<PAGE>
 
                                   FORM 10-K

                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C.  20549
 
[X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE 
     ACT OF 1934
     For the fiscal year ended March 31, 1998
 
[ ]  TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE 
     ACT OF 1934
 
Commission file number:  0-24126
 
                            FRONTIER AIRLINES, INC.
            ------------------------------------------------------
            (Exact name of registrant as specified in its charter)
 
              Colorado                                     84-1256945
  -------------------------------           ------------------------------------
  (State or other jurisdiction of           (I.R.S. Employer Identification No.)
   incorporated or organization)                                      
 
    12015 E. 46th Avenue, Denver, CO                         80239
----------------------------------------                   ----------
(Address of principal executive offices)                   (Zip Code)

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

Securities registered pursuant to Section 12(b) of the Act:  None

Securities registered pursuant to Section 12(g) of the Act:

                          Common Stock, No Par Value
                          --------------------------
                                Title of Class

Indicate by check  mark whether the Registrant (1) filed all reports required to
be filed by Section 13 or 15(d) of the 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 
           ---     ---

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 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 or any amendment to this Form 10-K.  [X]

Aggregate Market Value of Stock held by Non-Affiliates of the Company as of June
23, 1998:  $31,076,647, based on a closing average bid and asked price on that
date of $3.44 per share.

The number of shares of the Company's Common Stock outstanding as of June 24,
1998 is 13,616,564.

Documents incorporated by reference - Part III is incorporated by reference to
the company's 1998 Proxy Statement.
<PAGE>
 
                                 TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                       Page
                                                                                       ----
<C>                   <S>                                                              <C>
               
PART I         
               
     Item 1:          Description of Business........................................     1
     Item 2:          Description of Property........................................     9
     Item 3:          Legal Proceedings..............................................     9
     Item 4:          Submission of Matters to a Vote of Security Holders............    10
               
PART II        
               
     Item 5:          Market for Common Equity and Related Stockholder Matters.......    10
     Item 6:          Selected Financial Data........................................    13
     Item 7:          Management's Discussion and Analysis of Financial Condition and
                      Results of Operations..........................................    14
     Item 8:          Financial Statements...........................................    28
     Item 9:          Changes in and Disagreements with Accountants on Accounting and
                      Financial Disclosure...........................................    28
               
PART III       
               
     Item 10:         Directors and Executive Officers of the Registrant.............    28
     Item 11:         Executive Compensation.........................................    28
     Item 12:         Security Ownership of Certain Beneficial Owners and Management.    28
     Item 13:         Certain Relationships and Related Transactions.................    28
               
PART IV        
               
     Item 14:         Exhibits, Financial Statement Schedules and Reports on 
                      Form 8-K.......................................................    29
 
</TABLE>
<PAGE>
 
                                     PART I
                                        
This report contains forward-looking statements within the meaning of Section
21E of the Securities Exchange Act of 1934 that describe the business and
prospects of Frontier Airlines, Inc. (the "Company") and the expectations of the
Company and management.  When used in this document, the words "estimate,"
"anticipate," "project" and similar expressions are intended to identify
forward-looking statements.  These statements are subject to certain risks and
uncertainties that could cause actual results to differ materially from those
set forth.  These risks and uncertainties include, but are not limited to:  the
timing of, and expense associated with, expansion and modification of the
Company's operations in accordance with its business strategy or in response to
competitive pressures or other factors such as the Company's commencement of
passenger service and ground handling operations at several airports and
assumption of maintenance and ground handling operations at DIA with its own
employees; general economic factors and behavior of the fare-paying public and
the federal government, such as the crash in May 1996 of another low-fare
carrier's aircraft that resulted in a federal investigation of the carrier,
suspension of the carrier's operations and increased federal scrutiny of low-
fare carriers generally that may increase the Company's operating costs or
otherwise adversely affect the Company; actions of competing airlines, such as
increasing capacity and pricing actions of United Airlines and other
competitors; the current limited supply of Boeing 737 aircraft and the higher
lease and maintenance  costs associated with such aircraft, which may inhibit
the Company's ability to achieve operating economies and implement its business
strategy; recent changes to the former air transportation excise tax of 10% to a
combination of a percentage tax and flight segment fee; and uncertainties
regarding aviation fuel prices.  Because the Company's business, like that of
the airline industry generally, is characterized by high fixed costs relative to
revenues, small fluctuations in the Company's yield per RPM or expense per ASM
can significantly affect operating results.

ITEM 1:  DESCRIPTION OF BUSINESS

GENERAL

   The Company is a low-fare, full-service commercial airline based in Denver,
Colorado.  The Company currently operates routes linking its Denver hub to 14
cities in 12 states spanning the nation from coast to coast. The Company's
current route system extends from Denver to Los Angeles and San Francisco,
California; Chicago and Bloomington/Normal, Illinois; Boston, Massachusetts;
Baltimore, Maryland; Seattle/Tacoma, Washington; Phoenix, Arizona;
Minneapolis/St. Paul, Minnesota; Salt Lake City, Utah; Omaha, Nebraska;
Albuquerque, New Mexico, New York (LaGuardia), New York; and El Paso, Texas.
The Company has announced plans to additionally serve San Diego, California,
starting July 23, 1998.  At present, the Company utilizes four gates at Denver
International Airport ("DIA") for approximately 60 daily flight departures and
arrivals.

   Organized in February 1994, the Company commenced flight operations in July
1994 with two leased Boeing 737-200 jet aircraft.   It has since expanded its
fleet to 14 leased jets, including seven Boeing 737-200s and seven larger Boeing
737-300s.

   The Company's senior management team includes executives with substantial
experience in the airline industry, including persons who occupied similar
positions at a former airline called Frontier Airlines that served regional
routes to Denver from 1950 to 1986.  From time to time, the former Frontier
Airlines served most of the Company's current and intended markets with jet
equipment from its Denver hub.

TERMINATED MERGER WITH WESTERN PACIFIC AIRLINES

   On June 30, 1997, the Company signed an Agreement and Plan of Merger ("the
Merger Agreement") providing for the merger (the "Merger") of the Company with
Western Pacific Airlines ("Western Pacific"), a low-fare airline that had
previously used Colorado Springs, Colorado as its base of flight operations.
The Merger Agreement was signed following Western Pacific's shift of a portion
of its flight operations to DIA, and its announced intent to further expand its
operations at DIA.  Pursuant to the Merger Agreement, a "code share" marketing
alliance between the Company and Western Pacific went into effect on August 1,
1997, in effect integrating the route networks of the two airlines.

                                      -1-

<PAGE>
 
   On September 29, 1997, both companies mutually agreed to terminate the Merger
Agreement and the code-share arrangement.  The separation of the two carriers
required the Company to implement a costly restructuring of its flight schedule
and route system to support a stand-alone operation competing against both
Western Pacific and United Airlines, the dominant air carrier at DIA.  On
October 5, 1997, Western Pacific filed for protection under Chapter 11 of the
U.S. Bankruptcy Code.  Western Pacific ceased operations on February 4, 1998 and
is in the process of  liquidating its business.

BUSINESS STRATEGY AND MARKETS

   The Company's business strategy is to provide service at low fares to high
volume markets from its Denver hub.  The strategy is based on the following:

     *  Filling gaps in flight frequencies in high volume Denver markets.

     *  Stimulating demand by offering a combination of low fares, quality
        service and frequent flyer credits in Continental Airlines' OnePass
        program.

     *  Expanding its Denver hub operation and increasing its connecting traffic
        through the addition of service to other high volume markets.

   The Company's initial service pattern in 1994 was designed to fill flight
voids on routes to eight relatively small cities in North Dakota and Montana
where there was little or no jet competition to Denver after Continental's
flight terminations.  The Company has since refocused its marketing priorities
on more heavily traveled routes -typically markets dominated by one or more
major airlines and characterized by high fares due to the lack of low-fare
competition prior to the Company's entry.  In line with its revised marketing
strategy, the Company in 1995 and 1996 suspended service in all eight of its
original markets, and redeployed the aircraft used on these routes to a  number
of Denver's largest markets.

                                      -2-
<PAGE>
 
   The following table sets forth the Company's service commencements and
suspensions for the four-year period from its initiation of flight operations in
July 1994 through June 1998.
<TABLE>
<CAPTION>
 
 
 
                                             Service                            Service
Denver Market                               Commenced                          Suspended
-------------                               ---------                          ---------
<S>                                         <C>                              <C>
Bismarck, ND                                July 1994                        September 1996
Fargo, ND                                   July 1994                        September 1996
Grand Forks, ND                             July 1994                        January 1995
Minot, ND                                   July 1994                        January 1995
Bozeman, MT                                 August 1994                      September 1995
Missoula, MT                                August 1994                      September 1995
Billings, MT                                September 1994                   September 1995
Great Falls, MT                             September 1994                   September 1995
Tucson, AZ                                  October 1994                     April 1995
Albuquerque, NM                             October 1994
El Paso, TX                                 October 1994
Omaha, NE                                   January 1995
Las Vegas, NV                               January 1995                     August 1997
Phoenix, AZ                                 September 1995
Chicago (Midway), IL                        September 1995
Los Angeles, CA                             November 1995
Minneapolis, MN                             November 1995
Salt Lake City, UT                          November 1995
San Francisco, CA                           November 1995
Seattle, WA                                 May 1996
St. Louis, MO                               June 1996                        November 1997
San Diego, CA                               June 1996                        November 1997(a)
Bloomington,/Normal, IL(b)                  January 1997
Boston, MA                                  September 1997
Baltimore, MD                               November 1997
New York (LaGuardia), NY                    December 1997
</TABLE>

(a)  Flights are scheduled to resume on July 23, 1998
(b)  Flights are operated on Denver-Omaha-Bloomington/Normal routings.

   The Company plans to introduce low-fare service in additional high volume
markets.  Management believes that potential markets for its planned route
expansions can support greater flight capacity than is now provided by the
incumbent carriers and that passengers would welcome the restoration of
additional capacity, particularly at the low fares offered by the Company.

MARKETING

   The Company's sales efforts are targeted to price-sensitive passengers in
both the leisure and corporate travel markets.  In the leisure market, the
Company offers deeply discounted fares marketed through newspaper, radio and
television advertising along with special promotions throughout its route
system.

                                      -3-
<PAGE>
 
   To balance the seasonal changes in demand in the leisure market, the Company
in late 1996 introduced a number of programs designed to capture a larger share
of the less seasonally affected corporate market.  These programs include
negotiated fares for large companies that sign contracts for a specified volume
of travel, future travel credits for small and medium size businesses
contracting with Frontier, and special discounts for members of trade and
nonprofit associations.

   The Company also pursues sales opportunities with meeting and convention
arrangers, government travel offices and vacation clubs. Personal sales calls,
direct mail and telemarketing are the primary tools in attracting this business.
The Company offers air/ground vacation packages to many destinations on its
route system under contract with a tour operator.

   An important marketing tool in today's airline environment is the frequent
flyer program. The Company joined Continental's OnePass program in January 1995.
The selection of OnePass was based on the established membership base in the
cities served by the Company and the consistent high marks that the program has
received when compared with other programs.

   The Company has implemented marketing strategies to maintain relationships
with travel agencies throughout its route system. The Company communicates with
the travel agents through personal visits by Company executives and sales
managers, mailings of sales literature, telemarketing and advertising in the
travel agents' trade publications.

   The Company participates in the four major computer reservation systems used
by the travel agents to make airline reservations.  The Company also maintains a
reservations center in Denver, operated by its own personnel, and an "overflow"
center located in Miami, Florida, staffed by contract personnel, which assists
the Denver center during peak booking periods.  In addition, the Company
maintains a booking capability on its Internet site, and makes limited numbers
of seats available to several travel consolidators specializing in very-low-
price bookings.  Since early 1997 the Company has been making increasingly
greater use of electronic or "paperless" ticketing, a lower cost alternative to
ticketing passengers on relatively expensive ticket stock.

   To gain connecting traffic from other carriers, the Company has negotiated
various types of interline agreements with approximately 95 domestic and
international airlines serving cities on the Company's route system. Generally,
the agreements include joint ticketing and baggage services and other
conveniences designed to expedite the connecting process.  The Company has a
code share agreement with Aspen Mountain Air with respect to Aspen Mountain
Air's routes between DIA and Aspen, Colorado; Bozeman, Montana; and Sioux City,
Iowa.  Among various sales benefits, these agreements provide prominent listings
of the carriers' connecting flights in the travel industry's computer
reservations systems.

PRODUCT PRICING

   The Company  offers all of its seats at various discount fares, which it
believes reduces the cost of travel in markets it enters by as much as 60
percent.  Seat inventories on each flight are managed through a yield management
system.  The Company generally offers discounts with three levels of advance
purchase requirements.  In contrast to most carriers, the Company generally does
not require travelers to have a Saturday overnight stay to take advantage of
these discount rates.  Unlike most other carriers, the Company does not charge a
premium for one-way fares.

Competition

   The Airline Deregulation Act of 1978 (the "Deregulation Act") produced a
highly competitive airline industry, freed of certain 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
small carriers such as the Company have entered markets long dominated by large
airlines with substantially greater resources such as United Airlines, American
Airlines, Northwest Airlines and Delta Air Lines.

                                      -4-

<PAGE>
 
   As shown in the following chart, as of June 1998, the Company competes
principally with United Airlines, the dominant carrier at DIA with a market
share of approximately 70%.  This gives United a significant competitive
advantage compared to the Company and other carriers serving DIA.


