SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON, D.C.  20549 FORM
10-K x
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
  SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended March 31, 2006o
TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE
  SECURITIES EXCHANGE ACT OF 1934Commission file number: 000-51890  FRONTIER
  AIRLINES HOLDINGS, INC.(Exact name of
  registrant as specified in its charter)Delaware

20-4191157(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)Registrants telephone
number including area code: (720)
374-4200Securities registered
  pursuant to Section 12(b) of the Act:
  NoneSecurities registered
  pursuant to Section 12(g) of the Act:Common Stock, Par Value
  of $0.001 per shareTitle of Class Indicate
by check mark whether the Registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act.

Yes x  No o Indicate
by check mark whether the Registrant is not required to file reports pursuant
to Section 13 or Section 15(d) of the Act. Yes x  No o Indicate by check mark whether the Registrant (1)
filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act 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 o Indicate by check mark if disclosure of delinquent
filers pursuant to Item 405 of Regulation S-K is not contained herein, and will
not be contained, to the best of the Registrants knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. o Indicate by check mark whether the Registrant is a
large accelerated filer, an accelerated filer, or a non-accelerated filer.  See definition of accelerated filer or large
accelerated filer in Rule 12b-2 of the Exchange Act. (Check one):Large accelerated filer o Accelerated filer x  Non-accelerated
filer o Indicate by check mark whether the Registrant is a
shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o  No
x The aggregate market value of common stock held by
non-affiliates of the Company computed by reference to the last quoted price at
which such stock sold on such date as reported by the Nasdaq National Market as
of September 30, 2005 was $349,965,517. The number of shares of the Companys common stock
outstanding as of May 24, 2006 is 36,589,705. Documents incorporated by reference
 Certain information required by Parts II and III is
incorporated by reference to the Companys 2006 Proxy Statement.
     TABLE
OF CONTENTS

PagePART IItem 1:
Business
3Item 1A:
Risk
  Factors
14Item 1B.
Unresolved
  Staff Comments
23Item 2:
Properties
24Item 3:
Legal
  Proceedings
25Item 4:
Submission
  of Matters to a Vote of Security Holders
26PART IIItem 5:
Market
  for Registrants Common Equity, Related Stockholder Matters and Issuer
  Purchases of Equity Securities
27Item 6:
Selected
  Financial Data
28Item 7:
Managements
  Discussion and Analysis of Financial Condition and Results of Operations
33Item 7A:
Quantitative
  and Qualitative Disclosures About Market Risk
54Item 8:
Financial
  Statements and Supplementary Data
55Item 9:
Changes
  in and Disagreements with Accountants on Accounting  and Financial Disclosure
55Item 9A:
Controls
  and Procedures
55Item 9B:
Other
  Information
55PART III55Item 10:
Directors
  and Executive Officers of the Registrant
55Item 11:
Executive
  CompensationItem 12:
Security
  Ownership of Certain Beneficial Owners and Management and Related Stockholder
  Matters
56Item 13:
Certain
  Relationships and Related Transactions
56Item 14:
Principal
  Accountant Fees and Services
56PART IVItem 15:
Exhibits
  and Financial Statement Schedules
57- 2 -

PART I

Special Note About
Forward-Looking Statements.This report contains
forward-looking statements within the meaning of Section 21E of the Securities
Exchange Act of 1934 (the Exchange Act) that describe the business and
prospects of Frontier Airlines Holdings, 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, intend,
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 achieve a level of
revenue through fares sufficient to obtain profitability due to competition
from other air carriers and excess capacity in the markets we serve;  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;
hurricanes and their impact on oil production; 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, Southwest Airlines, and other competitors,
particularly in some of our Mexico destinations due to the increase in the
number of domestic airlines authorized to serve Mexico markets from the U.S.;
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; uncertainties regarding
aviation fuel prices, and various risk factors to our business discussed
elsewhere in this report.  Because our
business, like that of the airline industry generally, is characterized by high
fixed costs relative to revenues, small fluctuations in our revenue 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.

Item 1:
Business

General

On
April 3, 2006, Frontier Airlines, Inc. (Airlines) completed its corporate
reorganization (the Reorganization).
As a result of the Reorganization, Airlines became a wholly-owned
subsidiary of Frontier Airlines Holdings, Inc., a Delaware corporation
(Holdings), and Holdings became the successor issuer to Airlines pursuant to
Rule 12g-3 under the Exchange Act.  In
connection with the Reorganization, each outstanding share of common stock, no
par value, of Airlines was exchanged for one share of common stock, $0.001 par
value, of Holdings, resulting in each shareholder of Airlines as of the close
of business on March 31, 2006 becoming a stockholder of Holdings as of the
opening business on April 3, 2006.  The
common stock of Holdings is now the publicly traded stock of the company.  At this time Airlines is the only subsidiary
of Holdings, such that the financial performance of Holdings is represented
completely by the financial performance of Airlines.  In this report, references to us, we, or the
company refer
to Holdings as represented by the operations and financial performance of
Airlines.

Now
in our 12th year of operations, we are a low cost, affordable fare airline
operating primarily in a hub and spoke fashion connecting cities coast to coast
through our hub at Denver
International Airport (DIA).  We
are the second largest jet service
carrier at DIA based on departures.  As
of May 25, 2006, we, in conjunction with Frontier JetExpress operated by
Horizon Air Industries, Inc. (Horizon), operate routes linking our Denver hub
to 47 U.S. cities spanning the nation from coast to coast, seven cities in
Mexico and Calgary in Alberta, Canada.
During the year ended March 31, 2005, we began certain point-to-point
routes to Mexico from non-hub cities.
As of May 25, 2006, we provided jet service to Cancun, Mexico directly
from five non-hub cities and service to Puerto Vallarta, Mexico from Kansas
City, Missouri.

- 3 -

We
were organized in February 1994, and we began flight operations in July 1994
with two leased Boeing 737-200 jets.  We
have since expanded our fleet in service to 52 jets as of May 25, 2006 (36 of
which we lease and 16 of which we own), consisting of 45 Airbus A319s and seven
Airbus A318s.  In April 2005, we
completed our plan to replace our Boeing aircraft with new purchased and leased
Airbus jet aircraft.  During the years
ended March 31, 2006 and 2005, we increased year-over-year capacity by 8.4% and
27.4%, respectively.  During the years
ended March 31, 2006 and 2005, we increased mainline passenger traffic by 12.9%
and 28.6%, respectively, over the prior comparable periods, outpacing our
increase in capacity during both periods.
We intend to continue our growth strategy and will add frequency to new
markets and existing markets that we believe are underserved.

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 with three aircraft.  We increased
JetExpress aircraft to a total of eight aircraft in service and one spare
aircraft as of June 1, 2004.  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 the performance of
Horizon and our financial performance.
As of May 25, 2006, Frontier JetExpress provides service to Boise,
Idaho; Billings, Montana; Dayton, Ohio; El Paso, Texas; Fresno, California;
Little Rock, Arkansas; Oklahoma City, Oklahoma; Tucson, Arizona; Tulsa,
Oklahoma; and Calgary, Alberta, Canada and supplements our mainline service to
Albuquerque, New Mexico; Austin, Texas; Omaha, Nebraska, and San Jose,
California.  Our mainline operations
will provide service to Spokane, Washington from May 2006 to mid-August 2006,
at which time Spokane will return to Frontier JetExpress service.

We
currently operate on 16 gates on Concourse A at DIA on a preferential
basis.  We use these 16 gates and share
use of up to four common use regional jet parking positions to operate approximately
267 daily mainline flight departures and arrivals and 54 Frontier JetExpress
daily system flight departures and arrivals.

Our
filings with the Securities and Exchange Commission (the SEC) 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, our current reports on Form 8-K,
Section 16 reports on Forms 3, 4 and 5, and any related amendments or other
documents, and are made available as soon as reasonably practicable 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.

Overview
of Operations and the Industry

We
intend to continue our focused growth strategy while keeping our operating
costs low. One of the key elements to keeping our costs low was the completion
of the fleet transition from a Boeing fleet to an all Airbus fleet in April
2005.  This strategy produces cost
savings because crew training is standardized for aircraft of a common type,
maintenance issues are simplified, spare parts inventory is reduced, and
scheduling is more efficient. We also keep our operating costs low by operating
only two types of Airbus aircraft with a single class of service.  Operating a single class of service simplifies
our operations, enhances productivity, increases our capacity and offers an
operating cost advantage.

As
of May 25, 2006, we have remaining firm purchase commitments for 17 aircraft
from Airbus (three Airbus 319 aircraft, four Airbus 318 aircraft and ten Airbus
320 aircraft), and we intend to take delivery of one additional leased A319
aircraft in February 2007.  We intend to
use these additional aircraft to provide service to new markets and to add
frequencies to existing markets that we believe are underserved.

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 believe our friendly and
dedicated employees, affordable pricing, accommodating service, in-flight
entertainment systems and comfortable airplanes distinguish our product and
service from our competitors.  Safety is
a primary concern, and we are proud that our maintenance staff has been awarded
the Federal Aviation Administration (FAA) Diamond Award for Excellence for
seven straight years  an award that recognizes our commitment to the ongoing
training and education of our maintenance staff.  Our product begins with the Airbus aircraft, which offers a
comfortable passenger cabin that we configure with one class of comfortable
seating, superb leg room, and in-seat 24 channel live television
entertainment.  We also provide three
additional channels that offer current-

- 4 -

run pay-per-view movies.

The
airline industry is intensely competitive with record high aviation fuel
costs.  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 coupled with the record high fuel costs has created financial
hardship for some of our competitors that have been forced to reduce capacity
and in some cases have sought bankruptcy protection.

During
the year ended March 31, 2006, our services to Cancun, Mexico, New Orleans,
Louisiana and certain of our markets in Florida were disrupted by hurricanes
and other extreme weather, impacting our service levels to these destinations
and also impacting our revenues and cost of doing business.  We are always at risk of severe weather in
any destination we serve.  Although we
believe we have developed sound strategies for addressing operational issues
created by severe weather, we remain exposed to significant operational
interruptions.  The two Gulf Coast
hurricanes also severely damaged crude oil production and refinery capacity in
the region.  As a result of these
disruptions, in October 2005, the cost of jet aviation fuel increased within
weeks by nearly $1.00 per gallon and caused fuel shortages at several airports
that we serve.  Since that time,
aviation fuel prices have remained elevated, with further increases taking
place due to instability in the Middle East and uncertainty as to future
supplies of crude oil compared to predicted worldwide demand.

In
addition, with respect to our Mexico service, the U. S. and Mexico recently
amended their bilateral agreement relating to commercial air service.  In the markets we serve, only two U.S. based
airlines were permitted to provide air service between that U.S. city and
certain cities in Mexico, primarily the resort destinations we serve.  In many cases, we were one of the two U.S.
based airlines providing service to the cities we serve in Mexico.  The recent amendments to the bilateral
agreement expanded the authorized service levels to three U.S. based airlines
per identified city pair.  It is
therefore highly likely that other airlines will seek to add service to some of
the Mexico destinations we serve, which would increase competition and perhaps
place downward pressure on air fares in these markets.

Business
Strategy and Markets

Our
business strategy is to provide air service at affordable fares to high volume
markets from our DIA hub and limited point-to-point routes outside of our DIA
hub.  Our strategy is based on the
following factors:


Stimulate demand by offering a combination of low
  fares, quality service and frequent flyer credits in our frequent flyer
  program, EarlyReturns.
Expand our Denver hub operation and increase
  connecting traffic by adding additional high volume markets to our current
  route system and by code sharing agreements and other relationships with
  other airlines.
Continue filling gaps in flight frequencies to
  current markets from our DIA hub.
Evaluate other opportunities for additional non-hub
  point-to-point routes.Route System
Strategy

Our
route system strategy encompasses connecting our Denver hub to top business and
leisure destinations.  We currently
serve 44 of the top 50 destinations from Denver, as defined by the U.S.
Department of Transportations, (DOT) Origin and Destination Market
Survey.  During the year ended March 31,
2006 and as of May 25, 2006, we added departures to the following cities with
commencement dates as follows:



Destination

Commencement DateDIA to
  Detroit, Michigan

May 8,
  2005DIA to
  Tulsa, Oklahoma (1)

May 22,
  2005DIA to
  Akron-Canton, Ohio

June 15,
  2005DIA to San Antonio, Texas

June 26, 2005DIA to Dayton, Ohio (1)

August
  31, 2005DIA to Fresno, California (1)

August
  31, 2005- 5 -

Kansas City, Missouri to Puerto Vallarta, Mexico

December
  17, 2005DIA to
  Cozumel, Mexico

December
  17, 2005DIA to
  Acapulco, Mexico (2)

December
  18, 2005Indianapolis,
  Indiana to Cancun, Mexico

March 6,
  2006DIA to
  Calgary, in Alberta, Canada (1)

May 25,
  2006(1)
Operated exclusively by Frontier JetExpress.(2)
We discontinued seasonal service to Acapulco on
  April 16, 2006.In
September 2005, we suspended our one daily flight to New Orleans, Louisiana due
to Hurricane Katrina.

In
addition to the 47 U.S. cities and one Canadian destination served from DIA, we
currently have non-stop service from non-hub cities to our Mexico destinations
as follows:

Destination

Commencement
  DateIndianapolis, Indiana to Cancun, Mexico

March 2006Kansas City, Missouri to Cancun, Mexico

July 2004Nashville, Tennessee to Cancun, Mexico

November 2004Salt Lake City, Utah to Cancun, Mexico

July 2004St. Louis, Missouri to Cancun, Mexico

February 2005Kansas City, Missouri to Puerto Vallarta, Mexico

December
  2005We
also have submitted applications to the DOT for authority to provide round-trip
jet transportation between Los Angeles International Airport and Cabo San
Lucas, Mexico.

On
May 2, 2006, we announced new mainline service between Los Angeles
International Airport and San Francisco International Airport.  We plan on commencing service on June 29,
2006 with five daily flights between these two airports.

Fleet and Operational Upgrades

In
October 2004, the FAA 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 March 2005, the approach minimums for Category III were further
reduced to 700 feet RVR and in October 2005 we received authority to conduct
Category III approaches to 300 feet RVR.
We expect these new landing minimum criteria to reduce the number of
diversions required because of low visibility, a condition that occurs with some
regularity 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.  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 allows us to serve longer haul markets such as Denver to Anchorage,
Alaska or to depart from airports with shorter runways while carrying a full
passenger load.  In addition, two of the
A319 aircraft to be delivered to us in the next year will include over-water
configurations.

Marketing
and Sales

Our
sales efforts target value conscious leisure and business travelers.  Value conscious customers are
price-sensitive; however, we believe their travel decisions are also balanced
with other aspects of our product offering such as our frequent flyer program,
non-stop service, advanced seat assignments, service level and live television
entertainment.  In the leisure market,
we offer discounted fares marketed through the Internet, newspaper, radio and television
advertising along with

- 6 -

special promotions and travel packages.  In May 2003, we launched a new brand
strategy and advertising campaign designed to
identify Frontier as A Whole Different Animal and to set us apart from our
competition.  The campaign includes
television, print and radio components that began running in the Denver market
and have since expanded to additional markets along our routes.  We have gathered extensive customer and
employee feedback that has allowed us to identify elements of service that are
important to our customers who have the potential to fly with us more
often.

On
May 23, 2006, we launched a new version of our website as part of our strategic
initiative to reduce commissions paid to external travel websites by increasing
our website bookings from our current rate of 36% of total bookings.  We began a phased improvement of our website
shortly after we converted our reservation and ticketing automation to Sabre by
March 2005.

In
conjunction with the branding campaign, we have sponsorship agreements as the
exclusive airline of The Pepsi Center in Denver, Denvers National Hockey
League team, the Colorado Avalanche, and Denvers National Basketball
Association team, the Nuggets.  We also
have sponsorship agreements with Colorados Major League Baseball team the
Rockies, Colorados National Lacrosse League team, the Colorado Mammoth, and
Colorados Arena Football League team, the Colorado Crush.  In addition, we are the exclusive airline
partner for the college athletic programs of the Air Force Academy, University
of Colorado, Colorado State University, the University of Denver, the
University of Northern Colorado, and the University of Wyoming.  The agreements allow for prominent signage
in applicable stadiums and arenas, participation in-game promotions, receipt of
prominent logo and advertising placement in publications and access to joint
promotion opportunities.  These
agreements vary in terms of length and the amount and method of compensation to
the sponsored entities.

In
order to increase connecting traffic, we entered into two code share
agreements, one with Great Lakes Aviation Ltd. in July 2001 and one with Mesa
Air Group operating as Frontier JetExpress in February 2002.  Mesa was replaced with Horizon in January
2004.  We also have interline agreements
with 105 domestic and international airlines serving cities on our route
system.  Generally, these agreements
include joint ticketing and baggage services and other conveniences designed to
expedite the connecting process.

To
balance the seasonal demand changes that occur in the leisure market, we have
introduced programs over the past several years that are designed to capture a
larger share of the corporate market, which tends to be less seasonal than the
leisure market.  These programs include
negotiated fares for large companies that sign contracts committing to a
specified volume of travel, future travel credits for small and medium size
businesses contracting with us, and special discounts for members of various
trade and nonprofit associations.

We
also pursue sales opportunities with meeting and convention arrangers and
government travel offices. The primary tools we use to attract this business
include personal sales calls, direct mail and telemarketing.  In addition, we offer air/ground vacation
packages to many destinations on our route system under contracts with various
tour operators.

We
participate in the four major computer reservation systems used by travel
agents to make airline reservations: Amadeus, Galileo, Worldspan and
Sabre.  We maintain reservation centers
in Denver, Colorado and Las Cruces, New Mexico, operated by our own employees.

LiveTV

In
October 2002, we signed a 12 year purchase and long-term services agreement
with LiveTV, LLC to bring DIRECTV AIRBORNE  satellite programming to every
seatback in our Airbus fleet.  DIRECTV®
programming features 24 channels of live television delivered to each
seat.  We implemented a $5 per segment
usage charge for access to the system to offset the costs for the system
equipment, programming, and services.
In 2005, we continued to improve our customers flying experience by
adding four additional channels that offer current-run pay-per-view movies for
$8 per segment.

Customer
Loyalty Program

We
have operated EarlyReturns®,
our frequent flyer program, since February 2001.  Our frequent flyer program won the following awards at the 2006
Freddie Awards for frequent flyer programs: second place for best award
redemption, fourth

- 7 -

place for program of the year, and fourth place for
best award numbers for our 15,000 miles ticket redemption.  We believe that our frequent flyer program
offers some of the most generous benefits in the industry, including a free
round-trip after accumulating only 15,000 miles (25,000 miles to our
destinations in Mexico).  There are no
blackout dates for award travel.
Additionally, members who earn 25,000 or more Frontier flight miles
annually attain Summit Level status, which includes a 50% mileage bonus on each
paid Frontier flight, priority check-in and boarding, complimentary on-board
alcoholic beverages and DIRECTV, extra allowance on checked baggage and
priority baggage handling, guaranteed reservations on any Frontier flight when
purchasing an unrestricted coach class ticket at least 72 hours prior to
departure, standby at no charge on return flights the day before, the day of,
and the day after the originally scheduled flight, and access to an exclusive
customer service toll-free phone number.
Members who earn 15,000  24,999 Frontier flight miles annually attain
Ascent Level status, which includes a 25% mileage bonus on each Frontier flight,
priority check-in and boarding, complimentary DIRECTV service, and access to an
exclusive customer service toll-free phone number.  Members earn one mile for every mile flown on Frontier. Members
can also earn additional miles through our program partners, which presently
include: Hertz Rental Car, 1-800-FLOWERS.com, Diners Club International, Qwest
Communications, SuperShuttle, Millennium Hotels and Resorts and Frontier
Airline Cruises.  To apply for the
EarlyReturns®
program, customers may visit our Web site at www.frontierairlines.com;obtain
an EarlyReturns® enrollment form
at any of our airport counters or call our EarlyReturns® Service Center toll-free hotline at 866-26-EARLY, or our
reservations at 800-432-1FLY.

In
March 2003, we entered into a co-branded credit card arrangement with a
MasterCard issuing bank.  Credit card
users earn miles on their credit card purchases.  We receive fees for new accounts, the purchase of frequent flier
miles awarded to credit card customers and a percentage of the annual renewal
fees.

In
June 2004, we entered into an agreement with Points.com that allows for the
sale, purchase and exchange of EarlyReturn® points.  Beginning in
July 2005, we entered into an agreement with American Express that allows its
cardholders to convert their Membership Reward points into EarlyReturns® points.

In
June 2005, we launched the More Store (www.frontiermorestore.com), which is an online miles shopping
experience designed to provide Ascent and Summit level EarlyReturns® members
with the ability to purchase merchandise online with frequent flyer miles in an
auction-style bidding process or with a stated amount of miles. Approximately 10 million points have
been redeemed for merchandise since the launch.

Product
Pricing

We
offer a range of fares, including 21-day, 14-day, 7-day and 3-day advanced
purchase fares, and a walk-up fare.  In
addition to our regular fare structure, we frequently offer sale fares in the
markets we serve and match the sale fares offered by other airlines.  We offer both one-way and round-trip fares
not requiring a Saturday night stay.

Competition
and Market Barriers

The
Airline Deregulation Act of 1978 produced a highly competitive airline
industry, freed of government regulations that for 40 years prior to the
Deregulation Act had dictated where domestic airlines could fly and how much
they could charge for their services. Since then, we and other smaller carriers
have entered markets long dominated by larger airlines with substantially
greater resources, such as United Airlines, American Airlines, Northwest
Airlines and Delta Air Lines.

We
compete principally with United, the dominant carrier at DIA. United has a
competitive advantage due to its larger number of flights from DIA, its significantly
broader domestic and international route system, and its offering a multiple
class cabin for most of its flights.
In February 2003, United launched a new low-fare airline, Ted, which we
believe was developed in an attempt to operate with lower costs than Uniteds
mainline operations to compete with us and other low-cost carriers.  At DIA, United has implemented capacity
reductions and shifted certain routes from mainline service aircraft to
regional jets such that 33% of all United departures from Denver are currently
flown by regional aircraft.

In
January 2006, Southwest Airlines, the largest low-fare major U.S.
airline, introduced service at DIA.
Southwest Airlines currently has 20 frequencies out of DIA to five
destinations.  Southwest pioneered the
low-cost model by operating a single aircraft fleet with high
utilization, being highly productive in the use of its people and assets,
providing a simplified fare structure and offering only a single class of
seating with no seat assignments.  These
methods, coupled with significant favorable fuel hedging positions, enable
Southwest to offer fares that are significantly lower than those charged by
other U.S.

- 8 -

airlines, which has impacted our yields in the five
routes in which we compete with Southwest.
It is likely that further expansion by Southwest into other markets we
serve would cause the same result.

During
the month of March 2006, United, Ted, and its commuter affiliates had a total
market share at DIA of approximately 55.9%, down from 56.1% during the month of
March 2005.  During the month of March
2006, Southwest had a total market share at DIA of approximately 3.1%.  Our market share at DIA, including our
codeshare affiliates, during the month of March 2006 was 20.5%, up from 19.3%
during the month of March 2005.  As of
May 1, 2006, we directly compete with United and United regional jet affiliates
on 87.6% of the cities we serve out of DIA and with Southwest on 9.3% of the
cities we serve.  We compete with United
and Southwest primarily on the basis of fares, fare flexibility, the number of
markets we operate in and the number of frequencies within a market, our
frequent flyer programs, brand recognition (particularly in Denver market), the
level of passenger entertainment available on our aircraft and the quality of
our customer service.

Where
we do not compete directly with United and/or Southwest, we compete with many
other air carriers for the limited number of passengers desiring to travel
between the cities we serve.  With
excess capacity in these and almost all markets, it is extremely difficult to
demand fare levels sufficient to offset the high costs of operating an airline,
particularly with the current high prices for aviation fuel.

At
the present time, New Yorks LaGuardia and John F. Kennedy International
Airports and Washington Ronald Reagan National Airport are regulated by means
of slot allocations, which represent government authorization to take off or
land at a particular airport within a specified time period.  FAA regulations require the use of each slot
at least 80% of the time and provide for forfeiture of slots in certain
circumstances.  We were awarded four
high-density exemption slots, with two seasonal slots at LaGuardia, and at the
present time, we utilize four of these slots to operate two daily round-trip
flights between DIA and LaGuardia.  In
addition to slot restrictions, Reagan National is limited by a perimeter rule,
which initially limited flights to and from Reagan National to 1,250
miles.  In April 2000, the Wendell H.
Ford Aviation Investment and Reform Act for the 21st Century, or AIR
21, was enacted.  AIR 21 authorized the
DOT to grant up to 12 slot exemptions beyond the 1,250-mile Reagan National
perimeter, provided certain specifications are met.  Under AIR 21, we were awarded two slots for one daily round-trip
flight.  In 2004 the Vision 100 -
Century of Flight Aviation Authorization Act was enacted, which authorized the
DOT to grant an additional 12 slot exemptions into Reagan National.  In April 2004, we were granted four
additional slots at Reagan National for two additional round-trip flights.

Another
airport we serve, John Wayne International Airport in Santa Ana, California
(SNA), is also slot controlled at the local level as mandated by a federal
court order.  We were originally awarded
six arrival and departure slots at SNA, or three daily round-trips.  We began service with two daily round-trips
to SNA in August 2003 and began a third daily round- trip in March 2004.

Maintenance
and Repairs

All
of our aircraft maintenance and repairs are accomplished in accordance with our
maintenance program approved by the FAA.
Since mid-1996, we have trained, staffed and supervised our own
maintenance work force at Denver, Colorado.
We sublease a portion of Continental Airlines hangar at DIA where we
currently perform most of our own maintenance through the D check level.  We also maintain line maintenance facilities
at Phoenix, Arizona and Kansas City, Missouri.
Outside FAA approved contractors perform other major maintenance, such
as major engine repairs.  We have
attempted to level our engine maintenance expenses by entering into a
maintenance cost per hour agreement with GE Engine Services, Inc. (GE).  This agreement is for a 12-year period from
the effective date for our owned aircraft or May 1, 2019, whichever comes
first.  For each leased aircraft, the
agreement 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 on the covered
engines.  This agreement requires
monthly payments at a specified rate multiplied by the number of flight hours the
engine operated during that month.  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.
Currently, engines on all of our owned and leased aircraft are subject
to the GE agreement.

Under
our aircraft lease agreements, we pay all expenses relating to the maintenance
and operation of our aircraft, and we are required to pay supplemental monthly
rent payments to the lessors based on usage.
Supplemental rents are applied against the cost of scheduled major
maintenance.  To the extent these
reserves are not used for major maintenance during the lease terms, excess
supplemental rents are forfeited to the aircraft lessors after termination of
the lease.

- 9 -

Our
monthly completion factors for the years ended March 31, 2006, 2005, and 2004,
excluding cancellations that were not related to maintenance, averaged 99.9%,
99.8% and 99.8%, respectively.  The
completion factor is the percentage of our scheduled flights that were operated
by us, whether or not delayed (i.e., not canceled).  We believe that our high monthly completion factors are
attributable to the reliability of our new Airbus fleet and our record of
excellence in our maintenance department.

For
seven consecutive years starting in 1999, our maintenance and engineering
department received the FAAs highest award, the Diamond Certificate of
Excellence, in recognition of 100 percent of our maintenance and engineering
employees completing advanced aircraft maintenance training programs.  The Diamond Award recognizes advanced
training for aircraft maintenance professionals throughout the airline
industry.  We were the first Part 121
domestic air carrier to achieve 100 percent participation in this training
program by our maintenance employees.

Fuel

Fuel
prices increased significantly in fiscal 2005 and 2006.  During the years ended March 31, 2006, 2005,
and 2004, jet fuel, including hedging activities and our regional partner
operations, accounted for 31.3%, 24.1% and 18.1%, respectively, of our
operating expenses.  We have
arrangements with major fuel suppliers for substantial portions of our fuel
requirements, and we believe that these arrangements assure an adequate supply
of fuel for current and anticipated future operations.  Jet fuel costs are subject to wide
fluctuations as a result of sudden disruptions in supply beyond our
control.  Therefore, we cannot predict
the future availability and cost of jet fuel with any degree of certainty.  Our mainline average fuel prices per gallon
including realized and unrealized hedging activities, taxes and into-plane fees
for the last three fiscal years were as follows:

Fiscal Year
          Ended

Average Fuel Price per 
  Gallon

Monthly Low Price per Gallon

Monthly High Price per GallonMarch 31, 2006

$
1.99

$
1.66

$
2.65March 31, 2005

$
1.41

$
1.19

$
1.64March 31, 2004

$
1.04


89
¢
$
1.20As
of May 22, 2006, the average price per gallon was approximately $2.39 excluding
the impact of fuel hedges.  We
implemented a fuel-hedging program in November 2002, under which we entered
into crude oil or Gulf Coast jet fuel option contracts to partially protect us
against significant increases in fuel prices.
Our fuel-hedging program is limited in fuel volume and duration.  As of March 31, 2006, we had hedged
approximately 16% of our projected fuel requirements for the quarter ending
June 30, 2006.

Increases
in fuel prices or a shortage of supply could have a material adverse effect on
our operations and financial results.
Based on our current fleet and operations, we estimate that a 1¢ increase in the price of fuel per gallon
increases our operating expenses by $1,700,000 on an annualized basis.  This number will increase as our capacity
increases. Our ability to pass on increased fuel costs to passengers
through price increases or fuel surcharges may be limited, particularly because
of our affordable fare strategy and intense competition.

Insurance

We carry
$1.0 billion per aircraft per occurrence in property damage insurance and
passenger and third-party liability insurance, and insurance for aircraft loss
or damage with deductible amounts as required by our aircraft lease agreements,
and customary coverage for other business insurance.  While we believe such insurance is adequate, there can be no
assurance that such coverage will adequately protect us against all losses that
we might sustain.  Our aircraft hull and
liability coverage renewed on January 1, 2006 for one year at reduced
year-over-year rates.

In
December 2002, through authority granted under the Homeland Security Act of
2002, the U.S. government expanded its insurance program to enable airlines to
elect either the governments excess third-party war risk coverage or for

- 10 -

the
government to become the primary insurer for all war risks coverage.  We elected to take primary government
coverage in February 2003 and dropped the commercially available war risk
coverage.  The Appropriations Act of
2002 authorized the government to offer both policies through August 31,
2004.  The Emergency Wartime
Supplemental Appropriations Act extended the governments mandate to provide
war-risk insurance until March 31, 2005.
Pursuant to the Consolidated Appropriations Act of 2005, Congress further
extended the governments mandate to provide war-risk insurance until August
31, 2006, at the discretion of the Secretary of Transportation.  We cannot assure that any further extensions
will occur, or if they do, how long they will last.  We expect that if the government stops providing 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.

Employees

As
of May 1, 2006, we had 4,770 employees, including 3,851 full-time and 919
part-time personnel.  Our employees
included 619 pilots, 901 flight attendants, 1,149 customer service agents, 478
ramp service agents, 322 reservations agents, 120 aircraft appearance agents,
74 catering agents, 320 mechanics and related personnel, and 787 general
management and administrative personnel.
We consider our relations with our employees to be good.

Approximately
21% of our employees are represented by unions.  The following table reflects the principal collective bargaining
agreements, and their respective amendable dates:

Approximate Number



ContractEmployee Group

of Employees

Representing Union

Amendable DatePilots

619

Frontier
  Airline Pilots Association

May
  2005Mechanics

250

Teamsters
  Airline Division

July
  2008Dispatchers

15

Transport
  Workers Union

September
  2006Aircraft
  appearance agents and maintenance cleaners

120

Teamsters
  Airline Division

October
  2013The
first bargaining agreement for the pilots, which has a five-year term, was
ratified and became effective in May 2000.
Negotiations for a new agreement with the pilots began in May 2005 and
are still in process.  In March 2006,
our material specialists voted for union representation by the International
Brotherhood of Teamsters effecting approximately 22 employees.  Since 1997, we have had other union
organizing attempts that were defeated by our flight attendants and ramp
service agents.

We
have established a compensation philosophy that we will pay competitive wages
compared to other airlines of similar size and other employers with which we
compete for our labor supply.  Employees
have the opportunity to earn bonuses under our profit sharing program and may
be granted shares of our common stock under our Employee Stock Ownership
Program (ESOP).  The bonuses and ESOP
grants are discretionary and reviewed by our Board of Directors each year.

