March 31, 2004, we entered into additional
aircraft lease agreements for two Airbus A318 aircraft and 18 Airbus A319
aircraft. Three of the aircraft leases were a result of sale-leaseback
transactions of three new Airbus aircraft. As of September 30, 2004, we have
taken delivery of nine of these aircraft. The remaining 11 aircraft are
scheduled for delivery beginning in October 2004 through February 2007. As of
September 30, 2004, we have made $2,230,000 in security deposit payments for
future leased aircraft deliveries.

We also lease office and hangar space, spare engines and office equipment
for our headquarters and airport facilities, and certain other equipment with
expiration dates ranging from 2005 to 2014. In addition, we lease certain
airport gate facilities on a month-to-month basis. Amounts for leases that are
on a month-to-month basis are not included as an obligation in the table above.

(3)
    As of September 30, 2004, we have remaining firm purchase
      commitments for 13 additional aircraft and three spare engines, which have
      scheduled delivery dates beginning in October 2004 and continuing through
      2008. Included in the purchase commitments are the remaining amounts due
      Airbus and amounts for spare aircraft components to support the additional
      purchase and leased aircraft. We are not under any contractual obligations
      with respect to spare parts. Under the terms of the purchase agreement, we
      are required to make scheduled pre-delivery payments for these aircraft.
      These payments are non-refundable with certain exceptions. As of September
      30, 2004, we had made pre-delivery payments on future deliveries totaling
      $14,352,000 to secure these aircraft.
We have entered into a loan agreement for the debt financing for one of
our A319 aircraft scheduled for delivery from Airbus in fiscal year 2006. We
signed a letter of intent for the debt financing for another one of our A319
aircraft scheduled for delivery from Airbus in fiscal year 2006. The terms of
these agreements permit us to borrow up to $24,500,000 per aircraft at 80% of
the appraised base value of the aircraft, whichever is less, over a period of 12
years at floating interest rates with a balloon payment equal to 20% of the
original loan amount due at maturity.

We have signed a letter of intent for the sale-leaseback of one owned and
three spare engines scheduled for delivery between October 2004 and February
2006. In October 2004, we completed the sale-leaseback of two of these engines
with proceeds totaling $7,657,000 from the sale of these two engines. The terms
of this agreement allow us to sell each spare engine to the buyer at the time of
delivery, and then lease the engines back for a period of ten years commencing
on the delivery date. The agreement will provide financing for an additional two
spare engines which we expect we will order at some point in the
future.

-28-(4)
    In October 2002, we entered into a purchase and 12-year services
      agreement with LiveTV to bring DIRECTV AIRBORNE satellite programming to
      every seatback in our Airbus fleet. We have agreed to the purchase of 46
      units. As of September 30, 2004, we have purchased 37 units and have made
      deposits toward the purchase of seven additional units. The table above
      includes the remaining purchase commitment amounts for the seven units on
      which we have made partial payments and all amounts not yet paid on the
      remaining firm two units.
Commercial
Commitments

As we enter new markets, increase the amount of space we lease, or add
leased aircraft, we are often required to provide the airport authorities and
lessors with a letter of credit, bonds or cash security deposits. These
generally approximate up to three months of rent and fees. We also provide
letters of credit for our workers compensation insurance. As of September 30,
2004, we had outstanding letters of credit, bonds, and cash security deposits
totaling $14,465,000, $1,475,000, and $19,979,000, respectively. In order to
meet these requirements, we have a credit agreement with a financial institution
for up to $20,000,000, which expires December 1, 2004. This credit line can be
used only for the issuance of standby letters of credit. We plan to renew this
agreement. Any amounts drawn under the credit agreements are fully
collateralized by certificates of deposit, which are carried as restricted
investments on our balance sheet. As of September 30, 2004, we have utilized
$14,465,000 under these credit agreements for standby letters of credit that
collateralize certain leases. In the event that these credit agreements are not
renewed beyond their present expiration dates, the certificates of deposit would
be redeemed and paid to the various lessors as cash security deposits in lieu of
standby letters of credit. As a result, there would be no impact on our
liquidity if these agreements were not renewed. In the event that the surety
companies determined that issuing bonds on our behalf were a risk they were no
longer willing to underwrite, we would be required to collateralize certain of
these lease obligations with either cash security deposits or standby letters of
credit, which would decrease our liquidity.