<TABLE>
<CAPTION>
 
NONSTOP ROUTES FROM DENVER TO:  COMPETING AIRLINES                             DAILY ROUND TRIPS
------------------------------  ------------------                             -----------------
                                                                                            Competing
                                                                             Frontier        Airlines
                                                                             --------       ---------
<S>                              <C>                                         <C>            <C> 
San Francisco, California        United Airlines                                 3              17  
Minneapolis, Minnesota           United Airlines, Northwest Airlines             2              12  
Salt Lake City, Utah             United Airlines, Delta Air Lines                2              15  
Los Angeles, California          United Airlines                                 3              19  
Phoenix, Arizona                 United Airlines, America West                   
                                  Airlines                                       3              19  
Chicago (Midway), Illinois       American Trans Air                              3               2  
Omaha, Nebraska                  United Airlines                                 3               5  
Albuquerque, New Mexico          United Airlines                                 2               8  
El Paso, Texas                   Southwest Airlines and Delta Air                       
                                  Lines                                          2*              6  
                                  (to and from Albuquerque)                
Seattle, Washington              United Airlines                                 2              11  
Bloomington/Normal, Illinois                                                     1**             0  
Boston, Massachusetts            United Airlines                                 1               6                     
Baltimore, Maryland              United Airlines                                 1               5                     
New York (LaGuardia), New York   United Airlines                                 2               6                  
</TABLE> 
*  Operated via Albuquerque, New Mexico
** Operated via Omaha, Nebraska

   While United Airlines' competitive reaction to the Company's market entries
had generally been limited to matching its lowest fares on a capacity controlled
basis, the Company believes that United began engaging in a number of predatory
practices in the fall of 1996, following the Company's report of its second
quarterly profit.  In a written complaint submitted to the U.S. Department of
Justice ("DOJ") in February 1997, the Company requested the DOJ to investigate
eight separate counts of potential antitrust violations.  These include
"capacity dumping" (adding an excessive volume of flight capacity in several of
the Company's key markets), alleged pricing abuses, "exclusive dealing" with
corporate customers, and other tactics.  See "Legal Proceedings."

   In a related matter, the U.S. Department of Transportation ("DOT"), in
response to complaints by the Company and other smaller airlines, in April 1998
published a number of proposed guidelines designed to identify predatory
practices in the airline industry, along with enforcement policies.  These
issues are also currently addressed at a series of ongoing hearings being held
before transportation committees of the U.S. Senate and the U.S. House of
Representatives.  The Company is unable to predict what actions, if any, will be
taken either by the DOT or by Congress with respect to these issues.

                                      -5-
<PAGE>
 
AIRCRAFT

   As of June 1998, the Company operates 14 leased Boeing 737 twinjet aircraft
in all-coach seating configurations.  The age of these aircraft, their passenger
capacities and their lease expirations are shown in the following table:


<TABLE>
<CAPTION>
 
     Aircraft            No. of              Year of            Passenger               Lease
      Model             Aircraft           Manufacture           Seats                Expiration
------------------ ------------------  ------------------  ------------------  ---------------------
<S>                <C>                 <C>                 <C>                 <C>
B-737-200                       5            1968-1969                 108           July-October
                                                                                        1999
B-737-200A                      2              1981                    119          2001(1), 2002(1)
B-737-300                       7           1985, 1986,              136(5),            2000(2),
                                        1991, 1997(3), 1998          138(2)         2004(2), 2005(3)
</TABLE>

   The Company's aircraft fleet is currently in compliance with Stage 3 noise
level requirements.  See "Description of Business - Government Regulation."
However, 75% of the Company's fleet must be in compliance by January 1, 1999 and
100% must be in compliance by January 1, 2000.  If the Company is unable to
secure three additional Stage 3 aircraft by December 31, 1998, it will be
required to remove two of its non-Stage 3 Boeing 737-200 aircraft from its
certificate or retrofit an existing Stage 2 aircraft to Stage 3 compliance in
order to remain in compliance with the Stage 3 noise level requirements.

   The demand for Boeing 737 aircraft has increased markedly in recent years.
The Company is seeking to lease additional aircraft in order to expand its
service and route system.  However, there can be no assurance that additional
suitable aircraft will be available to the Company at favorable lease rates and
terms, or at the times needed for implementation of the Company's plan of
operation. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations-Liquidity and Capital Resources."

MAINTENANCE AND REPAIRS

   All aircraft maintenance and repairs are accomplished in accordance with the
Company's maintenance program approved by the United States Federal Aviation
Administration ("FAA"). Spare or replacement parts are maintained by the Company
primarily in Denver.  Certain of these parts are supplied through a contractual
arrangement with a major airline, with others purchased or leased from other
airline or vendor sources. There are two categories of aircraft maintenance and
repair: routine servicing and checks accomplished on a daily or weekly schedule,
and major maintenance. Routine maintenance is performed principally by the
Company's mechanics at its own maintenance facilities in Denver, Colorado, and
El Paso, Texas.  The Company's major maintenance has been principally performed
by Tramco, a subsidiary of B.F. Goodrich.

   The Company terminated a contract with Continental Airlines for routine
maintenance at Denver in August 1996.  Since that time the Company has trained,
staffed and supervised its own maintenance work force at Denver.  The Company
leases a portion of Continental Airlines' hangar at DIA where it presently
performs its own maintenance through the "B" check level.  Major maintenance
continues to be performed by outside FAA approved contractors.

   Under its aircraft lease agreements, the Company pays all expenses relating
to the maintenance and operation of the Company's aircraft, and the Company is
required under its lease agreements to pay monthly maintenance reserve deposits
to the lessors based on usage. Maintenance reserve deposits are applied against
the cost of major maintenance.  Major maintenance has occurred or will occur for
two of the Company's aircraft in the fiscal year ending March 31, 1999.  To the
extent not used for major maintenance during the lease terms, maintenance
reserve deposits remain with the aircraft lessors upon redelivery of the
aircraft.

   The Company's monthly completion factors for its years ending March 31, 1998,
1997 and 1996 ranged from 92.8% to 99.9%, from 94% to 99.8%, and from 95% to
99%, respectively.  The completion factor is the percentage 

                                      -6-
<PAGE>
 
of the Company's scheduled flights that were operated by the Company (i.e., not
canceled). Flights not completed were canceled principally as a result of
mechanical problems, and to a lesser extent, weather. There can be no assurance
that the Company's aircraft will continue to be sufficiently reliable over
longer periods of time.

FUEL

   During the years ending March 31, 1998, 1997 and 1996, jet fuel accounted for
14.1%, 16.6% and 15.4%, respectively, of the Company's operating expenses.  The
Company has arrangements with major fuel suppliers for substantial portions of
its fuel requirements, and management believes that such arrangements assure an
adequate supply of fuel for current and anticipated future operations. However,
the Company has not entered into any agreements that fix the price of fuel over
any period of time. Jet fuel costs are subject to wide fluctuations as a result
of sudden disruptions in supply beyond the Company's control. Therefore, the
future availability and cost of jet fuel cannot be predicted with any degree of
certainty.  The Company's average fuel price per gallon including taxes and
into-plane fees was 70.5c for the year ended March 31, 1998, with the monthly
average price per gallon during the same period ranging from a low of 61.7c to a
high of 82.7c.  As of June 5, 1998, the price per gallon was 58.3c.

   Newer aircraft are more fuel efficient than the Company's Boeing 737-200
aircraft due to improved aircraft airframe design and engine technology.
Significant increases in the price of jet fuel would result in a higher increase
in the Company's overall total costs than those of competitors whose entire
fleet consists of more fuel efficient aircraft such as the Company's Boeing 737-
300 aircraft.   Increases in fuel prices or a shortage of supply could have a
material adverse affect on the Company's operations and financial results. The
Company's ability to pass on increased fuel costs to passengers through price
increases or fuel surcharges may be limited, particularly given the Company's
low fare strategy.

INSURANCE

   The Company carries $600 million per aircraft per occurrence in property
damage and passenger and third-party liability insurance, and insurance for
aircraft loss or damage as required by its aircraft lease agreements, and
customary coverage for other business insurance. While the Company believes such
insurance is adequate, there can be no assurance that such coverage will fully
protect it against all losses which it might sustain. Moreover, the Company's
insurance for aircraft loss or damage carries a deductible requiring the Company
to pay up to the first $500,000 of loss or damage unless the aircraft is
determined to be a total loss. The Company's property damage and passenger and
third-party liability insurance coverage exceeds the minimum amounts required by
the DOT regulations.

EMPLOYEES

   As of June 15, 1998, the Company had 942 employees, including 828 full-time
and 114 part-time personnel. The Company's employees included 128 pilots, 178
flight attendants, 266 customer service agents, 115 reservations agents, 77
mechanics and related personnel, 140 general management personnel, and 38
personnel performing other miscellaneous functions. The Company considers its
relations with its employees to be good.

   The Company believes it operates with lower personnel costs than many
established airlines, principally due to lower base salaries and greater
flexibility in the utilization of personnel. There can be no assurance that the
Company will continue to realize these advantages over established or other air
carriers for any extended period of time. None of the Company's employees is
represented by a labor union, although labor unions have approached certain of
the Company's employees concerning potential representation.  If unionization of
the Company's employees occurs, the Company's labor costs could materially
increase.

   Training, both initial and recurring, is required for many employees. Pilots,
flight attendants, ground service personnel, reservationists and mechanics are
trained by the Company. FAA regulations require pilots to be licensed as
commercial pilots, with specific ratings for aircraft to be flown and to be
medically certified as physically fit. Licenses and medical certification are
subject to periodic continuation requirements including recurrent training and
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. 

                                      -7-
<PAGE>
 
Training programs are subject to approval and monitoring by the FAA. Management
personnel directly involved in the supervision of flight operations, training,
maintenance and aircraft inspection must meet experience standards prescribed by
FAA regulations. Employees performing safety-sensitive functions are subject to
pre-employment and subsequent random drug and alcohol testing.

GOVERNMENT REGULATION

   All interstate air carriers are subject to regulation by the DOT and the FAA
under the Federal Aviation Act. The DOT's jurisdiction extends primarily to the
economic aspects of air transportation, while the FAA's regulatory authority
relates primarily to air safety, including aircraft certification and
operations, crew licensing and training and maintenance standards.

   In general, regulation of interstate air carriers in terms of market entry
and exit, pricing and inter-carrier agreements has been greatly reduced
subsequent to enactment of the Deregulation Act. As a result, the level of
regulation to which the Company and other airlines is subject has been greatly
reduced. By the same token, the availability to the Company of regulatory
protection from competition has been virtually eliminated.

   U.S. Department of Transportation. The Company holds a Certificate of Public
Convenience and Necessity ("DOT Certificate") issued by the DOT which allows the
Company to engage in air transportation. Pursuant to law and DOT regulation,
each United States carrier must qualify as a United States citizen, which
requires that its 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 its voting stock may be owned by foreign nationals, and that
the carrier not be otherwise subject to foreign control.

   U.S. Federal Aviation Administration. The Company also holds an operating
certificate ("FAA Certificate") issued by the FAA pursuant to Part 121 of the
Federal Aviation Regulations. The FAA has jurisdiction over the regulation of
flight operations generally, including the licensing of pilots and maintenance
personnel, the establishment of minimum standards for training and maintenance,
and technical standards for flight, communications and ground equipment. The
Company must have and maintains FAA certificates of airworthiness for all of its
aircraft. The Company's flight personnel, flight and emergency procedures,
aircraft and maintenance facilities are subject to periodic inspections and
tests by the FAA.

   In May 1996, a relatively new domestic airline, as is the Company, sustained
an accident in which one of its aircraft was destroyed and all persons on board
were fatally injured.  In June 1996, that airline agreed at the FAA's request to
cease all of its flight operations for an indefinite period of time.  Although
the FAA has subsequently, after an intensive and lengthy investigation, allowed
the new domestic airline to resume its operations, should the Company experience
a similar accident, it is probable that there would be a material adverse effect
on the Company's business.

   The DOT and FAA also have authority under the Aviation Safety and Noise
Abatement Act of 1979, the Airport Noise and Capacity Act of 1990 ("ANCA") and
Clean Air Act of 1963 to monitor and regulate aircraft engine noise and exhaust
emissions. The Company is required to comply with all applicable FAA noise
control regulations and with current exhaust emissions standards. According to
FAA rules, each new entrant airline such as the Company must presently have at
least 50% of its fleet in compliance with the FAA's Stage 3 noise level
requirements. The balance of each airlines' fleet must be brought into
compliance with Stage 3 in phases, with 75% compliance by January 1999 and full
compliance by January 2000.  The Company's aircraft fleet is currently in
compliance with Stage 3 noise level requirements.   See "Description of
Business-Aircraft."

   As a result of litigation and pressure from airport area residents, airport
operators have taken local 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 night time hours,
restrictions on frequency of aircraft operations and various operational
procedures for noise abatement. ANCA recognizes the right of airport operators
with special noise problems to implement local noise abatement procedures as
long as such procedures do not interfere unreasonably with the interstate and
foreign commerce of the national air transportation system. ANCA generally
requires FAA approval of local noise restrictions on Stage 3 aircraft and
establishes a regulatory notice and review 

                                      -8-
<PAGE>
 
process for local restrictions on Stage 2 aircraft. An agreement between the
City and County of Denver and another city adjacent to DIA precludes the use of
Stage 2 aircraft, such as certain of the Company's Boeing 737-200 aircraft, on
one of DIA's runways. On occasion, this results in longer taxi times for the
Company's aircraft than would otherwise be the case. However, this has not had a
material adverse effect on the Company's operations. The Company's operations
could be adversely affected if additional restrictions are imposed at DIA or if
locally-imposed regulations become restrictive at any other cities on the
Company's routes.

   Miscellaneous. All air carriers are also 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 ("FCC"). To the extent that
the Company is subject to FCC requirements, it takes all necessary steps to
comply with those requirements.

   The Company's operations may become subject to additional federal regulatory
requirements in the future under certain circumstances. For example, if the
Company's employees were to unionize, the Company's labor relations would be
covered under Title II of the Railway Labor Act of 1926 and would be subject to
the jurisdiction of the National Mediation Board. During a period of past fuel
scarcity, air carrier access to jet fuel was subject to allocation regulations
promulgated by the Department of Energy. To the extent that the Company seeks to
provide international air transportation in the future, it will be required to
obtain additional authority from the DOT and become subject to other regulatory
requirements imposed by affected foreign jurisdictions.

ITEM 2:  DESCRIPTION OF PROPERTY

   The Company has leased approximately 28,000 square feet of office space in
Denver with terms ending August 1999 and 2001 at a current annual cost of
approximately $453,000 for the year ending March 31, 1999. This facility
provides space for the Company's reservations center together with space for
administrative activities including senior management, purchasing, accounting,
sales, marketing, advertising and human resources.

   Each airport location requires leased space associated with gate operations,
ticketing and baggage operations. The ticket counters, gates and airport office
facilities at each of the airports the Company serves are leased from the
appropriate airport authority or subleased from other airlines.