Effective
in May 2000, we enhanced our 401(k) Retirement Savings Plan by announcing an
increased matching contribution by the company.  Participants may receive a 50% company match for contributions up
to 10% of salary.  This match is
discretionary and is approved on an annual basis by our Board of
Directors.  The Board of Directors has
approved the continuation of the match through the plan year ending December
31, 2006.

- 11 -

For
the plan years ended December 31, 2006, 2005 and 2004, the Board of Directors
contributed 400,000, 346,400, and 298,174 shares of stock to the ESOP,
respectively.  These shares are
allocated to eligible employees at the end of the plan year.  Employees become vested in shares allocated
to their account 20% per year and may obtain a distribution of vested shares
upon leaving the company.  We believe
that the 401(k) match, the ESOP and the related vesting schedules of 20% per
year may reduce our employee turnover rates.

In
March 2005, we adopted a new annual bonus and long-term incentive plan for our
officers and directors.  The long-term
incentive plan included the issuance of stock-only stock appreciation rights,
restricted stock units and a three-year cash incentive pool for the fiscal year
ending March 31, 2006.  On March 9,
2006, we adopted the annual bonus targets for fiscal year ending March 31, 2007
with the same bonus structure as fiscal year 2006.  Annual bonuses and three-year cash incentive pools are paid out
based upon the company reaching targeted pre-tax profits and may also be
adjusted based on our annual pre-tax profit performance relative to peer group
companies.

All
new employees are subject to pre-employment drug testing.  Those employees who perform safety sensitive
functions are also subject to random drug and alcohol testing, and mandatory
testing in the event of an accident.

Training,
both initial and recurring, is required for many employees.  We train our pilots, flight attendants,
ground service personnel, reservations personnel and mechanics.  FAA regulations require pilots to be
licensed as commercial pilots, with specific ratings for aircraft to be flown,
to be medically certified or physically fit, and have to recent flying
experience.  Mechanics, quality control
inspectors and flight dispatchers must be licensed and qualified for specific
aircraft.  Flight attendants must have
initial and periodic competency, fitness training and certification.  The FAA approves and monitors our training
programs.  Management personnel directly
involved in the supervision of flight operations, training, maintenance and
aircraft inspection must meet experience standards prescribed by FAA
regulations.

Government
Regulation

General.All
interstate air
carriers are subject to regulation by the DOT, the FAA and other state and
federal government agencies.   In
general, the amount of regulation over domestic air carriers in terms of market
entry and exit, pricing and inter-carrier agreements has been greatly reduced
since the enactment of the Deregulation Act.

U.S.
Department of Transportation.  The DOTs jurisdiction extends primarily to the economic aspects
of air transportation, such as certification and fitness, insurance,
advertising, computer reservation systems, deceptive and unfair competitive
practices, and consumer protection matters such as compliance with the Air
Carrier Access Act, on-time performance, denied boarding, discrimination and
baggage liability.  The DOT also is
authorized to require reports from air carriers and to investigate and
institute proceedings to enforce its economic regulations and may, in certain
circumstances, assess civil penalties, revoke operating authority and seek
criminal sanctions.  We hold a
Certificate of Public Convenience and Necessity issued by the DOT that allows
us to engage in air transportation.

Transportation
Security Administration.On
November 19, 2001, in response to the terrorist acts of September 11, 2001, the
President of the United States signed into law the Aviation and Transportation
Security Act (ATSA).  The ATSA created
the Transportation Security Administration (TSA), an agency within the DOT,
to oversee, among other things, aviation and airport security.  The ATSA provided for the federalization of
airport passenger, baggage, cargo, mail, employee and vendor screening
processes.  The ATSA also enhanced
background checks, provided federal air marshals aboard flights, improved
flight deck security, and enhanced security for airport perimeter access.  In addition, the ATSA required that all
checked baggage be screened by explosive detection systems by December 31,
2002.
Funding for airline and airport security under the ATSA is primarily
provided by a $2.50 per enplanement ticket tax, with authority granted
to the TSA to impose additional fees on the air carriers if necessary to cover
additional federal aviation security costs. Since 2002, the TSA has imposed an
Aviation Security Infrastructure Fee on all airlines to assist in the cost of providing
aviation security. The fees assessed are based on airlines actual 2000
security costs.   Pursuant to authority
granted to the TSA to impose additional fees on air carriers if necessary to
cover additional federal aviation security costs, the TSA has imposed an
additional annual Security Infrastructure Fee on certain airlines, including
us.  The industry has opposed and
disagrees with the higher assessment and is working with the TSA on a
resolution.

U.S.
Federal Aviation Administration.  The FAAs regulatory authority relates primarily to flight
operations and air safety, including aircraft certification and operations,
crew licensing and training, maintenance standards, and aircraft standards.  The FAA also oversees aircraft noise regulation,
ground facilities, dispatch, communications, weather

- 12 -

observation, and flight and duty time.  It also controls access to certain
airports
through slot allocations, which represent government authorization for airlines
to take off and land at controlled airports during specified time periods.  The FAA has the authority to suspend
temporarily or revoke permanently the authority of an airline or its licensed
personnel for failure to comply with FAA regulations and to assess civil and
criminal penalties for such failures.
We hold an operating certificate issued by the FAA pursuant to Part 121
of the Federal Aviation Regulations.  We
must have and we maintain FAA certificates of airworthiness for all of our
aircraft.  Our flight personnel, flight and
emergency procedures, aircraft and maintenance facilities and station
operations are subject to periodic inspections and tests by the FAA.

Environmental
Matters.The Aviation
Safety and Noise Abatement Act of 1979, the Airport Noise and Capacity Act of
1990 and Clean Air Act of 1963 oversee and regulate airlines with respect to
aircraft engine noise and exhaust emissions. We are required to comply with all
applicable FAA noise control regulations and with current exhaust emissions
standards.  Our fleet is in compliance
with the FAAs Stage 3 noise level requirements.  In addition, various elements of our operation and maintenance of
our aircraft are subject to monitoring and control by federal and state
agencies overseeing the use and disposal of hazardous materials and storm water
discharge.  We believe we are currently
in substantial compliance with all material requirements of these agencies.

Railway
Labor Act/National Mediation Board.Our
labor relations with respect to our unionized employees are covered under Title
II of the Railway Labor Act and are subject to the jurisdiction of the National
Mediation Board.

Foreign
Operations.The
availability of international routes to U.S. carriers is regulated by treaties
and related agreements between the United States and foreign governments.  The United States typically follows the
practice of encouraging foreign governments to enter into open skies
agreements that allow multiple carrier designation on foreign routes.  In some cases, countries have sought to
limit the number of carriers allowed to fly these routes.  Certain foreign governments impose
limitations on the ability of air carriers to serve a particular city and/or
airport within their country from the U.S.
For a U.S. carrier to fly to any such international destination, it must
first obtain approval from both the U.S. and the foreign country
authority.  For those international
routes where there is a limit to the number of carriers or frequency of
flights, studies have shown these routes have more value than those without
restrictions.  In the past, U.S.
government route authorities have been sold between carriers.

Foreign
Ownership.Pursuant
to U.S. law and DOT regulation, each United States air carrier must qualify as
a United States citizen, which requires the carriers President and at least
two-thirds of its board of directors and other managing officers be comprised
of United States citizens, that not more than 25% of the carriers voting stock
may be owned by foreign nationals, and that the carrier not be otherwise
subject to foreign control.

Miscellaneous.  We are also subject to regulation or
oversight by other federal and state agencies.
Antitrust laws are enforced by the U.S. Department of Justice and the
Federal Trade Commission.  All air
carriers are subject to certain provisions of the Communications Act of 1934
because of their extensive use of radio and other communication facilities, and
are required to obtain an aeronautical radio license from the Federal
Communications Commission.  The U.S.
Citizenship and Immigration Services, the U.S. Customs Service and the Animal
and Plant Health Inspection Service of the U.S. Department of Agriculture each
have jurisdiction over certain aspects of our aircraft, passengers, cargo and
operations.

- 13 -

Item
1A.  Risk Factors

In
addition to the other information contained in this Form 10-K, the following
risk factors should be considered carefully in evaluating our business and
us.  Our business, financial condition
or results of operations could be materially adversely affected by any of these
risks.  In addition, please read
Special Note About Forward-Looking Statements in this Form 10-K, where we
describe additional uncertainties associated with our business and the
forward-looking statements included or incorporated by reference in this Form
10-K. Our actual results could differ materially from those anticipated in
these forward-looking statements as a result of certain factors, including the
risks faced by us described below and elsewhere included or incorporated by
reference in this Form 10-K. Please note that additional risks not presently
known to us or that we currently deem immaterial may also impair our business
and operations.

Risks
Related to Frontier

We may not be able to obtain or secure financing for
our new aircraft.

As
of May 25, 2006, we have remaining firm purchase commitments for 17 aircraft
from Airbus (three Airbus 319 aircraft, four Airbus 318 aircraft and ten Airbus
320 aircraft), and we intend to take delivery of one additional leased A319
aircraft in February 2007.  We have
secured financing commitments for eight of these additional aircraft, including
commitments for all of our Airbus deliveries through June 2007. To complete the
purchase of the remaining aircraft, we must secure aircraft financing, which we
may not be able to obtain on terms acceptable to us, if at all. The amount
of financing required will depend on the required down payment on mortgage-financed
aircraft and the extent to which we lease as opposed to purchase the aircraft.
We are exploring various financing alternatives, including, but not limited to,
domestic and foreign bank financing, leveraged lease arrangements or sale/leaseback
transactions. There can be no guarantee that additional financing
will be available when required or will be on acceptable terms. Our inability
to secure the financing could have a material adverse effect on our cash
balances or result in delays in or our inability to take delivery of
Airbus aircraft that we have agreed to purchase.  The failure to take these future deliveries would impair our
strategy for long-term growth and could result in the loss of pre-delivery
payments and deposits previously paid to the manufacturer, and the imposition of
other penalties or the payment of damages in accordance with the terms of the
purchase agreement with the manufacturer.

We have a significant amount of fixed obligations and
we will incur significantly more fixed obligations, which could increase the
risk of failing to meet payment obligations.

As of March
31, 2006, our total debt was $427.8 million, including $92.0 million of
convertible debt due in December 2025 that was issued in December 2005. Maturities
of our long-term debt are $22.3 million in fiscal year 2007, $23.5 million in
fiscal year 2008, $24.9 million in fiscal year 2009, $26.3 million in 2010,
$27.9 million in 2010, and an aggregate of $302.8 million for the years
thereafter. After accounting for the effect of our interest rate derivative
hedge, 69.8% of our total existing long-term debt bears floating interest rates
and the remaining 30.2% bears fixed rates. In addition to long-term debt, we
have a significant amount of other fixed obligations under operating leases
related to our aircraft, airport terminal space, other airport facilities and
office space. As of March 31, 2006, future minimum lease payments under
non-cancelable operating leases were approximately $138.9 million in fiscal
year 2007, $139.1 million in fiscal year 2008, $138.6 million in fiscal year
2009, $137.2 million in fiscal year 2010, $126.1 million in fiscal year 2011
and an aggregate of $617.4 million for the years thereafter. Future minimum
lease payments include signed lease agreements representing an obligation to
lease three additional aircraft in the next fiscal year, which, subject to the
satisfaction of certain contingencies, represent lease payments of $109.3
million in the aggregate. Approximately 87.6% of our minimum lease payments
related to aircraft and leased engines are fixed in nature, and the remaining
12.4% are adjusted periodically based on floating interest rates. As of March
31, 2006, we had commitments of approximately $670.8 million to purchase 17
additional aircraft over approximately the next four years, including estimated
amounts for contractual price escalations, spare parts to support these
aircraft and to equip the aircraft with LiveTV, and obligations relating to a
service agreement with Sabre Travel Network. We expect to incur additional debt
or long-term lease obligations as we take delivery of new aircraft and other
equipment and continue to expand into new markets.

- 14 -

Many of our financial obligations contain cross-default
provisions.

Many of our
financial arrangements contain cross-default provisions. As a result, if we
default in our payment or performance obligations under one of our financial
arrangements and the amount due there under is accelerated, other financial
arrangements may be declared in default and accelerated even though we are
meeting payment and performance obligations on those arrangements. If this
occurs, we may not have sufficient available cash to pay all amounts that are
then due and payable under our lease and loan agreements, and we may have to
seek additional debt or equity financing, which may not be available on
acceptable terms, or at all. If alternative financing were not available, we
would have to sell assets in order to obtain the funds required to make the
accelerated payments.

Our failure to successfully implement our growth
strategy could harm our business.

Our growth
strategy involves adding 18 additional Airbus aircraft, which we could choose
to increase to 35 additional Airbus aircraft (including the exercise of 17
additional purchase rights), increasing the frequency of flights to markets we
currently serve, expanding the number of markets served and increasing flight
connection opportunities. It is critical that we achieve our growth strategy in
order for our business to attain economies of scale and to sustain or improve
our results of operations. Increasing the number of markets we serve depends on
our ability to access suitable airports located in our targeted geographic
markets in a manner that is consistent with our cost strategy.   At this time, we believe we will
have sufficient access to gates to accommodate our growth at our Denver hub for
the foreseeable future. We may also need to obtain additional gates and other
operational facilities at our Denver hub. Any condition that would deny, limit
or delay our access to airports we seek to serve in the future will constrain
our ability to grow. Additionally, traffic may not materialize in new markets.
Opening new markets requires us to commit a substantial amount of resources,
even before the new services commence. Expansion will also require additional
skilled personnel, equipment and facilities. An inability to hire and retain
skilled personnel or to secure the required equipment and facilities
efficiently and cost-effectively may negatively affect our ability to achieve
our growth strategy. We cannot assure you that we will be able to successfully
expand our existing markets or establish new markets, and our failure to do so
could harm our business.

Growth of our
fleet and expansion of our markets and services may also strain our existing
management resources and systems to the point that they may no longer be
adequate to support our operations, requiring us to make significant
expenditures in these areas. We may need to further develop our information
technology systems and other corporate infrastructure to accommodate future
growth, particularly with respect to efficient Internet ticket sales and
passenger check-in capabilities. We cannot assure you that we will be able to
sufficiently develop our systems and infrastructure on a timely basis, and the
failure to do so could harm our business.

We depend heavily on the Denver market to be
successful.

Our business
strategy has historically focused on adding flights to and from our Denver base
of operations. A reduction in our share of the Denver market, increased
competition, or reduced passenger traffic to or from Denver could have a
material adverse effect on our financial condition and results of operations.
In addition, our dependence on a hub system operating out of DIA makes us more
susceptible to adverse weather conditions and other traffic delays in the Rocky
Mountain region than some of our competitors that may be better able to spread
these traffic risks over larger route networks.

We face intense competition and market dominance by
United Airlines and other airlines at DIA, and Southwest Airlines recently
announced service to and from Denver, which will increase competition on
certain of our routes.

The airline
industry is highly competitive, primarily due to the effects of the Airline
Deregulation Act of 1978, which substantially eliminated government authority
to regulate domestic routes and fares and increased the ability of airlines to
compete with respect to flight frequencies and fares. We compete with United in
our hub in Denver, and we anticipate that we will compete with United in any
additional markets we elect to serve in the future. United, Ted, and Uniteds
regional airline affiliates are the dominant carriers out of DIA, accounting
for approximately 55.9% of all revenue passengers out of DIA for the month of
March 31, 2006. In addition, Southwest Airlines recently started service to and
from Denver in January 2006, currently with 20 daily departures.  Southwests introductory fares were
significantly below the fares we were able to obtain prior to its arrival. Fare
pressure exerted by Southwest on its announced routes and on any future
expansion in Denver by Southwest will require us to be fare competitive, and
may place additional downward pressure on our yields. In addition, in the last
four years Alaska Airlines, JetBlue Airways and AirTran Airways have commenced
service at DIA. These airlines have offered low introductory fares and compete
on several of our routes. Fare wars, predatory pricing, capacity dumping,

- 15 -

in which a competitor places additional aircraft on selected routes, and
other competitive activities could adversely affect us. The future activities
of United, Southwest and other carriers may have a material adverse effect on
our revenues and results of operations.

United
currently operates 19 flights a week to Mexico that compete with our current
routes to Mexico.  Most of our current
and potential competitors have significantly greater financial resources,
larger route networks, and superior market identity.  Denver is also a hub for Uniteds low-cost operation Ted, which
began in February 2004.  Uniteds
low-cost venture, and Uniteds ability to lower the costs of its mainline
operations through the bankruptcy process, including its ability to shed itself
of significant financial obligations under its pension plans, may continue to
place downward pressure on airfares charged in the Denver market and adversely
affect our market share at DIA and our ability to maintain yields required for
profitable operations. The uncertainty regarding Uniteds business plan and the
potential for United and Southwest to place downward pressure on airfares
charged in the Denver market may impair our ability to maintain yields required
for profitable operations.

Competition on our Mexican routes may increase due to
recent regulatory changes, which may adversely impact some of our most
important markets.

The U.S. and
Mexico recently amended their bilateral agreement relating to commercial air
service. Previously, only two U.S. based airlines were permitted to provide air
service between city pairs in the U.S. and Mexico. In many cases, we were one
of the two U.S. based airlines providing service to the cities we serve in
Mexico. The recent amendments to the bilateral agreement expanded the
authorized service levels to three U.S. based airlines per city pair. It is
therefore highly likely that we will see other airlines seeking to add service
to some of the Mexico destinations we serve, which would increase competition
and perhaps place downward pressure on airfares in these markets. Flights to
resort destinations in Mexico have represented a significant portion of our
vacation-oriented operations, and if competition results in lower load factors
or airfares on our Mexico flights, our operating results may be adversely
impacted.

We may not have access to adequate gates or airport
slots, which could decrease our competitiveness.

The number of
gates, ticket counter or office space available to us at DIA, or any other
airport where we operate or seek to commence operations in the future, may be
limited due to the lack of available space or disruptions caused by airport
renovation projects. Available facilities may not provide for the best overall
service to our customers and may prevent us from scheduling our flights during
peak or opportune times. The lack of available facilities may limit our ability
to expand service to certain cities or restrict our ability to plan departures
and arrivals in a manner that provides efficient service or connecting times to
and through our Denver hub. Inefficient operations may result in a reduction in
passenger bookings or lost revenue.

We currently
have access to a sufficient number of gates and other facilities at DIA to
accommodate our level of service, but our DIA operation may become constrained
later this year unless we obtain additional gates.  DIA recently announced an agreement with United Airlines under
which United will be returning to DIA six gates on Concourse A, the concourse
from which we operate.  We have reached verbal agreement with DIA to lease
all of these six gates at the time they are returned by United.  Assuming
this transaction is completed as anticipated, we will have sufficient gates to
accommodate our planned expansion in Denver for the foreseeable future.

In the U.S.,
the FAA currently regulates slot allocations at OHare International Airport in
Chicago, at JFK and LaGuardia Airports in New York City, and at Ronald Reagan
National Airport in Washington D.C. John Wayne Airport in Orange County also
limits arrivals and departures at its airport for noise control purposes. We
currently operate at LaGuardia Airport, Ronald Reagan National Airport and John
Wayne Airport through arrival and departure slots at these airports. In each
case, the agencies controlling slot allocations reserve the right to recall
slot allocations for, among other reasons, lack of meeting frequency or
capacity requirements. If we lose existing slot allocations, are denied
requests for additional slot allocations at these airports, or are denied slot
allocations at other slot-controlled airports where we wish to operate in the
future, our ability to provide service would be restricted, eliminated, or
reduced. Because these cities represent key markets, the resulting restriction
on our service could negatively effect our results of operations.

We experience high costs at DIA, which may impact our
results of operations.

- 16 -

We operate
our hub of flight operations from DIA where we experience high costs. Financed
through revenue bonds, DIA depends on landing fees, gate rentals, income from
airlines, the traveling public, and other fees to generate income to service
its debt and to support its operations. Our cost of operations at DIA will vary
as traffic increases or diminishes at that airport. We believe that our
operating costs at DIA substantially exceed those that other airlines incur at
most hub airports in other cities, which decreases our ability to compete with
other airlines with lower costs at their hub airports. In addition, United represents
a significant tenant at DIA.  In
connection with Uniteds bankruptcy, United and DIA restructured Uniteds lease
agreement in a fashion that reduces the amounts United is required to pay under
its lease. Normally, the decrease in payments by United would result in the
increase in amounts paid by all other airlines. At this time, however, the City
and County of Denver has agreed to offset the decrease in payments negotiated
by United. The citys obligation to make these offset payments is subject to rescission
in certain circumstances. If these payments are rescinded or if United
otherwise significantly reduces operations at DIA, our overall costs at DIA may
significantly increase.

Our all-Airbus fleet creates risks.

We currently
operate 52 Airbus aircraft. We completed our transition from Boeing aircraft to
operating only Airbus aircraft in 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, and scheduling is more efficient. However, during our
transition period we incurred additional costs associated with retraining our
Boeing crews in the Airbus aircraft, and we cannot assure you that we will
achieve all of the cost savings we anticipated from the fleet transition.

Since we
operate only Airbus aircraft and GE engines, we are dependent on single
manufacturers for future aircraft acquisitions or deliveries, spare parts or
warranty service. If Airbus is unable to perform its obligations under existing
purchase agreements, or is unable to provide future aircraft or services,
whether by fire, strike or other events that affect its ability to fulfill
contractual obligations or manufacture aircraft or spare parts, we would have
to find another supplier for our aircraft. If acceptable Airbus aircraft were
otherwise not available in the marketplace, Boeing is the only other
manufacturer from which we could purchase or lease alternate aircraft. If we
were forced to acquire Boeing aircraft, we would need to address fleet
transition issues, including substantial costs associated with retraining our
employees, acquiring new spare parts, and replacing our manuals. In addition,
the fleet efficiency benefits described above may no longer be available.

We also are
particularly vulnerable to any problems that might be associated with the
Airbus aircraft or GE engines. Our business would be significantly disrupted if
an FAA airworthiness directive or service bulletin were issued that resulted in
the grounding of Airbus aircraft or GE engines of the type we operate while the
defect was being corrected. Our business could also be harmed if the public
avoids flying Airbus aircraft due to an adverse perception about the aircrafts
safety or dependability, whether real or perceived, in the event of an accident
or other incident involving an Airbus aircraft of the type we fly.

We rely on one vendor to provide our LiveTV service.

One of the
unique features of our Airbus fleet is that every seat in each of our Airbus
aircraft is equipped with LiveTV. LiveTV is provided by a subsidiary of JetBlue
Airways, a competitor of ours. We do not know of any other company that could
provide us economically with LiveTV equipment and related satellite signals for
programming. Our recent LiveTV installations have exceeded the number of
installations provided for in our contract with the supplier of LiveTV, and
although we have had discussions with the supplier about expanding the number
of aircraft covered by the contract, we have not finalized the terms of an
expanded agreement. If the supplier of LiveTV were to stop supplying us with
the equipment or service for any reason, or refused to supply equipment for our
future aircraft deliveries, we could lose one of the unique services that we
believe differentiates us from our competitors.

Our maintenance expenses may be higher than we
anticipate and will increase as our fleet ages.

We bear the
cost of all routine and major maintenance on our owned and leased aircraft.
Maintenance expenses comprise a significant portion of our operating expenses.
In addition, we are required periodically to take aircraft out of service for
heavy maintenance checks, which can increase costs and reduce revenue. We also
may be required to comply with regulations and airworthiness directives the FAA
issues, the cost of which our aircraft lessors may only partially assume
depending upon the magnitude of the expense. Although we believe that our owned
and leased aircraft are currently in

- 17 -

compliance with all FAA issued airworthiness directives, additional
airworthiness directives likely will be required in the future, necessitating
additional expense.

Because the
average age of our aircraft is approximately 2.7 years, our aircraft require
less maintenance now than they will in the future. We have incurred lower
maintenance expenses because most of the parts on our aircraft are under multi-year
warranties. Our maintenance costs will increase significantly, both on an
absolute basis and as a percentage of our operating expenses, as our fleet ages
and these warranties expire.

We may need to make other arrangements for our
maintenance facility.

We currently
sublease a substantial part of a maintenance hangar located at DIA from
Continental Airlines. We use this facility to perform our heavy maintenance and
some of our line maintenance. The sublease expires in February 2007. If we are
not able to extend this lease or otherwise reach agreement with Continental, we
may be forced to locate alternative maintenance facilities, which may or may
not be at DIA, or to construct a new maintenance facility. The inability to
procure a new maintenance facility in a timely fashion may cause us to increase
our overall maintenance costs. Further, the lease or financing costs of a new
facility may be higher than those of our current sublease with Continental.

Our landing fees may increase because of local noise
abatement procedures.

As a result
of litigation and pressure from residents in the areas surrounding airports,
airport operators have taken actions over the years to reduce aircraft noise.
These actions have included regulations requiring aircraft to meet prescribed
decibel limits by designated dates, curfews during nighttime hours,
restrictions on frequency of aircraft operations, and various operational
procedures for noise abatement. The Airport Noise and Capacity Act of 1990
recognized the right of airport operators with special noise problems to
implement local noise abatement procedures as long as the procedures do not
interfere unreasonably with the interstate and foreign commerce of the national
air transportation system. Compliance with local noise abatement procedures may
lead to increased landing fees.

An agreement
between the City and County of Denver and another county adjacent to Denver
specifies maximum aircraft noise levels at designated monitoring points in the
vicinity of DIA with significant payments payable by the city to the other
county for each substantiated noise violation under the agreement. DIA has
incurred these payment obligations and likely will incur such obligations in
the future, which it will pass on to us and other air carriers serving DIA by
increasing landing fees.  Additionally,
noise regulations could be enacted in the future that would increase our
expenses and could have a material adverse effect on our operations.

Unionization affects our costs and may affect our
operations.

Four of our
employee groups are represented by unions: our pilots, dispatchers, mechanics
and aircraft appearance agents. We finalized negotiations with our mechanics
for a new contract in November 2005.  In
addition, since 1997 we have had union organizing attempts that were defeated
by our flight attendants and ramp service agents. The collective bargaining
agreement with our pilots union, Frontier Airlines Pilots Association (FAPA),
expired in May 2005. We are currently negotiating a replacement contract with
FAPA.  In March 2006, our material
specialists voted for union representation by the International Brotherhood of
Teamsters which affects approximately 22 employees.

If we are
unable to reach agreement with any of the represented work groups whose
contracts are currently being negotiated, or if currently non-unionized
employees were to unionize and we were unable to reach agreement on the terms
of their employment, we may need to go to mediation and may experience
widespread employee dissatisfaction. We could be subject to work slowdowns or
stoppages. In addition, we may be subject to disruptions by organized labor
groups protesting certain groups for their non-union status or conducting
sympathy action for fellow members striking at other airlines. Any of these
events would be disruptive to our operations and could harm our business.

The lack of marketing alliances could harm our
business.

Many airlines
have marketing alliances with other airlines, under which they market and
advertise their status as marketing alliance partners. Among other things, they
share the use of two-letter flight designator codes to identify their flights
and fares in the computerized reservation systems and permit reciprocity in
their frequent flyer programs. We do not have a network of marketing partners.
The lack of marketing alliances puts us at a competitive disadvantage to global

- 18 -

network carriers, whose ability to attract passengers through more
widespread alliances, particularly on international routes, may adversely
affect our passenger traffic and our results of operations.

Our lack of higher borrowing capacity under our current
lines of credit and our lack of other borrowing facilities makes us highly dependent
upon our existing cash and operating cash flows.

Airlines
require substantial liquidity to operate. We have a line of credit with a
maximum borrowing amount of $13.0 million based on 50% of the value of certain
spare parts inventory. As of March 31, 2006, based on our eligible spare parts
inventory, we could borrow up to $11.3 million, which was reduced by letters of
credit issued of $9.5 million. We also have an additional revolving line of
credit for $5.0 million, and we can issue letters of credit for up to $3.5
million, $2.5 million of which had been issued as of March 31, 2006. Our
limited borrowing capacity means we rely primarily on operating cash flows to
provide working capital. Unless we secure additional borrowing capacity under lines
of credit, borrowing facilities or other financing, we will be dependent upon
our existing cash and operating cash flows to fund our operations and to make
scheduled payments on our debt and other fixed obligations. If we deplete our
existing cash, fail to generate sufficient funds from operations to meet these
cash requirements and are unable to secure a line of credit, borrowing facility
or other financing, we could default on our debt and other fixed obligations.
Our inability to meet our obligations as they become due would seriously harm
our business and financial results, particularly, as discussed earlier, in
light of the cross-default clauses contained in many of our financing
arrangements.

If we are unable to attract and retain qualified personnel
at reasonable costs, our business will be harmed.

Our business
is labor intensive, with labor costs totaling $219.4 million, $202.3 million
and $160.3 million for the years ended March 31, 2006, 2005 and 2004,
respectively.  We expect salaries, wages
and benefits to increase on a gross basis. These costs could increase as a
percentage of our overall costs, which could harm our business. Our growth
plans will require us to hire, train and retain a significant number of new
employees in the future. From time to time, the airline industry has
experienced a shortage of personnel licensed by the FAA, especially pilots and
mechanics. We compete against the major U.S. airlines for labor in these highly
skilled positions. Many of the major U.S. airlines offer wage and benefit
packages that exceed our wage and benefit packages. As a result, in the future,
we may have to increase significantly wages and benefits in order to attract
and retain qualified personnel or risk considerable employee turnover. If we
are unable to hire, train and retain qualified employees at a reasonable cost,
we may be unable to complete our growth plans and our business could be harmed.

We rely heavily on automated systems and technology to
operate our business and any failure of these systems could harm our business.

We are
increasingly dependent on automated systems and technology to operate our
business, enhance customer service and achieve low operating costs, including
our computerized airline reservation system, telecommunication systems,
website, check-in kiosks and in-flight entertainment systems. Substantial or
repeated system failures to any of the above systems could reduce the
attractiveness of our services and could result in our customers purchasing
tickets from another airline. Any disruptions in these systems could result in
the loss of important data, increase our expenses and generally harm our
business.  In addition, a seemingly high
percentage of customers have been booking flights on our airline through
third-party websites, which has increased our distribution costs.  If any of these third-party websites
experiences system failures or discontinues listing our flights on its systems,
our bookings and revenues may be adversely impacted.

We implement
improvements to our website and reservations system from time to time.
Implementation of changes to these systems may cause operational and financial
disruptions if we experience transition or system cutover issues, if the new
systems do not perform as we expect them to, or if vendors do not deliver
systems upgrades or other components on a timely basis. For example, we
experienced systems cutover problems when we implemented major revisions to our
reservation system and website in February 2005. Any such disruptions may have
the effect of discouraging some travelers from purchasing tickets from us and
increasing our reservations staffing.

- 19 -

Risks
Associated with the Airline Industry

The airline industry has incurred significant losses
resulting in airline restructuring and bankruptcies, which could result in
changes in our industry.

Financial
losses throughout the airline industry in recent years have resulted in
airlines renegotiating or attempting to renegotiate labor contracts, reconfiguring
flight schedules, furloughing or terminating employees, and taking other
efficiency and cost-cutting measures. Despite these actions, several airlines
have sought reorganization under Chapter 11 of the U.S. Bankruptcy Code, which
permits them to reduce labor rates, restructure debt, terminate pension plans
and generally reduce their cost structure. Such factors may have a greater
impact during time periods when the industry encounters continued financial
losses, as airlines under financial pressures may institute pricing structures
to achieve near-term survival rather than long-term viability. It is
foreseeable that further airline reorganizations, bankruptcies, or
consolidations may occur, the effects of which we are unable to predict. We
cannot assure you that the occurrence of these events, or potential changes
resulting from these events, will not harm our business or the industry.

We may be subject to terrorist attacks or other acts of
war and increased costs or reductions in demand for air travel due to
hostilities in the Middle East or other parts of the world.

On September
11, 2001, four commercial aircraft were hijacked by terrorists and crashed into
The World Trade Center in New York City, the Pentagon in Northern Virginia and
a field in Pennsylvania. These terrorist attacks resulted in an overwhelming
loss of life and extensive property damage. Immediately after the attacks, the
FAA closed U.S. airspace, prohibiting all flights to, from and within the
United States of America. Airports reopened on September 13, 2001, except for
Washington D.C. Ronald Reagan International Airport, which partially reopened
on October 4, 2001.

The September
11, 2001 terrorist attacks and the war in Iraq created fear among consumers and
resulted in significant negative economic impacts on the airline industry.
Primary effects were substantial loss of revenue and flight disruption costs,
increased security and insurance costs, increased concerns about the potential
for future terrorist attacks, airport shutdowns and flight cancellations and
delays due to additional screening of passengers and baggage, security breaches
and perceived safety threats, and significantly reduced passenger traffic and
yields due to the subsequent drop in demand for air travel.