We have a contract with a bankcard processor that requires us to pledge a
certificate of deposit equal to a certain percentage of our air traffic
liability associated with bankcard customers. As of September 30, 2004, that
amount totaled $28,093,000. The amount is adjusted quarterly in arrears based on
our air traffic liability associated with bankcard transactions. As of December
1, 2004, we can decrease the amount by approximately $1,434,000.

We use the Airline Reporting Corporation (ARC) to provide reporting and
settlement services for travel agency sales and other related transactions. In
order to maintain the minimum bond (or irrevocable letter of credit) coverage of
$100,000, ARC requires participating carriers to meet, on a quarterly basis,
certain financial tests such as, but not limited to, working capital ratio, and
percent of debt to debt plus equity. As of September 30, 2004, we met these
financial tests and presently are only obligated to provide the minimum amount
of $100,000 in coverage to ARC. If we were to fail the minimum testing
requirements, we would be required to increase our bonding coverage to four
times the weekly agency net cash sales (sales net of refunds and agency
commissions). Based on net cash sales remitted to us for the week ended October
29, 2004, the coverage would be increased to $5,025,000 if we failed the tests.
If we were unable to increase the bond amount as a result of our then financial
condition, we could be required to issue a letter of credit that would restrict
cash in an amount equal to the letter of credit.

In November 2002, we initiated a fuel hedging program comprised of swap
and collar agreements. Under a swap agreement, we receive the difference between
a fixed swap price and a price based on an agreed upon published spot price for
jet fuel. If the index price is higher than the fixed price, we receive the
difference between the fixed price and the spot price. If the index price is
lower, we pay the difference. A collar agreement has a cap price, a primary
floor price, and, in the case of a three-way collar, a secondary floor price.
When the U.S. Gulf Coast Pipeline Jet index price is above the cap, we receive
the difference between the index and the cap. When the hedged products index
price is below the primary floor but above the secondary floor, we pay the
difference between the index and the primary floor. However, when the price is
below the secondary floor, we are only obligated to pay the difference between
the primary and secondary floor prices. When the price is between the cap price
and the primary floor, no payments are required.

On May 21, 2004, we entered into a two way collar agreement that hedges
approximately 25% of our expected fuel requirements in the quarters ended
December 31, 2004 and March 31, 2005. The collar uses West Texas Intermediate
crude oil as its basis. The cap price is set at $39.00 per barrel, and the floor
is set at $34.85 per barrel. The unrealized gain on this derivative contract at
September 30, 2004 was $3,937,000 and is recorded as an offset to fuel expense.

-29-In March 2003, we entered into an interest rate swap agreement with a
notional amount of $27,000,000 to hedge a portion of our LIBOR based borrowings.
Under the interest rate swap agreement, we are paying a fixed rate of 2.45% and
receive a variable rate based on the three month LIBOR.

Effective January 1, 2003, we entered into an engine maintenance
agreement with GE Engine Services, Inc. (GE) covering the scheduled and
unscheduled repair of our aircraft engines used on most of our Airbus aircraft,
subsequently modified in September 2004. The agreement is for a 12-year period
from the effective date for our owned aircraft or December 31, 2014, whichever
comes first, and for each leased aircraft, the term coincides with the initial
lease term of 12 years. This agreement precludes us from using another third
party for such services during the term. This agreement requires monthly
payments at a specified rate multiplied by the number of flight hours the
engines were operated during that month. The amounts due based on flight hours
are not included in table above. As of September 30, 2004, the agreement covers
14 purchased Airbus aircraft and all of our leased Airbus aircraft with the
exception of two. The costs under this agreement for our purchased aircraft for
the six months ended September 30, 2004 and 2003 were approximately $1,260,000
and $732,000, respectively. For our leased aircraft, the lessors pay GE directly
for the repair of aircraft engines in conjunction with this agreement from
reserve accounts established under the applicable lease documents.