   The Company has entered into an airport lease and facilities agreement with
the City and County of Denver at DIA that expires in 2005. The Company subleases
ticket counter space and four gates at DIA from Continental Airlines until March
1, 2000 and a portion of Continental Airline's hangar at DIA until September 30,
1998.  See "Management's Discussion and Analysis of Financial Condition and
Results of Operations-Liquidity and Capital Resources."

ITEM 3:  LEGAL PROCEEDINGS

   In February 1997, the Company filed a complaint with the DOJ alleging that
United Airlines has engaged in predatory, anticompetitive and monopolistic
practices at DIA.  The complaint asks the agency to investigate eight separate
counts of potential antitrust violations.  The eight counts range from "capacity
dumping" in markets served by competitors to alleged abuses relating to United's
pricing practices, "exclusive dealing" with corporate customers and commuter
carriers, and other tactics used by United to allegedly drive competitors from
its markets.  In early 1998 the Company received and answered a DOJ Civil
Investigative Demand which requested information and documents in the Company's
possession relating to possible violations of the federal antitrust laws
concerning monopolization or attempts to monopolize air transportation in
certain markets, including certain Denver city-pair markets.  The Company is
unable to predict what action, if any, the DOJ will take in response to the
Company's complaint.

   In December 1997, the DOT awarded the Company three take-off and three
landing slots at New York City's LaGuardia airport, a slot controlled airport to
and from which operations are not permitted absent the grant of such slots.  The
Company as of June 1998 provides two daily round-trip flights in the Denver-
LaGuardia market by virtue of the award of these slots by the DOT.  In December
1997, the City of New York filed a petition against the DOT and the Company in
the United States Court of Appeals for the Second Circuit alleging that the
DOT's award 

                                      -9-
<PAGE>
 
of these slots to the Company was unlawful.  The appellate court
heard oral arguments on this case in late June 1998 but has not issued a
decision in the case.  A final adverse ruling could result in the Company's
inability to continue to serve New York City's LaGuardia Airport.


   From time to time, the Company is engaged in routine litigation incidental to
its business.  Except as may be otherwise specifically discussed in this
section, management believes there are no legal proceedings pending in which the
Company is a party or of which any of the Company's property is the subject that
are not adequately covered by insurance maintained by the Company, or which if
adversely decided, would have a material adverse effect on the Company's
business or financial condition.

ITEM 4:  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

   During the fourth quarter of the year covered by this report, no matter was
submitted to a vote of security holders of the Company through the solicitation
of proxies or otherwise.

                                    PART II

ITEM 5:  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

PRICE RANGE OF COMMON STOCK

   The Company's Common Stock is traded on the Nasdaq SmallCap Market ("Nasdaq")
under the symbol "FRNT."  The following table sets forth the range of high and
low bid prices per share for the Common Stock for the periods indicated as
reported by Nasdaq.  Market quotations represent prices between dealers and do
not reflect retail mark-ups, mark-downs or commissions.  As of June 24, there
were 541 holders of record of the Common Stock.


<TABLE>
<CAPTION>
 
                                                           
                                                          
<S>                  <C>                       <C>          <C>  
                                                           
                                                     Price Range of
                                                      Common Stock
                                                      ------------                   
                       Quarter Ended                High         Low 
                       -------------                ----         ---

                       June 30, 1996            $  10 5/16    $ 4 11/16
                       September 30, 1996          9 3/4        6 3/4
                       December 31, 1996           6 29/32      3 1/4
                       March 31, 1997              4            2 5/8        
                                                                
                       June 30, 1997               4 5/8        3 1/32        
                       September 30, 1997          3 15/16      2 5/8
                       December 31, 1997           3 5/32       1 29/32
                       March 31, 1998              3 7/8        1 3/4
                                                   
                       June 30, 1998 (through      
                         June 24, 1998)            3 15/16      2 7/8
</TABLE> 

RECENT SALES OF UNREGISTERED SECURITIES

   In February 1998, in connection with a $5,000,000 loan to the Company, the
Company issued a warrant to the Company's lender to purchase 1,750,000 shares of
the Company's Common Stock at a purchase price of $3.00 per share, which warrant
expires in December 2001.  In April 1998, in connection with a private placement
of 4,363,001 shares of its Common Stock, the Company issued a warrant to an
institutional investor to purchase 716,929 shares of the Common Stock of the
Company at a purchase price of $3.75 per share, which warrant expires in April
2002.  In May 1998, the Company issued a warrant to its financial advisor in
connection with debt and equity financings a warrant to purchase 548,000 shares
of the Company's Common Stock at a purchase price of $3.00 per share, which
warrant expires in May 2003.  Each of these transactions was made under an
exemption from registration under the Securities Act of 1933 pursuant to
Sections 4(2) or 4(6) thereof.

                                      -10-
<PAGE>
 
   As of June 15, 1998, the Company has granted stock options to employees and
Directors of the Company to purchase up to 1,931,250 shares of Common Stock,
409,188 of which options have been previously exercised and 1,445,394 of which
are currently exercisable at exercise prices ranging from $1.00 to $3.75 per
share.

DIVIDEND POLICY

   Except for the Rights Dividend Distribution described below, the Company has
not declared or paid dividends on its Common Stock.  The Company currently
intends to retain any future earnings to fund operations and the continued
development of its business, and, thus, does not expect to pay any cash
dividends on its Common Stock in the foreseeable future.  Future cash dividends,
if any, will be determined by the Board of Directors and will be based upon the
Company's earnings, capital requirements, financial condition and other factors
deemed relevant by the Board of Directors.

RIGHTS DIVIDEND DISTRIBUTION

   In February 1997, the Company's Board of Directors declared a dividend
distribution of one right (a "Right") for each outstanding share of the
Company's no par value common stock ("Common Stock") to shareholders of record
at the close of business on March 15, 1997.  Except as described below, each
Right, when exercisable, entitles the registered holder to purchase from the
Company one share of the Company's Common Stock, at a purchase price of $17.50
per share (the "Purchase Price"), subject to adjustment.  The Rights expire at
the close of business on February 20, 2007, unless earlier redeemed or exchanged
by the Company as described below.  The description and terms of the Rights are
set forth in a Rights Agreement, as amended by amendments, dated June 30, 1997
and December 5, 1997 (as so amended, the "Rights Agreement").

   The Rights are exercisable upon the earlier of (i) 10 days following a public
announcement that  a person or group of affiliated or associated persons other
than the Company, its subsidiaries or any person receiving newly-issued shares
of Common Stock directly from the Company or indirectly via an underwriter in
connection with a public offering by the Company (an "Acquiring Person") has
acquired, or obtained the right to acquire, beneficial ownership of 20% or more
of the outstanding shares of Common Stock (the "Stock Acquisition Date"), or
(ii) 10 business days following the commencement of a tender offer or exchange
offer that would result in a person or group beneficially owning 20% or more of
such outstanding shares of Common Stock.

   If any person becomes an Acquiring Person other than pursuant to a Qualifying
Offer (as defined below), each holder of a Right has the right to receive, upon
exercise, Common Stock (or, in certain circumstances, cash, property or other
securities of the Company) having a value equal to two times the exercise price
of the Right. Notwithstanding any of the foregoing, all Rights that are
beneficially owned by any Acquiring Person will be null and void.  However,
Rights are not exercisable in any event until such time as the Rights are no
longer redeemable by the Company as set forth below.

   A "Qualifying Offer" means a tender offer or exchange offer for, or merger
proposal involving, all outstanding shares of Common Stock at a price and on
terms determined by at least a majority of the Board of Directors who are not
officers or employees of the Company and who are not related  to the Person
making such offer, to be fair to and in the best interests of the Company and
its shareholders.

   If after the Stock Acquisition Date the Company is acquired in a merger or
other business combination transaction in which the Common Stock is changed or
exchanged or in which the Company is not the surviving corporation (other than a
merger that follows a Qualifying Offer) or 50% or more of the Company's assets
or earning power is sold or transferred, each holder of a Right shall have the
right to receive, upon exercise, common stock of the acquiring company having a
value equal to two times the exercise price of the Right.

   The Purchase Price payable, and the number of shares of Common Stock or other
securities or property issuable, upon exercise of the Rights are subject to
adjustment from time to time to prevent dilution (i) in the event of a stock
dividend on, or a subdivision, combination or reclassification of, the Common
Stock, (ii) if holders of the Common Stock are granted certain rights or
warrants to subscribe for Common Stock or convertible securities at 

                                     -11-
<PAGE>
 
less than the current market price of the Common Stock, or (iii) upon the
distribution to holders of the Common Stock of evidences of indebtedness or
assets or of subscription rights or warrants.

   At any time until ten days following the Stock Acquisition Date, the Company
may redeem the Rights in whole at a price of $.01 per Right.  Upon the action of
the Board of Directors ordering redemption of the Rights, the Rights will
terminate and the only right of the holders of Rights will be to receive the
$.01 redemption price.

   While the distribution, if any, of the Rights will not be taxable to
shareholders or to the Company, shareholders may, depending upon the
circumstances, recognize taxable income if the Rights become exercisable for
Common Stock (or other consideration) of the Company or for common stock of the
acquiring company.

                                     -12-
<PAGE>
 
ITEM 6:  SELECTED FINANCIAL DATA

   The following selected financial data as of and for each of the years ended
March 31, 1998, 1997, 1996, 1995 and 1994 are derived from the audited financial
statements of the Company.  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.

<TABLE>
<CAPTION>
                                                       Year Ended March 31,
                                      1998        1997          1996          1995          1994
                                 ----------------------------------------------------------------------
                               (in thousands, except for per share data and selected operating statistics)
<S>                             <C>           <C>           <C>           <C>           <C> 
   STATEMENT OF OPERATIONS DATA:
   Total operating revenues      $    147,142   $  116,501    $ 70,393    $  24,595           -
   Total operating expenses           165,697      129,662      76,325       32,692          124
   Operating loss                     (18,554)     (13,161)     (5,933)      (8,122)        (124)
   Net loss                           (17,746)     (12,186)     (5,582)      (7,999)        (124)
   Net loss per share
   basic and diluted                    (1.95)       (1.49)      (1.23)       (2.56)        (0.15)
        
   BALANCE SHEET DATA:
   Cash and cash equivalents     $      3,641   $   10,286    $  6,359    $   3,835        $ 415
   Short-term investments                  -            -        1,168           -             -
   Current assets                      33,999       31,470      25,797        8,270          425
   Total assets                        50,598       44,093      30,990       13,746          486
   Current liabilities                 50,324       32,745      25,844        9,529           94
   Long-term debt                       3,468           56          92          147           -
   Total liabilities                   56,272       34,210      26,289       12,104           94
   Stockholders' equity                (5,673)       9,883       4,701        1,642          392
   (deficit)
   Working capital                    (16,325)      (1,275)        (47)      (1,259)         331
   (deficit)

   SELECTED OPERATING DATA:
   Passenger revenue             $    135,244   $  109,088    $ 66,634    $  23,620          -
   Revenue passengers carried           1,356        1,180         758          269          -
   Revenue passenger miles
    (RPMs)(1)                       1,119,378      839,939     479,887      147,215          -
   Available seat miles
    (ASMs)(2)                       1,996,185    1,419,720     844,161      357,089          -
   Passenger load factor(3)              56.1%        59.2%       56.8%        41.2%         -        
   Break-even load factor(4)             63.4%        65.8%       61.6%        55.2%         -
   Block hours (5)                     42,767       32,459      20,783        9,719          -
   Average daily block hour
    utilization (6)                       9.5         10.3          9.9         8.7          -
   Yield per RPM (7)(cents)             12.08        12.99        13.89       16.04          -
   Yield per ASM (8)(cents)              6.78         7.68         7.89        6.61          -
   Expense per ASM (cents)               8.30         9.13         9.04        9.16          -
   Passenger revenue per
    block hour                   $   3,162.34   $ 3,360.79    $3,206.18   $2,430.29          -
   Average fare (9)              $        100   $       92    $      88   $      88          -
   Average aircraft in service           12.3          9.6          5.7         4.1          -
</TABLE>

Note:  The Company did not begin flight operations until July 1994 (during the
       fiscal year ended March 31, 1995).
        
                                     -13-

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

ITEM 7:  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
          OF OPERATIONS

SELECTED OPERATING STATISTICS

   The following table provides operating revenues and expenses for the Company
expressed as cents per total available seat miles ("ASM") and as a percentage of
total operating revenues, as rounded, for the years ended March 31, 1998, 1997
and 1996.
<TABLE>
<CAPTION>
                                     1998                         1997                          1996
                            ----------------------       ----------------------         --------------------
                                                               
                               Per           %             Per            %              Per          %
                               total         of            total          of             total        of          
                               ASM         Revenue         ASM          Revenue          ASM        Revenue                
                            ---------      -------       ---------      -------         -------     --------
<S>                         <C>         <C>             <C>         <C>             <C>           <C>
Revenues:                                                                          
 Passenger                       7.11        96.5%            8.01        97.6%            8.12        97.4% 
 Cargo                           0.15         2.0%            0.14         1.7%            0.14         1.6%
 Other                           0.11         1.4%            0.06         0.7%            0.08         1.0%
                            ---------      -------       ---------      -------         -------     --------
Total revenues                   7.37       100.0%            8.21       100.0%            8.34       100.0%
                       
Operating expenses:        
 Flight operations               3.32        45.1%            3.71        45.2%            3.32        39.8%
 Aircraft and traffic     
  servicing                      1.54        20.9%            1.75        21.3%            2.19        26.3%
 Maintenance                     1.59        21.6%            1.76        21.4%            1.39        16.7%
 Promotion and sales             1.47        19.9%            1.52        18.5%            1.68        20.2%                      
 General and administrative      0.32         4.3%            0.33         4.0%            0.39         4.7%
 Depreciation and                                                 
    amortization                 0.06         0.9%            0.08         0.9%            0.06         0.8%
                            ---------      -------       ---------      -------         -------     --------
Total operating expenses         8.30       112.6%            9.13       111.3%            9.04       108.4% 
                            =========      =======       =========      =======         =======     ========
Total ASMs (000s)           1,996,185                    1,419,720                      844,161
</TABLE>
                                                                                
Results of Operations - Year Ended March 31, 1998 Compared to Year Ended March
31, 1997

GENERAL

   During the year ended March 31, 1998, the Company added four new Boeing 737-
300 aircraft to its fleet.  As a result of these new aircraft fleet additions,
the Company added service to Boston, Massachusetts in September 1997, Baltimore,
Maryland in November 1997 and New York (LaGuardia), New York in December 1997.
The Company terminated service to Las Vegas, Nevada in August 1997 and San
Diego, California and St. Louis, Missouri in November 1997.