Given the
magnitude and unprecedented nature of the September 11 attacks, the uncertainty
and fear of consumers resulting from the war in Iraq, and the potential for
other hostilities in other parts of the world, it is uncertain what long-term
impact these events will or could have on the airline industry in general and
on us in particular. These factors could affect our operating results and
financial condition by creating weakness in demand for air travel, increased
costs due to new security measures and the potential for new or additional
government mandates for security related measures, increased insurance
premiums, increased fuel costs, and uncertainty about the continued
availability of war risk coverage or other insurances.

In addition,
although the entire industry is substantially enhancing security equipment and
procedures, it is impossible to guarantee that additional terrorist attacks or
other acts of war will not occur. Given the weakened state of the airline industry,
if additional terrorist attacks or acts of war occur, particularly in the near
future, it can be expected that the impact of those attacks on the industry may
be similar in nature to but substantially greater than those resulting from the
September 11 terrorist attacks.

Increases in fuel costs affect our operating costs and
competitiveness.

Fuel is a
major component of our operating expenses, accounting for 31.3% of our total
operating expenses for the year ended March 31, 2006, up from 24.1% for the
year ended March 31, 2005. On an actual basis, fuel costs including the impact
of hedging increased to $281.9 million, representing an average cost of $1.99
per gallon, from $185.8 million, or $1.41 per gallon, over the same periods.
Both the cost and availability of fuel are influenced by many economic and
political factors and events occurring in oil-producing countries throughout
the world, which causes fuel costs to fluctuate widely. Recently, the price per
barrel of oil has been at an all-time high, due to the current geopolitical
environment and limited refining capacity available.  High oil prices have had a significant adverse impact on our
results of operations over the past two fiscal years. We cannot predict our
future cost and availability of fuel, or the impact or further disruptions in
oil supplies or refinery productivity based on natural disasters, which affect
our ability to compete. The unavailability of adequate fuel

- 20 -

supplies could have a material adverse effect on our operations and
profitability. In addition, larger airlines may have a competitive advantage
because they pay lower prices for fuel. We generally follow industry trends by
imposing a fuel surcharge in response to significant fuel price increases.
However, our ability to pass on increased fuel costs have been and may continue
to be limited by economic and competitive conditions. Although we implemented a
fuel hedging program in 2003, under which we enter into Gulf Coast jet fuel and
West Texas Intermediate crude derivative contracts that are intended to
partially protect us against significant increases in fuel prices, this program
is limited in fuel volume and duration. As of March 31, 2006, we had hedged
approximately 16% of our projected fuel requirements for the quarter ending
June 30, 2006. We have no fuel hedges in place after June 30, 2006. Other
airlines, such as Southwest Airlines, may have substantial fuel hedges that
give them a competitive advantage.

The airline industry is seasonal and cyclical, resulting
in unpredictable liquidity and earnings.

Because the
airline industry is seasonal and cyclical, our liquidity and earnings will
fluctuate and be unpredictable. Our operations primarily depend on passenger
travel demand and seasonal variations. Our weakest travel periods are generally
during the quarters ending in March and December. The airline industry is also
a highly cyclical business with substantial volatility. Airlines frequently
experience short-term cash requirements. These requirements are caused by
seasonal fluctuations in traffic, which often reduce cash during off-peak
periods, and various other factors, including price competition from other
airlines, national and international events, fuel prices, and general economic
conditions including inflation. Our operating and financial results are likely
to be negatively impacted by the continued stagnation in national or regional
economic conditions in the U.S., and particularly in Colorado.

Our current insurance costs could increase if the U.S.
government does not provide war risk coverage to airlines.

Following the
September 11 terrorist attacks, aviation insurers dramatically increased
airline insurance premiums and significantly reduced the maximum amount of
insurance coverage available to airlines for liability to persons other than
passengers for claims resulting from acts of terrorism, war or similar events
to $50 million per event and in the aggregate. In light of this development,
under the Air Transportation Safety and System Stabilization Act, the U.S.
government has provided domestic airlines with excess war risk coverage above
$50 million up to an estimated $1.6 billion per event for us.

In December
2002, under the Homeland Security Act of 2002, the U.S. government expanded its
insurance program to permit airlines to elect either the governments excess
third-party coverage or for the government to become the primary insurer for
all war risks coverage. We elected the latter in February 2003 and discontinued
the commercially available war risk coverage. The Appropriations Act authorized
the government to offer both policies through August 31, 2004. Since then,
Congress has further extended the governments mandate to provide war risk
insurance on multiple occasions, most recently through August 31, 2006, at the
discretion of the Secretary of Transportation. We cannot assure that this
coverage will continue. We expect that if the government stops providing 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. Significant increases in insurance
premiums would harm our financial condition and results of operations.

Our financial results and reputation could be harmed in
the event of an accident or incident involving our aircraft.

An accident
or incident involving one of our aircraft could involve repair or replacement
of a damaged aircraft and its consequential temporary or permanent loss from
service, and significant potential claims of injured passengers and others. We
are required by the DOT and our lenders and lessors to carry hull, liability
and war risk insurance. Although we believe we currently maintain liability insurance
in amounts and of the type generally consistent with industry practice, the
amount of such coverage may not be adequate and we may be forced to bear
substantial losses from an accident. Substantial claims resulting from an
accident in excess of our related insurance coverage would harm our business
and financial results. Moreover, any aircraft accident or incident, even if
fully insured, could cause a public perception that we are less safe or
reliable than other airlines, which would harm our business.

- 21 -

We are in a high fixed cost business, and any
unexpected decrease in revenues would harm us.

The airline
industry is characterized by low profit margins and high fixed costs primarily
for personnel, fuel, aircraft ownership and lease costs and other rents. The
expenses of an aircraft flight do not vary significantly with the number of
passengers carried and, as a result, a relatively small change in the number of
passengers or in pricing would have a disproportionate effect on our operating
and financial results. Accordingly, a shortfall from expected revenue levels
can have a material adverse effect on our profitability and liquidity. We are
often affected by factors beyond our control, including weather conditions,
traffic congestion at airports and increased security measures, and irrational
pricing from competitors, any of which could harm our operating results and
financial condition.

Delays or cancellations due to adverse weather
conditions or other factors beyond our control could adversely affect us.

Like other
airlines, we are subject to delays caused by factors beyond our control,
including adverse weather conditions, air traffic congestion at airports and
increased security measures. Delays frustrate passengers, reduce aircraft
utilization and increase costs, all of which negatively affect profitability.
During periods of snow, rain, fog, hurricanes or other storms, or other adverse
weather conditions, flights may be cancelled or significantly delayed.
Cancellations or delays due to weather conditions, traffic control problems and
breaches in security could harm our operating results and financial
condition.

Recently, we
have suffered from the effects of hurricanes on the Gulf Coast and resort areas
along the Yucatan Peninsula and the Riviera Maya. These hurricanes disrupted
our ability to serve Cancun, Mexico, and the destruction or damage to hotels
and resorts severely impacted tourist demand. Flights to resort destinations in
Mexico have represented a significant portion of our vacation-oriented
operations. Prior to Hurricane Wilma, we anticipated operating 232 departures
to Cancun, Mexico from our various originating cities during the calendar
quarter ending March 31, 2006. Due to the effects of Hurricane Wilma, we
operated only 141 departures to Cancun, Mexico during the quarter ended March
31, 2006.  During the quarter ended
March 31, 2006, we operated 92% of previously scheduled flights. In addition,
we announced new service to Cozumel, Mexico commencing December 17, 2005 and we
intended to fly three flights per week. Because of the damage to resort
destinations in Cozumel, we reduced our planned flights to once per week. We
cannot predict when the resorts damaged by Hurricane Wilma will be repaired or
when tourist demand for these locations will return. In the interim, the
disruption in service has reduced the profitability of our Mexico operations
and we cannot guarantee that future operations to Mexico or any other
destinations we serve will not also be interrupted by hurricanes or other
significant natural disasters.

We are subject to strict federal regulations, and
compliance with federal regulations increases our costs and decreases our
revenues.

Airlines are
subject to extensive regulatory and legal requirements that involve significant
compliance costs. Any future changes in regulatory oversight of airlines
generally, or low-fare carriers in particular, could result in a material
increase in our operating expenses or otherwise hinder our business. In the
last several years, Congress has passed laws and the DOT and FAA have issued
regulations relating to the operation of airlines that have required
significant expenditures. For example, the President signed into law the
Stabilization Act in November 2001. This law federalized substantially all
aspects of civil aviation security and requires, among other things, the
implementation of certain security measures by airlines and airports, including
a requirement that all passenger baggage be screened. Funding for airline and
airport security under the law is primarily provided by a $2.50 per enplanement
ticket tax effective February 1, 2002, with authority granted to the TSA to
impose additional fees on air carriers if necessary. Under the Appropriations
Act enacted on April 16, 2003, the $2.50 enplanement tax was temporarily
suspended on ticket sales from June 1, 2003 through September 30, 2003. This
enplanement tax resumed on October 1, 2003, and recently proposed legislation,
although unsuccessful to date, would increase the ticket tax to $5.00 per
enplanement. To the extent this increase could not be passed on to the
passenger, it would result in a significant increase in our cost of operations.
In addition, the acquisition, installation and operation of the required
baggage screening systems by airports will result in capital expenses and costs
by those airports that will likely be passed on to the airlines through
increased use and landing fees. On February 17, 2002, the Stabilization Act
imposed a base security infrastructure fee on commercial air carriers in an
amount equal to the calendar year ended 2000 airport security expenses. The
infrastructure fee for us is $1,625,000 annually subject to final audit.  Pursuant to authority granted to the
TSA to impose additional fees on air carriers if necessary to cover additional
federal aviation security costs, the TSA has imposed an additional annual
Security Infrastructure Fee on certain airlines, including Frontier.   A revision in the fee structure
assessed by the TSA could result in increased cost for us. The airline
industry has opposed and disagrees with the higher assessment and is working
with the TSA on a resolution.

- 22 -

Although we
have obtained the necessary authority from the DOT and the FAA to conduct
flight operations and are currently obtaining such authority from the FAA with
respect to our Airbus aircraft, we must maintain this authority by our
continued compliance with applicable statutes, rules, and regulations pertaining
to the airline industry, including any new rules and regulations that may be
adopted in the future. We believe that the FAA strictly scrutinizes smaller
airlines like ours, which makes us susceptible to regulatory demands that can
negatively impact our operations. We may not be able to continue to comply with
all present and future rules and regulations. In addition, we cannot predict
the costs of compliance with these regulations and the effect of compliance on
our profitability, although these costs may be material.

Item
1B.  Unresolved Staff Comments

None.

- 23 -

Item 2:
Properties

Aircraft

As
of May 25, 2006, excluding JetExpress, we operate 45 Airbus A319 aircraft and
seven Airbus A318 aircraft in all-coach seating configurations. The age of
these aircraft, their passenger capacities and expiration years for the leased
aircraft are shown in the following table:

Aircraft
  Model

No. of
  Aircraft

Year of
  Manufacture

Approximate 
  Seating Capacity

Lease
  ExpirationA319

34



2001
  ­ 2006


132


2013
  - 2018A319

11



2001
   2005


132


OwnedA318

5



2003
   2004


114


OwnedA318

2



2004


114


2016We
have completed our fleet replacement plan to phase out our Boeing aircraft and
have replaced them with a combination of Airbus A319 and A318 aircraft. In
March 2000, we entered into a purchase agreement with Airbus, as subsequently
amended in April 2006, to purchase 38 Airbus aircraft. As of May 25, 2006, we
had taken delivery of 21 of these aircraft, three of which we sold and leased
back. In addition, prior to the delivery of two aircraft in fiscal year 2004,
we assigned delivery to a lessor and agreed to lease these aircraft over
12-year terms. Our purchase agreement with Airbus also includes purchase rights
for up to 17 additional aircraft, and allows us to purchase Airbus A318 or A320
aircraft in lieu of the A319 aircraft at our option. As of May 25, 2006, we
intend to lease one additional A319 aircraft in February 2007. We have
remaining firm purchase commitments for 17 Airbus aircraft, including one
aircraft for which we intend to sign agreements for sale-leaseback transactions
with a third party lessor. We anticipate the following fleet composition as of
the end of each fiscal year through 2011:

Fiscal
  Year Ending

A319

A318

A320

End of YearCumulative TotalFleetMarch 31, 2006

43


7





50March 31, 2007

49


8





57March 31, 2008

49


11


2


62March 31, 2009

49


11


3


63March 31, 2010

49


11


8


68March 31, 2011

49


11


10


70This
table does not include any of the 17 Airbus aircraft for which we have purchase
rights, which would allow us to take delivery of additional A319 or A320
aircraft beginning in fiscal year 2007. In addition, we can defer delivery of
two A320 aircraft to be delivered in November 2009 and February 2010 into the
year 2011.

- 24 -

Facilities

We
lease approximately 70,000 square feet of space at our headquarters facility
near DIA, at an average annual rental of approximately $1,045,000 plus
operating and maintenance expenses. The lease expires in January 2015. We also
lease an additional 20,000 square feet of space in a building adjacent to our
main headquarters, at an average annual rental of approximately $246,000 plus
operating and maintenance expenses. The lease expires in July 2008.

Our
Denver, Colorado reservations facility is 16,000 square foot facility, also in
Denver, Colorado, which we have leased for a 10-year lease term ending in June
2011, at an average annual rental of approximately $141,000 plus operating and
maintenance expenses. In August 2000, we established a second reservations
center facility in Las Cruces, New Mexico. This facility is approximately
12,000 square feet and is leased for a term of 122 months ending August 2010,
at an average annual rental of approximately $129,000 plus operating and
maintenance expenses.

We
have entered into an airport lease and facilities agreement expiring in 2010
with the City and County of Denver, Colorado, at DIA for ticket counter space,
gates and associated operations space at a current net annual rental rate of
approximately $11,712,000 for these facilities. Plans to work with DIA for the
construction of additional gates have been placed on hold. In the interim, we
have gained permanent rights to three gates that were, previously used by
United on the east end of Concourse A. Our future growth may require us to work
with DIA and the City and County of Denver, Colorado to develop access to additional
gates and other airport facilities. If the construction of additional
facilities is required to meet our growth needs, it is likely that we would be
obligated to lease the additional facilities, 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 not possible at this time to
determine the amount of future rates and charges at DIA.

On
May 23, 2006, Denver International Airport announced an agreement with United
Airlines pursuant to which United will give back, over a period of time, the
six Concourse A gates that it currently leases for its Ted operation. It is
expected that Uniteds Ted flights will be moved to Concourse B, the location
of Uniteds primary hub at DIA. We have reached verbal agreement with Denver
International Airport to lease on a preferential basis all six of the Concourse
A gates at the time they are returned by United. Currently, it is expected that
United will give up one Concourse A gate in July 2006. They will surrender a
second gate around the middle of November 2006. United will then return the
remaining four Concourse A gates to DIA when the City completes the
construction of a regional jet facility for United on Concourse B, estimated to
be in March or April of 2007. Obviously, various factors may effect the actual
dates of transfer of the six Concourse A gates from United to Frontier, but at this
point in time we are expecting to have preferential use of all six Concourse A
gates by late Spring of 2007. We believe that the additional six gates on
Concourse A, our primary concourse of operation, provides sufficient gates to
meet our planned growth in the near future at a cost-effective rate.

We
sublease a portion of Continental Airlines hangar at DIA with a lease
expiration date of February 2007 for a current annual rental of approximately
$3,084,000.

Each
of our airport locations requires leased space associated with gate operations,
ticketing and baggage operations. We either lease the ticket counters, gates,
and airport office facilities at each of the airports we serve from the
appropriate airport authority or sublease them from other airlines. Total
annual rent expense for these facilities, excluding DIA, is approximately
$16,607,000 based on rents paid for the month of March 2006. Additionally, we
lease maintenance facilities in Kansas City, Missouri and Phoenix, Arizona at a
current annual rental of approximately $182,000. In August 2003, we closed our
maintenance facility in El Paso, Texas but we are still obligated to pay rent
through August 2007. The current annual rental for our El Paso, Texas
maintenance facility is approximately $87,000.

Item 3:
Legal Proceedings

From
time to time, we are engaged in routine litigation incidental to our business.
We believe there are no legal proceedings pending in which we are a party or of
which any of our property is the subject that are not adequately covered by
insurance maintained by us or which have sufficient merit to result in a
material adverse affect upon our business, financial condition, results of
operations, or liquidity.

- 25 -

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

During
the fourth quarter of the fiscal year covered by this report, we submitted the
following matter to a vote of our security holders through the solicitation of
proxies or otherwise:


On March 27, 2006, at a special meeting, the
  shareholders of Airlines approved a merger agreement that resulted in our
  reorganization into a Delaware holding company structure. Under the
  Reorganization, effective April 3, 2006, Airlines became a wholly  owned
  subsidiary of Holdings, a Delaware corporation, and the shareholders of
  Airlines became stockholders of Holdings with the same number and percentage
  of shares of Holdings as they held of Airlines prior to the Reorganization.
  The votes cast with respect to approval of the merger agreement were as
  follows:Number of votesFor
24,467,129Against
2,994,936Abstained
52,950Non-votes
8,674,690- 26 -

PART II

Item
5: Market for Registrants Common Equity, Related Stockholder Matters and
Issuer Purchases of Equity Securities

Price
Range of Common Stock

Our common stock is
listed on the NASDAQ National Market and is traded under the symbol FRNT. As of
May 25, 2006, there were 1,487 holders of record of our common stock. The
following table shows the range of high and low sales prices per share for our
common stock for the periods indicated as reported by NASDAQ.

High

LowFiscal Year 2006 Quarter EndedJune 30, 2005

$
12.96

$
9.26September 30, 2005

$
13.01

$
8.90December 31, 2005

$
10.92

$
7.57March 31, 2006

$
9.40

$
6.43Fiscal Year 2005 Quarter EndedJune 30, 2004

$
11.63

$
8.49September 30, 2004

$
11.03

$
7.02December 31, 2004

$
13.08

$
6.71March 31, 2005

$
11.59

$
8.06Dividend
Policy

We
have not declared or paid cash dividends on our common stock. We currently
intend to retain any future earnings to fund operations and the continued
development of our business, and, thus, do not expect to pay any cash dividends
on our common stock in the foreseeable future. Future cash dividends, if any,
will be determined by our Board of Directors and will be based upon our
earnings, capital requirements, financial condition and other factors deemed
relevant by the Board of Directors.

Securities Authorized for Issuance Under Equity Compensation
Plans

The
information required by this Item is incorporated herein by reference to the
data under the heading Securities Authorized for Issuance Under Equity
Compensation Plans in the Proxy Statement to be used in connection with the
solicitation of proxies for our annual meeting of shareholders to be held on
September 7, 2006. We intend to file the definitive Proxy Statement with the
SEC on or before July 28, 2006.

- 27 -

Item 6:   Selected Financial Data

The
following selected financial and operating data as of and for each of the years
ended March 31, 2006, 2005, 2004, 2003, and 2002 are derived from our audited
financial statements. This data should be read in conjunction with
Managements Discussion and Analysis of Financial Condition and Results of
Operations and the financial statements and the related notes thereto included
elsewhere in this report.

Year Ended
  March 31,2006

2005

2004

2003

2002(Amounts in
thousands except per share amounts)Statement of
Operations Data:Total
operating revenues

$
994,273

$
833,639

$
643,679

$
469,936

$
445,075Total
operating expenses


1,002,170


860,087


616,197


500,727


428,689Operating
income (loss)


(7,897
)

(26,448
)

27,482


(30,791
)

16,386Income (loss)
before income tax expense
  (benefit) and cumulative effect of change in accounting principle


(20,469
)

(35,838
)

20,457


(39,509
)

24,832Income tax
expense (benefit)


(6,497
)

(12,408
)

7,822


(14,655
)

8,282Income (loss)
before cumulative effect of change
  in accounting principle


(13,971
)

(23,430
)

12,635


(24,854
)

16,550Cumulative
effect of change in accounting
  principle











2,011


Net income
(loss)

$
(13,971
)
$
(23,430
)
$
12,635

$
(22,843
)
$
16,550Income (loss)
per share before cumulative effect
  of a change in accounting principle:Basic

$
(0.39
)
$
(0.66
)
$
0.39

$
(0.84
)
$
0.58Diluted

$
(0.39
)
$
(0.66
)
$
0.36

$
(0.84
)
$
0.56Net income
(loss) per share:Basic

$
(0.39
)
$
(0.66
)
$
0.39

$
(0.77
)
$
0.58Diluted

$
(0.39
)
$
(0.66
)
$
0.36

$
(0.77
)
$
0.56Balance Sheet
Data:Cash, cash
equivalents and short-term
  investments

$
272,839

$
174,795

$
190,609

$
104,880

$
89,555Current
assets


390,957


275,550


269,733


191,291


193,393Total
assets


970,432


792,011


769,706


588,315


413,685Current
liabilities


301,012


233,850


181,659


130,519


152,064Long-term
debt


405,482


282,792


280,001


261,739


66,832Total
liabilities


741,656


554,090


511,764


429,348


244,552Stockholders equity


228,776


237,920


257,942


158,967


169,133Working
capital


89,946


41,700


88,074


60,772


41,329- 28 -

Year Ended March 31,2006

2005

2004

2003

2002Selected Operating Data - Mainline:Passenger revenue (000s) (1)

$
878,681

$
731,822

$
615,390

$
460,188

$
435,946Revenue passengers carried (000s)


7,764


6,653


5,569


3,926


3,069Revenue passenger miles (RPMs) (000s) (3)


7,436,830


6,587,589


5,120,587


3,599,553


2,756,965Available seat miles (ASMs) (000s) (4)


9,885,599


9,115,868


7,153,740


6,013,261


4,592,298Passenger load factor (5)


75.2
%

72.3
%

71.6
%

59.9
%

60.0
%Break-even load factor (6)


75.8
%

75.0
%

68.8
%

65.0
%

56.6
%Block hours (7)


202,300


182,581


142,466


120,297


94,218Departures


82,878


72,888


61,812


53,081


41,736Average seats per departure


129.4


130.1


132.2


132.1


131.5Average stage length


922


961


875


858


837Average length of haul


958


990


919


917


898Average daily block hour utilization (8)


11.5


11.1


10.4


9.8


9.1Passenger yield per RPM (cents) (9), (10)


11.68


11.03


11.96


12.74


15.78Total yield per RPM (cents) (11)


12.12


11.38


12.35


13.06


16.14Passenger yield per ASM (cents) (12)


8.79


7.97


8.56


7.63


9.47Total yield per ASM (cents) (13)


9.12


8.22


8.84


7.81


9.69Cost per ASM (cents)


9.06


8.42


8.41


8.33


9.33Fuel expense per ASM (cents)


2.85


2.04


1.52


1.43


1.33Cost per ASM excluding fuel (cents) (14)


6.21


6.38


6.89


6.90


8.00Average fare (15)

$
103.05

$
102.31

$
103.54

$
108.81

$
132.06Average aircraft in service


48.2


44.9


37.3


33.8


27.8Aircraft in service at end of period


50


47


38


36


30Average age of aircraft at end of period


2.6


2.5


3.9


7.4


10.6Average fuel cost per gallon (16)

$
1.99

$
1.41

$
1.04

$
0.96

$
0.87Fuel gallons consumed (000s)


141,474


131,906


104,799


89,236


70,530Selected
Operating Data - Regional
  Partner (2):Passenger revenue (000s) (1)

$
92,826

$
84,269

$
11,191

$


$
Revenue passengers carried (000s)


912


872


115





Revenue passenger miles (RPMs) (000s) (3)


591,787


527,205


75,974





Available seat miles (ASMs) (000s) (4)


821,244


736,287


111,144





Passenger load factor (5)


72.1
%

71.6
%

68.4
%




Passenger yield per RPM (cents) (9)


15.69


15.98


14.73





Passenger yield per ASM (cents) (12)


11.30


11.45


10.07





Cost per ASM (cents)


13.01


12.56


13.17





Average fare (15)

$
101.78

$
96.66

$
97.03

$


$
Aircraft in service at end of period


9


9


7





- 29 -

Year Ended
  March 31,2006

2005

2004

2003

2002Selected
  Operating Data - Combined:Passenger revenue (000s) (1)

$
971,507

$
816,091

$
626,581

$
460,188

$
435,946Revenue passengers carried (000s)


8,676


7,525


5,684


3,926


3,069Revenue passenger miles (RPMs) (000s) (3)


8,028,617


7,114,794


5,196,561


3,599,553


2,756,965Available seat miles (ASMs) (000s) (4)


10,706,843


9,852,155


7,264,884


6,013,261


4,592,298Passenger load factor (5)


75.0
%

72.2
%

71.5
%

59.9
%

60.0
%Passenger yield per RPM (cents) (9), (10)


11.98


11.39


12.01


12.74


15.78Total yield per RPM (cents) (11)


12.38


11.72


12.39


13.06


16.14Passenger yield per ASM (cents) (12)


8.98


8.23


8.59


7.63


9.47Total yield per ASM (cents) (13)


9.29


8.46


8.86


7.81


9.69Cost per ASM (cents)


9.36


8.73


8.48


8.33


9.33(1)
Passenger revenue includes revenues for reduced
  rate stand-by 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 began recording 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 and from February 1, 2003 to March 31, 2003 are not included in
  regional partner statistics in 2004 and 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 years ended March 31, 2006, 2005,
  2004, 2003 and 2002 were as follows:Year Ended March 31,2006

2005

2004

2003

2002Mesa revenues (000s)

$


$


$
25,155

$
1,608

$
Mesa expenses (000s)








(23,438
)

(2,314
)

Net amount in other revenues

$


$


$
1,717

$
(706
)
$
Mesas revenue passenger miles (RPMs) and available seat miles (ASMs)
 for the years ended March 31, 2006, 2005, 2004, 2003 and 2002 were as follows:

Year Ended March 31,2006

2005

2004

2003

2002Mesa RPMs (000s)


-


-


148,163


11,004


-Mesa ASMs (000s)


-


-


174,435


17,759


-- 30 -

(3)
Revenue passenger miles, or RPMs, are determined
  by multiplying the number of fare-paying passengers carried by the distance
  flown. This represents the number of miles flown by revenue paying
  passengers.(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. This represents the percentage
  of aircraft seating capacity that is actually utilized.(6)
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.A reconciliation of the
  components of the calculation of break-even load factor is as follows:Year Ended
  March 31,2006

2005

2004

2003

2002(in thousands)(Income) loss
before cumulative effect of
  accounting change

$
13,971

$
23,430

$
(12,635
)
$
24,854

$
(16,550
)Income tax
(expense) benefit


6,497


12,408


(7,822
)

14,655


(8,282
)Passenger
revenue


878,681


731,822


615,390


460,188


435,946Regional
partner expense


(106,866
)

(92,481
)

(14,634
)




Regional
partner revenue


92,826


84,269


11,191





Charter
revenue


(10,011
)

(5,381
)

(2,724
)

(1,515
)

(1,101
)Passenger revenue mainline (excluding charter and regional partner revenue required to break even)

$
875,098

$
754,067

$
588,766

$
498,182

$
410,013The calculation of the
break-even load factor is as follows:

Year Ended
  March 31,2006

2005

2004

2003

2002Passenger
revenue mainline (excluding charter
  and regional partner revenue required to break even) ($000s)

$
875,098

$
754,067

$
588,766

$
498,182

$
410,013Mainline yield
per RPM (cents)


11.68


11.03


11.96


12.74


15.78Mainline
revenue passenger miles (000s) to break
  even assuming constant yield per RPM


7,492,277


6,838,110


4,920,834


3,909,610


2,598,989Mainline
available seat miles (000s)


9,885,599


9,115,868


7,153,740


6,013,261


4,592,298Mainline
break-even
load factor


75.8
%

75.0
%

68.8
%

65.0
%

56.6
%- 31 -

(7)
Block hours represent the time between aircraft gate
  departure and aircraft gate arrival.(8)
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. This represents the amount of time that our aircraft spend in the
  air carrying passengers.(9)
Passenger yield per RPM is determined by dividing
  passenger revenues (excluding charter revenue) by revenue passenger miles.(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 SEC. 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:Year Ended
  March 31,2006

2005

2004

2003

2002Passenger revenues - mainline,
  as reported

$
878,681

$
731,822

$
615,390

$
460,188

$
435,946Less: charter
revenue


10,011


5,381


2,724


1,515


1,101Passenger
  revenues - mainline excluding charter


868,670


726,441


612,666


458,673


434,845Add: Passenger
revenues - regional partner


92,826


84,269


11,191





Passenger
  revenues, system combined

$
961,496

$
810,710

$
623,857

$
458,673

$
434,845(11)
Total yield per RPM is determined by dividing
  total revenues by revenue passenger miles. This represents the average amount
  one passenger pays to fly one mile.(12)
Passenger yield per ASM or RASM 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. Excluding fuel
  from the cost of mainline operations facilitates the 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)
Average fare excludes revenue included in
  passenger revenue for charter and reduced rate stand-by passengers,
  administrative fees, and revenue recognized for unused tickets that are
  greater than one year from issuance date.(16)
Average fuel cost per
  gallon includes unrealized gains of $975,000, $3,139,000, and $302,000 for
  the years ended March 31, 2006, 2005, and 2004, respectively.- 32 -


Item 7: Managements Discussion and Analysis of Financial Condition and Results of
Operations Overview On
April 3, 2006, Airlines completed the Reorganization and became a wholly-owned
subsidiary of Holdings, and Holdings is the successor issuer to Airlines
pursuant to Rule 12g-3 under the Exchange Act. In connection with the
Reorganization, each outstanding share of common stock of Airlines was
exchanged for one share of common stock of Holdings, resulting in each
shareholder of Airlines as of the close of business on March 31, 2006 becoming
a stockholder of Holdings as of the opening of business on April 3, 2006. The
common stock of Holdings is now the publicly traded stock of the company. At
this time Airlines is the only subsidiary of Holdings, such that the financial
performance of Holdings is represented completely by the financial performance
of Airlines. We
are a low cost, affordable fare airline operating primarily in a hub and spoke
fashion connecting cities coast to coast through our hub at DIA. We are the second largest jet service carrier at DIA based on
departures. We
offer our customers a differentiated product, with a new aircraft, affordable
pricing, and in-seat DirectTV with 24 channels of live television entertainment
with four additional channels of current-run pay-per-view movies in a one class
cabin. As of March 31, 2006, we, in conjunction with Frontier JetExpress
operated by Horizon, operate routes linking our Denver hub to 47 U.S. cities
spanning the nation from coast to coast and to seven cities in Mexico. During
the year ended March 31, 2005, we began point-to-point routes to Mexico from
non-hub cities. As of March 31, 2006, we provided jet service to Cancun, Mexico
directly from five non-hub cities and service to Puerto Vallarta, Mexico from
Kansas City, Missouri. During
the year ended March 31, 2006, we had a net loss of $13,971,000. This was
primarily driven by rising fuel costs and our inability to pass these increases
on to our customers due to a highly competitive market. We have seen a sharp
rise in fuel costs since January 2004, and fuel costs may continue to increase
or remain at these historically high levels. Our average fuel cost per gallon,
including realized and unrealized hedging activities, was $1.99 for the year
ended March 31, 2006 compared to $1.41 during the same period last year, an
increase of 41.1%. We have implemented several strategic initiatives to
decrease our fuel burn rate during the year, which resulted in a decrease of
our fuel burn rate to an average of 699 gallons per block hour from an average
of 722 gallons per block hour for fiscal year 2005, a decrease of 3.2%. We
have increased passenger revenues by increasing both our load factors and our
yields. Our mainline load factor increased to 75.2% for the year ended March
31, 2006 as compared to 72.3% for the year ended March 31, 2005, an increase of
2.9 points. Our mainline passenger yield per RPM, or the average amount one
passenger pays to fly one mile, was ­­11.68¢ and 11.03¢ for the years ended
March 31, 2006 and 2005, respectively, an increase of 5.9%. We increased our
mainline average fare year over year despite intense pricing pressures from our
competitors and a reduction of average length of haul. Our mainline average
fare was $103.05 for the year ended March 31, 2006 as compared to $102.31 for
the year ended March 31, 2005, an increase 0.7%. Our length of haul was 958 and
990 miles for the year ended March 31, 2006 and 2005, respectively, a decrease
of 3.2%. We
have relatively low operating expenses excluding fuel because we operate only
two similar types of aircraft in a single class of service with high
utilization rates. Our mainline CASM, or cost per available seat mile, for the
year ended March 31, 2006 and 2005 was 9.06¢ and 8.42¢, respectively, an
increase of 7.6%. The increase in mainline CASM was largely due to an increase
in fuel expense to 2.85¢ per ASM from 2.04¢ per ASM for the years ended March
31, 2006 and 2005, respectively, an increase of 39.7%. Mainline CASM, excluding
fuel was 6.21¢ per ASM as compared to 6.38¢ per ASM for the years ended March
31, 2006 and 2005, respectively, a decrease of 2.7%. The average daily use of
our aircraft was 11.5 hours during the year ended March 31, 2006 as compared to
11.1 hours during the year ending March 31, 2005, or a 3.6% increase in our
utilization rates. The increase in our utilization rates was due to improved
maintenance scheduling to off-peak times and an increase in gate utilization
with scheduling changes. On
May 23, 2006, we launched a new version of our website as part of our strategic
initiative to reduce commissions paid to external travel websites by increasing
our website bookings from our current rate of 36% of total bookings. We began a
phased improvement of our website shortly after we converted our reservation
and ticketing automation to Sabre in March 2005. We also invested approximately
$1,300,000 in the new website design in fiscal year 2006. - 33 -   We
increased our capacity, as measured by ASMs, by 8.4% over the prior fiscal
year. We intend to continue our focused growth strategy, which included the
completion of our fleet transition from a Boeing fleet to an all Airbus fleet
in 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 and
scheduling is more efficient. As of March 31, 2006, we have remaining firm
purchase commitments for 17 Airbus aircraft from Airbus, and intend to lease as
many as three additional A319 aircraft over the next fiscal year. We intend to
use these additional aircraft to provide service to new markets and/or to add
frequencies to existing markets that we believe are underserved.