Critical Accounting Policies

The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.

Critical accounting policies are defined as those that are both important
to the portrayal of our financial condition and results, and require management
to exercise significant judgments. Our most critical accounting policies are
described briefly below.

Revenue
Recognition

Passenger, cargo, and other revenues are recognized when the
transportation is provided or after the tickets expire, one year after date of
issuance, and are net of excise taxes, passenger facility charges and security
fees. Revenues that have been deferred are included in the accompanying balance
sheets as air traffic liability. In limited circumstances, we grant credit for
tickets that have expired. We do not recognize as revenue the amount of credits
estimated to be granted after the date a ticket expires.

Inventories

Inventories consist of expendable aircraft spare parts, supplies and
aircraft fuel and are stated at the lower of cost or market. Inventories are
accounted for on a first-in, first-out basis and are charged to expense as they
are used. During the fiscal years ended March 31, 2004 and 2003, we recorded a
provision for excess Boeing expendable parts inventory totaling $618,000 and
$2,478,000, respectively. The provision in 2004 was principally the result of
declining resale values of excess Boeing expendable parts. We monitor resale
values for Boeing parts quarterly using estimates obtained from our vendors. We
believe the decline in resale values of parts for the less fuel efficient Boeing
737-200 and Boeing 737-300 aircraft was due in part to increasing fuel prices
during the past six months. The provision in 2003 was principally the result of
returning five Boeing aircraft to the lessors in 2003, and our decision during
the quarter ended March 31, 2003 to discontinue the use of our three remaining
Boeing 737-200 aircraft in advance of the end of the term of their respective
leases. This decision was in response to the significant decline in passenger
demand as a result of the war in Iraq and the continuing economic recession. The
provision was based on estimates of the resale value of the excess expendable
parts, which were obtained from our vendors. We evaluated our estimated usage of
these parts and the current resale value at June 30, 2004 and September 30, 2004
and recorded additional provisions of $388,000 and $946,000, respectively. The
cost of WTI crude oil increased from $36.92 per barrel at June 30, 2004 to
$49.56 per barrel at September 30, 2004. As of October 29, 2004, the cost of
WTI crude oil was $51.78 per barrel. As a result of the increase in the cost of
fuel, we have accelerated the dates that we would cease using the Boeing
aircraft from September 2005 to mid April 2005. Because of the earlier
termination date of the use of the Boeing aircraft, our estimated usage of these
parts decreased, contributing to the amount of the additional provision recorded
during the three months ended September 30, 2004.

-30-Impairment of
Long-Lived Assets

We record impairment losses on long-lived assets used in operations when
indicators of impairment are present and the undiscounted future cash flows
estimated to be generated by those assets are less than the carrying amount of
the assets. If an impairment occurs, the loss is measured by comparing the fair
value of the asset to its carrying amount. During the year ended March 31, 2004,
we recorded an impairment charge of $3,047,000 for engines and rotable parts that
support the  Boeing 737-300 aircraft. The impairment charge for rotables
totaling $901,000 was principally the result of declining resale values for
Boeing rotables. We monitor resale values for Boeing rotables quarterly using
estimates obtained from our vendors. The impairment for the two Boeing 737-300
spare engines totaling $2,146,000 was the result of our decision in the fourth
quarter of fiscal 2004 to sell these remaining spare engines. The impairment was
based on three separate quotes from third parties. During the three months ended
September 30, 2004, we recorded an additional impairment totaling $818,000 as a
result of a letter of intent we entered into for the sale of one of the engines
scheduled in December 2004 as a result of a further market decline.
Additionally, we recorded an additional impairment on all other Boeing 737-200
and 300 parts totaling $2,449,000 which we believe is largely a result of the
rising fuel prices the nation has experienced during the period since June 30,
2004 coupled with the Boeing 737 fleet which has high fuel burn rates. No
further indicators of impairment exist at September 30, 2004 based on current
resale values.