   In June 1997, the Company signed an Agreement and Plan of Merger (the "Merger
Agreement") providing for the merger of the Company with Western Pacific. In
September 1997, the Company and Western Pacific mutually agreed to terminate the
Merger Agreement. On October 5, 1997, Western Pacific filed for protection under

                                      -14-
<PAGE>
 
Chapter 11 of the U.S. Bankruptcy Code.  Western Pacific, which originally began
service to and from Colorado Springs, Colorado, commenced service from DIA on
June 29, 1997.  On February 4, 1998, Western Pacific ceased flight operations
and has since been engaged in liquidating its business.

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

   As a result of its expansion of operations during the year ended March 31,
1998, the Company's results of operations are not necessarily indicative of
future operating results or comparable to the prior  year ended March 31, 1997.

RESULTS OF OPERATIONS

   The Company incurred a net loss of  $17,746,000 or $1.95 per share for the
year ended March 31, 1998 as compared to a net loss of $12,186,000 or $1.49 per
share for the year ended March 31, 1997. Management believes that the Company's
operating results were adversely affected during the year ended March 31, 1998
by a code share agreement with Western Pacific which, in connection with the
proposed merger with Western Pacific, was effective August 1, 1997.  The code
share was designed to coordinate the Company's schedule with Western Pacific's
schedule at DIA.  The code share agreement was terminated effective November 15,
1997 as a part of the mutual termination of the Merger Agreement.  As a result
of the schedule implemented under the code share agreement, the Company had
flights scheduled in certain markets that were not at peak travel times.  This
arrangement did not benefit the Company as an independent airline.  As a result
of the termination of the Merger Agreement and code share agreement, the Company
introduced a new, independent schedule, terminated service to San Diego,
California and St. Louis, Missouri, and added routes to Baltimore, Maryland and
to New York City's La Guardia Airport in November and December 1997.
Competition from Western Pacific on several of the Company's routes adversely
affected the Company's yields and load factors.  Additionally, during the year
ended March 31, 1998 as compared to the prior comparable period, the Company
experienced higher average aircraft lease expenses on its newer aircraft, higher
maintenance expenses associated with its in-house maintenance operation which
began in September 1996, and unusual general and administrative expenses
associated with the Western Pacific merger.

REVENUES

   General. Airline revenues are primarily a function of the number of
passengers carried and fares charged by the airline. The Company believes that
revenues will gradually increase in a new market over a 60 to 120 day period as
market penetration is achieved. The Company added three new markets during the
year ended March 31, 1998 and four new markets during the year ended March 31,
1997.

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

                                      -15-
<PAGE>
 
          During the years ended March 31, 1998 and 1997, the Company faced
significant competitive actions by two airlines that maintained hubs at DIA.
During the year ended March 31, 1997, the Company competed with United Airlines
with respect to fare and other competitive actions. During the year ended March
31, 1998, the Company, as well as competing with United Airlines for passenger
traffic and on fares, also was forced to compete with Western Pacific in six of
the Company's markets where Western Pacific was offering extremely low fares in
an effort the Company believes was targeted toward increasing load factor and
revenues. The effect upon the Company of this competition during the year ended
March 31, 1997 was a low average fare and, to a lesser degree, fewer passengers
carried, and during the year ended March 31, 1998 fewer passengers carried and
with a slight downward effect on the average fare. Western Pacific discontinued
all flight operations on February 4, 1998 and has since been engaged in
liquidating its business.

          The Company's average fares for the years ended March 31, 1998 and
1997 were $100 and $92, respectively.  Management believes that the increase in
the average fare during the year ended March 31, 1998 over the prior comparable
period was largely a result of the Company's focus on increasing business
travelers, an increase in the average length of haul and stage length, and
reduced fare competition from United Airlines, offset by low pricing by Western
Pacific.  Effective October 1, 1997, the U.S. Congress reduced the 10% excise
tax  to 9%, but added a per-flight-segment fee of $1 on domestic flights.  The
tax decreases to 8% October 1, 1998 and to 7.5% on October 1, 1999.  The per-
flight-segment fee increases to $2 effective October 1, 1998, $2.25 effective
October 1, 1999 and thereafter increases in annual amounts of 25 cents until it
reaches $3 effective October 1, 2002.

          Passenger Revenue.  Passenger revenues totaled $142,018,000 for the
year ended March 31, 1998 compared to $113,758,000 for the year ended March 31,
1997, or an increase of 24.8%. Competition increased dramatically during the
months of July through January 1998 when Western Pacific began operations at DIA
and even more significantly during the months of October through January 1998
once the Company's merger and code share agreements with Western Pacific were
terminated.  This increased competition had a negative impact on the number of
revenue passengers carried. The number of revenue passengers carried was
1,356,000 for the year ended March 31, 1998 compared to 1,181,000 for the year
ended March 31, 1997 or an increase of 14.9%.  The Company had an average of
12.3 aircraft in service during the year ended March 31, 1998 compared to an
average of 9.6 aircraft in service during the year ended March 31, 1997 resulted
in an increase in ASMs of 576,465,000 or 40.6%.

          An airline's break-even load factor is the passenger load factor that
will result in operating revenues being equal to operating expenses, assuming
constant revenue per passenger mile and expenses.  For the year ended March 31,
1998, the Company's break-even load factor was 63.4% compared to a passenger
load factor of 56.1%.  For the year ended March 31, 1997, the Company's break-
even load factor was 65.8% compared to a passenger load factor of 59.2%.  The
Company's break-even load factor decreased from the prior comparable period
largely as a result of an increase in its average fare to $100 during the year
ended March 31, 1998 from $92 during the year ended March 31, 1997.

          The Company's load factor decreased to 56.1% for the year ended March
31, 1998 from 59.2% the prior comparable period.  Management believes that its
load factor for the year ended March 31, 1998 was adversely affected by
increased competition from Western Pacific and the ramp-up effect from new
routes the Company added during September, November and December 1997.  The
Company's load factors increased to 57.1% during the three months ended March
31, 1998 from 49.4% during the three months ended  December 31, 1997.
Management believes this was principally a result of  Western Pacific's
termination of all air service effective February 4, 1998.

          Cargo revenues, consisting of revenues from freight and mail service,
totaled $3,009,000 and $1,956,000 for the years ended March 31, 1998 and 1997,
representing 2.1% and 1.7% of total operating revenues, respectively. This
adjunct to the passenger business is highly competitive and depends heavily on
aircraft scheduling, alternate competitive means of same day delivery service
and schedule reliability.

          Other revenues, comprised principally of interline handling fees,
liquor sales and excess baggage fees, totaled $2,115,000 and $786,000 or 1.4%
and .7% of total operating revenues for the years ended March 31, 1998 and 1997,
respectively.  The increase for the year ended March 31, 1998 over the prior
comparable period is due to the increase in ticket handling fees associated with
the code share agreement with Western Pacific.  Ticket handling fees 

                                      -16-
<PAGE>
 
are earned by the ticketing airline to offset ticketing costs incurred on
segments ticketed on the flight operated by the Company's code share partner.
The Company recognized approximately $1,007,000 in ticket handling fees
associated with its code share agreement with Western Pacific during the year
ended March 31, 1998. The costs which offset this revenue are included in sales
and promotion expenses.

OPERATING EXPENSES

          Operating expenses include those related to flight operations,
aircraft and traffic servicing, maintenance, promotion and sales, general and
administrative and depreciation and amortization. Total operating expenses
increased to 112.6% of revenue for the year ended March 31, 1998 compared to
111.3% of revenue for the year ended March 31, 1997. Operating expenses
increased as a percentage of revenue as the Company's revenue was adversely
effected by lower load factors caused by increased competition and the Company
also experienced higher average aircraft lease expenses on its newer larger
aircraft, higher maintenance expenses associated with its in-house maintenance
operation which began in September 1996, and unusual general and administrative
expenses associated with the Western Pacific merger.

          Flight Operations.  Flight operations expenses include all expenses
related directly to the operation of the aircraft including fuel, lease and
insurance expenses, pilot and flight attendant compensation, in flight catering,
crew overnight expenses, flight dispatch and flight operations administrative
expenses. Flight operations expenses of $66,288,000 and $52,650,000 were 45.1%
and 45.2% of total revenue for years ended March 31, 1998 and 1997,
respectively, or an increase of  25.9%.

          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 $23,332,000 for 33,098,000 gallons used and $21,551,000 for 25,926,000
gallons used resulted in an average fuel cost of 70.5c and 83.1c per gallon and
represented 35.2% and 40.9% of total flight operations expenses for the years
ended March 31, 1998 and 1997, respectively.  The average fuel cost per gallon
decreased for the year ended March 31, 1998 from the comparable prior period due
to an overall decrease in the cost of fuel.  Fuel prices are subject to change
weekly as the Company does not purchase supplies in advance for inventory.  Fuel
consumption for the years ended March 31, 1998 and 1997 averaged 774 and 799
gallons per block hour, respectively.  Fuel consumption per block hour decreased
as a result of more fuel efficient aircraft and an increase in the average
length of haul.

          Aircraft lease expenses, excluding short-term aircraft lease expenses,
totaled $24,330,000 (16.5% of total revenue) and $16,704,000 (14.3% of total
revenue) for the years ended March 31, 1998 and 1997, respectively, or an
increase of 45.7%.  The increase is partially attributable to the increase in
the average number of aircraft in service to 12.3 from 9.6, or 28.1%, for the
years ended March 31, 1998 and 1997, respectively, and largely due to higher
lease expenses for larger and newer Boeing 737-300 aircraft added to the fleet.
In August 1996, the Company entered into short-term lease agreements in order to
add a partial spare to its fleet to improve the Company's on-time performance
and completion factors and to substitute for aircraft in the Company's fleet
that were out of service for scheduled maintenance.  Total expenses associated
with the short-term lease agreements totaled $3,359,000 for the months of August
1996 through March 1997 and none during the   year ended March 31, 1998.
Because of the increase in the Company's fleet size, the Company at certain
times uses one of its aircraft as a spare and schedules most of its major
maintenance cycles to coincide with lesser traveled months.

          Aircraft insurance expenses totaled $2,989,000 (2.0% of total revenue)
and $2,638,000 (2.3% of total revenue) for the years ended March 31, 1998 and
1997, respectively, or an increase of  13.3%.  Aircraft insurance expenses
decreased as a percentage of revenue as a result of competitive pricing in the
aircraft insurance industry, the Company's favorable experience rating since it
began flight operations in July 1994 and economies of scale due to the increase
in fleet size.

          Pilot and flight attendant salaries totaled $8,708,000 and $6,671,000
or 5.9% and 5.7% of passenger revenue for the years ended March 31, 1998 and
1997, respectively, or an increase of 30.5%.  Pilot and flight attendant
compensation increased principally as a result of a 28.1% increase in the
average number of aircraft in service and an increase of 31.8% in block hours.
During the years ended March 31, 1998, the Company added four leased aircraft to
its fleet and during the year ended March 31, 1997, the Company added three
leased aircraft to its fleet.   

                                      -17-
<PAGE>
 
The Company pays pilot and flight attendant salaries for training, consisting of
approximately six and three weeks, respectively, prior to scheduled increases in
service, causing the compensation expense for the years ended March 31, 1998 and
1997 to appear high in relationship to the average number of aircraft in
service. When the Company is not in the process of adding aircraft to its
system, it expects that pilot and flight attendant expense per aircraft will
normalize. With a scheduled passenger operation, and with salaried rather than
hourly crew compensation, the Company's expenses for flight operations are
largely fixed, with flight catering and fuel expenses the principal exception.

          Aircraft and Traffic Servicing. Aircraft and traffic servicing
expenses were $30,685,000 and $24,849,000 for the years ended March 31, 1998 and
1997, respectively, and represented 20.9% and 21.3% of total revenue. These
include all expenses incurred at airports served by the Company, as well as
station operations administration and flight operations ground equipment
maintenance.  Station expenses include landing fees, facilities rental, station
labor and ground handling expenses.  Station expenses as a percentage of revenue
decreased during the year ended March 31, 1998 over the year ended March 31,
1997 as a result of the Company's rental costs (in particular, gate rentals at
DIA), which are largely fixed costs, remaining relatively constant as compared
to the increase in revenue and more of its "above wing" (including passenger
check-in at ticket counters, concourse gate operations and cabin cleaning)
operations being performed by Company personnel rather than by third party
suppliers. The Company began its own "above wing" operations at Los Angeles
International Airport in June 1996, Chicago (Midway) in July 1996, Seattle-
Tacoma in August 1996, and El Paso, Texas effective October 1996. Aircraft and
traffic servicing expenses will increase with the addition of new cities;
however, the increased existing gate utilization at DIA is expected to reduce
per unit expenses.

          Maintenance.  Maintenance expenses of $31,791,000 and $24,946,000 were
21.6% and 21.4% of total revenue for the years ended March 31, 1998 and 1997,
respectively. These include all maintenance, labor, parts and supplies expenses
related to the upkeep of the aircraft. Routine maintenance is charged to
maintenance expense as incurred while major engine overhauls and heavy
maintenance checks are accrued each quarter.  Maintenance cost per block hour
was $743.34 and $768.52 for the years ended March 31, 1998 and 1997,
respectively.  Maintenance costs per block hour decreased as a result of lower
maintenance costs associated with the four new aircraft the Company added to its
fleet this year.  Continental Airlines had been providing routine aircraft
maintenance services for the Company at Denver but discontinued this service in
September 1996.  As a result, the Company hired its own aircraft mechanics to
perform routine maintenance and subleased a portion of a hangar from Continental
at DIA in which to perform this work.  The performance of this work by the
Company, together with the cost of leasing adequate hangar space, initially
increased the Company's maintenance cost per block hour.  Management believes
that these costs will continue to normalize as it adds additional aircraft to
its fleet.

          During the years ended March 31, 1998 and 1997, the Company revised
the timing of its scheduled maintenance and related estimates for its engine
maintenance reserves. The revised estimate resulted in an additional reserve
accrual of approximately $1,034,000 and $765,000, respectively, which
approximates $24.17 and $23.57 of the total maintenance cost per block hour of
$743.34 and $768.52 for the years ended March 31, 1998 and 1997, respectively.