The
airline industry continues to operate in an intensely competitive market. We
expect competition will remain intense, as over-capacity in the industry
continues to exists. 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 hardship for some of our competitors that have been forced to reduce
capacity or have been forced into bankruptcy protection.

Highlights from the 2006 Fiscal Year


We took delivery of six new
  Airbus A319 aircraft and retired three Boeing 737 aircraft, for a net
  increase of three aircraft and a fleet total of 50 available for revenue
  service at year end.
We completed a $92,000,000
  public offering of convertible notes.
We began mainline service
  to
  Detroit, Michigan; Akron-Canton, Ohio and San Antonio, Texas.
We began service on
  Frontier JetExpress to Tulsa, Oklahoma; Dayton, Ohio and Fresno,
  California.
We began service from Kansas City, Missouri to Puerto Vallarta, Mexico.
We increased the number of
  Mexico cities we serve to seven with new service to Cozumel and Acapulco.
We were ranked as number
  one in On Time Arrival Performance among all carriers at the 33 largest
  airports in America for the month of September 2005 and in the top five for
  on time arrival performance for four consecutive months.Outlook

Although
we have been able to raise capital and continue to grow, the highly competitive
nature of the airline industry could prevent us from attaining the passenger
traffic or yields required to reach profitable operations in new and existing
markets. We expect our full-year available seat mile capacity for fiscal year
2007 to increase by approximately 16% to 18% over fiscal year 2006. While the
industry revenue environment remains extremely competitive, our passenger
revenue per available seat mile is expected to increase slightly in fiscal year
2007. Our mainline cost per
available seat mile, excluding fuel, is expected to remain basically flat over
fiscal 2006. Fuel costs have
risen sharply in 2006 and may remain at these historically high levels or
increase even further. Due to the
unpredictability of the price of fuel and these historically high prices, we
cannot predict if we will be profitable next year. Our 2007 cost forecast includes the effects of
additional stock-based compensation expense that we will incur from the
implementation of SFAS No. 123(R), Share-Based Payment, which is effective
starting our fiscal year commencing April 1, 2006, of approximately $900,000.

- 34 -

Selected
Mainline Operating Statistics

To
a large extent, changes in operating expenses for airlines are driven by
changes in capacity, or ASMs. 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 years ended March 31, 2006, 2005, and 2004. Regional partner
revenues, expenses and ASMs were excluded from this table. This data should be
read in conjunction with Selected Financial Data contained in Item 6 to this
report.

2006

2005

2004Revenue/Cost 
  Per
  ASM

% Of
  Total
  Revenue

Revenue/Cost 
  Per
  ASM

% Of
  Total
  Revenue

Revenue/Cost 
  Per
  ASM

% Of
  Total
  Revenue(in cents)

(in cents)

(in cents)Revenues:Passenger - mainline


8.89


97.5
%

8.03


97.6
%

8.60


97.3
%Cargo


0.06


0.6
%

0.05


0.7
%

0.11


1.3
%Other


0.17


1.9
%

0.14


1.7
%

0.13


1.4
%Total revenues


9.12


100.0
%

8.22


100.0
%

8.84


100.0
%Operating expenses:Flight operations


1.43


15.7
%

1.45


17.6
%

1.47


16.6
%Aircraft fuel expense


2.85


31.3
%

2.04


24.8
%

1.52


17.2
%Aircraft lease
expense


0.95


10.4
%

0.95


11.6
%

0.98


11.1
%Aircraft and traffic
servicing


1.40


15.4
%

1.42


17.3
%

1.54


17.5
%Maintenance


0.78


8.6
%

0.84


10.2
%

0.99


11.1
%Promotion and sales


0.84


9.1
%

0.84


10.2
%

0.91


10.3
%General and
administrative


0.50


5.4
%

0.53


6.5
%

0.52


5.8
%Aircraft lease and facility
exit costs


0.03


0.4
%







0.07


0.8
%Impairments and (gains)/ losses
on sales of assets, net


(0.01
)

(0.1
)%

0.06


0.7
%

0.08


0.9
%Depreciation


0.29


3.1
%

0.29


3.5
%

0.33


3.8
%Total operating
expenses


9.06


99.3
%

8.42


102.4
%

8.41


95.1
%Results
of Operations  Year Ended March 31, 2006 Compared to Year Ended March 31, 2005

We
had a net loss of $13,971,000 or 39¢ per diluted share for the year ended March
31, 2006, as compared to a net loss of $23,430,000 or $0.66 per diluted share
for the year ended March 31, 2005. Included in our net loss for the year ended
March 31, 2006 were the following items before the effect of income taxes:
aircraft lease and facility exit charges of $3,414,000 primarily relating to
three leased Boeing 737-300 aircraft that we ceased using during the first
quarter, gains of $1,144,000 related to the sale of Boeing parts held for sale
and other assets and an unrealized gain on fuel hedges of $976,000. These
items, net of income taxes, increased our net loss by 2¢ per share. Also,
included in our results is $421,000 in additional federal airport security
expenses due to a retroactive assessment by the TSA. We believe this assessment
is improper and are vigorously contesting it.

Included
in our net loss for the year ended March 31, 2005 were the following items
before the effect of income taxes: a write down of $5,123,000 of the carrying
value of expendable Boeing 737 inventory and losses on sales of assets of
$85,000 which was partially offset by and an unrealized gain on fuel hedges of
$3,139,000. These items, net of income taxes, increased our net loss by 4¢ per
diluted share.

- 35 -

Mainline
Revenues

Industry
fare pricing behavior has 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. In
addition, certain markets we serve are destinations that cater to vacation or
leisure travelers, resulting in seasonal fluctuations in passenger demand and
revenues in these markets.

Passenger
Revenues - Mainline. Mainline passenger
revenues totaled $878,681,000 for the year ended March 31, 2006 compared to
$731,822,000 for the year ended March 31, 2005, an increase of $146,859,000 or
20.0%. Mainline passenger revenues include revenues for reduced rate standby
passengers, charter revenue, 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 agreement.

Revenues
from tickets sales generated 91.0% of our mainline passenger revenues and
increased $119,360,000 or 17.5% over prior year. The increase in ticket sales
resulted from an 8.4% increase in ASMs, or $57,476,000, a 4.0% increase in
load factor, or $30,274,000, and a 4.1% increase in our yields from ticket
sales, or $31,610,000. Revenues generated from other sources and the percentage
of mainline passenger revenues are as follows: Administrative fees were 2.4%;
revenue recognized for tickets that are not used within one year from issuance
were 2.9%, charter revenues were 1.1% and earnings from our co-branded credit card
were 1.3%. These sources of revenue increased mainline passenger revenue by
$18,737,000 as compared to prior year, or 38.1%, due to our 16.7% increase in
passengers and the increased usage of our co-branded credit card.

Other
Revenues. Other revenues, comprised principally of
interline and ground handling fees, liquor sales, LiveTV sales, pay-per-view
movies and excess baggage fees, totaled $17,089,000 for the year ended March
31, 2006 compared to $12,591,000 for the year ended March 31, 2005, an increase
of $4,498,000 or 35.7%. The increase in other revenues was primarily due to
increased revenue generated from ground handling contracts and increased
revenues in excess baggage fees and pay-per-view movies.

Mainline
Operating Expenses

Total
mainline operating expenses were $895,304,000 and $767,606,000 for the years
ended March 31, 2006 and 2005, respectively, and represented 99.3% and 102.4%
of total mainline revenues, respectively. Mainline operating expenses decreased
as a percentage of mainline revenue during the year ended March 31, 2006
largely a result of a 10.3% increase in our RASM coupled with an increase in
our load factors of 2.9 points. This increase was significantly offset by an
increase of 41.1% in our aircraft fuel cost per gallon for the year ended March
31, 2006 as compared to the prior comparable period.

Salaries,
Wages and Benefits.
We record salaries, wages and benefits within the specific expense category
identified in our statements of operations to which they pertain. Salaries,
wages and benefits increased 8.4% to $219,380,000 compared to $202,341,000, and
were 24.3% and 27.0% of total mainline revenues for the years ended March 31,
2006 and 2005, respectively. Salaries, wages and benefits increased over the
prior comparable periods largely as a result of general wage increases,
increases in heath insurance costs and increases in workers compensation
insurance. Our employee count increased 6.1% from 4,490 at March 31, 2005 to
4,765 at March 31, 2006 which is less than the 8.4% increase in ASMs.

Flight
Operations. Flight
operations expenses increased 7.0% to $141,316,000 as compared to $132,023,000,
and were 15.7% and 17.6% of total mainline revenues, for the year ended March
31, 2006 and 2005, respectively. Flight operations expenses increased due to an
increase in mainline block hours from 182,581 for the year ended March 31, 2005
to 202,300 for the year ended March 31, 2006, an increase of 10.8%. Flight
operations expenses include all expenses related directly to the operation of
the aircraft excluding depreciation of owned aircraft and aircraft lease
expenses and including insurance expenses, pilot and flight attendant
compensation, in-flight catering, crew overnight expenses, flight dispatch and
flight operations administrative expenses.

Pilot
and flight attendant salaries before payroll taxes and benefits increased 13.9%
to $82,566,000 compared to $72,487,000, and were 9.2% and 9.7% of total
mainline revenue for the year ended March 31, 2006 and 2005, respectively.

- 36 -

We
increased the number of pilots and flight attendants over the prior year by
16.1% to support the 10.8% increase in block hours and the 7.3% increase in the
average aircraft in service.

Aircraft
insurance expenses totaled $9,896,000 (1.1% of total mainline revenues) and
$10,219,000 (1.4% of total mainline revenue) for the year ended March 31, 2006
and 2005, respectively, a decrease of 3.2%. Aircraft insurance expenses were
13¢ and 16¢ per RPM for the year ended March 31, 2006 and 2005, respectively, a
decrease of 18.8%. Our aircraft hull and liability coverage was renewed at
reduced premium rates twice during the year. In December 2002, through authority granted
under the Homeland Security Act of 2002, the U.S. government expanded its
insurance program to enable airlines to elect either the governments excess
third-party war risk coverage or for the government to become the primary
insurer for all war risks coverage. We elected to take primary government
coverage in February 2003 and dropped the commercially available war risk
coverage. The current FAA war risk policy is in effect until August 31,
2006. We do not know whether the government will extend the coverage beyond
August 2006, 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.

Aircraft
Fuel. Aircraft fuel costs of $281,906,000 for 141,474,000
gallons used and $185,821,000 for 131,906,000 gallons used and resulted in an
average fuel cost of $1.99 and $1.41 per gallon for the year ended March 31,
2006 and 2005, respectively, an increase of 41.1% per gallon. Aircraft fuel
costs, excluding hedging losses and gains, were $2.02 and $1.47 per gallon for
the year ended March 31, 2006 and 2005, respectively. Aircraft fuel expenses
represented 31.3% and 24.8% of total mainline revenue for the years ended March
31, 2006 and 2005, respectively. Fuel prices are subject to change weekly as we
purchase a very small portion in advance for inventory. Our results of
operations for the year ended March 31, 2006 include an unrealized derivative
gain of $976,000 and realized gains of $2,199,000 in cash settlements received
from a counter-party recorded as a decrease in fuel expense. Our results of
operations for the year ended March 31, 2005 include an unrealized derivative
gain of $3,139,000 and a realized gain of approximately $4,465,000 in cash
settlements received from a counter-party recorded as a decrease in fuel
expense.

Aircraft
Lease. Aircraft
lease expenses totaled $94,229,000 (10.4% of total mainline revenues) and
$87,096,000 (11.6% of total mainline revenue) for the years ended March 31,
2006 and 2005, respectively, an increase of 8.2%. The increase in lease expense
is due to an increase in the average number of leased aircraft from 30.9 to
32.7, or 5.8%, costs associated with the late return of certain Boeing
aircraft, increases in lease rates for seven of our aircraft that have variable
rents based on LIBOR and additional rent related to two spare engine leases.

Aircraft and
Traffic Servicing.
Aircraft and traffic servicing expenses were $138,492,000 and $129,470,000, an
increase of 7.0%, for the years ended March 31, 2006 and 2005, respectively,
and represented 15.4% and 17.3% of total mainline revenues. Aircraft and
traffic servicing expenses will increase with the addition of new cities to our
route system. 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 on cancelled flights as well as hotel, meal and other
incidental expenses. During the year ended March 31, 2006, we added a net of
six cities with mainline only service. During the year ended March 31, 2006,
our departures increased to 82,878 from 72,888 for the year ended March 31,
2005, an increase of 13.7%. Aircraft and traffic servicing expenses were $1,671
per departure for the year ended March 31, 2006 as compared to $1,776 per
departure for the year ended March 31, 2005, a decrease of 5.9%. This decrease
in the amount of expenses per departure is related to the realization of
economies of scale.

Maintenance. Maintenance
expenses of $77,238,000 and $76,679,000 were 8.6% and 10.2% of total mainline
revenues for the years ended March 31, 2006 and 2005, respectively, an increase
of 0.7%. Maintenance expenses include all labor, parts and supplies expenses
related to the maintenance of the aircraft. Maintenance cost per block hour was
$382 and $420 for the years ended March 31, 2006 and 2005, respectively, a
decrease of 9.0%. Maintenance cost per block hour decreased as a result of our
transition to an all Airbus fleet that is less costly to maintain than our
older Boeing aircraft, offset slightly by costs associated with the cost of
maintenance associated with meeting the return condition requirements of five
Boeing aircraft during the year. Our mainline average age of aircraft was 2.6
years as of March 31, 2006. As our Airbus aircraft fleet ages, it will require
more maintenance and maintenance expenses per block hour will increase.

Promotion and
Sales.Promotion
and sales expenses totaled $82,502,000 and $76,462,000 and were 9.1% and 10.2%
of total mainlines revenues for the years ended March 31, 2006 and 2005,
respectively, an increase of 7.9%. These

- 37 -

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. These
expenses are partially offset by marketing programs in which we receive
proceeds from the sale of frequent flyer miles. During the year ended March 31,
2006, promotion and sales expense was reduced by $4,444,000 due to the
favorable resolution in the current fiscal year of a sales and use tax credit
on the taxation of ticketing services which related to the period September
2001 to March 2005. In addition, promotion and sales expense was reduced by the marketing component of frequent flyer
miles sold by $3,304,000 as compared to the prior year. During the year
ended March 31, 2006, promotion and sales expenses, excluding these items, per
mainline passenger increased to $12.13 from $12.08 for the year ended March 31,
2005. Promotion and sales expenses per mainline passenger increased primarily
as a result of an increase in the
commission rates paid to external travel websites.

General and
Administrative.
General and administrative expenses for the years ended March 31, 2006 and 2005
totaled $48,979,000 and $48,351,000, respectively, an increase of 1.3%, and
were 5.4% and 6.5% of total mainline revenues respectively. General and
administrative expenses include the wages and benefits for our executive
officers and various other administrative personnel including legal,
accounting, information technology, corporate communications, training and
human resources and other expenses associated with these departments. General
and administrative expense also includes employee health benefits, accrued
vacation, and general insurance expenses including workers compensation for
all of our employees. General and administrative expenses remained relatively
flat, despite increased rates for health insurance and workers compensation,
due to $2,958,000 of expenses incurred during the fiscal year ended March 31,
2005 for the Sabre implementation .

Aircraft Lease
and Facility Exit Costs.In
April 2005, we finalized our transition to an all Airbus fleet and ceased using
three of our Boeing 737-300 leased aircraft, which had original lease
termination dates in September 2005, August 2005 and May 2006. We negotiated an
early termination fee for the aircraft with an original termination date of May
2006. As such, we recorded a charge of $3,312,000 to reflect the estimated fair
value of the remaining lease payments and a one-time early return payment. We
also recorded $102,000 of facility exit costs for a revised estimate of time to
obtain a sublease on leased space we ceased using in fiscal year 2005. There
were no similar costs incurred during the year ended March 31, 2005.

Gains and
Losses on Sales of Assets, Net. During the year ended March 31, 2006, we had net gains
totaling $1,144,000, which related primarily to the sale of Boeing spare parts.
During the year ended March 31, 2005, we incurred a net loss totaling $85,000
on the sale of Boeing spare parts and other assets.

Depreciation.
Depreciation expenses were $28,372,000 and $26,498,000, or approximately 3.1%
and 3.5% of total mainline revenues for the years ended March 31, 2006 and
2005, respectively, an increase of 7.1%. The increase in depreciation expense
is primarily due to an increase in the average number of owned aircraft from
14.0 to 15.5, or 10.7%.

Nonoperating
(Income) Expense.Net
nonoperating expense totaled $12,572,000 for the year ended March 31, 2006 as
compared to net nonoperating expense of $9,391,000 for the year ended March 31,
2005, an increase of 33.9%.

Interest
income increased to $9,366,000 from $3,758,000 during the year ended March 31,
2006 from the prior year as a result of an increase in short-term interest
rates earned on investments and an increase in our cash position largely as a
result of the net proceeds of $88,759,000 from our convertible notes offering
in December 2005.

Interest
expense increased to $21,758,000 for the year ended March 31, 2006 from
$13,184,000 for the year ended March 31, 2005, an increase of 65.0%. The
increase in interest expense was a result of additional debt for the acquisition
of two additional purchased aircraft, an increase in the weighted average
borrowing rate and additional debt of $92,000,000 from our convertible notes
offering in December 2005. Interest on our convertible notes is at a fixed rate
of 5.0% and resulted in an increase of $1,651,000 in interest expense. Debt
related to aircraft increased from $301,015,000 as of March 31, 2005 to
$335,756,000 as of March 31, 2006 with an increase in the average weighted
interest rate from 4.82% to 6.55% as of March 31, 2005 and 2006, respectively.

Income Tax
Benefit.We recorded an income tax benefit of
$6,497,000 during the year ended March 31, 2006 at a 31.7% rate, compared to an
income tax benefit of $12,408,000 during the year ended March 31, 2005 at a
34.6% rate. During the year ended March 31, 2006, our tax benefit was at a
federal rate of 35.0% plus the blended state rate of 3.0% (net

- 38 -

of federal benefit) and was decreased by the tax
effect of permanent differences of 3.6%. During the year ended March 31, 2006
we increased our valuation allowance by $273,000 against certain state net
operating loss carryforwards since it was more likely than not that the tax
benefit was not going to be realized due to lack of taxable income in these
jurisdictions before those net operating loss carryforwards expire.

Regional Partner

Regional
partner revenues are derived from Frontier JetExpress operated by Horizon and
do not include the incremental revenue from passengers connecting from regional
flights to mainline flights, which are included in our mainline passenger
revenue. Operating expenses include all direct costs associated with Frontier
JetExpress operated by Horizon plus payments of performance bonuses if earned
under the contract. Certain expenses such as aircraft lease, maintenance and
crew costs are included in the operating agreement with Horizon in which we
reimburse these expenses plus a margin. Operating expenses also include
other direct costs incurred for which we do not pay a margin. These expenses
are primarily composed of fuel, airport facility expenses and passenger related
expenses.

Passenger
Revenues  Regional Partner. Regional partner revenues totaled
$92,826,000 for the year ended March 31, 2006 and $84,269,000 for the year
ended March 31, 2005, a 10.2% increase. The increase in revenue is due to an
increase in our utilization of the aircraft resulting in an increase of 4.6% in
passengers coupled with an increase in the average fare to $101.78 from $96.66,
an increase of 5.3%.

Operating
Expenses  Regional Partner. Regional
partner expense for the year ended March 31, 2006 and 2005 totaled $106,866,000
and $92,481,000, respectively, and was 115.1% and 109.7% of total regional
partner revenues, respectively. The increase in expenses is primarily due to a
47.2% increase in fuel expense for the regional partner operations and an
increase in performance bonuses paid.

- 39 -

Results
of Operations - Year Ended March 31, 2005 Compared to Year Ended March 31, 2004

We
had a net loss of $23,430,000, or $0.66 per diluted share, for the year ended
March 31, 2005 as compared to net income of $12,635,000, or $0.36 per diluted
share, for the year ended March 31, 2004. Included in our net loss for the year
ended March 31, 2005 were the following items before the effect of income
taxes: a write down of $5,123,000 of the carrying value of Boeing rotable spare
parts which was partially offset by an unrealized gain on fuel hedges of
$2,837,000. These items, net of income taxes, increased our net loss by 4¢ per
diluted share. Included
in our net income for the year ended March 31, 2004 were the following
items before the effect of profit sharing and income taxes: $15,024,000 of
compensation received under the Appropriations Act offset by the write-off of
deferred loan costs of $9,816,000 associated with the prepayment of all of a
$70,000,000 government guaranteed loan; a charge for Boeing aircraft and
facility lease exit costs of $5,372,000; a loss of $1,838,000 on the sale of
one Airbus aircraft in a sale-leaseback transaction and from the sale of a
spare engine and other assets; a write
down of $3,560,000 of the carrying value of spare engines and rotable parts
that support the Boeing 737-300 aircraft; and $1,152,000 of flight crew
training expenses related to the start-up of our new Frontier JetExpress
regional jet relationship with Horizon. These items, net of income taxes
and profit sharing, reduced net income by 12¢ per diluted share.

Our
mainline passenger yield per RPM was 11.03¢ and 11.96¢ for the years ended
March 31, 2005 and March 31, 2004, respectively, a decrease of 7.8%. Our length
of haul was 990 and 919 miles for the years ended March 31, 2005 and March 31,
2004, respectively, an increase of 7.7%. Our mainline average fare was $102 for
the year ended March 31, 2005 as compared to $104 for the year ended March 31,
2004, a decrease of 1.9%. Our mainline yield per ASM (RASM) for the years
ended March 31, 2005 and March 31, 2004 was 7.97¢ and 8.56¢, respectively, a
decrease of 6.9%. The decreases in the mainline average fare and mainline RASM
were offset by an increase in our mainline load factor to 72.3% for the year
ended March 31, 2005 as compared to 71.6% for the year ended March 31, 2004, an
increase of .07 points. In February 2004, we capped all fares to and from
Denver at $314 one-way, excluding passenger facility, security or segment fees,
with the exception of flights to Mexico and Anchorage, Alaska. The fare cap was
a 25 to 50 percent reduction from the February 2003 caps of $399 and $499.
Although this created downward pressure on our mainline passenger yield per RPM
and average fare, we believe the effect on our revenues was offset by an
increase in passenger traffic. Pricing caps on airfare, as a policy, were
eliminated shortly after fiscal year 2005 began. Additionally, we believe that
our average fare during the year ended March 31, 2005 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.

Our
mainline CASM, for the year ended March 31, 2005 and 2004 was 8.42¢ and 8.41¢,
respectively. Mainline CASM, excluding fuel for the years ended March 31, 2005
and 2004 were 6.38¢ and 6.89¢, respectively, a decrease of .51¢ or 7.4%. Our
mainline CASM excluding fuel decreased during the year ended March 31, 2005
primarily as a result of the realized benefits of efficiencies of scale
associated with increasing capacity while controlling costs which resulted in a
decrease in traffic and servicing costs of .12¢ and promotion and sales of
..07¢. In addition, maintenance cost per ASM decreased by .15¢ as a result of
the reduction in our Boeing fleet that was replaced with new Airbus A319 aircraft.
Included in mainline CASM for the year ended March 31, 2004 was .09¢ per ASM
for profit sharing bonuses and 0.07¢ for aircraft lease and facility exit
costs. As a result of our net loss for the year ended March 31, 2005, we did
not accrue for bonuses. Mainline CASM also decreased as a result of an increase
in our daily block hour utilization as discussed below and economies of scale
associated with lower increases in indirect costs as compared to the 27.4%
increase in mainline ASMs over the prior comparable period.

During
the year ended March 31, 2005, our average daily block hour utilization
increased to 11.1 from 10.4 for the year ended March 31, 2004, or 6.7%.

For
the years ended March 31, 2005 and 2004, our mainline break-even load factors
were 75.0% and 68.8%, respectively, compared to our achieved passenger load
factors of 72.3% and 71.6%, respectively. Our mainline break-even load factor
increased from the prior comparable period largely as a result of a decrease in
our average fare to $102 during the year ended March 31, 2005 from $104 during
the year ended March 31, 2004. At the passenger levels in effect during the
fiscal year ending March 31, 2005, the $2 decrease in average fare equaled a
revenue decrease of approximately $13,306,000 million.

- 40 -

Mainline
Revenues

Passenger
Revenues - Mainline. Passenger revenues from our mainline
operations totaled $731,822,000 for the year ended March 31, 2005 compared to
$615,390,000 for the year ended March 31, 2004, or an increase of 18.9%.

Revenues
from tickets sales generated 93.0% of our mainline passenger revenues and
increased $103,200,000 or 17.9% over prior year. The increase in ticket sales
resulted from a 27.4% increase in ASMs, or $158,391,000 and a 1.0% increase in
load factor, or $7,052,000 and was offset by a 7.5% decrease in our yields from
ticket sales, or a decrease of $62,242,000. Revenues generated from other
sources and the percentage of mainline passenger revenues are as follows:
Administrative fees were 2.6%; revenue recognized for tickets that are not used
within one year from issuance were 2.8%, charter revenues were 0.7% and
earnings from our co-branded credit card were 0.6%. These sources of revenue
increased mainline passenger revenue by $12,224,000 as compared to prior year,
or 33.1%, due to our 19.5% increase in passengers and the increased usage of
our co-branded credit card.

Cargo
Revenues.Cargo revenues, consisting of revenues from
freight and mail service, totaled $4,958,000 and $8,077,000 for the years ended
March 31, 2005 and 2004, respectively, representing 0.7% and 1.3%,
respectively, of total mainline revenues, a decrease of 0.6%. During the year
ended March 31, 2005, 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 LiveTV
sales, net revenue from the Mesa codeshare agreement of $1,717,000 (in 2004
only), liquor sales, ground handling fees, and excess baggage fees, totaled
$12,591,000 and $9,021,000 or 1.7% and 1.4% of total operating revenues for the
years ended March 31, 2005 and 2004, respectively. Other revenue increased over
the prior comparable period primarily as a result of an increase in LiveTV
sales.

Mainline
Operating Expenses

Mainline
operating expenses totaled $767,606,000 for the year ended March 31, 2005, or
102.4% of total mainline revenues. Mainline operating expenses totaled
$601,563,000 for the year ended March 31, 2004, or 95.1% of total mainline revenues.
Mainline operating expenses increased as a percentage of revenues during the
year ended March 31, 2005 largely a result of a 35.6% increase in our aircraft
fuel cost per gallon for the year ended March 31, 2005 as compared to the year
ended March 31, 2004.

Salaries,
Wages and Benefits.
Salaries, wages and benefits totaled $203,398,000 and $160,260,000 and were
27.1% and 25.3% of total mainline revenues for the years ended March 31, 2005
and 2004, respectively, an increase of 26.9%. Salaries, wages and benefits
increased over the prior period largely as a result of overall wage increases
and an increase in the number of employees to support our ASM growth of 27.4%
during the year ended March 31, 2005. Our employees increased from
approximately 4,100 in March 2004 to approximately 4,500 in March 2005, or
9.8%.

Flight
Operations. Flight operations expenses of $132,023,000
and $105,255,000 were 17.6% and 16.6% of total mainline revenues for the years
ended March 31, 2005 and 2004, respectively, an increase of 25.4%.

Pilot and
flight attendant salaries before
payroll taxes and benefits totaled $72,487,000 and $53,358,000 or 9.7% and 8.7%
of mainline passenger revenue, for each of the years ended March 31, 2005 and
2004, or an increase of 35.9%. Pilot and flight attendant compensation for the
year ended March 31, 2005 increased as a result of a 20.4% increase in the
average number of mainline aircraft in service combined with an increase of
28.2% in mainline 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.

Aircraft
insurance expenses totaled $10,219,000 (1.4% of total mainline revenues) for
the year ended March 31, 2005. Aircraft insurance expenses for the year ended
March 31, 2004 were $9,950,000 (1.6% of total mainline revenues). Aircraft
insurance expenses decreased per RPM as a result of less expensive war risk
coverage that is presently provided by the FAA compared to the coverage that
was previously provided by commercial underwriters combined with a 25% decrease
in our basic hull and liability insurance rates effective June 7, 2004.

- 41 -

Aircraft
Fuel Expense.Aircraft fuel expenses include both the
direct cost of fuel including taxes as well as the cost of delivering fuel into
the aircraft. Aircraft fuel costs of $185,821,000 for 131,906,000 gallons used
and $108,863,000 for 104,799,000 gallons used resulted in an average fuel cost
of $1.41 and $1.04 per gallon for the years ended March 31, 2005 and 2004,
respectively. Aircraft fuel expenses represented 24.8% and 17.2% of total
mainline revenues, for the years ended March 31, 2005 and 2004, respectively. We initiated a fuel-hedging program in late
November 2002, which decreased fuel expense by $7,605,000 for the year ended
March 31, 2005 and decreased fuel expense by $1,387,000 for the year ended
March 31, 2004. Fuel hedging gains include unrealized fuel gains of $3,139,000 and
$302,000 in 2005 and 2004, respectively. Fuel consumption for the years
ended March 31, 2005 and 2004 averaged 722 and 736 gallons per block hour,
respectively, or a decrease of 1.9%. Fuel consumption per block hour decreased
during the year ended March 31, 2005 from the prior year because of the more
fuel-efficient Airbus aircraft added to our fleet coupled with the reduction in
our Boeing fleet, which had higher fuel burn rates, partially offset by the
increase in our load factors.

Aircraft Lease
Expenses. Aircraft lease expenses totaled $87,096,000
(11.6% of total mainline revenues) and $70,061,000 (11.1% of total mainline
revenues) for the years ended March 31, 2005 and 2004, respectively, or an
increase of 24.3%. The increase is a result of an increase in the average
number of leased aircraft to 30.9 from 26.0, or 18.8%, during the year ended
March 31, 2005 compared to the same period in 2004.

Aircraft and
Traffic Servicing. Aircraft and traffic servicing
expenses were $129,470,000 and $110,378,000 (an increase of 17.3%) for the
years ended March 31, 2005 and 2004, respectively, and represented 17.3% and
17.5% of total mainline revenues. Aircraft and traffic servicing expenses
increase with the addition of new cities and departures to our route system. As
of March 31, 2005, we served 39 cities with mainline service compared to 38 as
of March 31, 2004, an increase of 2.6%. During the year ended March 31, 2005,
our mainline departures increased to 72,888 from 61,812 during the year ended
March 31, 2004, or 17.9%. Aircraft and traffic servicing expenses were $1,776
per mainline departure for the year ended March 31, 2005 as compared to $1,786
per mainline departure for the year ended March 31, 2004, a decrease of $10 per
mainline departure. Aircraft and traffic servicing expenses decreased per
mainline departure principally as a result of better on-time performance and
fewer expenses paid for delayed or misconnected flights. In addition,
commencing in July 2004 we no longer carried U.S. mail and our ground handling
expenses decreased accordingly.