We use the criteria in SFAS No. 144 to determine when an asset is
classified as held for sale. Upon classification as held for sale, the long-lived
asset or asset group is measured at the lower of its carrying amount or fair
value less cost to sell, depreciation is ceased and the asset or asset group is
separately presented on the balance sheet.

Aircraft Maintenance

We operate under an FAA-approved continuous inspection and maintenance
program. We account for maintenance activities on the direct expense method.
Under this method, major overhaul maintenance costs are recognized as expense as
maintenance services are performed, as flight hours are flown for nonrefundable
maintenance payments required by lease agreements, and as the obligation is
incurred for payments made under service agreements. Routine maintenance and
repairs are charged to operations as incurred. Prior to fiscal year 2003, we
accrued for major overhaul costs on a per-flight-hour basis in advance of
performing the maintenance services.

Effective January 1, 2003, we and GE executed a 12-year engine services
agreement covering the scheduled and unscheduled repair of Airbus engines. Under
the terms of the services agreement, we agreed to pay GE a fixed rate
per-engine-hour, payable monthly, and GE assumed the responsibility to overhaul
our engines on Airbus aircraft as required during the term of the services
agreement, subject to certain exclusions. We believe the fixed rate per-engine
hour approximates the periodic cost we would have incurred to service those
engines. Accordingly, these payments are expensed as the obligation is
incurred.

Derivative
Instruments

We account for derivative financial instruments in accordance with the
provisions of Statement of Financial Accounting Standards No. 133, Accounting
for Derivative Instruments and Hedging Activities (SFAS 133). SFAS 133
requires us to measure all derivatives at fair value and to recognize them in
the balance sheet as an asset or liability. For derivatives designated as cash
flow hedges, changes in fair value of the derivative are generally reported in
other comprehensive income (OCI) and are subsequently reclassified into
earnings when the hedged item affects earnings. Changes in fair value of
derivative instruments not designated as hedging instruments and ineffective
portions of hedges are recognized in earnings in the current period.

-31-We enter into derivative transactions to hedge the interest payments
associated with a portion of our LIBOR-based borrowings and fuel purchases. We
designate certain interest rate swaps as qualifying cash flow hedges. We also
enter into derivative transactions to reduce exposure to the effect of
fluctuations in fuel prices. These transactions are accounted for as trading
instruments under SFAS 133. As a result, we record these instruments at fair
market value and recognizes realized and unrealized gains and losses in aircraft
fuel expense.
Customer
Loyalty Program

In February 2001, we establishedEarlyReturns, a frequent flyer program to
encourage travel on our airline and customer loyalty. We account for theEarlyReturnsprogram under the
incremental cost method whereby travel awards are valued at the incremental cost
of carrying one passenger based on expected redemptions. Those incremental costs
are based on expectations of expenses to be incurred on a per passenger basis
and include food and beverages, fuel, liability insurance, and ticketing costs.
The incremental costs do not include a contribution to overhead, aircraft cost
or profit. We do not record a liability for mileage earned by participants who
have not reached the level to become eligible for a free travel award. We
believe this is appropriate because the large majority of these participants are
not expected to earn a free flight award. We do not record a liability for the
expected redemption of miles for non-travel awards since the cost of these
awards to us is negligible.
Co-Branded
Credit Card Arrangement

We entered into a co-branded credit card arrangement with a Mastercard
issuing bank in March 2003. The terms of this affinity agreement provide that we
will receive a fixed fee for each new account, which varies based on the type of
account, and a percentage of the annual renewal fees that the bank receives. We
receive an increased fee for new accounts solicited by us. We also receive fees
for the purchase of frequent flier miles awarded to the credit card customers.

During the year ended March 31, 2003, we received a $10,000,000 advance
from the issuing bank for fees expected to be earned under the program. This
advance was recorded as deferred revenue when it was received. Fees earned as
credit cards are issued or renewed, and as points are awarded to the credit card
customers are applied against this advance.