          Promotion and Sales.  Promotion and sales expenses totaled $29,329,000
and $21,526,000 and were 20.7% and 18.5% of passenger revenue for the years
ended March 31, 1998 and 1997, respectively.  These include advertising
expenses, telecommunications expenses, wages and benefits for reservationists
and reservations supervision as well as marketing management and sales
personnel. Credit card fees, travel agency commissions and computer reservations
costs are included in these costs. The promotion and sales expenses per
passenger were $21.63 and $18.24 for the  years ended March 31, 1998 and 1997,
respectively.  The Company's promotion and sales expenses per passenger
increased largely as a result of the code share agreement with Western Pacific,
under which the Company incurred additional communications, computer
reservation, credit card and interline handling fees, and increased advertising
expenses. These expenses were offset, in part, by interline handling fees earned
which are included in other revenues.  The Company offers mileage credits on
Continental Airlines OnePass mileage program.  The Company's expense associated
with the OnePass program has increased from $317,000 or 27c per passenger for
the year ended March 31, 1997 to $584,000 or 43c per passenger for the year
ended March 31, 1998.  The Company's OnePass expense has increased as it has
become more mature and more passengers have become aware of the Company's
participation in the OnePass program.  Additionally, the increase in business

                                      -18-
<PAGE>
 
travelers, who generally participate in mileage programs more than leisure
travelers, has also caused an increase in the OnePass expense.

          Advertising expenses of $3,048,000 and $2,482,000 were 2.2% of
passenger revenue for the year ended March 31, 1998 and 1997, respectively.

          General and Administrative. General and administrative expenses for
the years ended March 31, 1998 and 1997 totaling $6,353,000 and $4,618,000 were
4.3% and 4.0% of total revenue, respectively.  These expenses include the wages
and benefits for the Company's executive officers and various other
administrative personnel. Legal and accounting expenses, supplies and other
miscellaneous expenses are also included in this category.  Included in general
and administrative expenses during the year ended March 31, 1998 are unusual
expenses of approximately $513,000 associated with the terminated merger
agreement with Western Pacific.

          Depreciation and Amortization. Depreciation and amortization expense
of $1,251,000 and $1,072,000 were approximately .9% of total revenue for each of
the years ended March 31, 1998 and 1997, respectively.  These expenses include
depreciation of office equipment, ground station equipment, and other fixed
assets of the Company.  Amortization of start-up and route development costs are
not included as these expenses have been expensed as incurred.

          Nonoperating Income (Expenses).  Total net nonoperating income totaled
$808,000 for the year ended March 31, 1998 compared to $975,000 for the year
ended March 31, 1997, or a decrease of 17.1%.  Interest income decreased from
$1,034,000 to $722,000 from the prior comparable period as a result of a
decrease in cash associated with the net loss incurred during the year ended
March 31, 1998.  In December 1997, the Company's sold $5,000,000 of 10% senior
notes.  In connection with this transaction, the Company issued warrants to
purchase 1,750,000 shares of its Common Stock.  Total interest expense paid in
cash and the accretion of the warrants and deferred loan expenses totaled
$263,000 during the year ended March 31, 1998.  The Company had $410,000 of
other net income for the year ended March 31, 1998 which was comprised
principally of $484,000 in insurance claims for the Company's telephone switch
which was subject to an electrical fire in October 1997, offset by other
miscellaneous expenses.

          Expenses per ASM.  The Company's expenses per ASM for the years ended
March 31, 1998 and 1997 were 8.30c and 9.13c, respectively, or a decrease of
9.1%.  Expenses per ASM decreased from the prior comparable period as a result
of  the economies of scale as the fixed costs were spread across a larger base
of operations and the average ASMs per aircraft have increased as the Company
adds planes with more seating capacity as compared to its earlier fleet
additions.  Expenses per ASM are influenced to some degree by the utilization of
aircraft and by the seating configuration that each airline employs. For
example, with the 108 seat all coach seating configuration selected by the
Company on its first five Boeing 737-200 aircraft, the expenses per ASM of the
Company are higher by 11% when compared with the 120 seat alternative used by
many carriers.  The Company's average seats per aircraft for the year ended
March 31, 1998 were 122 as compared to 118 seats per aircraft for the year ended
March 31, 1997.

RESULTS OF OPERATIONS - YEAR ENDED MARCH 31, 1997 COMPARED TO YEAR ENDED MARCH
31, 1996

GENERAL

          The Company's flight operations began on July 5, 1994 with two Boeing
737-200 aircraft operating eight daily flights between Denver, Colorado and four
North Dakota cities. Since that time, the Company has increased the number of
markets it serves and the number of flights offered. The Company placed three
additional Boeing 737-200 aircraft in service in 1994 and added four cities in
Montana to its route system. In October 1995, the Company leased two Boeing 737-
300 aircraft which were placed in service during November 1995 in conjunction
with adding four new, high volume routes linking Denver to Los Angeles and San
Francisco, California, Minneapolis-St. Paul, Minnesota, and Salt Lake City,
Utah. The Company significantly rescheduled its flights during the year ended
March 31, 1996 through the elimination of Minot and Grand Forks, North Dakota
and all four of its Montana destinations, and the addition of Omaha, Nebraska,
Las Vegas, Nevada, Chicago (Midway), Illinois and Phoenix, Arizona to its
schedule. During the year ended March 31, 1997, the Company added two Boeing
737-
                                      -19-
<PAGE>
 
200 aircraft and one Boeing 737-300 aircraft to its fleet and added flights
to Seattle/Tacoma, Washington, in May 1996, flights to San Diego, California and
St. Louis, Missouri in June 1996, and flights to Bloomington-Normal, Illinois,
in January 1997, as an extension of its service between Denver and Omaha,
Nebraska.  Flights to Bismarck and Fargo, North Dakota, the last two of the
Company's eight original markets, were suspended in September 1996.

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

RESULTS OF OPERATIONS

   The Company incurred a net loss of $12,186,000 or $1.49 per share for the
year ended March 31, 1997 as compared to a net loss of $5,582,000 or $1.23 per
share for the year ended March 31, 1996. The increase in net loss was
attributable to the increase in operating expenses exceeding the increase in
revenues, discussed below.  During the year ended March 31, 1996, the Company
modified its initial operating strategy from serving "local" passengers (those
either beginning or ending their trips in Denver) and interline "connecting"
passengers (those transferring to and from other airline flights at Denver for
travel to destinations beyond Denver) to developing its own connecting hub at
Denver and to providing service to Denver's largest markets that are more
dependent on local traffic and less dependent on connecting traffic.  The
Company began the implementation of its new business strategy in late September
1995.  As a result of the completion of the first phase of its new business and
marketing strategy, the Company had its first profitable quarter during the
quarter ended March 31, 1996 with net income of $816,000 and its second
profitable quarter during the quarter ended June 30, 1996 with net income of
$1,336,000. Beginning in August 1996, the Company experienced higher fuel costs,
short-term lease expenses for aircraft to replace its aircraft during scheduled
maintenance cycles, intensive increased competition from DIA's dominant carrier,
United Airlines, increased maintenance expenses as it commenced in-house
maintenance operations in September 1996, and the return of the 10% passenger
excise tax in late August 1996.   Because of United Airlines' competitive
activity, the Company was unable to adjust its fares to permit recovery of these
increased expenses.  Management believes alleged anticompetitive practices by
United in the Denver market have had, and, to the extent they continue, will
have a material adverse effect on the Company's revenues and results of
operations.  (See Part I, Item 3:  Legal Proceedings.)

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

REVENUES

   General.  Airline revenues are primarily a function of the number of
passengers carried and fares charged by the airline.  The Company believes that
revenues will gradually increase in a new market over a 60 to 120 day period as
market penetration is achieved.  This occurred during the year ended March 31,
1996 in January, September and November 1995 when the Company commenced service
between Denver and Omaha, Nebraska, Las Vegas, Nevada, Chicago (Midway),
Illinois, Phoenix, Arizona, Los Angeles and San Francisco, California,
Minneapolis-St. Paul, Minnesota and Salt Lake City, Utah.  During the year ended
March 31, 1997, the Company commenced service between Denver and Seattle/Tacoma,
San Diego and St. Louis in May and June, 1996, and between Denver and
Bloomington, Illinois via Omaha in January 1997.

                                      -20-
<PAGE>
 
   The Company's results are highly sensitive to changes in fare levels. Fare
pricing policies have a significant impact on the Company's revenues.  Following
is a table of the Company's average fares:


<TABLE>
<CAPTION>
 
     Quarter Ended                                     Average Fare
     -------------                                     ------------
<S>                                                  <C>
     June 30, 1995                                        $96 
     September 30, 1995                                   $85                  
     December 31, 1995                                    $80                  
     March 31, 1996                                       $93                  
     June 30, 1996                                        $98                  
     September 30, 1996                                   $92                  
     December 31,1996                                     $86                  
     March 31, 1997                                       $94  
</TABLE>

   In connection with the modification in the Company's strategy, the Company
reduced fares to maximize traffic and revenue.  During the quarter ended
September 30, 1995, the Company reduced its fares system-wide in order to
"stimulate" markets and match competitors' fares.  During the quarter ended
December 31, 1995, the Company's average fare decreased to $80 as a result of
introductory fares for its two new markets added in late September 1995 and the
four new markets added during the month of November 1995.  The Company's average
fare for the quarters ended March 31, 1996 and June 30, 1996 increased to $93
and $98, respectively, largely as a result of the Company's new yield management
system, the elimination of introductory fares, and the expiration of excise
taxes on air transportation effective January 1, 1996.  On August 27, 1996, the
10% excise tax on air transportation was reinstated through December 31, 1996.
The decrease in the average fare of $98 for the quarter ended June 30, 1996 to
$92 for the quarter ended September 30, 1996 and to $86 for the quarter ended
December 31, 1996 was largely due to alleged anticompetitive activity by United
Airlines in the Denver market which precluded the Company from adjusting fares
to recover increased costs, including the reinstatement of the 10% excise tax.
The excise tax expired again on December 31, 1996, was subsequently reinstated
on March 7, 1997 and is scheduled to expire again on September 30, 1997.
Management believes that the excise tax or some other type of tax will be
reinstated immediately upon expiration of the present tax and may be as high as
10% of the fare.  Given the elasticity of passenger demand, the Company believes
that increases in fares will result in a decrease in passenger demand.  To
maintain passenger traffic in the face of an excise tax increase may require
some downward adjustment in net fares realized by the Company.  The Company
cannot completely predict future fare levels, which depend to a substantial
degree on actions of competitors.  When sale prices or other price changes are
made by competitors in the Company's markets, the Company believes that it must,
in most cases, match these competitive fares in order to maintain its market
share. Passenger revenues are seasonal in each market.

   Passenger Revenue.  Passenger revenues totaled $113,758,000 for the year
ended March 31, 1997 compared to $68,530,000 for the year ended March 31, 1996,
or an increase of 66%. The number of revenue passengers carried was 1,180,000
for the year ended March 31, 1997 compared to 758,000 for the year ended March
31, 1997 or an increase of 56%.  The average fare for the year ended March 31,
1997 was $93 compared to the average fare for the year ended March 31, 1996 of
$88.  The Company had an average of 9.6 aircraft in service during the year
ended March 31, 1997 compared to an average of 5.7 aircraft during the year
ended March 31, 1996 for an increase in ASMs of 575,559,000 or 68%.

   An airline's break-even load factor is the passenger load factor that will
result in operating revenues being equal to operating expenses, assuming
constant revenue per passenger mile and expenses.  For the year ended March 31,
1997, the Company's break-even load factor was 66% compared to a passenger load
factor of 59.2%.  For the year ended March 31, 1996 the Company's break-even
load factor was 61.8% compared to a passenger load factor of 56.9%.  The
Company's break-even load factor increased over the prior comparable period as
increased price competition kept the Company from increasing fares to compensate
for the higher fuel prices, short term aircraft lease expenses, and increased
maintenance expenses associated with the Company's maintenance facility which
began operations in September 1996.  The increase in these expenses began during
August 1996, which  increased the break-even load factor from 58.3% for the
quarter ended June 30, 1996 to 66% for the quarter ended September 30, 1996.
The Company experienced the full impact of these increased expenses in the
quarter ended 

                                      -21-
<PAGE>
 
December 31, 1996, as the break-even load factor increased to 73.1%. The break-
even load factor decreased to 68.1% for the quarter ended March 31, 1997 largely
as a result in the increase in the average fare from $86 to $94 during the
quarter ended March 31, 1997.

   The improvement in the Company's load factor from 56.9% to 59.2% for year
ended March 31, 1997 over the prior comparable period reflects the result of the
Company's change in business strategy to provide service to higher volume
markets.  However, management believes that its load factor for the year ended
March 31, 1997 could have been higher but was adversely affected by increased
competitive fare pricing and by the public's initial reaction to two significant
airline accidents which occurred during the year ended March 31, 1997.  One of
the accidents involved a low fare carrier and the other involved a major
national airline.  In both accidents the aircraft was destroyed and all
passengers and crew were killed.

   Cargo revenues, consisting of revenues from freight and mail service, totaled
$1,956,000 and $1,148,000 for the years ended March 31, 1997 and 1996,
representing 1.7% and 1.6% of total operating revenues, respectively.  This
adjunct to the passenger business is highly competitive and depends heavily on
aircraft scheduling, alternate competitive means of same day delivery service
and schedule reliability.

   Other revenues, comprised principally of liquor sales and excess baggage
fees, totaled $787,000 and $714,000 or less than 1% of total operating revenues
for each of the years ended March 31, 1997 and 1996.

OPERATING EXPENSES

   Operating expenses include those related to flight operations, aircraft and
traffic servicing, maintenance, promotion and sales, general and administrative
and depreciation and amortization.  Total operating expenses increased to 111.3%
of revenue for the year ended March 31, 1997 compared to 108.4% of revenue for
the year ended March 31, 1996. Operating expenses increased as a percentage of
revenue largely as result of an increase in flight operations expenses.  Flight
operations expenses were impacted by increased fuel prices, short-term lease
expenses to replace aircraft undergoing scheduled maintenance and an increase in
maintenance expenses as a result of the Company's commencement of its own
maintenance facility to perform routine maintenance at Denver.  As a result,
total operating expenses for the year ended March 31, 1997 increased 70% over
the prior comparable period.