Maintenance.
Maintenance expenses for the years ended March 31, 2005 and 2004 of $76,679,000
and $70,444,000, respectively, were 10.2% and 11.1% of total mainline revenues,
an increase of 8.9%. Maintenance costs per block hour for the years ended March
31, 2005 and 2004 were $420 and $494 per block hour, respectively, a decrease
of 15.0%. Maintenance cost per block hour decreased as a result of the addition
of new Airbus aircraft that are less costly to maintain than our older Boeing
aircraft, offset by return condition expenses related to the seven Boeing
aircraft we returned and/or retired in fiscal year 2005.

Promotion
and Sales.Promotion and sales expenses totaled $76,462,000
and $65,322,000 and were 10.2% and 10.3% of total mainline revenues, for the
years ended March 31, 2005 and 2004, respectively. During the year ended March
31, 2005, promotion and sales expenses per mainline passenger decreased to
$11.49 compared to $11.73 for the year ended March 31, 2004, a decrease of
2.0%. Promotion and sales expenses per mainline passenger decreased as a result
of variable expenses that are based on lower average fares and economies of
scale associated with our growth.

General and
Administrative. General and administrative expenses for
the years ended March 31, 2005 and 2004 totaled $48,351,000 and $36,750,000,
and were 6.5% and 5.8% of total mainline revenues, respectively, an increase of
31.6%. Our employees increased from approximately 4,100 in March 2004 to
approximately 4,500 in March 2005, or 9.8%. Accordingly, we experienced
increases in our human resources, training, information technology, and health
insurance benefit expenses. As a result of our pre-tax loss for the year ended
March 31, 2005, we did not accrue bonuses which are solely based on
profitability. General and administrative expenses also include $2,960,000 of
expenses related to the conversion to our new reservation system and $603,000
of out-of-pocket costs to comply with the Sarbanes-Oxley Act of 2002. During
the year ended March 31, 2004, we accrued $2,436,000 for employee performance
bonuses, or 0.4% of total revenues. General and administrative expenses also
increased with a general increase in the cost of providing health insurance.

Impairment
and Other Related Charges. During the year ended March
31, 2005, we recorded additional impairments and other related charges totaling
$5,123,000 on the carrying value of our Boeing 737 expendable inventory,
rotable parts and a spare engine as a result of further market declines and the
results of actual sales. Included in this amount

- 42 -

are estimated selling costs that we expect to pay on
the sale of our assets held for sale totaling $541,000. 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 fiscal year. The
impairment on spare and rotables is a result of further market declines for
Boeing parts coupled with the results of actual sales history. In August 2004,
we began selling our Boeing spare parts. Our analysis of these sales compared
to the impaired value of these parts as of March 31, 2005 indicated that we
were selling these rotable parts at approximately 90% of the carrying value.
The impairment recorded for the year ended March 31, 2004 was $3,560,000, which
also related to the impairment of Boeing spare engines and rotable parts that
supported the Boeing 737 aircraft.

Depreciation.
Depreciation expenses of $26,498,000 and $23,720,000, an increase of 11.7%,
were approximately 3.5% and 3.8% of total mainline revenues, for the years
ended March 31, 2005 and 2004, respectively. Depreciation expense increased
over the prior year largely as a result of an increase in the average number of
Airbus A318 and A319 aircraft owned from an average of 11.4 during the year
ended March 31, 2004 to an average of 14.0 for the year ended March 31, 2005,
an increase of 22.8%.

Nonoperating
Income (Expense).Net nonoperating expenses totaled
$9,391,000 for the year ended March 31, 2005 compared to net nonoperating
expense of $7,025,000 for the year ended March 31, 2004. Interest income
increased to $3,758,000 during the year ended March 31, 2005 from $2,074,000
for the prior period due to an increase in investment rates earned on
investments. Interest expense was $13,184,000 for the year ended March 31, 2005
as compared to $13,961,000 for the prior period. Interest expense for the year
ended March 31, 2004 included 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 in fiscal 2005 was due to
the repayment of this loan, which was offset by an increase in interest expense
associated with the financing of additional aircraft purchased after March 31,
2004.

Income Tax
Expense (Benefit).We recorded an income tax benefit of
$12,408,000 during the year ended March 31, 2005 at a 34.6% rate compared to
income tax expense of $7,822,000 during the year ended March 31, 2004 at a
38.2% effective tax rate. During the year ended March 31, 2005, the our tax
benefit was at a federal rate of 35.0% plus the blended state rate of 3.0% (net
of federal benefit) and was decreased by the tax effect of permanent
differences of 2.0%. During the year ended March 31, 2005, we recorded a
valuation allowance of $262,000 against certain state net operating loss
carryforwards since it was more likely than not that the tax benefit was not
going to be realized due to the lack of taxable income in these jurisdictions,
which approximated 1.0%. During the year ended March 31, 2004, we recorded a
$558,000 reduction to income tax expense as a result of an adjustment to
deferred income taxes provided for in prior years, which approximated 3%.

Regional Partner

Passenger
Revenues  Regional Partner. Regional partner revenues, consisting of
revenues from Frontier JetExpress operated by Horizon, totaled $84,269,000 for
the year ended March 31, 2005 and totaled $11,191,000 for the year ended March
31, 2004. Revenues of $25,155,000 from the Frontier JetExpress service,
formerly provided by Mesa, were netted against related expenses and included in
Other revenues for the year ended March 31, 2005. As such, the fiscal year
2004 amounts only represent three months of service with a limited number of
aircraft. Horizon began service January 1, 2004 and replaced the Frontier
JetExpress service formerly provided by Mesa. See footnote (2) in Item 6.
Selected Financial Data, which explains the different accounting methods for
our Frontier JetExpress operations.

Regional
Partner Expense. Regional partner expenses for the year ended
March 31, 2005 totaled $92,481,000, and were 109.7% of total regional partner
revenues compared to expenses of $14,634,000, or 130.8%, of total regional
partner revenues for the year ended March 31, 2004. Horizon began service
January 1, 2004 and replaced the JetExpress service formerly provided by Mesa.
During the year ended March 31, 2004, $23,438,000 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. During the year ended
March 31, 2004, we incurred $1,152,000 for flight crew training costs and other
related costs associated with the start-up of our regional partnership with Horizon.

- 43 -

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 20 additional Airbus
aircraft that as of March 31, 2006 are scheduled for delivery through August
2010.

We
had cash, cash equivalents and short-term investments of $272,839,000 and
$174,795,000 at March 31, 2006 and March 31, 2005, respectively. At March 31,
2006, total current assets were $390,957,000 as compared to $301,012,000 of
total current liabilities, resulting in working capital of $89,946,000. At March
31, 2005, total current assets were $275,550,000 as compared to $233,850,000 of
total current liabilities, resulting in working capital of $41,700,000. The
increase in our working capital from March 31, 2005 to March 31, 2006 is
largely a result of the convertible debt offering in December 2005, offset by
increases in our air traffic liability and deferred revenue accounts as our
business grows.

Operating
Activities. Cash provided by operating activities for the year ended March
31, 2006 was $79,642,000 as compared to $19,240,000 for the year ended March
31, 2005. The increase in operating cash flows was primarily due to an increase
of $44,152,000 in cash generated through working capital which, was primarily
related to the increases in our air traffic liability and deferred revenue
accounts, and better operating results during the year ended March 31, 2006 as
compared to the prior year.

Investing
Activities.Cash used in investing activities for
the year ended March 31, 2006 was $95,502,000. Capital expenditures were
$93,775,000 for the year ended March 31, 2006 and included the purchase of two
Airbus A319 aircraft, the purchase of LiveTV equipment, the purchase of one
spare engine that was delivered to us and that we sold in a sale-leaseback
transaction, rotable aircraft components, aircraft improvements and ground
equipment. We received $9,843,000 from the sale of the spare engine that we
sold in a sale-leaseback transaction, the sale of Boeing spare parts held for
sale and other assets. Aircraft lease and purchase deposits made during the
period were $36,117,000, which was offset by pre-delivery payments totaling
$19,513,000 applied against the purchase of two Airbus A319 aircraft and LiveTV
equipment.

Cash provided
by investing activities for
the year ended March 31, 2005 was $14,841,000. Aircraft lease and purchase
deposits made during the period were $21,436,000, which was offset by deposits
returned of $23,008,000. Capital expenditures were $128,776,000 for the year
ended March 31, 2005 and included the purchase of one Airbus A318 aircraft and
two Airbus A319 aircraft and one spare engine 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, ground equipment, and equipment related to our new
reservation system. 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 $80,963,000 from the
sale of the two new A319 aircraft and two spare engines in sale-leaseback transactions,
two spare engines for our Boeing fleet and other Boeing spare parts. We also
sold $57,600,000 of short-term securities.

Financing
Activities. Cash provided by financing activities for the
year ended March 31, 2006 was $116,905,000. On December 7, 2005, we completed
the issuance of $92,000,000 principal amount of 5% convertible notes due 2025,
raising net proceeds of approximately $88,759,000. The net proceeds from our
convertible debt offering are being used for general working capital purposes
and capital expenditures related to the purchase of financing of aircraft and
expansion of our operations. During the year ended March 31, 2006, we borrowed
$54,700,000 for the purchase of two Airbus A319 aircraft, paid $19,959,000 of
debt principal payments on 16 owned aircraft and repaid short-term borrowings
of $5,000,000 under a revolving line of credit. During the year ended March 31,
2006, we also received $1,551,000 from the exercise of common stock options and
paid $1,146,000 of fees for aircraft debt financing.

Cash
provided by financing activities for the year ended March 31, 2005 was
$7,705,000. During the year ended March 31, 2005, we borrowed $22,000,000 for
the purchase of one Airbus A318 aircraft and paid $18,373,000 of debt principal
payments on 14 owned aircraft. During the year ended March 31, 2005, we also
had short-term borrowings of $5,000,000 under a revolving line of credit,
received $349,000 from the exercise of common stock options and paid 1,271,000
of fees for aircraft debt financing.

- 44 -

Other Items That Impact Our Liquidity

In
August 2004, we entered into an agreement with two vendors to market and sell
all of our remaining Boeing 737 spare parts inventories and rotables. As of
September 30, 2005, we had transferred the remaining Boeing inventories to
these vendors. As of March 31, 2006, the carrying value of our Boeing rotables
and expendable spare parts classified as assets held for sale totaled
$3,543,000. This amount represents the estimated market value of the remaining
Boeing spare parts based on estimates obtained from our vendors, less selling
costs. If the actual net proceeds received for these Boeing parts are less than
the amounts we have estimated, we may recognize additional impairments on these
parts. During the year ended March 31, 2006, we have received $4,025,000 in
gross proceeds resulting in a net gain on our expendable and rotable inventory
parts held for sale totaling approximately $1,333,000.

We
continue to assess 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. In September 2005, we
filed a registration statement with the SEC, which will enable us to
periodically sell up to $250,000,000 in preferred and common stock and debt and
other securities. In December 2005, in the first offering under this shelf
registration, we issued $92,000,000 of 5% Convertible Notes due 2025. We intend
to continue to examine domestic or foreign bank aircraft financing, bank lines
of credit and aircraft sale-leasebacks, 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.

We
expect to continue generating positive cash flow from our operations for the
foreseeable future. We have obtained financing for all of our aircraft deliveries
scheduled through June 2007 and expect to have adequate liquidity to cover our
contractual obligations. However, we cannot predict future trends or predict
whether current trends and conditions will continue. Our future liquidity and
capital resources may be impacted by many factors, including Risk Factors in
Item 1A of this report.

- 45 -

Contractual Obligations

The
following table summarizes our contractual obligations as of March 31, 2006:

Less than

1-3

4-5

After1 year

years

years

5 years

TotalLong-term debt - principal
payments (1)

$
22,274,000

$
48,455,000

$
54,195,000

$
302,832,000

$
427,756,000Long-term debt - interest
payments (1)


26,020,000


47,402,000


40,860,000


105,895,000


220,177,000Operating leases (2)


138,945,000


277,691,000


263,341,000


617,427,000


1,297,404,000Unconditional purchase
obligations (3) (4) (5)


152,638,000


249,226,000


268,896,000





670,760,000Total contractual cash
obligations

$
339,877,000

$
622,774,000

$
627,292,000

$
1,026,154,000

$
2,616,097,000(1)
At March 31, 2006, we had 16 loan agreements for 11
  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 $218,000 and $215,000, bear interest with rates of 6.71%
  and 6.54%, and mature in May and August 2011, at which time a balloon payment
  totaling $10,200,000 is due with respect to each loan. The remaining 14 loans
  have interest rates based on LIBOR plus margins that adjust quarterly or
  semi-annually. At March 31, 2006, interest rates for these loans ranged from
  5.63% to 7.14%. 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. Actual interest payments
  will change based on changes in LIBOR. In July 2005, we also entered into a
  junior loan in the amount of $4,900,000 on an A319 aircraft. This loan has a
  seven-year term with quarterly installments of $244,000. The loan bears
  interest at a floating rate adjusted quarterly based on LIBOR, which was
  8.38% on March 31, 2006.In December 2005, we
  issued $92,000,000 of 5% convertible notes due 2025. At any time on or after
  December 20, 2010, we may redeem any of the convertible notes for the
  principal amount plus accrued interest. Note holders may require us to
  repurchase the notes for cash for the principal amount plus accrued interest
  only on December 15, 2010, 2015 and 2020 or at any time prior to their
  maturity following a designated event as defined in the indenture for the
  convertible notes. In the obligation table above, the convertible notes are
  reflected based on their stated maturity of December 2025 with the
  corresponding interest payments. However, these notes may be called prior to
  the stated maturity dates which would impact the timing of the principal
  payments and the amount of interest paid.(2)
As of March 31, 2006, we have leased 32 Airbus A319
  type aircraft and two Airbus A318 aircraft under operating leases with
  expiration dates ranging from 2013 to 2018. 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 March 31, 2006,
  these deposits totaled of $16,483,000. Additionally, we are required to make
  additional rent payments to cover the cost of major scheduled maintenance
  overhauls of these aircraft. These additional 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.During the 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 March 31,
  2006, we have taken delivery of 17 of these aircraft. The remaining three
  aircraft are scheduled for delivery beginning in April 2006 through February
  2007. As of March 31, 2006, we have made $501,000 in security deposit
  payments for future leased aircraft deliveries. Total operating lease
  obligations include the three aircraft not yet received.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 2006 to 2015. 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 March 31, 2006, we
  have remaining firm purchase commitments for 17 additional aircraft that have
  scheduled delivery dates beginning in June 2006 and continuing through August
  2010. We also have remaining firm purchase- 46 -

commitments for two spare
  engines scheduled for delivery in September 2006 and December 2009. 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 March 31, 2006, we had made
  pre-delivery payments on future deliveries totaling $40,449,000 to secure
  these aircraft.(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 intend to install LiveTV in every new aircraft we place in service.
  The table above includes amounts for the installation of DirectTV for the
  remaining 17 aircraft we currently expect to be purchased and the remaining
  three aircraft we currently expect to be leased, less deposits made of
  $1,383,000.(5)
In March 2004, we entered
  into a services agreement with Sabre, Inc. for its SabreSonic
passenger solution to power our reservations and check-in capabilities
  along with a broad scope of technology for streamlining our operations and
  improving revenues. The table above includes minimum annual fees for system
  usage fees. Usage fees are based on passengers booked and actual amounts paid
  may be in excess of the minimum per the contract terms.- 47 -

Commercial Commitments

Letters of Credit and Cash Deposits

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, bond 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 March 31, 2006, we had
outstanding letters of credit, bonds, and cash security deposits totaling
$12,471,000, $1,867,000, and $19,597,000, respectively.

We
have a letter of credit agreement with a financial institution, which expired
on December 1, 2005, that has been extended for existing letters of credit.
This facility can be used only for the issuance of standby letters of credit,
and no new letters of credit can be issued. Any amounts drawn under this
facility are fully collateralized by certificates of deposit, which are carried
as restricted investments on our balance sheet. As of March 31, 2006, we have
utilized $481,000 under this credit agreement for standby letters of credit
that provide credit support for certain leases. We are in the process of moving
the letters of credit that are collateralized by restricted cash to letters of
credit with another financial institution that are collateralized by
inventories and receivables. 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
also have an agreement with another financial institution where we can issue
letters of credit of up to 50% of certain spare parts inventories less amounts
borrowed under the credit facility. As of March 31, 2006, we had $11,299,000
available under this facility, which is reduced by letters of credit issued of
$9,500,000.

In
July 2005, we entered into an additional agreement with another financial
institution for a $5,000,000 revolving letter of credit that permits us to
issue letters of credit up to $3,500,000. As of March 31, 2006, we have
utilized $2,491,000 under this agreement for standby letters of credit that
provide credit support for certain facility leases.

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 March 31, 2006, that amount
totaled $32,762,000 and is classified a restricted investment on our balance
sheet. The amount is adjusted quarterly in arrears based on our air traffic
liability associated with bankcard transactions. As of May 1, 2006, based on
our air traffic liability as of March 31, 2006, this resulted in an increase of
approximately $14,053,000 in the required amount of certificate of deposits
pledged.

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 March 31, 2006, 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 May 21,
2006, the coverage would be increased by approximately $6,687,000 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.

Hedging Transactions

In
November 2002, we initiated a fuel hedging program comprised of swap and collar
agreements. Under a swap agreement, the cash settlements are calculated based
on the difference between a fixed swap price and a price based on an agreed
upon published spot price for the underlying commodity. 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 hedged products 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

- 48 -

between the primary and secondary floor prices. When
the price is between the cap price and the primary floor, no payments are
required. Unrealized net gains recorded on fuel derivative contracts for the
years ended March 31, 2006 and 2005 were $976,000 and $3,139,000, respectively,
and realized gains for hedge cash settlements during the years ended March 31,
2006 and 2005 were $2,199,000 and $4,465,000, respectively. We have entered
into the following swap and collar agreements that cover periods during fiscal
year 2006:

Date

Product *

Notional
  volume** (barrels permonth)

Period
  covered

Price (per
  gallon or barrel)

Percentage
of estimatedfuelpurchasesNovember 2004

Jet A

75,000

April 1, 2005 - June
  30, 2005

$1.34 per gallon, with
  a floor of $1.20 per gallon

28%May 2005

Crude Oil

60,000

July 1, 2005 - March
  31, 2006

$53.00 per barrel cap,
  with a floor of $50.73

20%November 2005

Jet A

60,000

January 1, 2006 - March
  31, 2006

$1.83 per gallon, with
  a floor of $1.685 per gallon

21%November 2005

Jet A

50,000

April 1, 2006 - June
  30, 2006

$1.83 per gallon, with
  a floor of $1.6925 per gallon

16%*
Jet A is Gulf Coast Jet A fuel. Crude oil is West Texas Intermediate crude
oil.**
One barrel is equal to 42
  gallons.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 through
June 30, 2007. Under the interest rate swap agreement, we pay 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. During the years ended March 31, 2006
and 2005, interest expense was decreased by $216,000 and increased by $177,000,
respectively, for this agreement. Approximately $238,000 of unrealized gains
are included in accumulated other comprehensive income, net of income taxes of
$87,000, as of March 31, 2006.


- 49 -

Maintenance Contracts

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. The agreement was
subsequently modified and extended in September 2004. The agreement is for a
12-year period from the effective date for our owned aircraft or May 1, 2019,
whichever comes first. 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. The costs under this agreement for our
purchased aircraft for the year ended March 31, 2006, 2005 and 2004 were
approximately $3,545,000, $2,603,000 and $1,833,000, respectively. For our
leased aircraft, we do not make the flight hour payments to GE under the
agreement; instead we make engine maintenance reserve payments as required
under the applicable lease agreements. At the time a leased engine makes a
scheduled shop visit, the lessors pay GE directly for the repair of aircraft
engines from reserve accounts established under the applicable lease documents.

Critical Accounting Policies

The
preparation of financial statements in conformity with U.S generally accepted
accounting principles 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. We do not recognize as revenue the amount of credits estimated to be
granted after the date a ticket expires.

Impairments

During
the years ended March 31, 2005 and 2004, we recorded impairment charges of
$3,860,000 and $3,047,000, respectively, related to Boeing rotable parts.
During the year ended March 31, 2006, we have determined that no additional
impairment is required based on current resale values and our recent sales
history. We monitor resale values for Boeing rotables quarterly using estimates
obtained from our vendors and record impairment charges based on this analysis
and current sales prices. During the year ended March 31, 2005, we recorded
impairment charges as a result of further market declines of the carrying
values of Boeing 733 expendable inventory, rotable parts and a spare engine.
During the year ended March 31, 2004, we recorded an impairment charge for
rotables and for two Boeing 737-300 spare engines. The impairment charge
totaling $901,000 was principally the result of declining resale values for
Boeing rotables. The impairment for the spare engines totaled $2,146,000 and
was recorded as a result of our decision to sell these remaining spare engines.
The impairment was based on three separate quotes from third parties for a
sale-leaseback transaction on these engines. As of March 31, 2006, the carrying
value of our Boeing spare parts totaled $3,543,000 and have been classified as
assets held for sale.

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

- 50 -

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.

Effective
January 1, 2003, we executed a 12-year engine services agreement with GE
covering the scheduled and unscheduled repair of Airbus engines. This agreement
was extended to May 1, 2019 in September 2004. Under the terms of the services
agreement, we agreed to pay GE an annual 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 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 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.

We
enter into derivative instruments 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 instruments 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
recognize realized and unrealized gains and losses in aircraft fuel expense.

Customer Loyalty Program

In
February 2001, we established EarlyReturns, a frequent flyer program to encourage
travel on our airline and foster customer loyalty. We account for the
EarlyReturns program 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
allocations of overhead expenses, salaries, aircraft cost or flight profit or
losses. 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 to us of
these awards is negligible.

As
of March 31, 2006 and 2005, we estimated that approximately 193,000 and 102,000
round-trip flight awards, respectively, were eligible for redemption by
EarlyReturns members who have mileage credits exceeding the 15,000-mile free
round-trip domestic ticket award threshold. As of March 31, 2006 and 2005, we had
recorded a liability of approximately $2,776,000 and $1,275,000, respectively,
for these rewards.

We
sell points in EarlyReturns to third parties. The portion of the sale that is
for travel is deferred and recognized as passenger revenue when we estimate
transportation is provided. The remaining portion, referred to as the marketing
component, is recognized as revenue as a reduction of sales and promotion
expense in the month received.

- 51 -

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.

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 determining 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 have estimated the period over which the frequent flier mileage
awards will be used based on the history of usage of the frequent flier mileage
awards. We record the marketing component of the revenue earned under this
agreement as a reduction of sales and promotion expenses in the month received.

For
the year ended March 31, 2006, we earned total fees of $24,986,000. Of that
amount, $19,686,000 was deferred as the travel award component, with the
remaining marketing component of $5,300,000 recognized as a reduction to sales
and promotions expense. For the year ended March 31, 2005, we earned total fees
of $12,227,000. Of that amount, $8,455,000 was deferred as the travel award
component, and the remaining marketing component of $3,772,000 was recognized
as a reduction to sales and promotions expense. For the year ended March 31,
2004, we earned total fees of $4,245,000. Of that amount, $3,286,000 was
deferred as the travel award component, with the remaining marketing component
of $959,000 recognized as a reduction to sales and promotions expense.
Amortization of deferred revenue recognized in earnings during the years ended
March 31, 2006, 2005 and 2004 was $11,059,000, $4,396,000 and $786,000,
respectively.

- 52 -

Self-Insurance

We
are self insured for the majority of our group health insurance costs, subject
to specific retention levels. We rely on claims experience and the advice of
consulting actuaries and administrators in determining an adequate liability
for self-insurance claims. Our self-insurance healthcare liability represents
our estimate of claims that have been incurred but not reported as of March 31,
2006. This liability, which totaled $2,567,000 at March 31, 2006, was estimated
based on our claims experience. We determine the actual average claims cost per
employee and the number of days between the incurrence of a claim and the date
it is paid. The estimate of our liability for employee healthcare represents
approximately 1.5 months of unreported claims with an increase in claims based
on a trend factor of 6.5%

We
are also self-insured for the majority of our workers compensation cost. Our
liability for workers compensation claims is the estimated total cost of the
claims on a fully-developed basis, up to a maximum amount, based on reserves
for these claims that are established by a third-party administrator. The
liability at March 31, 2006 totaled $5,125,000.

While
we believe that the estimate of our self-insurance liabilities are reasonable,
significant differences in our experience or a significant change in any of our
assumptions could materially affect the amount of healthcare and workers
compensation expenses we have recorded.

New Accounting Standards

In
December 2004, the FASB issued SFAS No. 123(R), which revised FASB Statement
No. 123, Accounting for Stock-Based
Compensation and superseded APB Opinion No. 25. SFAS No. 123(R)
focuses primarily on the accounting for transactions in which an entity obtains
employee services in share-based payment transactions. SFAS 123(R) requires
companies to recognize in the statement of operations the cost of employee
services received in exchange for awards of equity instruments based on the
grant-date fair value of those awards (with limited exceptions). It will also
require the benefits associated with tax deductions in excess of recognized
compensation cost to be reported as a financing cash flow rather than as an
operating cash flow as currently required. In April 2005, the effective date
for SFAS 123(R) was changed to the first reporting period that begins after
June 15, 2005. Accordingly, we plan to adopt SFAS 123(R) as of April 1, 2006
and use the modified-prospective transition method. Under the
modified-prospective method, the Company will recognize compensation expense in
the financial statements issued subsequent to the date of adoption for all
share-based payments granted, modified or settled after April 1, 2006 as well
as for any awards that were granted prior to April 1, 2006 for which requisite
service has not been provided as of April 1, 2006. We will recognize
compensation expense on awards granted subsequent to April 1, 2006 using the
fair values determined by a valuation model prescribed by SFAS 123(R). The
compensation expense on awards granted prior to April 1, 2006 will be
recognized using the fair values determined for the pro forma disclosures on
stock-based compensation, which is determined using the Black-Scholes option
pricing model. The amount of compensation expense that will be recognized on
awards that have not fully vested will exclude the compensation expense
cumulatively recognized in the pro forma disclosures on stock-based
compensation and will include adjustments for estimated forfeitures.
Unrecognized non-cash stock compensation expense related to unvested options
and awards outstanding as of March 31, 2006 was approximately $2,727,000, and
will be recorded over the remaining vesting periods of one to five years. The
incremental expense related to future equity based grants is difficult to predict
because the expense will depend on the number of shares granted, the grant date
stock price and other factors.

In
May 2005, the FASB issued FASB Statement No. 154, Accounting Changes and Error Correction, replacing APB Opinion No. 20,
Accounting Changes and
FASB Statement No. 3, Reporting Accounting Changes in Interim Financial
Statements (SFAS 154). Among other changes, SFAS 154 requires that
a voluntary change in accounting principle be applied retrospectively with all
prior period financial statements presented on the new accounting principle,
unless it is impracticable to do so. SFAS 154 also provides that a change in
method of depreciating or amortizing a long-lived nonfinancial asset be
accounted for as a change in estimate (prospectively) that was effected by a
change in accounting principle, and that the correction of errors in previously
issued financial statements should be termed a restatement. The new standard
is effective for accounting changes and correction of errors made in fiscal
years beginning after December 15, 2005. We do not expect the adoption of SFAS
154 to have a material impact on our financial position or results of
operations.

- 53 -

Item 7A:
Quantitative and Qualitative Disclosures About Market Risk

Fuel

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, 2006. Based on actual
fuel usage for the year ended March 31, 2006, such a change would have had the
effect of increasing or decreasing our mainline and regional partner aircraft
fuel expense by approximately $31,679,000, excluding the impact of our fuel
hedging. Comparatively, based on projected fiscal year 2007 fuel usage for our
mainline operations and regional partner operators, this would have the effect
of increasing or decreasing our aircraft fuel expense in fiscal year 2007, by
approximately $36,202,000, excluding the effects of our fuel hedging
arrangements.

On
November 28, 2005, we entered into a zero cost
collar agreement that hedges approximately 16% of our
expected fuel requirements for the period from April 1, 2006 through June 30,
2006. The collar uses Gulf Coast Jet A as its basis. The cap price is set at
$1.83 per gallon and the floor is set at $1.6925. 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 U.S. Gulf Coast Pipeline Jet index price is below
the floor, we pay the difference between the index and
the floor. When the price is between the cap price and the floor, no
payments are required.

Our
results of operations for the year ended March 31, 2006 include realized and unrealized
derivative gains of $3,175,000 recorded as a decrease in fuel expense with
respect to fuel hedging agreements. As of March 31, 2006, the fair value of the
November 2005 hedge agreement recorded on the balance sheet as an asset was
$976,000.

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 69.8% of our debt is
subject to interest rate adjustments every three to nine months based upon
changes in the applicable LIBOR rate. A change in the base LIBOR rate of 100
basis points (1.0%) would have the effect of increasing or decreasing our
annual interest expense by $2,987,000 assuming the loans outstanding that are
subject to interest rate adjustments at March 31, 2006 totaling $298,656,000
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 pay 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 March 31, 2006, we had hedged approximately 3.5%
of our variable interest rate loans that are based on three-month LIBOR rates.
As of March 31, 2006, the fair value of the swap agreement is recorded in the
balance sheet as an asset of $105,000.

- 54 -

Item 8:
Financial Statements and Supplementary Data

Our
financial statements are filed as a part of this report immediately following
the signature page.

Item 9: Changes in and Disagreements
with Accountants on Accounting and Financial Disclosure

Not applicable.

Item 9A: Controls and Procedures

Disclosure Controls and Procedures

Our
management, with the participation of our Chief Executive Officer and Chief
Financial Officer, evaluated the effectiveness of our disclosure controls and
procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of
1934, as amended) as of March 31, 2006. Based on that evaluation, the Chief
Executive Officer and Chief Financial Officer concluded that our disclosure
controls and procedures were sufficiently effective to ensure that the
information required to be disclosed by us in this Annual Report on Form 10-K
was recorded, processed, summarized and reported within the time periods
specified in the SECs rules and instructions for Form 10-K.

Managements Report on Internal Control over Financial
Reporting

No
change in our internal control over financial reporting (as defined in Rule
13a-15(f) under the Securities Exchange Act of 1934, as amended), occurred
during the fourth quarter of fiscal year 2006 that has materially affected, or
is reasonably likely to materially affect, the Companys internal control over
financial reporting. Managements Report on Internal Control over Financial
Reporting and the Report of Independent Registered Public Accounting Firm
thereon are set forth in Part II, Item 8 of this Annual Report on Form 10-K.

Item 9B. Other Information

None.

PART III

Item 10:
Directors and Executive Officers of the Registrant.

Code of Ethics

The
information required by this Item is incorporated herein by reference to the
data under the heading Election of Directors in the Proxy Statement to be
used in connection with the solicitation of proxies for our annual meeting of
stockholders to be held on September 7, 2006. We will file the definitive Proxy
Statement with the SEC on or before July 28, 2006.

Audit Committee Financial Expert

The
information required by this Item is incorporated herein by reference to the
data under the heading Election of Directors in the Proxy Statement to be
used in connection with the solicitation of proxies for our annual meeting of
stockholders to be held on September 7, 2006. We will file the definitive Proxy
Statement with the SEC on or before July 28, 2006.

Item 11.
Executive Compensation.

The information required by this Item is incorporated
herein by reference to the data under the heading Executive Compensation in
the Proxy Statement to be used in connection with the solicitation of proxies
for our annual meeting of stockholders to be held on September 7, 2006. We will
file the definitive Proxy Statement with the SEC on or before July 28, 2006.

- 55 -

Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters.

The information required by this Item is incorporated
herein by reference to the data under the heading Voting Securities and
Principal Holders Thereof in the Proxy Statement to be used in connection with
the solicitation of proxies for our annual meeting of stockholders to be held
on September 7, 2006. We will file the definitive Proxy Statement with the SEC
on or before July 28, 2006.

Item 13.
Certain Relationships and Related Transactions.

The information required by this Item is incorporated
herein by reference to the data under the heading Related Transactions in the
Proxy Statement to be used in connection with the solicitation of proxies for
our annual meeting of stockholders to be held on September 7, 2006. We will
file the definitive Proxy Statement with the SEC on or before July 28, 2006.

Item 14.
Principal Accountant Fees and Services.

The information required by this Item is incorporated
herein by reference to the data under the heading Principal Accountant Fees
and Services in the Proxy Statement to be used in connection with the
solicitation of proxies for our annual meeting of stockholders to be held on
September 7, 2006. We will file the definitive Proxy Statement with the SEC on
or before July 28, 2006.