We account for all fees received under the co-branded credit card program
by allocating the fees between the portion that represents the estimated value
of the subsequent travel award to be provided, and the portion which represents
a marketing fee to cover marketing and other related costs to administer the
program. This latter portion (referred to as the marketing component) represents
the residual after determination of the value of the travel component. The
component representing travel is determined by reference to an equivalent
restricted fare, which is used as a proxy for the value of travel of a frequent
flyer mileage award. The travel component is deferred and recognized as revenue
over the estimated usage period of the frequent flyer mileage awards of 20
months. We record the marketing component of the revenue earned under this
agreement as a reduction of sales and promotion expenses in the month
received.

Because of our limited history with our frequent flier program, we have
estimated the period over which the frequent flier mileage awards will be used
based on industry averages adjusted downward to take into account that most
domestic airlines require 25,000 frequent flyer miles for a domestic round-trip
ticket, whereas we require only 15,000 frequent flyer miles for a domestic
round-trip ticket.

New Accounting Standard

In September 2004, the Emerging Issues Task Force reached consensus on
Issue No. 04-08, or EITF 04-08, The Effect of Contingently Convertible
Debt on Diluted Earnings per Share, which requires the dilutive effect of
contingently convertible debt instruments to be included in earnings per share.
Accordingly, the shares issuable upon conversion of contingently convertible
debt instruments are to be considered in the diluted earnings per share
calculation, regardless of whether the contingent conditions for their
conversion are satisfied, so long as they are dilutive. EITF 04-08 will be
effective for reporting periods ending after December 15, 2004 and is not
expected to have an impact on our diluted earnings per share.

Item
3:Quantitative and Qualitative Disclosures About Market Risk

Our earnings are affected by changes in the price and availability of
aircraft fuel. Market risk is estimated as a hypothetical 10 percent change in
the average cost per gallon of fuel for the year ended March 31, 2004. Based on
fiscal year 2004 actual fuel usage, such a change would have had the effect of
increasing or decreasing our aircraft fuel expense by approximately $10,886,000
in fiscal year 2004. Comparatively, based on projected fiscal year 2005 fuel
usage, including fuel required for our regional partner, such a change would
have the effect of increasing or decreasing our aircraft fuel expense by
approximately $14,884,000 in fiscal year 2005, excluding the effects of our fuel
hedging arrangements. The increase in exposure to fuel price fluctuations in
fiscal year 2005 is due to the increase of our average aircraft fleet size
projected for the year ending March 31, 2005 and related gallons expected to be
purchased.

-32-In September 2003, we entered into a swap agreement with a notional
volume of 630,000 gallons per month for the period from January 1, 2004 to June
30, 2004. The fixed price of the swap was 74.50 cents per gallon and the
agreement was estimated to represent 7% of our fuel purchases for that period.
The results of operations for the six months ended September 30, 2004 include an
unrealized derivative loss of $302,000 that is included in fuel expense and a
realized net gain of approximately $543,000 in cash settlements received from a
counter-party recorded as a decrease in fuel expense. On May 21, 2004, we
entered into an additional derivative transaction that is designed to
economically hedge approximately 25% of our projected fuel requirements in the
quarters ending December 31, 2004 and March 31, 2005. The additional derivative
transaction is a collar agreement that uses West Texas Intermediate crude oil as
its basis. The cap price is set at $39.00 per barrel, and the floor is set at
$34.85 per barrel. The results of operations for the six months ended September
30, 2004 include an unrealized derivative gain of $3,937,000 that is included in
fuel expense for a total net unrealized gain of $3,634,000.

Interest

We are susceptible to market risk associated with changes in variable
interest rates on long-term debt obligations we incurred and will incur to
finance the purchases of our Airbus aircraft. Interest expense on 86.8% of the
debt on our owned Airbus A319 and A318 aircraft is subject to interest rate
adjustments every three to six months based upon changes in the applicable LIBOR
rate. A change in the base LIBOR rate of 100 basis points (1.0 percent) would
have the effect of increasing or decreasing our annual interest expense by
$2,688,000, assuming the loans outstanding that are subject to interest rate
adjustments at September 30, 2004 totaling $268,809,000 are outstanding for the
entire period.