   Flight Operations.  Flight operations expenses of $52,650,000 and $28,019,000
were 45.2% and 39.8% of total revenue for the years ended March 31, 1997 and
1996, respectively.  Flight operations expenses include all expenses related
directly to the operation of the aircraft including fuel, lease and insurance
expenses, pilot and flight attendant compensation, flight catering, crew
overnight expenses, flight dispatch and flight operations administrative
expenses.

   Aircraft fuel expenses include both the direct cost of fuel including taxes
as well as the cost of delivering fuel into the aircraft.  Aircraft fuel costs
of  $21,551,000 for 25,926,000 gallons used and $11,775,000 for 16,706,000
gallons used resulted in an average fuel cost of  83.1c and 70.5c per gallon and
represented  40.9% and 42.0% of total flight operations expenses for the years
ended March 31, 1997 and 1996, respectively.  The average fuel cost per gallon
increased for the year ended March 31, 1997 over the comparable prior period due
to an overall increase in the cost of fuel and the loss of the fuel tax
exemption for the calendar year ended December 31,1997.  In 1993, the United
States increased taxes on domestic fuel, including aviation fuel, by 4.3 cents
per gallon.  This tax increase was first imposed on the Company and other
airlines effective October 1, 1995.  Fuel prices are subject to change weekly as
the Company does not purchase supplies in advance for inventory.  Fuel
consumption for the years ended March 31, 1997 and 1996 averaged 799 and 804
gallons per block hour, respectively.  Fuel consumption per block hour decreased
as a result of more fuel efficient aircraft and an increase in the average
length of haul.

   Aircraft lease and insurance expenses, excluding short-term aircraft lease
expenses, totaled $15,983,000 (13.7% of total revenue) and $7,980,000 (11.3% of
total revenue) for the years ended March 31, 1997 and 1996, respectively, or an
increase of 100.3%.  The increase is partially attributable to the increase in
the average number of aircraft in service to 9.6 from 5.7 for the years ended
March 31, 1997 and 1996, respectively, and partially due to higher lease
expenses on larger and newer aircraft added to the fleet.  Beginning August 1996
and November 1995, 

                                      -22-
<PAGE>
 
the Company entered into short-term aircraft lease agreements in order to add a
partial spare aircraft to its fleet to improve the Company's on-time performance
and completion factors for the year ended March 31, 1997, and to substitute for
aircraft in the Company's fleet which were out of service for scheduled
maintenance during a portion of the years ended March 31, 1997 and 1996. The
final short-term aircraft lease agreement terminated March 31, 1997. Aggregate
expenses associated with the short-term aircraft lease agreements totaled
$3,359,000 during the months of August through December 1996 and $526,000 for
the months of November 1995 through December 1995. The Company paid a premium
for short-term lease agreements and does not anticipate future short-term
agreements due to the addition of aircraft to its fleet.

   Pilot and flight attendant compensation totaled $6,671,000 and $4,025,000 or
5.7% for each of the years ended March 31, 1997 and 1996, or an increase of
65.8%.  Pilot and flight attendant compensation increased principally as a
result of a 68.4% increase in the average number of aircraft in service and an
increase of 56.1% in block hours.  During the   year ended March 31, 1997, the
Company added two leased aircraft to its fleet in June 1996 and December 1996.
During the   year ended March 31, 1996 the Company added two leased aircraft to
its fleet in October 1995.   The Company pays pilot and flight attendant
salaries for training consisting of approximately six and three weeks,
respectively, prior to scheduled increases in service, causing the compensation
expense for the years ended March 31, 1997 and 1996 to appear high in
relationship to the average number of aircraft in service.  When the Company is
not in the process of adding aircraft to its system, it expects that pilot and
flight attendant expense per aircraft will normalize.  With a scheduled
passenger operation, and with salaried rather than hourly crew compensation, the
Company's expenses for flight operations are largely fixed, with flight catering
and fuel expenses the principal exception.

   Aircraft and Traffic Servicing. Aircraft and traffic servicing expenses were
$24,849,000 and $18,487,000 for the years ended March 31, 1997 and 1996,
respectively, and represented 21.3% and 26.3% of total revenue.  These include
all expenses incurred at airports served by the Company, as well as station
operations administration and flight operations ground equipment maintenance.
Station expenses include landing fees, facilities rental, station labor and
ground handling expenses.  Station expenses as a percentage of revenue decreased
during the year ended March 31, 1997 over the year ended March 31, 1996 as a
result of the Company's rental costs (in particular, the gate rentals at DIA)
which are largely fixed costs, remaining relatively constant as compared to the
increase in revenue.  Additionally, the Company began its own "above wing"
operations at DIA (including passenger check-in at ticket counters, concourse
gate operations and cabin cleaning) effective April 1996, Los Angeles
International Airport in June 1996, Chicago (Midway) in July 1996, Seattle-
Tacoma in August 1996, and El Paso, Texas effective October 1996 rather than
contracting these services through a third party supplier.  Aircraft and traffic
servicing expenses will increase with the addition of new cities; however, the
increased existing gate utilization at DIA is expected to reduce per unit
expenses.

   Maintenance.  Maintenance expenses of $24,946,000 and $11,732,000 were 21.4%
and 16.7% of total revenue for the years ended March 31, 1997 and 1996,
respectively. These include all maintenance, labor, parts and supplies expenses
related to the upkeep of the aircraft. Routine maintenance is charged to
maintenance expense as incurred while major engine overhauls and heavy
maintenance checks are accrued each quarter.  Maintenance cost per block hour
was $769 and $565 per block hour for the years ended March 31, 1997 and 1996,
respectively.  Continental Airlines had been providing routine aircraft
maintenance services for the Company at Denver but discontinued this service in
September 1996.  As a result, the Company hired its own aircraft mechanics to
perform routine maintenance and subleased a portion of a hangar from Continental
at DIA in which to perform this work.  The performance of this work by the
Company, together with the cost of leasing adequate hangar space, increased the
Company's maintenance cost per block hour.  Management believes that these costs
will normalize as it adds additional aircraft to its fleet.

   During the year ended March 31, 1997, the Company revised the timing of its
scheduled maintenance and related estimates for its engine maintenance reserves.
The revised estimate resulted in an additional reserve accrual of approximately
$765,000 which approximates $23 of the total maintenance cost per block hour of
$768 for the year ended March 31, 1997.

   Promotion and Sales.  Promotion and sales expenses totaled $21,526,000 and
$14,219,000 and were 18.5% and 20.2% of passenger revenue for the years ended
March 31, 1997 and 1996, respectively.  These include 

                                      -23-
<PAGE>
 
advertising expenses, telecommunications expenses, wages and benefits for
reservationists and reservations supervision as well as marketing management and
sales personnel. Credit card fees, travel agency commissions and computer
reservations costs are included in these costs. The promotion and sales expenses
per passenger were $18.24 and $18.75 for the years ended March 31, 1997 and
1996, respectively. The 51c reduction is largely a result of a decrease in
interline service charges and communication expenses.

   The Company's  interline service charges decreased as a result of a 2.8%
reduction in the percentage of interline revenue to total revenues.  Interline
revenue is for travel on the Company's flights ticketed by another airline on
connecting traffic.  The decrease in interline revenue as a percentage of total
revenues is a result of route reductions in regional markets.

   Advertising expenses of $2,482,000 were 2.2% of passenger revenues for the
year ended March 31, 1997, compared to approximately $1,619,000 or 2.4% of
passenger revenues for the year ended March 31, 1996.  As new cities are added
to the Company's flight schedule, advertising and marketing promotions are
designed and implemented to increase awareness of the Company's new service,
name and brand awareness.  Advertising expenses decreased as a percentage of
passenger revenues as the Company entered four new markets during the year ended
March 31, 1997 compared to six new markets during the year ended March 31, 1996,
offset by an increase in advertising expenses during the year ended March 31,
1997 as a result of increased fare competition by United Airlines.

   General and Administrative. General and administrative expenses for the years
ended March 31, 1997  and 1996 totaling $4,618,000 and $3,321,000 were 4.0% and
4.7% of total revenue, respectively.  These expenses include the wages and
benefits for the Company's executive officers and various other administrative
personnel. Legal and accounting expenses, supplies and other miscellaneous
expenses are also included in this category.  The overall increase in general
and administrative expenses is largely a result of an increase in employee
benefits and office rent with the increase in the number of full and part-time
employees from 533 in March 1996 to 738 in March 1997 and an increase in revenue
accounting fees as a result of a 55.6% increase in revenue passengers carried.

   Depreciation and Amortization. Depreciation and amortization expense of
$1,072,000 and $547,000 were approximately one percent of total revenue for each
of the years ended March 31, 1997 and 1996. These expenses include depreciation
of office equipment, ground station equipment, and other fixed assets of the
Company.  Amortization of start-up and route development costs are not included
as these expenses have been expensed as incurred.

   Nonoperating Income (Expenses).  Total net nonoperating income totaled
$975,000 for the year ended March 31, 1997 compared to $351,000 for the year
ended March 31, 1996, or an increase of 178% principally a result of an increase
in interest income of 146%.  Interest income increased over the prior comparable
period as a result of increases in cash which occurred during the first quarter
of the year ended March 31, 1997 as a result of profitable operations during
that quarter, a private placement of the Company's Common Stock in April 1996,
and capital raised from the exercise of the Company's warrants.

   Expenses per ASM.  The Company's expenses per ASM for the years ended March
31, 1997 and 1996 were 9.13c and 9.04c, respectively, or an increase of 1%.
Expenses per ASM increased over the comparable period as a result of increased
flight operation expenses resulting from an increase in short-term aircraft
lease and fuel expenses and increased maintenance expenses largely as a result
of the Company's commencement of its own maintenance facility, offset by
economies of scale as the fixed costs were spread across a larger base of
operations.

   Expenses per ASM are influenced to some degree by the utilization of aircraft
and by the seating configuration that each airline employs. For example, with
the 108 seat all coach seating configuration selected by the Company on five of
its Boeing 737-200 aircraft, the expenses per ASM of the Company are higher by
11% when compared with the 120 seat alternative used by many carriers.

                                     -24-
<PAGE>
 
Liquidity and Capital Resources

          The Company's balance sheet reflected cash and cash equivalents of
$3,641,000 at March 31, 1998 and $10,286,000 at March 31, 1997. At March 31,
1998, total current assets were $33,999,000 as compared to $50,324,000 of total
current liabilities, resulting in a working capital deficit of $16,325,000. At
March 31, 1997, total current assets were $31,470,000 as compared to $32,745,000
of total current liabilities, resulting in a working capital deficit of
$1,275,000. The $15,050,000 increase in the working capital deficit is primarily
a result of the Company's operating losses during the year ended March 31, 1998.

          Cash used by operating activities for the year ended March 31, 1998
was $8,168,000.   This is largely attributable to the Company's net loss for the
period, an increase in restricted investments, trade receivables, security,
maintenance and other deposits, and prepaid expenses and other assets, offset by
increases in accounts payable, air traffic liability, other accrued expenses and
accrued maintenance expenses.  Cash used by operating activities for the year
ended March 31, 1997 was $6,469,000. This is attributed primarily to the
Company's net loss for the period, increases in trade receivables, maintenance
deposits, prepaid expenses and other assets and inventories offset by increases
in accounts payable, air traffic liability, other accrued expenses and accrued
maintenance expenses.

          Cash used in investing activities for the year ended March 31, 1998
was $3,863,000, largely a result of capital expenditures for rotable aircraft
components and aircraft leasehold costs and improvements for the aircraft
delivered in May, August, and September 1997 and February 1998.  Additionally,
the Company secured lease obligations for the aircraft delivered in August 1997
and February 1998 with letters of credit totaling $1,500,000.  In turn, the
Company received $650,000 during the year ended March 31, 1998 from the aircraft
lessor that was previously on deposit to secure lease obligations for these
aircraft.  The Company's restricted investments increased $1,500,000 to
collateralize the letter of credit. Cash used in investing activities for the
year ended March 31, 1997 was $5,549,000.  Restricted cash increased $600,000
for collateral for a letter of credit provided an aircraft lessor in lieu of a
cash security deposit for the Boeing 737-300 aircraft leased in November 1996.
The Company expended $2,682,000 for initial lease acquisition security deposits
for two Boeing 737-200 aircraft and partial security deposits for four Boeing
737-300 aircraft leased during the year ended March 31, 1997, all with delivery
dates during the year ended March 31, 1998.  The Company made capital
expenditures totaling $3,435,000 for equipment, a spare engine, aircraft parts,
and aircraft improvements, maintenance equipment for its maintenance facility
which began operations in September 1996, ground equipment, computer equipment,
and leasehold improvements.

          Cash provided by financing activities for the years ended March 31,
1998 and 1997 was $5,386,000 and $15,944,000, respectively. During the year
ended March 31, 1998, the Company received $435,000 from the exercise of stock
options. In December 1997, the Company sold $5,000,000 of 10% senior secured
notes. In connection with this transaction, the Company issued warrants to
purchase 1,750,000 shares of Common Stock at $3.00 per share. During the year
ended March 31, 1997, the Company completed a private placement of its Common
Stock that resulted in net proceeds of approximately $2,721,000 in April 1996.
In May 1996, the Company notified existing warrant holders of the Company's
intent to exercise its redemption rights with respect to such warrants not
exercised on or before June 28, 1996. The Company received net proceeds from the
exercise of these warrants of approximately $13,278,000.

          In April 1998, the Company sold 4,363,001 shares of its common stock,
no par value, through a private placement to an institutional investor. Gross
proceeds to the Company from the transaction was approximately $14,180,000 of
which the Company received net proceeds of approximately $13,850,000. The
Company issued a warrant to this investor to purchase 716,929 shares of common
stock of the Company at a purchase price of $3.75 per share, which warrant
expires in April 2002.

          Five of the Company's Boeing 737-200 aircraft are leased under
operating leases which originally expired in 1997. The leases provide for up to
two renewal terms of two years each with no increase in basic rent. The Company
renewed the leases for the first two-year renewal period and these leases now
expire in 1999. Under these leases, the Company was required to make security
deposits and makes deposits for maintenance of these leased aircraft. Security
and maintenance deposits totaled $625,000 and $2,392,000, respectively, at March
31, 1998.