- 56 -

PART IV

Item
15(a): Exhibits and Financial Statement Schedules


ExhibitNumbers

Description of ExhibitsExhibit 2  Plan of acquisition, reorganization,
  arrangement, liquidation or succession:2.1
Agreement and Plan of
  Merger, dated as of January 31, 2006, by and among Frontier Airlines, Inc.,
  Frontier Airlines Holdings, Inc., and FA Sub, Inc. (Annex I to
  Amendment No. 1 to the Registration Statement on Form S-4 filed by
  Frontier Airlines Holdings, Inc. on February 14, 2006, File
  No. 333-131407).Exhibit 3  Articles of Incorporation and Bylaws:3.1
Amended and Restated
  Certificate of Incorporation of Frontier Airlines Holdings, Inc. (Annex II to
  Amendment No. 1 to the Registration Statement on Form S-4 filed by Frontier
  Airlines Holdings, Inc. on February 14, 2006, File No. 333-131407).3.2
Bylaws of Frontier
  Airlines Holdings, Inc. (Annex III to Amendment No. 1 to the Registration
  Statement on Form S-4 filed by Frontier Airlines Holdings, Inc. on February
  14, 2006, File No. 333-131407).Exhibit 4  Instruments defining the rights of
  security holders:4.1*
Specimen common stock
  certificate of Frontier Airlines Holdings, Inc.4.2
Frontier Airlines, Inc.
  Warrant to Purchase Common Stock, No. 1  Air Transportation Stabilization
  Board. Two Warrants, dated as of February 14, 2003, substantially identical
  in all material respects to this Exhibit, have been entered into with each of
  the Supplemental Guarantors granting each Supplemental Guarantor a warrant to
  purchase 191,697 shares under the same terms and conditions described in this
  Exhibit. Portions of this Exhibit have been excluded from the publicly
  available document and an order granting confidential treatment of the
  excluded material has been received. (Exhibit 4.6 to the Companys Current Report on Form 8-K dated March
  25, 2003).4.2(a)*
Warrant Supplement to
  Frontier Airlines, Inc. Warrant to Purchase Common Stock, No. 1  Air
  Transportation Stabilization Board. Two Warrant Supplements dated March 17,
  2006, substantially identical in all material respects to this Exhibit have
  been entered into with each of the Supplemental Guarantors.4.3
Registration Rights
  Agreement dated as of February 14, 2003 by and between and Frontier Airlines,
  Inc. as the Issuer, and the Holders of Warrants to Purchase Common Stock.
  Portions of this Exhibit have been omitted excluded from the publicly
  available document and an order granting confidential treatment of the
  excluded material has been received. (Exhibit 4.5 to the Companys Current
  Report on Form 8-K dated March 25, 2003).Exhibit 10  Material Contracts:10.1
Airport Use and Facilities Agreement, Denver International Airport (Exhibit 10.7 to the Companys Annual Report on Form 10-KSB for the year ended March 31, 1995; Commission File No. 0-4877).- 57 -

10.2
Space and Use Agreement between Continental Airlines, Inc. and the Company.  (Exhibit 10.43 to the Companys Annual Report on Form 10-K for the year ended March 31, 1999).10.2(a)
Second Amendment to Space and Use Agreement between Continental Airlines, Inc. and the Company.  Portions of this Exhibit have been omitted and filed separately with the Securities and Exchange Commission in a confidential treatment request under Rule 24b-2 of the Securities Exchange Act of 1934, as amended.10.3
Airbus A318/A319 Purchase Agreement dated as of March 10, 2000 between AVSA, S.A.R.L., Seller, and Frontier Airlines, Inc., Buyer. Portions of this exhibit have been excluded from the publicly available document and an order granting confidential treatment of the excluded material has been received.  (Exhibit 10.51 to the Companys Annual Report on Form 10-K for the year ended March 31, 2000).10.3(a)*
Amendment No. 9 to the A318/A319 Purchase Agreement dated as of March 10, 2000  between AVSA, S.A.R.L. and Frontier Airlines, Inc.  Portions of this exhibit have been excluded from the publicly available document and filed separately with the SEC in a confidential treatment request under Rule 24b-2 of the Securities Exchange Act of 1934, as amended.10.4
Aircraft Lease Common Terms Agreement dated as of April 20, 2000 between General Electric Capital Corporation and Frontier Airlines, Inc.  Portions of this exhibit have been excluded from the publicly available document and an order granting confidential treatment of the excluded material has been received.  (Exhibit 10.52 to the Companys Annual Report on Form 10-K for the year ended March 31, 2000).10.5
Aircraft Lease
  Agreement dated as of April 20, 2000 between Aviation Financial Services,
  Inc., Lessor, and Frontier Airlines, Inc., Lessee, in respect of 15 Airbus
  A319 Aircraft. After 3 aircraft were leased under this Exhibit with Aviation
  Financial Services, Inc. as Lessor, related entities of Aviation Financial
  Services, Inc. replaced it as the Lessor, but each lease with these related
  entities is substantially identical in all material respects to this Exhibit.
  Portions of this exhibit have been excluded from the publicly available
  document and an order granting confidential treatment of the excluded
  material has been received. (Exhibit 10.53 to the Companys Annual Report on
  Form 10-K for the year ended March 31, 2000).10.6
Lease dated as of May 5, 2000 for Frontier Center One, LLC, as landlord, and Frontier Airlines, Inc., as tenant.  Portions of this exhibit have been excluded from the publicly available document and an order granting confidential treatment of the excluded material has been received.  (Exhibit 10.55 to the Companys Annual Report on Form 10-K for the year ended March 31, 2000).10.6(a)
Amendment Number Two to Lease Agreement.  Portions of this exhibit have been omitted and filed separately with the Securities and Exchange Commission in a confidential treatment request under Rule 24b-2 of the Securities Exchange Act of 1934, as amended.10.7
Operating Agreement of
  Frontier Center One, LLC, dated as of May 10, 2000 between Shea Frontier
  Center, LLC, and 7001 Tower, LLC, and Frontier Airlines, Inc. Portions of
  this exhibit have been excluded from the publicly available document and an
  order granting confidential treatment of the excluded material has been
  received. (Exhibit 10.56 to the Companys Annual Report on Form 10-K for the
  year ended March 31, 2000).10.8
Standard Industrial Lease dated April 27, 2000, between Mesilla Valley Business Park, LLC, landlord, and Frontier Airlines, Inc., tenant.  Portions of this exhibit have been excluded from the publicly available document and an order granting confidential treatment of the excluded material has been received.  (Exhibit 10.57 to the Companys Annual Report on Form 10-K for the year ended March 31, 2000).10.9
General Terms Agreement No. 6-13616 between CFM International and Frontier Airlines, Inc.  Portions of this exhibit have been excluded from the publicly available document and an order granting confidential- 58 -

treatment of the excluded material has been received.  (Exhibit 10.60 to the Companys Quarterly Report on Form 10-Q for the quarter ended September 30, 2000).10.10
Lease Agreement dated as of December 15, 2000 between Gateway Office Four, LLC, Lessor, and Frontier Airlines, Inc., Lessee.  (Exhibit 10.61 to the Companys Quarterly Report on Form 10-Q for the quarter ended December 31, 2000).10.11
Code Share Agreement dated as of May 3, 2001 between Frontier Airlines, Inc. and Great Lakes Aviation, Ltd.  Portions of this exhibit have been excluded from the publicly available document and an order granting confidential treatment of the excluded material has been received.  (Exhibit 10.62 to the Companys Annual Report on Form 10-K for the year ended March 31, 2001).10.11(a)
Amendment No. 1 to the Codeshare Agreement dated as of May 3, 2001 between Frontier Airlines, Inc. and Great Lakes Aviation, Ltd.  Portions of the exhibit have been excluded from the publicly available document and an order granting confidential treatment of the excluded material has been received. (Exhibit 10.62(a) to the Companys Quarterly Report on Form 10-Q for the quarter ended December 31, 2001).+10.12
Employee Stock
  Ownership Plan of Frontier Airlines, Inc. as amended and restated, effective
  January 1, 1997 and executed February 5, 2002. (Exhibit 10.66 to the
  Companys Quarterly Report on Form 10-Q for the quarter ended December 31,
  2001).+10.12(a)
Amendment of the
  Employee Stock Ownership Plan of Frontier Airlines, Inc. as amended and
  restated, effective January 1, 1997 and executed February 5, 2002 for EGTRRA.
  (Exhibit 10.66(a) to the Companys Quarterly Report on Form 10-Q for the
  quarter ended December 31, 2001).10.12(b)*
Second Amendment to the
  Employee Stock Ownership Plan of Frontier Airlines, Inc. executed March 30,
  2006 and effective April 3, 2006.+10.13
Director Compensation
  Agreement between Frontier Airlines, Inc. and Samuel D. Addoms dated
  effective April 1, 2002. This agreement was modified on April 1, 2003, to
  expressly describe the second installment exercise period as on or after
  December 31, 2003, and the third installment exercise period as on or after
  April 1, 2004. (Exhibit 10.67 to the Companys Annual Report on Form 10-K for
  the year ended March 31, 2002).10.14
Secured Credit
  Agreement dated as of October 10, 2002 between Frontier Airlines, Inc. and
  Credit Agricole Indosuez in respect to 3 Airbus 319 aircraft. Portions of
  this exhibit have been excluded form the publicly available document and an
  order granting confidential treatment of the excluded material has been
  received. (Exhibit 10.75 to the Companys Quarterly Report on Form 10-Q/A for
  the quarter ended September 30, 2002).10.15
Aircraft Mortgage and
  Security Agreement dated as of October 10, 2002 between Frontier Airlines,
  Inc. and Credit Agricole Indosuez in respect to 3 Airbus 319 aircraft.
  Portions of this exhibit have been excluded form the publicly available
  document and an order granting confidential treatment of the excluded
  material has been received. (Exhibit 10.76 to the Companys Quarterly Report
  on Form 10-Q/A for the quarter ended September 30, 2002).10.16
Codeshare Agreement
  dated as of September 18, 2003 between Horizon Air Industries, Inc. and
  Frontier Airlines, Inc. Portions of this exhibit have been omitted and filed
  separately with the Securities and Exchange Commission in a confidential
  treatment request under Rule 24b-2 of the Securities Exchange Act of 1934, as
  amended. (Exhibit 10.23 to the Companys Quarterly Report on Form 10-Q for
  the quarter ended September 30, 2003).10.17
Aircraft Lease
  Agreement dated as of December 5, 2003 between International Lease Finance
  Corporation, Inc., and Frontier Airlines, Inc., Lessee, in respect of 1
  Airbus A319 Aircraft. Frontier has signed leases for- 59 -

4 additional Airbus 319
  aircraft with this Lessor under Aircraft Lease Agreements that are
  substantially identical in all material respects to this Exhibit. Portions of
  this Exhibit have been omitted and filed separately with the Securities and
  Exchange Commission in a confidential treatment request under Rule 24b-2 of
  the Securities Exchange Act of 1934, as amended. (Exhibit 10.24 to the
  Companys Quarterly Report on Form 10-Q for the quarter ended December 31,
  2003).+10.18
Frontier Airlines 2004
  Equity Incentive Plan. (Exhibit B to the Companys 2004 Annual Meeting of
  Shareholders; filed July 26, 2004).10.18 (a)*
Amendment to Frontier
  Airlines 2004 Equity Incentive Plan executed March 30, 2006 and effective
  April 3, 2006.+10.19
Executive Bonus Plan
  for the Companys fiscal year ending March 31, 2006 (Exhibit 10.21 to the
  Companys Annual Report on Form 10-K for the year ended March 31, 2005).+10.20
Long Term Incentive
  Plan for the Companys fiscal year ending March 31, 2006 (Exhibit 10.22 to
  the Companys Annual Report on Form 10-K for the year ended March 31, 2005).+10.21
Form of Stock
  Appreciation Rights Agreement for issuance of stock appreciation rights pursuant
  to the Frontier Airlines 2004 Equity Incentive Plan to plan participants,
  including named executive officers (Exhibit 10.23 to the Companys Annual
  Report on Form 10-K for the year ended March 31, 2005).+10.22
Form of Incentive Stock
  Option Agreement for issuance on incentive stock options pursuant to the
  Frontier Airlines 2004 Equity Incentive Plan to plan participants, including
  named executive officers (Exhibit 10.24 to the Companys Annual Report on
  Form 10-K for the year ended March 31, 2005).+10.23
Form of Stock Unit
  Agreement for issuance of restricted stock units pursuant to the Frontier
  Airlines 2004 Equity Incentive Plan to plan participants, including named
  executive officers (Exhibit 10.25 to the Companys Annual Report on Form 10-K
  for the year ended March 31, 2005).+10.24
Form of Non-Qualified
  Stock Option Agreement for issuance of non-qualified stock options pursuant
  to the Frontier Airlines 2004 Equity Incentive Plan to qualifying members of
  the Companys Board of Directors (Exhibit 10.26 to the Companys Annual
  Report on Form 10-K for the year ended March 31, 2005).+10.25
Summary of Base Salary
  Compensation Arrangements with Named Executive Officers (Exhibit 10.27 to the
  Companys Annual Report on Form 10-K for the year ended March 31, 2005).10.26
Underwriting Agreement
  dated December 1, 2005, by and among Frontier Airlines, Inc.,
  Morgan Stanley & Co. Incorporated, and Citigroup Global
  Markets, Inc. (Exhibit 1.1 to a Form 8-K filed on December 7, 2005).10.27
Indenture dated
  December 7, 2005, by and between Frontier Airlines, Inc. and U.S.
  Bank National Association, as Trustee (Exhibit 4.1 to Amendment
  No. 1 to Frontiers Registration Statement on Form S-3, File
  No. 333-128407, filed on November 23, 2005).10.28
First Supplemental
  Indenture dated December 7, 2005, by and between Frontier
  Airlines, Inc. and U.S. Bank National Association, as Trustee (Exhibit
  4.2 to a Form 8-K filed on December 7, 2005).10.29*
Second Supplemental
  Indenture dated April 3, 2006, by and among Frontier Airlines, Inc., Frontier
  Airlines Holdings, Inc., and U.S. Bank National Association, as Trustee.- 60 -

Exhibit
  23  Consents of Experts:23.1*
Consent of KPMG LLP.Exhibit 31 - Certifications31.1*
Section 302 certification of President and Chief
  Executive Officer, Jeffery S. Potter.31.2*
Section 302 certification of Chief Financial
  Officer, Paul H. Tate.Exhibit 32 - Certifications32.1**
Section 906 certifications of President and Chief
  Executive Officer, Jeffery S. Potter32.2**
Section 906 certifications of Chief Financial
  Officer, Paul H. Tate*
Filed herewith.**
Furnished herewith.+
Management contract or compensatory plan or
  arrangement.- 61 -

SIGNATURES

Pursuant
to the requirements of Section 13 or 15(d) of the Securities 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 HOLDINGS, INC.Date: May 26, 2006
By: /s/ Jeffery S. PotterJeffery S. Potter, Chief Executive Officer and
  DirectorPursuant
to the requirements of the Securities Exchange Act of 1934, this report has
been signed below by the following persons on behalf of the registrant and in
the capacities and on the dates indicated.

FRONTIER AIRLINES HOLDINGS, INC.Date: May 26, 2006
By: /s/ Paul H. TatePaul H. Tate, Vice President andChief Financial OfficerDate: May 26, 2006
By: /s/ Elissa A. PotucekElissa A. Potucek, Vice President, Controller,Treasurer and Principal Accounting OfficerDate: May 26, 2006
By: /s/ Samuel D. AddomsSamuel D. Addoms, DirectorDate: May 26, 2006
By: /s/ William B. McNamaraWilliam B. McNamara, DirectorDate: May 26, 2006
By: /s/ Paul Stephen DempseyPaul Stephen Dempsey, DirectorDate: May 26, 2006
By: /s/ LaRae OrullianB. LaRae Orullian, DirectorDate: May 26, 2006
By: /s/ D. Dale BrowningD. Dale Browning, DirectorDate: May 26, 2006
By: /s/ Jim UpchurchJames B. Upchurch, DirectorDate: May 26, 2006
By: /s/ Patricia A. EngelsPatricia A. Engels, DirectorFrontier Airlines, Inc.

TABLE OF CONTENTS

Independent Registered Public
  Accounting Firms Reports
F-1Managements Report on Internal
  Control over Financial Reporting
F-3Financial StatementsBALANCE
  SHEETS,March
  31, 2006 and 2005
F-4STATEMENTS
  OF OPERATIONS,Years
  Ended March 31, 2006, 2005, and 2004
F-5STATEMENTS
  OF STOCKHOLDERS EQUITY AND OTHER COMPREHENSIVE INCOME (LOSS),Years
  Ended March 31, 2006, 2005, and 2004
F-6STATEMENTS
  OF CASH FLOWS,Years
  Ended March 31, 2006, 2005, and 2004
F-7NOTES
  TO FINANCIAL STATEMENTS,March
  31, 2006
F-8Report of Independent Registered Public
Accounting Firm

The Board of Directors and Stockholders
Frontier Airlines Holdings, Inc.:

We have audited the accompanying balance sheets of
Frontier Airlines Holdings, Inc. (formerly Frontier Airlines, Inc.) as of
March 31, 2006 and 2005, and the related statements of operations,
stockholders equity and other comprehensive income (loss), and cash flows for each
of the years in the three-year period ended March 31, 2006. These financial
statements are the responsibility of the Companys management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with the
standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to
above present fairly, in all material respects, the financial position of
Frontier Airlines Holdings, Inc. as of March 31, 2006 and 2005, and the results
of its operations and its cash flows for each of the years in the three-year
period ended March 31, 2006, in conformity with U.S. generally accepted
accounting principles.

We also have audited, in accordance with the standards
of the Public Company Accounting Oversight Board (United States), the
effectiveness of Frontier Airlines Holdings, Inc.s internal control over
financial reporting as of March 31, 2006, based on criteria established in
Internal Control  Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO), and our report dated May 26,
2006, expressed an unqualified opinion on managements assessment of, and the
effective operation of, internal control over financial reporting.

/s/
KPMG LLP

Denver, Colorado
May 26, 2006

F-1

Report
of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders
Frontier Airlines Holdings, Inc.:

We have audited managements assessment, included in
the accompanying Managements Report on Internal Control over Financial
Reporting, that Frontier Airlines Holdings, Inc. (formerly Frontier Airlines,
Inc.) maintained effective internal control over financial reporting as of
March 31, 2006, based on criteria established in Internal Control  Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). Frontier Airlines Holdings, Inc.s management is responsible
for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting.
Our responsibility is to express an opinion on managements assessment and an
opinion on the effectiveness of the Companys internal control over financial
reporting based on our audit.

We conducted our audit in accordance with the
standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether effective internal control over financial reporting was
maintained in all material respects. Our audit included obtaining an
understanding of internal control over financial reporting, evaluating
managements assessment, testing and evaluating the design and operating
effectiveness of internal control, and performing such other procedures as we
considered necessary in the circumstances. We believe that our audit provides a
reasonable basis for our opinion.

A companys internal control over financial reporting
is a process designed to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles. A
companys internal control over financial reporting includes those policies and
procedures that (1) pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions and dispositions of the
assets of the company; (2) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with
authorizations of management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the companys assets that could have a
material effect on the financial statements.

Because of its inherent limitations, internal control
over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to
the risk that controls may become inadequate because of changes in conditions,
or that the degree of compliance with the policies or procedures may
deteriorate.

In our opinion, managements assessment that Frontier
Airlines Holdings, Inc. maintained effective internal control over financial
reporting as of March 31, 2006, is fairly stated, in all material respects,
based on criteria established in Internal Control  Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
Also, in our opinion, Frontier Airlines Holdings, Inc. maintained, in all
material respects, effective internal control over financial reporting as of
March 31, 2006, based on criteria established in Internal Control  Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO).

We also have audited, in accordance with the standards
of the Public Company Accounting Oversight Board (United States), the balance
sheets of Frontier Airlines Holdings, Inc., as of March 31, 2006 and 2005, and
the related statements of operations, stockholders equity and other
comprehensive income (loss), and cash flows for each of the years in the
three-year period ended March 31, 2006, and our report dated May 26, 2006
expressed an unqualified opinion on those financial statements.

/s/ KPMG LLP

Denver, Colorado
May 26, 2006

F-2

MANAGEMENTS REPORT ON INTERNAL
CONTROL OVER FINANCIAL REPORTING

The management of Frontier Airlines, Inc. (the
Company) is responsible for establishing and maintaining adequate internal
control over financial reporting (as defined in Rule 13a-15(f) under the
Securities Exchange Act of 1934, as amended). The Companys internal control
over financial reporting is a process designed under the supervision of the
Companys Chief Executive Officer and Chief Financial Officer to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of the Companys financial statements for external reporting purposes
in accordance with U.S. generally accepted accounting principles.

As of March 31, 2006, management assessed the
effectiveness of the Companys internal control over financial reporting based
on the framework established in Internal Control--Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
Based on this assessment, management has determined that the Companys internal
control over financial reporting as of March 31, 2006 is effective.

Our internal control over financial reporting includes
policies and procedures that pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reflect transactions and dispositions
of assets; provide reasonable assurances that transactions are recorded as
necessary to permit preparation of financial statements in accordance with
accounting principles generally accepted in the United States, and that
receipts and expenditures are being made only in accordance with authorizations
of management and the directors of the Company; and provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition,
use or disposition of the Companys assets that could have a material effect on
the financial statements.

Managements assessment of the effectiveness of the
Companys internal control over financial reporting as of March 31, 2006 has
been audited by KPMG LLP, an independent registered public accounting firm, as
stated in their report appearing on page F-2.

F-3

FRONTIER
  AIRLINES, INC.Balance
  SheetsMarch
  31, 2006 and 20052006

2005AssetsCurrent
assets:Cash and cash
equivalents (note 3)

$
272,839,478

$
171,794,772Short-term
investments (note 3)





3,000,000Restricted
investments


35,297,275


28,011,395Receivables,
net of allowance for doubtful
  accounts of $1,261,000 and $927,000 at March 31, 2006 and 2005, respectively
  (note 1)


41,691,321


37,748,785Security and
other deposits (note 8)





1,900,250Prepaid
expenses and other assets


23,182,351


18,740,220Inventories,
net of allowance of $378,000
  and $3,973,000 and March 31, 2006 and 2005, respectively (note 1)


6,623,721


7,564,342Assets held
for sale (note 4)


3,543,035


1,317,334Deferred tax
asset (note 11)


7,780,161


5,472,643Total current
assets


390,957,342


275,549,741Property and equipment, net
(note 5)


510,428,061


455,813,682Security and other deposits
(note 8)


19,597,270


18,662,421Aircraft pre-delivery
payments


40,449,142


22,976,090Restricted
investments


480,726


11,126,307Deferred loan fees and other
assets


8,519,397


7,882,430Total
Assets

$
970,431,938

$
792,010,671Liabilities and
Stockholders EquityCurrent liabilities:Accounts
payable

$
44,954,842

$
37,240,376Air traffic
liability


153,662,726


112,688,811Other accrued
expenses (note 7)


67,683,431


55,337,203Current
portion of long-term debt (note 10)


22,273,893


18,222,539Short-term
borrowings





5,000,000Deferred
revenue and other liabilities
  (note 6)


12,436,615


5,361,422Total current
liabilities


301,011,507


233,850,351Long-term debt related to
aircraft notes
  (note 10)


313,481,757


282,792,222Convertible notes (note
10)


92,000,000


Deferred tax liability (note
11)


12,732,807


17,331,125Deferred revenue and other
liabilities
  (note 6)


22,430,276


20,116,667Total
liabilities


741,656,347


554,090,365Stockholders
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 shares; 36,589,705 and 35,995,342
  shares issued and outstanding at March 31, 2006 and March 31, 2005,
  respectively


36,590


35,995Additional
paid-in capital


192,935,951


188,165,820Unearned ESOP
shares (note 14)


(2,094,000
)

(2,270,652
)Accumulated
other comprehensive loss, net
  of tax


150,620


271,267Retained
earnings


37,746,430


51,717,876Total
stockholders equity


228,775,591


237,920,306Commitments and contingencies
(notes 2, 8, 10,
  13, 14 and 17)Total
Liabilities and
  Stockholders Equity

$
970,431,938

$
792,010,671See accompanying notes to the financial statements.

F-4

FRONTIER
  AIRLINES, INC.Statements of OperationsYears
  Ended March 31, 2006, 2005 and 20042006

2005

2004Revenues:Passenger -
mainline

$
878,680,878

$
731,821,890

$
615,389,565Passenger-
regional partner


92,826,244


84,268,560


11,191,338Cargo


5,676,883


4,957,731


8,077,106Other


17,088,741


12,591,260


9,021,133Total
revenues


994,272,746


833,639,441


643,679,142Operating
  expenses:Flight
operations


141,315,684


132,022,593


105,255,438Aircraft
fuel


281,906,430


185,821,202


108,862,582Aircraft
lease


94,228,608


87,095,717


70,061,270Aircraft and
traffic servicing


138,491,985


129,469,952


110,377,894Maintenance


77,238,247


76,678,749


70,443,627Promotion and
sales


82,501,933


76,461,549


65,322,259General and
administrative


48,978,978


48,350,563


36,750,152Operating
expenses - regional partner


106,865,952


92,480,847


14,634,258Aircraft lease
and facility exit costs
  (note 9)


3,413,932





5,371,799(Gains) losses
on sales of assets, net


(1,144,041
)

84,610


1,837,550Impairments





5,123,224


3,560,151Depreciation


28,372,292


26,497,930


23,719,743Total
operating expenses


1,002,170,000


860,086,936


616,196,723Operating
income (loss)


(7,897,254
)

(26,447,495
)

27,482,419Nonoperating
  income (expense):Interest
income


9,365,958


3,757,596


2,074,050Interest
expense


(21,758,135
)

(13,184,345
)

(13,961,074
)Emergency
Wartime Supplemental
  Appropriations Act (note 18)








15,024,052Loss on early
extinguishment of debt








(9,815,517
)Other,
net


(179,340
)

36,148


(346,434
)Total
nonoperating expense, net


(12,571,517
)

(9,390,601
)

(7,024,923
)Income (loss) before income tax
expense
  (benefit)


(20,468,771
)

(35,838,096
)

20,457,496Income
  tax expense (benefit)


(6,497,325
)

(12,407,910
)

7,822,361Net
  income (loss)

$
(13,971,446
)
$
(23,430,186
)
$
12,635,135Earnings
  (loss) per share:Basic

$
(0.39
)
$
(0.66
)
$
0.39Diluted

$
(0.39
)
$
(0.66
)
$
0.36Weighted average shares of
common stock
  outstanding:Basic


36,166,972


35,641,370


32,732,567Diluted


36,166,972


35,641,370


35,276,416See accompanying notes to the financial statements.

F-5

FRONTIER AIRLINES, INC.

Statements
  of Stockholders Equity and Other Comprehensive Income (Loss)Years Ended March 31, 2006, 2005 and 2004Common
  Stock

Additional
  paid-in
  capital

Unearned
  ESOP
  shares

Accumulated
  other
  comprehensive
  income (loss)

Retained
  earnings

Total
  stockholders
  equityBalances, March 31,
2003


29,674


96,424,525








62,512,927


158,967,126Net income














12,635,135


12,635,135Other comprehensive loss -
unrealized loss on derivative instruments,
  net of tax of $85,000











(137,785
)




(137,785
)Total comprehensive
income

















12,497,350Sale of common stock, net of
offering costs of $257,000


5,050


81,072,096











81,077,146Exercise of common stock
options


227


1,000,487











1,000,714Tax benefit from exercises of
stock options





1,261,937











1,261,937Equity adjustment for the
repricing of warrants issued in conjunction
  with a debt agreement





116,701











116,701Contribution of common stock to
employees stock ownership plan


646


5,202,640


(5,203,286
)







Amortization of employee stock
compensation








3,020,652








3,020,652Balances, March 31,
2004

$
35,597

$
185,078,386

$
(2,182,634
)
$
(137,785
)
$
75,148,062

$
257,941,626Net loss














(23,430,186
)

(23,430,186
)Other comprehensive income -
unrealized gain on derivative
  instruments, net of tax of $246,000











409,052





409,052Total comprehensive
loss

















(23,021,134
)Exercise of common stock
options


52


336,775











336,827Tax benefit from exercises of
stock options





(288,503
)










(288,503
)Contribution of common stock to
employees stock ownership plan


346


3,027,190


(3,027,536
)







Amortization of employee stock
compensation








2,939,518








2,939,518Capital contribution





11,972











11,972Balances, March 31,
2005

$
35,995

$
188,165,820

$
(2,270,652
)
$
271,267

$
51,717,876

$
237,920,306Net loss














(13,971,446
)

(13,971,446
)Other comprehensive loss -
unrealized loss on derivative instruments,
  net of tax of $74,000











(120,647
)




(120,647
)Total comprehensive
loss

















(14,092,093
)Exercise of common stock
options


195


1,550,993











1,551,188Tax benefit from exercises of
stock options





280,966











280,966Contribution of common stock to
employees stock ownership plan


400


2,791,600


(2,792,000
)







Amortization of employee stock
compensation





146,572


2,968,652








3,115,224Balances, March 31,
2006


36,590


192,935,951


(2,094,000
)

150,620


37,746,430


228,775,591See accompanying notes to the financial statements.

F-6

FRONTIER AIRLINES, INC.

Statements
  of Cash FlowsYears
  ended March 31, 2006, 2005, and 20042006

2005

2004Cash
  flows from operating activities:Net income
(loss)

$
(13,971,446
)
$
(23,430,186
)
$
12,635,135Adjustments to
reconcile net income (loss)
  to net cash and cash equivalents provided by operating activities:Compensation
expense under long-term
  incentive plans and employee ownership plans


3,115,224


2,939,518


2,498,700Depreciation
and amortization


29,438,984


27,123,642


25,411,877Impairment
recorded on property and
  equipment





3,860,342


3,047,482Provisions
recorded on inventories





1,262,882


617,749Write off of
deferred loan costs








9,815,517(Gains) losses
on disposal of equipment and
  other, net


(1,058,290
)

482,669


1,501,465Unrealized
derivative losses (gains), net


2,163,486


(2,837,000
)

(469,394
)Deferred tax
expense


(6,551,333
)

(12,514,853
)

9,957,271Changes in
operating assets and
  liabilities:Restricted
investments


3,325,701


(7,916,066
)

(13,057,670
)Receivables


(3,942,536
)

(11,409,993
)

(451,660
)Income taxes
receivable





231,651


24,363,525Security and
other deposits


96,150


(304,925
)

(328,127
)Prepaid
expenses and other assets


(4,442,131
)

(5,646,721
)

(3,590,110
)Inventories


404,762


(2,700,651
)

(785,486
)Other
assets


639,537


1,150,746


1,352,536Accounts
payable


7,714,466


6,073,208


4,512,197Air traffic
liability


40,973,915


29,349,251


24,463,937Other accrued
expenses


12,346,228


11,031,932


22,007,937Deferred
revenue and other liabilities


9,388,802


2,494,153


4,514,925Net cash provided
by operating activities


79,641,519


19,239,599


128,017,806Cash
  flows from investing activities:Aircraft lease
and purchase deposits made


(36,116,717
)

(21,436,210
)

(39,986,696
)Aircraft lease
and purchase deposits
  returned or applied to aircraft


19,512,916


23,008,434


33,541,079Decrease in
restricted investments


2,034,000


3,481,600


2,443,500Decrease
(increase) in short-term
  investments


3,000,000


57,600,000


(55,265,000
)Proceeds from
the sale of property and
  equipment and assets held for sale


9,842,873


80,962,695


341,435Capital
expenditures


(93,775,079
)

(128,775,506
)

(134,650,799
)Net cash provided
by (used in) investing
  activities


(95,502,007
)

14,841,013


(193,576,481
)Cash
  flows from financing activities:Net proceeds
from issuance of common stock
  and warrants


1,551,188


348,799


82,077,860Payment to
bank for compensating balance


(2,000,000
)




(Payments)
proceeds from short-term
  borrowings


(5,000,000
)

5,000,000


Proceeds from
long-term borrowings


146,700,000


22,000,000


98,500,000Payment of
financing fees


(4,386,883
)

(1,270,839
)

(1,231,201
)Principal
payments on long-term borrowings


(19,959,111
)

(18,372,529
)

(83,324,659
)Net cash provided
by financing activities


116,905,194


7,705,431


96,022,000Net increase in
cash and cash equivalents


101,044,706


41,786,043


30,463,325Cash and cash equivalents,
beginning of
  year


171,794,772


130,008,729


99,545,404Cash and cash equivalents, end
of year

$
272,839,478

$
171,794,772

$
130,008,729See
accompanying notes to the financial statements.