In March 2003, we entered into an interest rate swap agreement with a
notional amount of $27,000,000 to hedge a portion of our LIBOR based borrowings.
Under the interest rate swap agreement, we are paying a fixed rate of 2.45% and
receive a variable rate based on the three month LIBOR over the term of the swap
that expires in March 2007. As of September 30, 2004, we had hedged
approximately 10.0% of our variable interest rate loans. As of September 30,
2004, the fair value of the swap agreement is an asset of $406,000.


Item4. Controls and
      Procedures
As of the end of the period covered by this report, we conducted an
evaluation, under the supervision and with the participation of our management,
including our Chief Executive Officer and Chief Financial Officer, of the
effectiveness of the design and operation of our disclosure controls and
procedures pursuant to Exchange Act Rules 13a-15 and 15d-15. Based upon that
evaluation, our Chief Executive Officer and Chief Financial Officer concluded
that our disclosure controls and procedures are effective. Disclosure controls
and procedures are controls and procedures that are designed to ensure that
information required to be disclosed in our reports filed or submitted under the
Exchange Act is recorded, processed, summarized and completely and accurately
reported within the time periods specified in the Securities and Exchange
Commissions rules and forms.

There have been no significant changes in our internal controls or in
other factors that could significantly affect internal controls subsequent to
the date we carried out this evaluation.

-33-PART II. OTHER INFORMATION


Item4: Submission of
      Matters to a Vote of Security Holders
Our annual meeting of shareholders was held on September 9, 2004, at
which a quorum for the transaction of business was present. Two matters were
voted upon, as described below.

1. Members of the Board of Directors elected at the meeting were Samuel
D. Addoms, Hank Brown, D. Dale Browning, Paul S. Dempsey, Patricia A. Engels,
William B. McNamara, B. Larae Orullian, Jeff S. Potter, and James B. Upchurch.
The votes cast with respect to each nominee were as follows:

31,406,911 For Mr. Addoms;
    1,423,240 Withheld31,346,709 For Mr. Brown;
    1,483,442 Withheld31,007,335 For Mr. Browning;
    1,822,816 Withheld31,029,347 For Mr. Dempsey;
    1,800,804 Withheld31,356,519 For Ms. Engels;
    1,473,632 Withheld31,263,862 For Mr. McNamara;
    1,566,289 Withheld31,018,708 For Ms. Orullian;
    1,811,443 Withheld31,396,567 ForMr. Potter;
    1,433,584 Withheld31,274,915 ForMr. Upchurch;
    1,555,236 Withheld
2.Shareholders voted upon
a proposal to approve the Frontier Airlines, Inc. 2004 Equity Incentive Plan.
The votes cast with respect to this proposal were:

Votes for
    21,293,075Votes against
    2,985,276Abstentions
    127,798Not voted
    11,203,793

Item6: Exhibits and
      Reports on Form 8-K
(a)
    Exhibits
ExhibitNumbers
Exhibit 31 - Rule 13a-14(a)/15d-14(a)
      Certifications
31.1
    Section 302 certification of President and Chief Executive Officer,
      Jeffery S. Potter. (1)
31.2
    Section 302 certification of Chief Financial Officer, Paul H. Tate.
      (1)
Exhibit 32 - Section 1350 Certifications

32
    Section 906 certification of President and Chief Executive Officer,
      Jeffery S. Potter, and Chief Financial Officer, Paul H. Tate
    (1)
(1)
    Filed herewith.
-34-(b)
    Reports on Form 8-K
During the quarter ended September 30, 2004, the Company filed the
following reports on Form 8-K.

Financial StatementsDate of Reports
    Item Numbers
    Required to be FiledJuly
      29, 2004
    7 and
      12
    NoneAugust
      24, 2003
    3.03
      and 9.01
    None
-35-SIGNATURES

Pursuant to 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: November 3, 2004
    By:/s/ Paul H.
  TatePaul H. Tate, Vice President and
Chief Financial Officer


Date: November 3, 2004
    By:/s/ Elissa A.
  PotucekElissa A. Potucek, Vice President, Controller,
Treasurer and Principal Accounting Officer