                                     -25-
<PAGE>
 
          The Company in November 1995 leased two Boeing 737-300 aircraft under
operating leases which expire in 2000.  The Company was required to make
security deposits and makes deposits for maintenance of these leased aircraft.
Security and maintenance deposits for these aircraft totaled $1,505,000 and
$3,207,000, respectively, at March 31, 1998. These aircraft are compliant with
FAA Stage 3 noise regulations.  The Company has issued to each of the two Boeing
737-300 aircraft lessors a warrant to purchase 100,000 shares of the Company's
Common Stock at an aggregate purchase price of $500,000.  These warrants, to the
extent not earlier exercised, expire upon the expiration dates of the aircraft
leases.

          In June 1996, the Company leased two additional Boeing 737-200
aircraft under operating leases which expire in 2001.  In November 1997, the
Company renegotiated one of these leases extending the lease term by one year to
2002 in return for a slight reduction in the monthly rental payment.  The
Company was required to make security deposits for these aircraft totaling
$858,000. Commencing July 1996, the Company was required to make monthly
deposits for maintenance of these leased aircraft.  At March 31, 1998, these
deposits totaled $2,190,000.  These aircraft were "hush-kitted" by the lessor at
its expense during 1996 making them compliant with FAA Stage 3 noise
regulations.  The Company has issued to the aircraft lessor two warrants, each
of which entitles the lessor to purchase 70,000 shares of the Company's Common
Stock at an aggregate purchase price of $503,300 per warrant.

          In November 1996, the Company took delivery of a leased Boeing 737-300
aircraft which it placed in scheduled service in December 1996.  The lease term
for this aircraft is eight years from date of delivery.  The Company was
required to secure the aircraft lease with a letter of credit totaling $600,000.
The Company is also required to make monthly cash deposits for maintenance of
this aircraft.  As of March 31, 1998, the Company had made maintenance deposits
associated with this leased aircraft totaling $1,324,000.

          During the year ended March 31, 1997, the Company entered into four
operating lease agreements for four additional new Boeing 737-300 aircraft with
scheduled deliveries during the Company's year ended March 31, 1998.  The
Company took delivery of these aircraft in May, August, and September 1997 and
in February 1998.  In connection with the Boeing 737-300 aircraft delivered in
September 1997, the Company has issued to the lessor a warrant to purchase
55,000 shares of Common Stock at an aggregate purchase price of $385,000.  As of
March 31, 1998, the Company had made cash security deposits totaling $1,616,000
with respect to these aircraft.  During the year ended March 31, 1998, the
Company secured lease obligations for two of these aircraft with letters of
credit totaling $1,500,000 and, in turn, $650,000 of cash security deposits was
returned to the Company.  The Company's restricted cash increased by $1,500,000
to collateralize the letters of credit. Two each of the four lease agreements
have seven and eight year terms from date of delivery, respectively.  Two of the
four leases have up to two one year renewal terms and a third may be renewed for
up to three one year terms. The Company is required to pay monthly cash deposits
to each aircraft lessor based on flight hours and cycles operated to provide
funding of future scheduled maintenance costs.  As of March 31, 1998, the
Company had maintenance deposits associated with these aircraft totaling
$2,092,000.

          Management is continuing to take steps designed to improve the
Company's operating performance. Effective January 28, 1997, the Company
introduced electronic ticketing.  Passengers who call the Company directly are
given the option of receiving a paper ticket or a confirmation number in lieu of
a paper ticket.  Electronic ticketing decreases certain costs including postage
and handling costs, ticket stock, and reduced revenue accounting fees because
the accounting for electronic ticketing is automated. The Company also has
implemented and maintains a booking capability on its Internet site.

          The Company has announced its intention to perform its own ground
handling operations at DIA effective September 1, 1998, a function which is
currently being provided by an independent contractor. The Company is in the
process of acquiring certain ground handling equipment with total capital
expenditures estimated to be $850,000. The Company is seeking financing for
these expenditures but there can be no assurance that it will be successful in
obtaining the necessary financing.

          The Company is exploring various means to increase revenues and reduce
expenses.  The Company is considering revenue enhancement initiatives which may
include the introduction of a premium class passenger service, development of
new marketing alliances, and ad hoc charters.  Expense reduction programs
include the 

                                      -26-
<PAGE>
 
installation of an upgraded flight operations, maintenance, and parts inventory
management information system which will be installed during the first six
months of fiscal year ending March 31, 1999. Other potential cost savings
programs include an in-house revenue accounting system, and conducting certain
heavy maintenance checks in-house. These programs would require capital
expenditures and will be implemented if the Company is able to increase its
capital resources. The Company believes that it can reduce its airport operating
expenses at certain cities by performing its own ground handling operations
rather than continuing to contract out these services. Since April 1996,
conversions to the Company's own ground handling operations occurred at nine of
the Company's 14 stations.

          The Company has a contract with a credit card processor that requires
the Company to provide a letter of credit to match the total amount of air
traffic liability associated with credit card customers if the Company does not
meet certain financial covenants and if the credit card processor requests that
the collateral be increased.  As of September 30, 1997, the Company was in
default with respect to these financial covenants.  In November 1997, the credit
card processor required an increase in the collateral amount from its present
level of $2,000,000 to $4,000,000, which increased the Company's current
restricted investment balance accordingly.  As of June 16, 1998, the Company
could be required to increase the collateral amount to $6,600,000.

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

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

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

          The Company has incurred substantial operating losses in 1998 and 1997
and has a working capital deficit at March 31, 1998. In addition, the Company
has substantial contractual commitments for leasing and maintaining aircraft.
The Company believes that its existing cash balances coupled with improved
operating results projected for fiscal 1999 will be adequate to fund the
Company's operations at least through March 31, 1999. There can be no assurances
however, that the Company will be successful in improving its operating results
in fiscal 1999. If its operating results do not improve, the Company anticipates
that it would be required to obtain additional capital or other financing to
fund its operations.

YEAR 2000 COMPLIANCE

          The Company uses information systems in managing and conducting
certain aspects of its business. The Company's systems are currently not Year
2000 compliant, and the Company is in the process of ascertaining the
modifications that will be necessary for its systems to attain Year 2000
compliance. The Company is taking measures to address this problem and has
created a Year 2000 committee, headed by an officer of the Company, to manage
and coordinate the Company's efforts to identify and fix critical date-sensitive
systems. While the Company believes it will be able to perform or obtain the
necessary modifications on a timely basis, the Company has not determined the
costs that will be necessary for attaining compliance, and there is no assurance
that such costs will not be significant. Failure by the Company and its key
business partners (e.g., the FAA, DOT, airport

                                      -27-
<PAGE>
 
authorities, suppliers, and data providers) to achieve Year 2000 compliance on a
timely basis could have a significant adverse impact on the Company's business,
financial condition and operating results.

ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

       Note applicable.

ITEM 8:  FINANCIAL STATEMENTS

       The Company's 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.

       The Company has not, during the past three years and through the date of
this report, had a change in its independent certified public accountants or had
a disagreement with such accountants on any matter of accounting principles,
practices or financial statement disclosure.


                                 PART III

ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

       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 the Company's annual
meeting of shareholders to be held on September 10, 1998, which definitive Proxy
Statement is to be filed with the Commission on or before July 29, 1998.


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 the Company's annual
meeting of shareholders to be held on September 10, 1998, which definitive Proxy
Statement is to be filed with the Commission on or before July 29, 1998.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

       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 the Company's annual meeting of shareholders to be held on September 10,
1998, which definitive Proxy Statement is to be filed with the Commission on or
before July 29, 1998.

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 the Company's annual
meeting of shareholders to be held on September 10, 1998, which definitive Proxy
Statement is to be filed with the Commission on or before July 29, 1998.

                                     -28-
<PAGE>
 
                                    PART IV
                                        
                                        
ITEM 14(A): EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.

Exhibit
Numbers   Description of Exhibits
-------   -----------------------

  3.1     Amended and Restated Articles of Incorporation of the Company. (10)

  3.2     Amended Bylaws of the Company (June 9, 1997). (5)

  4.1     Specimen Common Stock certificate of the Company. (1)

  4.2     The Amended and Restated Articles of Incorporation and Amended Bylaws
          of the Company are included as Exhibits 3.1 and 3.2.

  4.3     Form of Warrant. (1)

  4.4     Rights Agreement, dated as of February 20, 1997, between Frontier
          Airlines, Inc. and American Securities Transfer & Trust, Inc,
          including the form of Rights Certificate and the Summary of Rights
          attached thereto as Exhibits A and B, respectively, incorporated by
          reference to Frontier Airlines, Inc. Registration Statement on Form 8-
          A dated March 11, 1997. (6)

  4.4(a)  Amendment to Rights Agreement dated June 30, 1997. (5)

  10.1    Office Lease. (1)

  10.2    Office Lease Supplements and Amendments. (5)

  10.2(a) Addendum to Office Lease (10)

  10.3    1994 Stock Option Plan. (1)

  10.4    Amendment No. 1 to 1994 Stock Option Plan. (2)

  10.4(a) Amendment No. 2 to 1994 Stock Option Plan (5)

  10.5    Registration Rights Agreement. (1)

  10.6    Sales Agreement. (1)

  10.7    Airport Use and Facilities Agreement, Denver International Airport (2)

  10.8    Aircraft Lease Agreement dated as of July 26, 1994. (2)

  10.8(a) Assignment and Assumption Agreements dated as of March 28, 1997 and
          March 20, 1997 between USAirways, Inc. and First Security Bank,
          National Association ("Trustee") and Frontier Airlines, Inc. (5)

  10.8(b) Amendment No. 1, dated June 5, 1997, to Lease Agreement dated as of
          July 26, 1994 between Frontier Airlines, Inc. and First Security Bank,
          National Association. (5)

  10.9    Code Sharing Agreement. (5)

                                      -29-
<PAGE>
 
   10.10     Aircraft Lease Agreement dated as of October 20, 1995 (MSN 23177). 
             (3)

   10.11     Aircraft Lease Agreement dated as of October 20, 1995 (MSN 23257). 
             (3)

   10.12     Aircraft Lease Agreement dated as of May 1, 1996. (3)

   10.13     Aircraft Lease Agreement dated as of June 3, 1996. (3)

   10.13(a)  Amendment No. 1 to Aircraft Lease Agreement dated as of 
             June 3, 1996.(10)

   10.14     Aircraft Lease Agreement dated as of June 12, 1996. 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. (3)

   10.15     Operating Lease Agreement dated November 1, 1996 between the
             Company and First Security Bank, National Association. 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. (4)

   10.16     Aircraft Lease Agreement (MSN 28760) dated as of December 12, 1996
             between the Company and Boullion Aircraft Holding Company, 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. (4)

   10.16(a)  Amendment No. 1 to Aircraft Lease Agreement (MSN 28760) dated May
             20, 1997. Portions of this Exhibit have been excluded from the
             publicly available document and an application for an order
             granting confidential treatment of the excluded material has been
             made. (5)

   10.17     Aircraft Lease Agreement (MSN 28662) dated as of December 12, 1996
             between the Company and Boullion Aircraft Holding Company, 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. (4)
        
   10.17(a)  Amendment No. 1 to Aircraft Lease Agreement (MSN 28662) dated May
             20, 1997. Portions of this Exhibit have been excluded from the
             publicly available document and an application for an order
             granting confidential treatment of the excluded material has been
             made. (5)

   10.18     Aircraft Lease Agreement (MSN 28563) dated as of March 25, 1997
             between the Company and General Electric Capital Corporation.
             Portions of this Exhibit have been excluded from the publicly
             available document and an application for an order granting
             confidential treatment of the excluded material has been made.  (5)
        
   10.19     Space and Use Agreement with Continental Airlines, as amended.
             Portions of this Exhibit have been excluded from the publicly
             available document and an application for an order granting
             confidential treatment of the excluded material has been made.  (5)

   10.20     Letter of Understanding with Continental Airlines dated August
             16,1996. Portions of this Exhibit have been excluded from the
             publicly available document and an application for an order
             granting confidential treatment of the excluded material has been
             made. (5)

   10.21     Service Agreement between Frontier Airlines, Inc. and Greenwich Air
             Services, Inc. dated May 19, 1997. Portions of this Exhibit have
             been excluded from the publicly available document and an
             application for an order granting confidential treatment of the
             excluded material has been made. (5)

                                      -30-
<PAGE>
 
  10.22   Agreement between Frontier Airlines, Inc. and Dallas Aerospace, Inc.
          dated April 17, 1997.  Portions of this Exhibit have been excluded
          from the publicly available document and an application for an order
          granting confidential treatment of the excluded material has been
          made.  (5)

  10.23   General Services Agreement between Frontier Airlines, Inc. and Tramco,
          Inc. dated as of August 6, 1996. (5)

  10.24   General Terms Engine Lease Agreement between Frontier Airlines, Inc.
          and Terandon Leasing Corporation dated as of August 15, 1996, as
          assigned to U.S. Bancorp Leasing and Financial on February 19, 1997.
          Portions of this Exhibit have been excluded from the publicly
          available document and an application for an order granting
          confidential treatment of the excluded material has been made. (5)

  10.25   Lease Agreement between Frontier Airlines, Inc. and Aircraft
          Instrument and Radio Company, Inc. dated December 11, 1995.  Portions
          of this Exhibit have been excluded from the publicly available
          document and an application for an order granting confidential
          treatment of the excluded material has been made.  (5)

  10.26   Agreement and Plan of Merger between Western dated June 30, 1997. (5)
          Pacific Airlines, Inc. and Frontier Airlines, Inc.
 
  10.26(a)Agreement dated as of September 29, 1997 between  Airlines, Inc. (7)
          Western Pacific Airlines, Inc. and Frontier
 
  10.27   Security Agreement with Wexford Management LLC dated December 2, 1997.
          (8)
 
  10.28   Amended and Restated Warrant Agreement with Wexford Management LLC
          dated as of February 27, 1998. (10)
 
  10.29   Amended and Restated Registration Rights Agreement with Wexford
          Management LLC dated asof February 27, 1998. (10)
           

  10.30   Securties Purchase Agreement with B III Capital Partners, L.P. dated
          as of April 24, 1998. (9)

  10.31   Registration Rights Agreement with B III Capital Partners, L.P. dated
          as of April 24, 1998. (10)

  10.32   Warrant Agreement with The Seabury Group, LLC dated as of may 26,
          1998. (10)

 10.33    Registration rights Agreement with The Seabury Group, LLC dated as of
          May 26, 1998. (10)

  23.1    Consent of KPMG Peat Marwick LLP  (10)

  27.1    Financial Data Schedule (10)

---------------------------
(1)  Incorporated by reference from the Company's Registration Statement on Form
     SB-2, Commission File No. 33-77790-D, declared effective May 20, 1994.
(2)  Incorporated by reference from the Company's Annual Report on Form 10-KSB,
     Commission File No. 0-4877, filed on June 29, 1995.
(3)  Incorporated by reference from the Company's Annual Report on Form 10-KSB,
     Commission File No. 0-4877, filed on June 24, 1996.
(4)  Incorporated by reference from the Company's Quarterly Report on Form 10-
     QSB, Commission File No. 0-4877, filed on February 13, 1997.
(5)  Incorporated by reference from the Company's Annual Report on Form 10-KSB,
     Commission File No. 0-24126, filed July 14, 1997.