F-7

FRONTIER AIRLINES, INC.

Notes to Financial StatementsMarch 31, 20061. Nature of Business and Summary of Significant Accounting
Policies
Nature of
Business

Frontier Airlines, Inc.
(Frontier or the Company) provides air transportation for passengers and
freight. Frontier was incorporated in the State of Colorado on February 8, 1994
and commenced operations on July 5, 1994. The Company, in conjunction with its
regional jet partner Frontier JetExpress, currently operates routes linking
from its Denver hub to 47 cities coast to coast and seven cities in Mexico. The
Company also provides service to Cancun, Mexico from five non-hub cities
and service to Puerto Vallarta,
Mexico from Kansas City, Missouri. The Company operates a fleet of 43 Airbus
A319 aircraft and seven Airbus A318 aircraft, and nine CRJ 700 aircraft
(operated by Horizon Air Industries, Inc.) from its base in Denver, and has
approximately 4,800 employees as of March 31, 2006.

Airline operations have high
fixed costs relative to revenues and are highly sensitive to various factors,
including the actions of competing airlines and general economic factors. Small
fluctuations in yield per revenue passenger mile or expense per available seat
mile can significantly affect operating results.

The Company operates in one
business segment that provides transportation to passengers and cargo and
includes mainline operations and a regional partner.

Preparation of
Financial Statements and Use of Estimates

The preparation of financial
statements in conformity with U.S. generally accepted accounting principles
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.

Cash and Cash
Equivalents

For financial
statement purposes, the Company considers cash and short-term investments with
an original maturity of three months or less to be cash equivalents.

Investment
Securities

Investment
securities consist of the following: (a) Bond money market funds and commercial
paper with maturities of less than three months, classified as held-to-maturity
and are carried at amortized cost which approximates fair value; (b) Money
market funds and auction rate securities, classified as available for sale
securities and stated at fair value. Held-to-maturity securities are those
securities in which the Company has the ability and intent to hold the security
until maturity. Interest income is recognized when earnedF-8FRONTIER AIRLINES, INC.

Notes to Financial Statements, continuedRestricted Investments

Restricted
investments include certificates of deposit which secure certain letters of
credit issued primarily to companies which process credit card sale
transactions, certain airport authorities and aircraft lessors. Restricted
investments are carried at cost, which management believes approximates fair
value. Maturities are for one year or less and the Company intends to hold
restricted investments until maturity.

Valuation and
Qualifying Accounts

The following table summarizes our valuation and
qualifying accounts as of March 31, 2006, 2005, and 2004, and the associated
activity for the years then ended.
Allowance for
  Doubtful
  Accounts

Allowance
  for
  InventoryBalance at March 31, 2003


237,000


2,478,000Additional
expenses


593,000


618,000Deductions


(605,000
)

(105,000
)Balance at March 31, 2004


225,000


2,991,000Additional
expenses


1,012,000


1,263,000Deductions


(310,000
)

(281,000
)Balance at March 31, 2005

$
927,000

$
3,973,000Additional
expenses


579,000


169,000Deductions


(245,000
)

(165,000
)Transfer to
assets held for sale





(3,599,000
)Balance at March 31, 2006

$
1,261,000

$
378,000The allowance
for doubtful accounts is primarily based on the specific identification method.

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. An allowance for
obsolescence on aircraft spare parts is provided over the remaining useful life
of the related aircraft plus allowances for spare parts currently identified as
excess to reduce the carrying costs to lower of cost or market.F-9FRONTIER AIRLINES, INC.

Notes to Financial Statements, continuedAssets held for
sale

Assets held for sale are
valued at the lower of the carrying amount or the estimated market value less
selling costs. The Company monitors resale values for Boeing spare parts and
rotables quarterly using an analysis of current sales and estimates obtained
from outside vendors.

Property and
Equipment

Property and equipment are
carried at cost. Major additions, betterments and renewals are capitalized.
Depreciation is provided for on a straight-line basis to estimated residual
values over estimated depreciable lives as follows:
Description

LivesAircraft, spare aircraft
  parts and flight equipment

7
  - 25 yearsImprovements to leased
  aircraft

Life
  of improvements or term of lease,
  whichever is less.Capitalized software

3
  yearsGround property; equipment
  and leasehold improvements

3
  - 5 years or term of lease, which ever is less
Residual values for aircraft
are at 25% of the aircraft cost.

Manufacturers
and Lessor Credits

The Company receives credits
in connection with its purchase and lease of aircraft for engines, auxiliary
power units and other rotable parts. These credits are deferred until the
aircraft, engines, auxiliary power units and other rotable parts are delivered
and then applied as a reduction of the cost of the related equipment. The
Company also receives credits in connection with certain aircraft lease
agreements. These credits are recognized as a credit to lease expense over the
lease term.

Deferred Loan
Fees

Deferred loan fees,
including the estimated fair value of warrants issued to the lenders, are
deferred and amortized over the term of the related debt obligation. During the
year ended March 31, 2004, the Company wrote off $9,816,000 in deferred loan
costs associated with the prepayment of the government guaranteed loan.

Fair Value of
Financial Instruments

The Company estimates the
fair value of its monetary assets and liabilities based upon existing interest
rates related to such assets and liabilities compared to current rates of
interest for instruments with a similar nature and degree of risk. The Company
estimates that the carrying value of all of its monetary assets and liabilities
approximates fair value as of March 31, 2006 and 2005 with exception of its
fixed rate loans. The estimated fair value of the Companys fixed rate loans
based on current rates available to the Company for debt of the same remaining
maturity was approximately $125,981,000 as compared to the carrying amount of
$129,100,000 at March 31, 2006. The estimated fair value of the Companys fixed
rate loans based on current rates available to the Company for debt of the same
remaining maturity was approximately $36,732,000 as compared to the carrying
amount of $39,711,000 at March 31, 2005.F-10FRONTIER AIRLINES, INC.

Notes to Financial Statements, continuedRevenue
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 for tickets sold but not
yet recognized are included in the accompanying balance sheets as air traffic
liability. We do not recognize as revenue the amount of credits estimated to be
granted after the date a ticket expires.

Frontier Jet
Express

In September
2003, the Company signed a 12-year agreement with Horizon Air Industries, Inc.
(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 the Companys codeshare with Mesa Airlines, which terminated in
December 2003. In accordance with Emerging Issues Task Force No. 01-08, Determining
Whether an Arrangement Contains a Lease (EITF 01-08), the Company
has 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. Frontier establishes the scheduling, routes and pricing
of the flights operated as Frontier JetExpress under the agreement. EITF
01-08 was effective for new arrangements or arrangements modified after the
beginning of an entitys next reporting period after May 28, 2003. The
assessment of whether an arrangement contains a lease is made at the inception
of or upon modification of an arrangement. Therefore, we began recording
revenues and expenses related to the Horizon Agreement gross, as opposed to
net, upon inception of service. Prior to the implementation of EITF 01-08,
JetExpress revenues were reduced by related expenses and reported net as other
revenues. Revenues are pro-rated to the segment operated by the regional partner
based on miles flown and are included in passenger revenues  regional partner.
Expenses directly related to the flights flown by the regional partner are
included in operating expenses  regional partner. The Company allocates
indirect expenses between mainline and JetExpress operations by using regional
partner departures, available seat miles, or passengers as a percentage of
system combined departures, available seat miles or passengers.

Amounts
included in other revenues for the years ended March 31, 2006, 2005, and 2004
were approximately as follows:

Year Ended
  March 312006

2005

2004Mesa
revenues

$


$


$
25,155,000Mesa
expenses








(23,438,000
)Net amount in
other revenues

$


$


$
1,717,000
Passenger Traffic
Commissions and Related Expenses

Passenger
traffic commissions and related expenses are expensed when the transportation
is provided and the related revenue is recognized. Passenger traffic
commissions and related expenses not yet recognized are included as a prepaid
expense.
F-11FRONTIER AIRLINES, INC.

Notes to Financial Statements, continuedAircraft
Maintenance

The Company operates under
an FAA-approved continuous inspection and maintenance program. The Company
accounts 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.

Effective January 1, 2003,
the Company and GE Engine Services, Inc. (GE) executed an engine
services agreement (the Services Agreement) covering the scheduled and
unscheduled repair of Airbus engines, which was subsequently modified in
September 2004. The agreement is for a 12-year period from the effective date for
our owned aircraft or May 1, 2019, whichever comes first. For each leased
aircraft, the agreement term coincides with the initial lease term of 12 years.
Under the terms of the Services Agreement, the Company agreed to pay GE an
annual rate per-engine-hour, payable monthly, and GE assumed the responsibility
to overhaul the Companys engines on Airbus aircraft as required during the
term of the Services Agreement, subject to certain exclusions. The Company
believes the rate per-engine hour approximates the periodic cost the Company
would have incurred to service those engines. Accordingly, these payments are
expensed as the obligation is incurred.

Advertising Costs

The Company expenses the
costs of advertising as promotion and sales expense in the year incurred.
Advertising expense was $9,588,000, $10,803,000 and $7,897,000 for the years
ended March 31, 2006, 2005 and 2004, and the amount of expense recognized
related to advertising barter transactions were $2,104,000, $2,051,000, and
$1,635,000, respectively. During the years ended March 31, 2006, 2005 and 2004,
the amount of revenue recognized related to advertising barter transactions
were $1,511,000, $2,324,000, and $611,000, respectively. Prepaid barter
expenses as of March 31, 2006 and 2005 were $799,000 and $474,000,
respectively.

Impairment of Long-Lived Assets

The Company records
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.

Income Taxes

The Company
accounts for income taxes using the asset and liability method. Under that
method, deferred income taxes are recognized for the tax consequences of
temporary differences by applying enacted statutory tax rates applicable to
future years to differences between the financial statement carrying amounts
and tax bases of existing assets and liabilities and net operating losses and
tax credit carryforwards. A valuation allowance for deferred tax assets is
provided unless realizability is judged by management to be more likely than
not. The effect on deferred taxes from a change in tax rates is recognized in
income in the period that includes the enactment date.F-12FRONTIER AIRLINES, INC.

Notes to Financial Statements, continuedEarnings (Loss)
Per Common Share

Basic earnings
(loss) per common share excludes the effect of potentially dilutive securities
and is computed by dividing income by the weighted-average number of common
shares outstanding for the period. Diluted earnings per common share reflects
the potential dilution of all securities that could share in earnings. Shares
outstanding include shares contributed to the Employee Stock Option Plan.

Customer Loyalty Program

The Company offers
EarlyReturns, a frequent flyer program to encourage travel on its airline and
customer loyalty. The Company accounts for the EarlyReturns program 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 allocations of overhead expenses,
salaries, aircraft cost or flight profit or losses. The Company does not record a liability for
mileage earned by participants who have not reached the level to become
eligible for a free travel award. The Company believes this is appropriate
because the large majority of these participants are not expected to earn a
free flight award. The Company does not record a liability for the expected
redemption of miles for non-travel awards since the cost of these awards to us
is negligible.

As of March 31, 2006 and 2005, the Company
estimated that approximately 193,000 and 102,000 round-trip flight awards,
respectively, were eligible for redemption by EarlyReturns members who have
mileage credits exceeding the 15,000-mile free round-trip domestic ticket award
threshold. As of March 31, 2006 and 2005, the Company had recorded a liability
of approximately $2,776,000 and $1,275,000, respectively, for these rewards.

The Company also sells points in EarlyReturns to
third parties. The portion of the sale that is for travel is deferred and
recognized as passenger revenue when the Company estimates the transportation
is provided. The remaining portion, referred to as the marketing component, is
recognized as a reduction of sales and promotion expense in the month received.

Co-branded Credit Card Arrangement

The Company 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. The Company
receives an increased fee for new accounts solicited by us. The Company also
receives fees for the purchase of frequent flier miles awarded to the credit
card customers.

The Company
accounts 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. The Company has estimated the period over which the frequent flier
mileage awards will be used based on the history of usage of the frequent flierF-13FRONTIER AIRLINES, INC.

Notes to Financial Statements, continuedmileage
awards. The Company records the marketing component of the revenue earned under
this agreement as a reduction of sales and promotion expenses in the month
received.

For the year
ended March 31, 2006, the Company earned total fees of $24,986,000 under the
credit card agreement. Of that amount, $19,686,000 was deferred as the travel
award component, and the remaining marketing component of $5,300,000 was
recognized as a reduction to sales and promotions expense. For the year ended
March 31, 2005, the Company earned total fees of $12,227,000. Of that amount,
$8,455,000 was deferred as the travel award component, and the remaining
marketing component of $3,772,000 was recognized as a reduction to sales and
promotions expense. For the year ended March 31, 2004, the Company earned total
fees of $4,245,000. Of that amount, $3,286,000 was deferred as the travel award
component, and the remaining marketing component of $959,000 was recognized as
a reduction to sales and promotions expense. Amortization of deferred revenue
recognized in earnings during the years ended March 31, 2006, 2005 and 2004 was
$11,059,000, $4,396,000 and $786,000, respectively.

Supplemental Disclosure of
Cash Flow Information

Cash Paid During the Year for:
2006

2005

2004Interest

$
18,911,401

$
12,345,237

$
9,836,737Taxes

$
7,128

$
160,598

$
312,484Derivative
Instruments

The Company accounts 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 the Company 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.

The Company enters into
derivative transactions to hedge the interest payments associated with a
portion of its LIBOR-based borrowings and fuel purchases. The Company has
designated an interest rate swap as a qualifying cash flow hedge. This
transaction is accounted for as a cash flow hedge under SFAS 133. As a result,
the Company records these instruments at fair market value and recognizes
changes in the unrealized gain or loss in OCI, net of taxes. The Company also
enters 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, the Company records these instruments
at fair market value and recognizes realized and unrealized gains and losses in
aircraft fuel expense.

Self-Insurance

The Company is self-insured
for the majority of the group health insurance costs, subject to specific
retention levels. The Company records its liability for health insurance claims
based on our estimate of claims that have been incurred but not reported.F-14FRONTIER AIRLINES, INC.

Notes to Financial Statements, continuedThe Company is also
self-insured for the majority of our workers compensation cost. The liability
for workers compensation claims is the estimated total cost of the claims on a
fully-developed basis, up to a maximum amount, based on reserves for these
claims that are established by a third-party administrator.

Stock-Based Compensation

Stock options and other
stock-based compensation awards are accounted for using the intrinsic value
method prescribed under 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). 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:
2006

2005 (1)

2004Net income (loss) as
  reported

$
(13,971,446
)
$
(23,430,186
)
$
12,635,135Add:
stock-based compensation expense included in reported net loss,
  net of tax


91,168





Less: total
compensation expense determined under fair value method,
  net of tax


(532,507
)

(4,201,805
)

(1,862,553
)Pro forma net income
  (loss)

$
(14,412,785
)
$
(27,631,991
)
$
10,772,582Earnings (loss) per share,
  basic:As
Reported

$
(0.39
)
$
(0.66
)
$
0.39Pro
Forma

$
(0.40
)
$
(0.78
)
$
0.33Earnings (loss) per share,
  diluted:As
Reported

$
(0.39
)
$
(0.66
)
$
0.36Pro
Forma

$
(0.40
)
$
(0.78
)
$
0.31In December 2004, the Financial
Accounting Standards Board (FASB) issued SFAS No. 123(R), Share-Based Payment. SFAS No. 123(R),
revised SFAS 123 and supersedes APB Opinion No. 25. SFAS No. 123(R) focuses
primarily on the accounting for transactions in which an entity obtains
employee services in share-based payment transactions. SFAS No. 123(R) requires
companies to recognize in the statement of operations the cost of employee
services received in exchange for awards of equity instruments based on the
grant-date fair value of those awards (with limited exceptions). In April 2005,
the effective date for SFAS 123(R) was changed to the first reporting period
that begins after June 15, 2005. Accordingly, the Company will adopt SFAS No.
123(R) on April 1, 2006 and use the modified-prospective transition method.
  Under the modified-prospective method, the Company will recognize
  compensation expense in the financial statements issued subsequent to the
  date of adoption for all stock-based payments granted,F-15FRONTIER AIRLINES, INC.Notes to Financial Statements, continuedmodified or settled
  after April 1, 2006 as well as for any awards that were granted prior to
  April 1, 2006 for which requisite service has not been provided as of April
  1, 2006. The Company will recognize stock-based compensation expense on
  awards granted subsequent to April 1, 2006 using the fair values determined
  by a valuation model prescribed by SFAS(R). The stock-based compensation
  expense on awards granted prior to April 1, 2006 will be recognized using the
  fair values determined for the pro forma disclosures on stock-based
  compensation. The amount of stock-based compensation expense that will be
  recognized on awards that have not fully vested will exclude the compensation
  expense cumulatively recognized in the pro forma disclosures on stock-based
  compensation and will include adjustments for estimated forfeitures.
  Unrecognized non-cash stock-based compensation expense related to unvested
  options and awards outstanding as of March 31, 2006 was approximately
  $2,727,000, and will be recorded over the remaining vesting periods of one to five years. This
  estimate is based on the number of unvested options and awards currently
  outstanding and could change based on the number of options granted or
  forfeited in fiscal year 2007.(1)
In September
  and October of 2004, when the stock price was $8.21 and $7.63, respectively,
  the Companys Board of Directors approved that certain of the Companys stock
  options with exercise prices in excess of the stocks current market price be
  modified to accelerate vesting. The purpose of the accelerated vesting was to
  enable the Company to avoid recognizing stock-based compensation expense in
  its statement of operations associated with these options in future periods
  upon adoption of SFAS No. 123(R). As a result, a total of 671,500 options
  became immediately vested. These options originally vested between October
  2004 and March 2009. Exercise prices for these options ranged from $8.00 to
  $24.17 per share. There were 35 employees affected by the modification. The
  total accelerated expense as a result of the modification is approximately
  $2,997,000, net of taxes, and is included in the fiscal year 2005 pro forma
  numbers presented in the table above.New Accounting StandardsIn May 2005,
  the FASB issued FASB Statement No. 154, Accounting Changes and Error Correction, replacing
  APB Opinion No. 20, Accounting Changes and FASB Statement No. 3, Reporting
  Accounting Changes in Interim Financial Statements. Among other
  changes, Statement 154 requires that a voluntary change in accounting
  principle be applied retrospectively with all prior period financial
  statements presented on the new accounting principle, unless it is
  impracticable to do so. Statement 154 also provides that a change in method
  of depreciating or amortizing a long-lived nonfinancial assets to be
  accounted for as a change in estimate (prospectively) that was effected by a
  change in accounting principle, and that the correction of errors in
  previously issued financial statements should be termed a restatement. The
  new standard is effective for accounting changes and correction of errors
  made in fiscal years beginning after December 15, 2005. The Company does not
  expect the adoption of Statement 154 to have a material impact on its financial
  position or results of operations.F-16

FRONTIER AIRLINES, INC.Notes to Financial Statements, continued2. Derivative
Instruments

Fuel HedgingWe are
  exposed to the effects of changes in the price and availability of aircraft
  fuel. To manage this risk, the Company initiated a fuel hedging program
  comprised of swap and collar agreements. Under a swap agreement, the Company
  receives 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, the Company receives the difference between the fixed
  price and the index price. If the index price is lower, the Company pays 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 or WTI price is above the cap, the
  Company receives the difference between the index and the cap. When the index
  price is below the primary floor but above the secondary floor, the Company
  pays the difference between the index and the primary floor. However, when
  the price is below the secondary floor, the Company is 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.The Company
  had the following swap and collar agreements outstanding at March 31, 2006
  and 2005, which had fair values of $976,000 and $3,319,000, respectively:March 31, 2006:Contract date


Product *


Notional volume ** 
  (barrels per 
  month)


Period covered


Price (per gallon or barrel)


Percentage of 
  estimated fuel 
  purchasesNovember 2005


Jet A


50,000


April 1, 2006  June 30, 2006


$1.83 per gallon, with a floor of $1.6925 per gallon


16%March 31, 2005:Contract date


Product *


Notional volume ** 
  (barrels per 
  month)


Period covered


Price (per gallon or barrel)


Percentage of 
  estimated fuel 
  purchasesNovember 2004


Jet A


75,000


April 1, 2005  
  June 30, 2005


$1.34 per gallon, with a floor of $1.20 per gallon


28%*
Jet A is
  Gulf Coast Jet A fuel. Crude oil is West Texas Intermediate crude oil.**
One barrel is equal to
  42 gallons.These fuel
  hedges have been designated as trading instruments, as such realized and
  unrealized gains are included in aircraft fuel expense. The results of
  operations for the year ended March 31, 2006, 2005 and 2004 include
  unrealized derivative gains of $976,000, $3,139,000 and $302,000,
  respectively. Additionally, realized gains of $2,199,000, $4,465,000 and
  $1,085,000 were recorded as reductions of fuel expense for the years ended
  March 31, 2006, 2005 and 2004, respectively.F-17

FRONTIER AIRLINES, INC.Notes to Financial Statements, continuedInterest Rate Hedging ProgramIn March
  2003, the Company entered into an interest rate swap agreement with a
  notional amount of $27,000,000 to hedge the interest payments associated with
  a portion of its LIBOR-based borrowings through June 30, 2007. Under the
  interest rate swap agreement, the Company is paying a fixed rate of 2.45% and
  receiving a variable rate based on the three month LIBOR, which is reset
  quarterly. Interest expense for the year ended March 31, 2006 was reduced by
  $216,000 for settlement payments received from the counter party for the
  period. Interest expense for the years ended March 31, 2005 and 2004 includes
  $177,000 and $351,000, respectively, of settlement amounts paid or payable to
  the counter party for the period. At March 31, 2006 and 2005, the Companys
  interest rate swap agreement had estimated values of $105,000 and $300,000,
  respectively, and were included in deferred loan fees and other assets.Changes in
  the fair value of interest rate swaps designated as hedging instruments are
  reported in accumulated other comprehensive income included in stockholders
  equity. Approximately $194,000 of
  unrealized gains are included in accumulated other comprehensive income
  included in stockholders equity, net of income taxes of $74,000, for the
  year ended March 31, 2006. Approximately $655,000 of unrealized losses are
  included in accumulated other comprehensive income included in stockholders
  equity, net of income taxes of $246,000, for the year ended March 31, 2005.
  The unrealized gains and losses are expected to be reclassified into interest
  expense as a yield adjustment in the same period in which the related interest
  payments on the LIBOR-based borrowings effects earnings.3. Investment
securities

Investment
  securities at March 31, 2006 and 2005 consisted of the following:2006


2005Available-for-sale securities:Money market
funds (1)

$
118,236,857



Auction rate
securities collateralized by
  student loan bonds and corporate debt (2)






3,000,000118,236,857



3,000,000Held-to-maturity securities:Bond money
market funds (1)






33,699,968Commercial
paper (1)


121,673,447



23,977,360121,673,447



57,677,328Total

$
239,910,304


$
60,677,328(1)
Reported
  in cash and cash equivalents(2)
Reported
  in short-term investmentsF-18

FRONTIER AIRLINES, INC.Notes to Financial Statements, continuedThere were
  no unrealized gains or losses on these investments for the years ended March
  31, 2006, 2005 and 2004. Contractual maturities of all held-to-maturity
  securities mature in three months or less.4. Assets Held For
Sale

In April
  2005, the Company retired the remaining Boeing aircraft and has classified
  all remaining Boeing aircraft rotable spare parts and expendable inventories
  as assets held for sale. As such, these assets have been valued at the
  lower of the carrying amount or the estimated market value less selling
  costs.In August
  2004, the Company began selling Boeing spare parts and entered into
  agreements with two vendors to sell these parts on a consignment basis. The
  Company monitors resale values for Boeing parts quarterly using estimates
  obtained from outside vendors. Based on the current market prices and recent
  sales history, the Company has determined that there is currently no
  additional impairment required for the Boeing rotable spare parts and
  expendable inventories for the year ending March 31, 2006. During the years
  ending March 31, 2005 and 2004, the Company recorded total impairments on
  Boeing rotable spare parts and expendable inventories of $5,123,000 and
  $3,560,000, respectively, due to declines in the resale values of these
  parts.Gains and
  losses that resulted from the sale of these assets are recognized as they are
  sold and reported in income from operations as a component of (gains) losses
  on sales of assets, net. During the years ended March 31, 2006 and 2005, the
  Company realized net gains of $1,333,000 and $66,000, respectively, on the sale
  of these assets.5. Property and
Equipment, Net

At March 31,
  2006 and 2005, property and equipment consisted of the following:2006


2005Aircraft, spare aircraft parts,
and
  improvements to leased aircraft

$
555,573,781


$
489,324,022Ground property, equipment and
leasehold
  improvements


35,937,251



33,405,140Computer software


6,584,568



5,118,956Construction in progress
*


1,597,477



231,397599,693,077



528,079,515Less accumulated
depreciation


(89,265,016
)


(72,265,833
)Property and
equipment, net

$
510,428,061


$
455,813,682*
Airbus
  flight equipment and manufacturers credits received or earned but not yet
  placed in service totaled approximately $4,106,000 and $62,000, at March 31,
  2006 and 2005, respectively.In October
  2004 and December 2005, the Company completed sale-leaseback transactions for
  three Airbus 319 engines on the same day the transaction for the purchase
  closed. As such, no gain or loss was recorded on these transactions in fiscal
  years 2006 and 2005. The Company agreed to lease these engines over 10-year
  terms. During the year ended March 31, 2004, the Company completed a
  sale-leaseback transaction ofF-19

FRONTIER AIRLINES, INC.Notes to Financial Statements, continuedan Airbus
  A319 aircraft resulting in a loss of $1,323,000. This charge is included in
  the losses on sales of assets in the statement of operations. The Company
  agreed to lease this aircraft over a 12-year term.6. Deferred Revenue
and Other Liabilities

At March 31, 2006 and 2005, deferred revenue and other liabilities is
  comprised of the following:2006

2005Deferred
  revenue related to co-branded credit card

$
15,184,792

$
6,557,945Deferred
  rent


19,092,803


18,271,668Other


589,296


648,476Total
  deferred revenue and other liabilities


34,866,891


25,478,089Less: current
portion


(12,436,615
)

(5,361,422
)$
22,430,276

$
20,116,6677. Other Accrued
Expenses

The March
  31, 2006 and 2005 other accrued expenses is comprised of the following:2006

2005Accrued salaries and
benefits

$
35,202,825

$
30,340,973Federal excise and other
passenger taxes
  payable


23,715,483


15,829,706Property and income taxes
payable


2,529,165


2,279,718Remaining lease payments for
aircraft and
  facilities abandoned before lease termination date


174,559


1,063,022Other


6,061,399


5,823,784$
67,683,431

$
55,337,2038. Lease Commitments

Aircraft LeasesAt March 31,
  2006 and 2005, the Company operated 34 and 33 leased aircraft, respectively, which are
  accounted for under operating lease agreements with initial terms of
  12-years. Security deposits related to leased aircraft and future leased
  aircraft deliveries at March 31, 2006 and 2005 totaled $16,984,000 and
  $17,853,000, respectively, and are reported in the balance sheets in security
  and other deposits. Letters of credit issued to certain aircraft lessors in
  lieu of cash deposits and the related restricted investments to secure these
  letters of credit at March 31, 2005 totaled $2,034,000 and none at March 31,
  2006.F-20

FRONTIER AIRLINES, INC.Notes to Financial Statements, continuedIn addition
  to scheduled future minimum lease payments, the Company is required to make
  supplemental rent payments to cover the cost of major scheduled maintenance
  overhauls of these aircraft. These supplemental rentals are based on the
  number of flight hours flown and/or flight departures and are included in
  maintenance expense. The lease agreements require the Company to pay taxes,
  maintenance, insurance, and other operating expenses applicable to the leased
  property.Other LeasesThe Company leases office and hangar space, spare engines and office
  equipment for its headquarters, reservation facilities, airport facilities,
  and certain other equipment. The Company also leases certain airport gate
  facilities on a month-to-month basis.For leases that contain escalations, the Company records the total
  rent payable during the lease term on a straight-line basis over the term of
  the lease and records the difference between the rent paid and the
  straight-line rent as a deferred rent liability.At March 31, 2006, commitments under non-cancelable operating leases
  (excluding aircraft supplemental rent requirements) with terms in excess of
  one year were as follows:Aircraft

Other

Total2007

$
116,929,201

$
22,016,171

$
138,945,3722008


121,210,707


17,857,208


139,067,9152009


121,210,707


17,411,989


138,622,6962010


121,210,707


16,020,500


137,231,2072011


121,210,707


4,899,824


126,110,531Thereafter


602,748,745


14,678,856


617,427,601Total minimum lease
payments

$
1,204,520,774

$
92,884,548

$
1,297,405,322Rental
  expense under operating leases, including month-to-month leases, for the
  years ended March 31, 2006, 2005 and 2004 was $138,911,000, $130,205,000, and
  $98,473,000, respectively.9. Aircraft Lease and
Facility Exit Costs

During the year ended March 31, 2006, the Company ceased using three
  of its Boeing 737-300 leased aircraft with original lease termination dates
  in June 2005, August 2005 and May 2006. The Company negotiated an early return
  and one-time payment for the one aircraft with an original lease termination
  date of May 2006. This resulted in a charge of $3,311,888, representing the
  estimated fair value of the remaining lease payments and a negotiated
  one-time termination payment. During the year ended March 31, 2006, the
  Company also recorded $102,044 of facility lease exit costs related to a
  property in which a sublease was not obtained in a period originally
  estimated for an airport exited in fiscal year 2005. This reflects the
  Companys revised estimated future payments on this lease. These charges are
  reported in the Statement of Operations as aircraft and facility lease exit
  costs.F-21

FRONTIER AIRLINES, INC.Notes to Financial Statements, continuedDuring the year ended March 31, 2005, the Company ceased providing
  air service to a city with an airport facility lease. This resulted in a
  charge of $50,292.During the year ended March 31, 2004, the Company ceased using three
  of its Boeing 737-200 leased aircraft, two of which had lease terminations in
  October 2003 and one with a lease termination date in October 2005. This
  resulted in a charge of $5,054,232, representing the estimated fair value of
  the remaining lease payments and the write-off of the unamortized leasehold
  improvements on the aircraft. During the year ended March 31, 2004, the
  Company also closed its El Paso, Texas maintenance facility which had a lease
  termination date of August 2007 resulting in a charge of $317,567,
  representing the estimated fair value of the remaining lease payments. These
  charges are reported in the Statement of Operations as aircraft lease and
  facility exit costs.A summary of the activity charged to the aircraft and property lease
  termination liabilities are as follows:Aircraft

Facility

TotalInitial
  accrual

$
3,591,739

$
317,567

$
3,909,306Lease
payments


(1,042,338
)

(42,459
)

(1,084,797
)Balance, March 31, 2004


2,549,401


275,108


2,824,509Additions





50,292


50,292Lease
payments


(1,616,601
)

(75,832
)

(1,692,433
)Balance, March 31, 2005

$
932,800

$
249,568

$
1,182,368Additions


3,311,888


102,044


3,413,932Lease
payments


(4,244,688
)

(141,726
)

(4,386,414
)Balance, March 31, 2006

$


$
209,886

$
209,886F-22

FRONTIER AIRLINES, INC.Notes to Financial Statement, Continued10. Long-term Debt and Short-term Borrowings

Long-term debt and short-term
borrowings at March 31, 2006 and 2005 consisted of the following:

2006

2005Unsecured DebtConvertible Notes, fixed
interest rate of
  5.0% (1)

$
92,000,000

$
Credit Facility (2)





5,000,000Debt Secured by
AircraftAircraft notes payable, fixed
interest
  rates with a 6.62% weighted average interest rate (3)


37,099,863


39,711,187Aircraft notes payable,
variable interest
  rates based on LIBOR plus a margin, for an overall weighted average rate of
  6.51% at March 31, 2006 (4)


294,042,129


261,303,574Aircraft junior note payable,
variable
  interest rate based on LIBOR plus a margin, with a rate of 8.38% at March 31,
  2006 (5)


4,613,658


Total Debt


427,755,650


306,014,761Less: current
maturities


(22,273,893
)

(23,222,539
)Long-term debt

$
405,481,757

$
282,792,222(1)
Convertible Notes
  due 2025On December 7, 2005, the
  Company completed the sale of $92,000,000 aggregate principal amount of 5.0%
  Convertible Notes due 2025 (Convertible Notes) in a public offering
  pursuant to the Companys shelf registration statement. Interest is payable
  semi-annually, beginning on June 15, 2006. The Convertible Notes are
  unsecured and rank effectively junior in right of payment to existing and
  future secured debt, including the Companys Credit Facility and aircraft
  notes. At any time on or after December 20, 2010, the Company may redeem any
  of the Convertible Notes for cash at a redemption price of 100% of the
  principal amount plus accrued interest. Holders may require the Company to
  repurchase the Convertible Notes for cash at a repurchase price of 100% of
  the principal amount plus accrued interest on December 15, 2010, 2015 and
  2020.The Convertible Notes are
  convertible, at the option of the holders, into shares of the Companys
  common stock at a conversion rate of 96.7352 shares per principal amount of
  notes (representing a conversion price of approximately $10.34 per share),
  subject to certain adjustments, at any time prior to maturity. Upon
  conversion, the Company will have the right to deliver a combination of cash
  and shares of common stock. In addition, holders of the Convertible Notes
  have the right to require the Company to repurchase the notes upon the
  occurrence of a specified designated event at a price of 100% of the
  principal amount plus accrued interest. Upon the occurrence of a specified
  designated event prior toF-23

FRONTIER AIRLINES, INC.Notes to Financial Statement, ContinuedDecember 15, 2010, the
  conversion rate will be increased by a specified number of shares for a
  maximum of 2,224,910 additional shares issued.The Company incurred and
  capitalized $3,241,000 in fees which are included in deferred loan fees and
  other assets. The debt issuance costs will be amortized using the effective
  interest rate method over the shortest period in which the note holders may
  require the Company to repurchase the notes, which is five-years.(2)
Credit FacilityIn March
  2005, the Company entered into a two-year revolving credit facility (Credit
  Facility) to be used in support of letters of credit and for general
  corporate purposes. Under this facility, the Company may borrow the lesser of
  $13,000,000 (maximum commitment amount) or 50% of the current market value
  of pledged eligible spare parts. Letters of credit available is the maximum
  commitment amount under the facility less current borrowings. Interest under
  the Credit Facility is based on the Eurodollar rate plus a margin of 3.75% or
  prime plus a margin of 2.0%, for Eurodollar borrowings and alternative base
  rate borrowings, respectively. In addition, there is a quarterly commitment
  fee of 0.50% per annum of the unused portion of the facility based on the
  maximum commitment amount. The agreement contains a covenant that will not
  permit the Company to maintain an unrestricted cash and cash equivalent
  position of less than $120,000,000, with a 30-day cure period. The amount
  available for borrowings under the Credit Facility based on the current
  market value of the pledged eligible spare parts at March 31, 2006 was
  $11,299,000, which was reduced by letters of credit issued of $9,500,000.
  Amounts borrowed under this facility were $0 and $5,000,000 at March 31, 2006
  and 2005, respectively.(3)
Secured Aircraft
  Notes payable  fixed interest ratesDuring the
  year ended March 31, 2002, the Company entered into a credit agreement to
  borrow up to $72,000,000 for the purchase of three Airbus aircraft with a
  maximum borrowing of $24,000,000 per aircraft. During the year ended March
  31, 2003, the Company entered into a sale-leaseback transaction for one of
  these purchased aircraft and repaid the loan with the proceeds of the sale.
  The two remaining aircraft loans have a term of 10 years and are payable in
  equal monthly installments, including interest, payable in arrears. The
  remaining loans require monthly principal and interest payments of $218,110
  and $215,000, respectively, 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.(4)
Secured Aircraft
  Notes payable  variable interest ratesDuring the
  years ended March 31, 2003 through March 31, 2006, the Company borrowed
  $341,400,000 for the purchase of 14 Airbus aircraft. These loans have terms
  of 12 years with floating interest rates adjusted based on three and six
  month LIBOR rates plus a margins of 1.25% to 2.25%. These loans bear interest
  at rates of 5.63% to 7.14%, respectively, at March 31, 2006 with maturities
  in May 2014 to July 2017. At the end of the term, there are balloon payments
  ranging from $2,640,000 to $7,770,000, respectively.F-24

FRONTIER AIRLINES, INC.Notes to Financial Statement, Continued(5)
Junior Secured Aircraft
  Notes payable  variable interest ratesDuring the
  year ended March 31, 2006, the Company borrowed $4,900,000 for the purchase
  of an Airbus aircraft. This junior loan has a seven-year term with quarterly
  installments currently of $244,000. The loan bears interest at a floating
  interest rate adjusted quarterly based on LIBOR plus a margin of 3.75%, which
  was 8.38% at March 31, 2006.Maturities
  of long-term debt, including balloon payments, are as follows:2007

$
22,273,8932008


23,544,2142009


24,910,4242010


26,339,3722011


27,855,974Thereafter


302,831,773$
427,755,650In July
  2005, the Company entered into an agreement with a financial institution for
  a $5,000,000 revolving line of credit that allows the Company to issue
  letters of credit up to $3,500,000. As of March 31, 2006, the Company has
  utilized $2,491,000 under this agreement for standby letters of credit that
  provide credit support for certain facility leases, which reduced the amount
  available for borrowings to $2,509,000. A cash compensating balance of
  $2,000,000 is required to be maintained and to secure the letters of credit,
  which has been classified as a restricted investment on the balance sheet.At March 31,
  2006, the Company was in compliance with the covenants for all debt and lease
  agreements.F-25

FRONTIER AIRLINES, INC.Notes to Financial Statement, Continued11. Income Taxes

Income tax expense (benefit) for the years
ended March 31, 2006, 2005, and 2004 is presented below:

Current

Deferred

TotalYear ended March 31,
2006:U.S.
Federal

$


$
(6,410,261
)
$
(6,410,261
)State and
local

$
54,008


(141,072
)

(87,064
)$
54,008

$
(6,551,333
)
$
(6,497,325
)Year ended March 31,
2005:U.S.
Federal

$


$
(11,822,849
)
$
(11,822,849
)State and
local


106,943


(692,004
)

(585,061
)$
106,943

$
(12,514,853
)
$
(12,407,910
)Year ended March 31,
2004:U.S.
Federal

$
(1,891,662
)
$
10,851,098

$
8,959,436State and
local


(243,248
)

(893,827
)

(1,137,075
)$
(2,134,910
)
$
9,957,271

$
7,822,361The
  differences between the Companys effective rate for income taxes and the
  federal statutory rate of 35% are shown in the following table:2006

2005

2004Income tax
  expense (benefit) at the statutory rate

$
(7,164,070
)
$
(12,543,334
)
$
7,160,123State and
  local income tax, net of federal income tax benefit


(579,266
)

(931,791
)

646,449Valuation
  allowance recorded against certain state net operating loss carryforwards


273,151


262,160


Nondeductible
  expenses


731,427


649,700


573,643Adjustment
  to deferred taxes previously provided


76,350





(557,854
)Other


165,083


155,355


$
(6,497,325
)
$
(12,407,910
)
$
7,822,361Effective
  tax rate


31.7
%

34.6
%

38.2
%The tax
  effects of temporary differences that give rise to significant portions of
  the deferred tax assets (liabilities) at March 31, 2006 and 2005 are
  presented below:F-26

FRONTIER AIRLINES, INC.Notes to Financial Statement, Continued2006

2005Deferred tax assets:Accrued
vacation

$
3,495,087

$
3,221,523Accrued
workers compensation liability


1,972,821


1,337,932Deferred
rent


7,222,807


6,870,147Impairments
recorded on inventory and fixed
  assets


2,187,923


3,067,165Net operating
loss carryforwards


95,011,866


75,357,782Alternative
minimum tax credit carryforward


1,757,517


1,757,517Accruals


2,339,801


788,868Deferred loan
fees and other assets


48,180


Other


225,678


1,536,672Deferred tax
assets


114,261,680


93,937,606Valuation
allowance


(535,311
)

(262,160
)Net deferred
tax assets


113,726,369


93,675,446Deferred tax
liabilities:Property and
Equipment


(117,235,484
)

(103,627,616
)Deferred loan
fees and other assets





(1,180,368
)Prepaid
commissions


(805,128
)

(363,615
)Other


(638,403
)

(362,329
)Total gross
deferred tax liabilities


(118,679,015
)

(105,533,928
)Net deferred
tax liabilities

$
(4,952,646
)
$
(11,858,482
)The net deferred tax
  assets (liabilities) are reflected in the accompanying balance sheet as
  follows:2006

2005Current deferred tax
assets

$
7,780,161

$
5,472,643Non-current deferred tax
liabilities


(12,732,807
)

(17,331,125
)Net deferred
tax liability

$
(4,952,646
)
$
(11,858,482
)During the
  years ended March 31, 2006 and 2005, the Company recorded valuation
  allowances against certain state net operating loss carryforwards. In
  assessing the realizability of deferred tax assets, management considers
  whether it is more likely than not that some portion of all of the deferred
  tax assets will not be realized. The ultimate realization of deferred assets
  is dependent upon the generation of future taxable income during the periods
  in which those temporary differences become deductible. Management considers
  the scheduled reversal of deferred tax liabilities, projected future taxable
  income, and tax planning strategies in making this assessment. Based upon the
  level of historical taxable income and projections for future taxable income
  over the periods in which the deferred tax assets are deductible, management
  believes it is more likely than not that the Company will realize the benefits
  of these deductible differences, net of the existing valuation allowances at
  March 31, 2006. The amount of the
deferred tax asset considered realizable, however,
could be reduced in the near term if estimates of future taxable income during
the carryforward period are reduced.F-27

FRONTIER AIRLINES, INC.
Notes to Financial Statements,
  continuedAs of March 31, 2005, the Company had federal net
operating loss carryforwards totaling $196,859,000, comprised of $45,638,000
that expires in 2023, $58,960,000 that expires in 2024 and $92,261,000 that
expires in 2025. During the year ended March 31, 2006, the Company generated an
estimated $51,888,000 in additional federal net operating loss carryforwards
which expires in 2026. As of March 31, 2006, the Company had an estimated total
federal net operating loss carryforwards of $248,747,000 and total state net
operating loss carryforwards of $216,225,000 which expire between 2008 and
2026.

12. 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.

The Company completed a secondary public offering of
5,050,000 shares of common stock in September 2003. The Company received
$81,077,000, net of offering expenses, from the sale of these shares.

Warrants and Stock Purchase Rights

In February 2003, the Company issued warrants to
purchase 3,833,946 shares of common stock at $6.00 per share to the Air
Transportation Stabilization Board, (ATSB) and to two other guarantors which
were exercisable immediately. The warrants had an estimated fair value of
$9,282,538 when issued and expire seven years after issuance. The fair value
for these options was estimated at the date of grant using a Black-Scholes
option pricing model. These warrants were subsequently repriced in September
2003 as a result of the Companys secondary public offering and again in December
2005 as a result of the Companys convertible debt offering to $5.87 per share.

F-28

FRONTIER AIRLINES, INC.
Notes to Financial Statements,
  continued13. Equity Based Compensation Plans

Stock Options

On September 9, 2004, the shareholders of the Company
approved the Frontier Airlines, Inc. 2004 Equity Incentive Plan (the 2004
Plan). The 2004 Plan, which includes stock options issued since 1994 under a
previous 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. Eligible
participants include all full-time director and officer level employees of the
Company, and such other employees as may be identified by the Compensation
Committee from time to time where legally eligible to participate, and
non-employee directors. 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 plan expires September 12,
2009. The 2004 Plan allows up to a maximum 2,500,000 shares for option grants
and 500,000 shares for restricted stock or restricted stock units, subject to
adjustment only to reflect stock splits and similar events. With certain
exceptions, stock options issued under this plan generally vest over a
five-year period from the date of grant and expire in ten years from the grant
date.

A summary of the stock option activity and related
information for the years ended March 31, 2006, 2005 and 2004 is as follows:

2006

2005

2004Options

Weighted-
Average 
Exercise 
Price

Options

Weighted-
Average 
Exercise 
Price

Options

Weighted-
Average 
Exercise 
PriceOutstanding-beginning
  of year


2,695,550

$
10.82


2,578,565

$
11.06


2,430,815

$
10.28Granted


60,000

$
12.23


210,000

$
7.91


522,500

$
11.41Exercised


(194,308
)
$
7.98


(51,500
)
$
6.54


(227,250
)
$
4.40Surrendered


(164,692
)
$
10.30


(41,515
)
$
16.21


(147,500
)
$
9.67Outstanding-end
  of year


2,396,550

$
11.13


2,695,550

$
10.82


2,578,565

$
11.06Exercisable at
  end of year


2,122,550

$
11.54


2,279,050

$
11.50


1,407,899

$
10.43The grant date fair value of the options granted
during the years ended March 31, 2006, 2005 and 2004 were $7.71, $5.47 and
$6.48, respectively.

F-29

FRONTIER AIRLINES, INC.
Notes to Financial Statements,
  continuedExercise prices for options outstanding under the 2004
Plan as of March 31, 2006 ranged from $2.13 per share to $24.17 per share. The
weighted-average remaining contractual life of those options is 5.5 years. A
summary of the outstanding and exercisable options at March 31, 2006,
segregated by exercise price ranges, is as follows:

Exercise Price
Range

Options 
Outstanding

Weighted-
Average
Exercise Price

Weighted-
Average
Remaining 
Contractual
Life (in years)

Exercisable 
Options

Weighted-
Average
Exercise Price$2.13 - $5.42

506,250


$
4.90

3.4


468,250


$
4.89$5.80 - $8.55

496,000


$
7.47

6.4


320,000


$
7.67$8.83 - $12.23

520,000


$
10.75

6.0


460,000


$
10.55$12.68 - $17.00

622,500


$
15.88

5.9


622,500


$
15.88$17.02 - $24.17

251,800


$
19.91

6.2


251,800


$
19.912,396,550


$
11.13

5.5


2,122,550


$
11.54Restricted Stock Units and Stock
Appreciation Rights

To better optimize the cost of the Companys equity
incentives under SFAS 123(R), the Company began to issue awards under the 2004
Plan that consisted of restricted stock units (RSUs) and stock appreciation
rights (SARs) rather than stock options. During the year ended March 31,
2006, the Company granted RSUs to acquire 85,221 shares of common stock and
SARs with respect to 197,964 shares of common stock.

The restricted stock awards issued to employees vest,
if the employee is still employed by the Company at the time, five years from
the grant date. Restricted stock issued to members of the Board of Directors
vest after three years. The fair value of the RSUs on the date of the grant is
recorded as compensation expense over the vesting period. The SARs are payable
only in stock and vest 20% a year over five years. The SARs entitle the
employee, once vested and exercised, to receive shares of the Companys common
stock having a value on the date of exercise equal to the excess of the fair
market value of the shares on the date of exercise over the fair market value
of the shares on the date of grant. Compensation expense for the SARs is based
on the difference between the market price of the award on the date of grant
and the current market price of the award. During the year ended March 31,
2006, compensation expense of $147,000 was recognized for these awards.

F-30

FRONTIER AIRLINES, INC.
Notes to Financial Statements, continuedA summary of the activity for RSUs and SARs are as
follows:

RSUs

SARsNumber of 
Restricted
Units

Weighted-
Average 
Grant Date 
Market Value

Number of 
Shares

Weighted-
Average 
Grant Date 
Fair ValueOutstanding-beginning of
  year




$





$
Granted


85,221

$
10.20


197,964

$
10.25Released


(55
)
$
11.28




$
Surrendered


(9,562
)
$
10.59


(29,727
)
$
10.12Outstanding-end of year


75,604

$
10.15


168,237

$
10.28SFAS No. 123

SFAS No. 123 establishes a fair value based method of
accounting for stock options. As discussed in Note 1, Nature of Business and
Summary of Significant Accounting Policies  Stock Based Compensation, the
Company has elected to continue using the intrinsic value method of accounting
prescribed in Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees, as permitted by SFAS No. 123.

The fair value of each option grant was estimated on
the date of grant using the Black-Scholes option valuation model with the
following assumptions:

2006

2005

2004Assumptions:Risk-free
  interest rate

4.06
%

3.35
%

2.97
%Dividend
yield

0
%

0
%

0
%Volatility

74.41
%

73.88
%

77.48
%Expected life
  (years)

5


7


5The Black-Scholes option valuation model was developed
for use in estimating the fair value of traded options which have no vesting
restrictions and are fully transferable. In addition, option valuation models
require the input of highly subjective assumptions including expected stock
price volatility. Because our stock options have characteristics significantly
different from those of traded options and because changes in the input
assumptions can materially affect the fair value estimate, in our opinion, the
existing models do not necessarily provide a reliable single measure of the
fair value of our stock options.

F-31

FRONTIER AIRLINES, INC.
Notes to Financial Statements,
  continued14. Retirement Plans

Employee Stock Ownership Plan

The Company has established an Employee Stock
Ownership Plan (ESOP) which is for the benefit of each employee of the
Company, except those employees covered by a collective bargaining agreement
that does not provide for participation in the ESOP. Company contributions to
the ESOP are discretionary and may vary from year to year. In order for an
employee to receive an allocation of Company common stock from the ESOP, the
employee must be employed on the last day of the ESOPs plan year, with certain
exceptions. The Companys annual contribution to the ESOP, if any, is allocated
among the eligible employees of the Company as of the end of each plan year in
proportion to the relative compensation (as defined in the ESOP) earned that
plan year by each of the eligible employees. The ESOP does not provide for
contributions by participating employees. Employees vest in contributions made
to the ESOP based upon their years of service with the Company. A year of
service is an ESOP plan year during which an employee has at least 1,000 hours
of service. Vesting generally occurs at the rate of 20% per year, beginning
after the first year of service, so that a participating employee will be fully
vested after five years of service. Distributions from the ESOP will not be
made to employees during employment. However, upon termination of employment
with the Company, each employee will be entitled to receive the vested portion
of his or her account balance. In November 2005, the Company negotiated a new
union contract in which employees covered by a union contract became
immediately vested in their accounts and received stock certificates for the
balance in their account.

During the year ended March 31, 2006, 2005 and 2004,
the Company contributed 400,000, 346,400 and 646,142 shares, respectively, to
the plan. Total Company contributions to the ESOP from inception through March
31, 2006 totaled 2,588,000 shares. The Company recognized compensation expense
during the years ended March 31, 2006, 2005 and 2004 of $2,969,000,
$2,940,000, and $2,499,000, respectively, related to its contributions to the
ESOP. Compensation expense under the ESOP plan is determined by multiplying the
number of the shares contributed by the fair market value of the shares on the
date contributed. The fair value of the unearned ESOP shares on March 9, 2006,
the date of grant, was $2,792,000. The fair value of the unearned ESOP shares on
March 31, 2006 was $3,080,000.

Retirement Savings Plan

The Company has established a Retirement Savings Plan
under section 401(k) of the Internal Revenue Code (401(k) Plan). Participants
may contribute from 1% to 60% of their pre-tax annual compensation up the
maximum amount allowed under the Internal Revenue Code. Participants are
immediately vested in their voluntary contributions.

The Companys Board of Directors has elected to match
50% of participant contributions up to 10% of salaries from May 2000 through
December 2006. During the years ended March 31, 2006, 2005, and 2004, the
Company recognized compensation expense associated with the matching
contributions totaling $4,201,000, $3,924,000, and $2,599,000, respectively.
Future matching contributions, if any, will be determined annually by the Board
of Directors. In order to receive the matching contribution, participants must
be employed on the last day of the plan year. Participants vest in
contributions made to the 401(k) Plan based upon their years of service with
the Company. A year of service is a plan year during which a participant has at
least 1,000 hours of service. Vesting generally occurs at the rate of 20% per
year, beginning after the first year of service, so that a participant will be
fully vested after five years of service. Upon termination of employment with
the Company, each participant will be entitled to receive the vested portion of
his or her account balance.

F-32

FRONTIER AIRLINES, INC.
Notes to Financial Statements, continuedRetirement Health Plans

In conjunction with the Companys collective
bargaining agreement with its pilots, retired pilots and their dependents, they
may retain medical benefits under the terms and conditions of the Health and
Welfare Plan for Employees of Frontier Airlines, Inc. (the Retirement Health
Plan) until age 65. The cost of retiree medical benefits are continued under
the same contribution schedule as active employees.

We regularly evaluate ways to better manage employee
benefits and control costs. Any changes to the plan or assumptions used to
estimate future benefits could have a significant effect on the amount of the
reported obligation and future annual expense.

The following table provides a reconciliation of the
changes in the benefit obligations under the Retirement Health Plan for the
years ended March 31, 2006 and 2005.

Reconciliation of benefit obligation:

2006

2005Obligation at beginning of period

$
4,574,772

$
3,680,511Service
cost


953,916


932,527Interest
cost


271,285


218,390Benefits
paid


(116,621
)

(16,756
)Net actuarial
  loss (gain)


(553,398
)

(239,900
)Obligation at end of period

$
5,129,954

$
4,574,772The following is a statement of the funded status as of March 31, 2006
and 2005:

2006

2005Funded status

$
(5,129,954
)
$
(4,574,772
)Unrecognized
net
  actuarial (gain) loss


680,235


1,294,318Accrued benefit liability

$
(4,449,719
)
$
(3,280,454
)Net periodic benefit cost of the Retirement Health
Plan for the years ended March 31, 2006, 2005, and 2004 include the following
components.

2006

2005

2004Service cost

$
953,916

$
932,527

$
640,082Interest cost


271,285


218,390


146,494Recognized net actuarial loss


60,685


89,430


61,410Net periodic benefit cost

$
1,285,886

$
1,240,347

$
847,986Assumed healthcare cost trend rates have a significant
effect on the amounts reported for the other post-retirement benefit plans. A
1% change in the healthcare cost trend rate used in measuring the
accumulated post-retirement benefit obligation
(APBO) at March 31, 2006, would have the following effects:

F-33

FRONTIER AIRLINES, INC.
Notes to Financial Statements,
  continued1% increase


1% decreaseIncrease (decrease) in total service and interest
  cost

$
158,629

$
(136,749
)Increase (decrease) in the APBO

$
604,874

$
(524,339
)The measurement dates used to determine the benefit
measurements for the plan are March 31, 2006, 2005 and 2004. The Company used
the following actuarial assumptions, which were based upon information
available as of the beginning of the fiscal year, to account for this
post-retirement benefit plan:

2006

2005

2004Weighted average discount rate

6.25
%

6.00
%

6.00
%Assumed healthcare cost trend (1)

9.50
%

9.50
%

10.00
%(1)
Trend rates were assumed to reduce until 2015 when
  an ultimate rate of 5.00% is reached.(2)The estimated benefit payments expected to be paid
  by the Retirement Health Plan, and funded by the Company, for the next ten
  years are as follows:


Fiscal year 2007

$
100,165Fiscal year 2008

$
212,994Fiscal year 2009

$
341,620Fiscal year 2010

$
411,985Fiscal year 2011

$
475,073Fiscal year 2012 - 2016

$
3,192,664Certain other union employees are included in a
multi-employer pension plan to which the Company makes contributions in
accordance with the union contract. Such contributions are made on a monthly
basis in accordance with the requirements of the union contract. Contributions
to multi-employer pension plans were $537,000, $471,000 and $424,000 for the
years ended March 31, 2006, 2005 and 2004, respectively.

F-34

FRONTIER AIRLINES, INC.
Notes to Financial Statements,
  continued15.
Earnings (Loss) Per Share

The following table sets forth the computation of basic
and diluted earnings (loss) per share:

2006

2005

2004Numerator:Numerator for
  basic earnings (loss) per share -Net income
  (loss)

$
(13,971,446
)
$
(23,430,186
)
$
12,635,135Denominator:Weighted
average
  shares outstanding, basic


36,166,972


35,641,370


32,732,567Effects of
  dilutive securities:Dilutive effect
  of employee stock options








582,150Dilutive effect
  of warrants








1,961,699Denominator for diluted earnings (loss) per share


36,166,972


35,641,370


35,276,416Earnings (loss) per share:Basic

$
(0.39
)
$
(0.66
)
$
0.39Diluted

$
(0.39
)
$
(0.66
)
$
0.36For the year ended March 31, 2006, interest, net of
tax, on the Convertible Notes in the amount of $1,027,000 and shares of
2,804,000 that would be issued upon assumed conversion of the Convertible
Notes, were excluded from the calculation of diluted loss per share due to the
antidilutive effect on loss per share. For the years ending March 31, 2006,
2005 and 2004, the weighted average options and warrants outstanding of 6,557,000,
6,529,000, and 1,556,000, respectively, were excluded from the calculation of
diluted earnings per share since the effect would have been anti-dilutive. For
the years ending March 31, 2004, the Company has excluded from the calculations
of diluted earnings per share 1,022,300 options, with exercise prices ranging
from $12.68 to $24.17, because the exercise price of the options was greater
than the average market price of the common stock for the respective year.

16. Concentration of Credit Risk

The Company does not believe it is subject to any
significant concentration of credit risk relating to receivables. At March 31,
2006 and 2005, 53.4% and 60.8% of the Companys receivables related to tickets
sold to individual passengers through the use of major credit cards, travel
agencies approved by the Airlines Reporting Corporation, tickets sold by other
airlines and used by passengers on Company flights, manufactures credits and
the Internal Revenue Service. Receivables related to tickets sold are short-term,
generally being settled shortly after sale or in the month following ticket
usage.

F-35

FRONTIER
AIRLINES, INC.

Notes
  to Financial Statements, continued17.  Commitments and Contingencies

Legal Proceedings
  and InsuranceFrom time to time, the Company is engaged in routine
  litigation incidental to our business.
  The Company believes there are no legal proceedings pending in which
  the Company is a party or of which any of our property may be subject to that
  are not adequately covered by insurance maintained by us, or which, if
  adversely decided, would have a material adverse affect upon its business or
  financial condition.Recently, the Companys
  services to Cancun, Mexico and New Orleans, Louisiana were disrupted by
  hurricanes and other extreme weather that impacted the Companys service
  levels to these destinations, revenues and operating costs.  The Company maintains business
  interruption insurance to cover lost profits and has made claims to recover
  loss profits related to these events.
  The Company has not recorded any anticipated recoveries as a final
  settlement of the claims has not been reached.Purchase CommitmentsAs of March 31, 2006, the
  Company has remaining firm purchase commitments for 17 additional aircraft,
  which have scheduled delivery dates beginning in June 2006 and continuing
  through August 2010.  The Company has
  also committed to lease as many as three additional A319 aircraft from third
  party lessors over the next year.  The
  Company is not under any contractual obligations with respect to spare parts.  Under the terms of the purchase agreement,
  the Company is required to make scheduled pre-delivery payments for these
  aircraft.  These payments are
  non-refundable with certain exceptions. As of March 31, 2006, pre-delivery
  payments on future deliveries were made totaling $40,449,000 to secure these
  aircraft.The Company has aggregate additional amounts due
  under these purchase commitments and estimated amounts for buyer-furnished
  equipment, spare parts for both the purchased and leased aircraft and to
  equip the aircraft with LiveTV. In addition, the Company has commercial
  commitments under an agreement with SabreSonic
  for its SabreSonic passenger solution to power the reservations and check-in
  capabilities along.  The estimated
  aggregate amount for these purchase commitments is $670,759,000; $152,638,000
  which is due in fiscal year 2007.  We
  have obtained financing for all of our aircraft deliveries through June 2007
  and expect to have adequate liquidity to cover our contractual obligations.EmployeesAs of March 31, 2006, the Company had approximately
  4,800 employees, of which approximately 21% are represented by unions.  Of those employees covered by collective
  bargaining agreements, approximately 62% presently have contracts under
  negotiation or becoming amendable in fiscal year 2007.  The Company believes that mutually
  acceptable agreements can be reached with such employees, although the
  ultimate outcome of the negotiations is unknown at this time.F-36

FRONTIER
AIRLINES, INC.

Notes
  to Financial Statements, continued18.
Government Assistance

Emergency Wartime Supplemental
  Appropriations ActThe Emergency Wartime
  Supplemental Appropriations Act (the Appropriations Act) enacted on April
  16, 2003, which made available approximately $2.3 billion to U.S. flag air
  carriers for expenses and revenue foregone related to aviation security.  In order to have been eligible to receive a
  portion of this fund, air carriers must have paid one or both of the TSA
  security fees, the September 11th Security Fee and/or the Aviation Security
  Infrastructure Fee as of the date of enactment of the Appropriations
  Act.  According to the Appropriations
  Act, an air carrier may use the amount received as the air carrier
  determines.  The Appropriations Act
  requires air carriers who accept these funds to limit the compensation paid
  during the 12 month period beginning April 1, 2003 to each executive officer
  to an amount equal to no more than the annual salary paid to that officer
  with respect to the air carriers fiscal year 2002.  Pursuant to the Appropriations Act, the Company received
  $15,573,000 in May 2003, of which $549,000 was paid to Mesa Air Group for the
  revenue passengers Mesa carried as Frontier JetExpress.The Appropriations Act
  provides for additional reimbursements to be made to U.S. flag air carriers
  for costs incurred related to the FAA requirements for enhanced flight deck
  door security measures that were mandated as a result of the September 11
  terrorist attacks.  Pursuant to the
  Appropriations Act, the Company received $889,000 in September 2003 for expenses
  related to the installation of enhanced flight deck doors on its
  aircraft.  Upon receipt of the
  $889,000 reimbursement, the Company credited maintenance expense and charged
  fixed assets for the labor component of the flight deck door installation,
  and correspondingly credited property, plant, and equipment to reflect the
  reimbursement.19.Selected
Quarterly Financial Data (Unaudited)
First 
  Quarter
  
  Second
  Quarter
  
  Third
  Quarter
  
  Fourth
  Quarter2006Revenues
  
  $
  236,410,061
  
  $
  258,423,479
  
  $
  246,962,560
  
  $
  252,476,646Operating Expenses
  
  $
  237,632,907
  
  $
  244,788,895
  
  $
  258,626,176
  
  $
  261,122,022Net loss
  
  $
  (2,733,748
  )
  $
  6,905,352
  
  $
  (10,290,220
  )
  $
  (7,852,830
  )Loss per share:Basic
  
  $
  (0.08
  )
  $
  0.19
  
  $
  (0.28
  )
  $
  (0.22
  )Diluted
  
  $
  (0.08
  )
  $
  0.18
  
  $
  (0.28
  )
  $
  (0.22
  )2005Revenues
  
  $
  192,423,070
  
  $
  214,434,774
  
  $
  208,237,471
  
  $
  218,544,126Operating Expenses
  
  $
  200,232,227
  
  $
  215,031,732
  
  $
  223,520,909
  
  $
  221,302,068Net loss
  
  $
  (6,573,718
  )
  $
  (2,081,970
  )
  $
  (11,058,044
  )
  $
  (3,716,454
  )Loss per share:Basic
  
  $
  (0.18
  )
  $
  (0.06
  )
  $
  (0.31
  )
  $
  (0.10
  )Diluted
  
  $
  (0.18
  )
  $
  (0.06
  )
  $
  (0.31
  )
  $
  (0.10
  )
F-37

FRONTIER
AIRLINES, INC.

Notes
  to Financial Statements, continued20. Subsequent Events

ReorganizationOn April 3, 2006, Frontier
  Airlines, Inc. (Frontier) completed its reorganization (the
  Reorganization) into a Delaware holding company structure, whereby Frontier
  became a wholly owned subsidiary of Frontier Airlines Holdings, Inc., a
  Delaware corporation (Frontier Holdings). In connection with the
  Reorganization, each share of common stock of Frontier (Frontier Common
  Stock) was exchanged for one share of common stock of Frontier Holdings
  (Frontier Holdings Common Stock), resulting in each shareholder of Frontier
  as of the close of business on March 31, 2006 becoming a stockholder of
  Frontier Holdings as of the opening of business on April 3, 2006.Frontier Holdings assumed
  all of the outstanding options and awards under Frontiers 2004 Equity
  Incentive Plan effective upon the closing of the Reorganization. Each
  outstanding option and other award assumed by Frontier Holdings is
  exercisable or issuable upon the same terms and conditions as were in effect
  immediately prior to the completion of the Reorganization, except that all
  such options and awards now entitle the holder thereof to purchase Frontier
  Holdings Common Stock in accordance with the terms of such plan or agreement
  as in effect on the date of issuance. The number of shares of Frontier
  Holdings Common Stock issuable upon the exercise or issuance of such an option
  or award after the completion of the Reorganization equals the number of
  shares of Frontier Common Stock subject to the option or award prior to the
  completion of the Reorganization.Also in connection with
  the Reorganization, Frontiers Employee Stock Ownership Plan was amended to
  provide that future awards under the plan will be made in shares of Frontier
  Holdings Common Stock.ATSB WarrantsIn May 2006, the ATSB transferred ownership all of
  their outstanding warrants to seven institutional investors (see Note 12).F-38