                                      -31-
<PAGE>
 
(6)  Incorporated by reference from the Company's Report on Form 8-K filed on
     March 12, 1997.
(7)  Incorporated by reference from the Company's Report on Form 8-K filed on
     October 1, 1997.
(8)  Incorporated by reference from the Company's Report on Form 8-K filed on
     December 12, 1997.
(9)  Incorporated by reference from the Company's Report on Form 8-K filed on
     May 4, 1998.
(10) Filed herewith.

ITEM 14(b):  REPORTS ON FORM 8-K.

   No reports on Form 8-K were filed during the quarter ended March 31, 1998.

                                      -32-
<PAGE>
 
                                  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, INC.


Date: June 26, 1998           By: /s/ Samuel D. Addoms
                                 ---------------------
                              Samuel D. Addoms, Principal Executive
                              Officer and Principal Financial Officer


Date: June 26, 1998           By: /s/ Elissa A. Potucek
                                 ----------------------
                              Elissa A. Potucek, Vice President, Controller,
                              Treasurer and Principal Accounting Officer

   Pursuant 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.


Date: June 26, 1998             /s/ Samuel D. Addoms, Director
                               -------------------------------
                               Samuel D. Addoms, Director


Date: June 26, 1998             /s/ William B. McNamara, Director
                               ----------------------------------
                               William B. McNamara, Director


Date: June 26, 1998             /s/ Paul Stephen Dempsey, Director
                               -----------------------------------
                               Paul Stephen Dempsey, Director


Date: June 26, 1998             /s/ B. LaRae Orullian, Director
                               --------------------------------
                               B. LaRae Orullian, Director


Date: June 26, 1998             /s/  D. Dale Browning, Director
                               --------------------------------
                               D. Dale Browning, Director


Date: June 26, 1998             /s/  Arthur H. Amron, Director
                               -------------------------------
                               Arthur H. Amron, Director


Date: June 26, 1998             /s/  John E. Luth, Director
                               ----------------------------
                               John E. Luth, Director


Date: June 26, 1998             /s/  B. Ben Baldanza, Director
                               -------------------------------
                               B. Ben Baldanza, Director
<PAGE>
 
                          Independent Auditors' Report
                          ----------------------------
                                        


THE BOARD OF DIRECTORS AND
 STOCKHOLDERS
FRONTIER AIRLINES, INC.:


We have audited the accompanying balance sheets of Frontier Airlines, Inc. as of
March 31, 1998 and 1997, and the related statements of operations, stockholders'
equity, and cash flows for each of the years in the three-year period ended
March 31, 1998.  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 generally accepted auditing
standards.  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, Inc., as of
March 31, 1998 and 1997, and the results of its operations and its cash flows
for each of the years in the three-year period ended March 31, 1998, in
conformity with generally accepted accounting principles.



                                  KPMG PEAT MARWICK LLP

Denver, Colorado
June 16, 1998

                                      F-1
<PAGE>
 
FRONTIER AIRLINES, INC.
BALANCE SHEETS
MARCH 31, 1998 AND 1997
<TABLE> 
<CAPTION> 
---------------------------------------------------------------------------------------------------------
<S>                                                                   <C>             <C>
                                                                        MARCH 31,      March 31,
                                                                          1998            1997
                                                                      -------------   ------------

Assets
------
Current assets:
    Cash and cash equivalents                                          $  3,641,395   $ 10,286,453
    Restricted investments                                                4,000,000      2,000,000
    Trade receivables, net of allowance for doubtful accounts of
      $139,096 and $71,713 at March 31, 1998 and 1997                    11,661,323      7,451,342
    Maintenance deposits (note 3)                                         9,307,723      6,968,379
    Prepaid expenses                                                      3,843,694      3,449,871
    Inventories                                                           1,164,310        997,102
    Deferred lease and other expenses                                       380,975        289,579
    Note receivable - current portion                                             -         27,288
                                                                       ------------   ------------
             Total current assets                                        33,999,420     31,470,014
 
Security, maintenance and other deposits (note 3)                         7,633,143      6,596,660
Property and equipment, net (note 2)                                      5,579,019      4,340,982
Note receivable - long-term portion                                               -         31,762
Deferred lease and other expenses                                           780,429        918,994
Restricted investments                                                    2,606,459        734,133
                                                                       ------------   ------------
                                                                       $ 50,598,470   $ 44,092,545
                                                                       ============   ============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
    Accounts payable                                                   $ 13,664,750     $8,045,533
    Air traffic liability                                                18,910,441     13,058,632
    Other accrued expenses                                                5,157,640      3,318,043
    Accrued maintenance expense (note 3)                                 12,537,228      8,277,115
    Note payable                                                                  -          9,812
    Current portion of obligations under capital leases (note 3)             54,346         35,700
                                                                        -----------   ------------
            Total current liabilities                                    50,324,405     32,744,835
 
Senior secured notes payable (note 4)                                     3,468,138              -
Accrued maintenance expense (note 3)                                      2,381,354      1,408,363
Obligations under capital leases, excluding current portion (note 3)         97,757         56,444
                                                                        -----------   ------------
                  Total liabilities                                      56,271,654     34,209,642
                                                                        -----------    -----------
Stockholders' (deficit) equity
    Preferred stock, no par value, authorized 1,000,000 shares;
        none issued and outstanding                                               -              -
    Common stock, no par value, stated value of $.001 per share,
        authorized 20,000,000 shares; 9,253,563 and 8,844,375
        shares issued and outstanding at March 31, 1998 and 1997              9,253          8,844
    Additional paid-in capital                                           37,954,584     35,764,710
    Accumulated deficit                                                 (43,637,021)   (25,890,651)
                                                                        -----------   ------------
            Total stockholders' (deficit) equity                         (5,673,184)     9,882,903
                                                                        -----------   ------------
Commitments and contingencies (notes 3,6,10 and 11)
                                                                       $ 50,598,470   $ 44,092,545
                                                                       ============   ============
See accompanying notes to financial statements.
</TABLE>

                                      F-2
<PAGE>
 
FRONTIER AIRLINES, INC.

STATEMENTS OF OPERATIONS

YEARS ENDED MARCH 31, 1998, 1997 AND 1996
--------------------------------------------------------------------------------
<TABLE> 
<CAPTION> 
                                            1998              1997              1996
                                            ----              ----              ----
 
Revenues:
<S>                                      <C><C>            <C><C>            <C><C>
  Passenger                            $ 142,018,392     $ 113,758,027     $ 68,530,051
  Cargo                                    3,008,919         1,956,150        1,148,357
  Other                                    2,115,326           786,457          714,167
                                       -------------    --------------    -------------
 
       Total revenues                    147,142,637       116,500,634       70,392,575
                                       -------------    --------------    ------------- 

Operating expenses:
  Flight operations                       66,288,125        52,650,575       28,019,390
  Aircraft and traffic servicing          30,684,992        24,849,388       18,486,719
  Maintenance                             31,790,600        24,945,636       11,732,102
  Promotion and sales                     29,328,970        21,526,345       14,218,814
  General and administrative               6,352,977         4,617,982        3,320,700
  Depreciation and amortization            1,251,364         1,072,160          547,514
                                       -------------    --------------    ------------- 
       Total operating expenses          165,697,028       129,662,086       76,325,239
                                       -------------    --------------    ------------- 
       Operating loss                    (18,554,391)      (13,161,452)      (5,932,664)
                                       -------------    --------------    ------------- 

Nonoperating income:
  Interest income                            722,380         1,033,508          419,756
  Interest expense                          (324,167)          (20,435)         (22,671)
  Other, net                                 409,808           (37,953)         (46,103)
                                       -------------    --------------    ------------- 
       Total nonoperating income, net        808,021           975,120          350,982
                                       -------------    --------------    ------------- 
Net loss                               $ (17,746,370)  $   (12,186,332)  $   (5,581,682)
                                      ==============    ==============    =============
 
Basic and diluted loss per common share       $(1.95)           $(1.49)          $(1.23)
                                      ==============    ==============    =============
 
Weight average shares outstanding          9,095,220         8,156,302        4,536,914
                                      ==============    ==============    ============= 
</TABLE> 
 
 
See accompanying notes to financial statements.

                                      F-3
<PAGE>
 
FRONTIER AIRLINES, INC.

STATEMENTS OF STOCKHOLDERS' EQUITY

YEARS ENDED MARCH 31, 1998, 1997 AND 1996

-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                               COMMON STOCK        
                                        -----------------------    ADDITIONAL                         TOTAL
                                                         STATED     PAID-IN      ACCUMULATED       stockholders'
                                             SHARES       VALUE     CAPITAL        DEFICIT       (DEFICIT) EQUITY
                                        ------------   --------    ----------    -----------     ----------------
<S>                                     <C>            <C>          <C>            <C>             <C>
BALANCES,
  MARCH 31, 1995                           3,443,300     $3,443     9,761,686     (8,122,637)           1,642,492
 
Contribution of common stock to
    employee stock ownership plan            137,340          -       721,000              -              721,000
Issuance of compensatory
    common stock options                           -          -        60,500              -               60,500
Sale of common stock and
    warrants, net of offering
    costs of $1,230,000                    1,840,000      1,978     7,279,532              -            7,281,510
Issuance of warrants                                                  577,200                             577,200
Net loss                                           -          -             -     (5,581,682)          (5,581,682)
                                       -------------  ---------    ----------    -----------     ---------------- 
BALANCES,
  MARCH 31, 1996                           5,420,640      5,421    18,399,918    (13,704,319)           4,701,020
 
Sale of common stock, net of
    offering costs of $279,385               678,733        679     2,720,615                           2,721,294
Exercise of common stock
    warrants, net of issuance
    costs of $55,518                       2,666,133      2,666    13,275,145                          13,277,811
Contribution of common stock
    to employee stock ownership
    plan                                      78,869         78       499,922                             500,000
Issuance of warrants                                                  869,110                             869,110
Net loss                                                                         (12,186,332)         (12,186,332)
                                       -------------  ---------    ----------    -----------     ---------------- 
BALANCES,
  MARCH 31, 1997                           8,844,375      8,844    35,764,710    (25,890,651)           9,882,903
 
Exercise of common stock
    options                                  409,188        409       434,948                             435,357
Warrants issued in conjunction                                                                                  -
    with debt                                                       1,754,926                           1,754,926
Net loss                                                                         (17,746,370)         (17,746,370)
                                       -------------  ---------    ----------    -----------     ---------------- 
BALANCES,
  MARCH 31, 1998                           9,253,563     $9,253    37,954,584    (43,637,021)          (5,673,184)
                                       =============  =========    ==========    ===========     ================ 
 
See accompanying notes to financial statements
</TABLE>

                                      F-4
<PAGE>
FRONTIER AIRLINES, INC.

Statements of Cash Flows

Years Ended March 31, 1998, 1997 and 1996
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                                   1998             1997            1996
                                                                   ----             ----            ----
<S>                                                          <C> 
Cash flows from operating activities:
  Net loss                                                     $(17,746,370)    $(12,186,332)    $(5,581,682)
  Adjustments to reconcile net loss to net cash
    used by operating activities:
      Employee stock ownership plan compensation expense                  -          500,000         721,000
      Issuance of compensatory common stock options                       -                -          60,500
      Depreciation and amortization                               1,749,097        1,322,916         603,014
      Loss on sale of equipment                                      10,334            4,708          62,940
      Changes in operating assets and liabilities:
        Restricted investments                                   (2,372,326)          82,458        (842,574)
        Trade receivables                                        (4,209,981)      (1,579,184)     (2,289,183)
        Security, maintenance and other deposits                 (3,583,327)      (1,608,524)     (5,149,965)
        Prepaid expenses                                           (393,823)        (562,954)     (2,269,203)
        Inventories                                                (167,208)        (427,926)       (362,581)
        Note receivable                                              11,740           10,950               -
        Accounts payable                                          5,619,217        3,643,071       1,590,072
        Air traffic liability                                     5,851,809        1,858,072       7,384,114
        Other accrued expenses                                    1,839,597        1,323,037        (337,294)
        Accrued maintenance expense                               5,233,104        1,151,443       5,572,559
                                                              -------------    -------------    ------------
          Net cash used in operating activities                  (8,158,137)      (6,468,265)       (838,283)
                                                              -------------    -------------    ------------
 Cash flows used by investing activities:
  Decrease (increase) in short-term investments                           -        1,168,200      (1,168,200)
  Aircraft lease deposits                                           207,500       (2,682,250)     (1,661,250)
  Increase in restricted investments                             (1,500,000)        (600,000)              -
  Capital expenditures                                           (2,355,266)      (3,434,789)     (1,097,788)
  Proceeds from sale of property and equipment                            -                -          32,440
                                                              -------------    -------------    ------------
          Net cash used in investing activities                  (3,647,766)      (5,548,839)     (3,894,798)
                                                              -------------    -------------    ------------
 
Cash flows from financing activities:
  Net proceeds from issuance of common stock and warrants           435,357       15,999,455       7,281,510
  Proceeds from sale of senior secured notes including warrants   5,000,000                -               -
  Cash payments for debt issuance costs                            (227,500)
  Proceeds from short-term borrowings                               202,810           95,911         101,496
  Principal payments on short-term borrowings                      (212,622)         (96,540)        (91,055)
  Principal payments on obligations under capital leases            (37,200)         (54,523)        (34,357)
                                                              -------------    -------------    ------------
          Net cash provided by financing activities               5,160,845       15,944,303       7,257,594
                                                              -------------    -------------    ------------ 

          Net (decrease) increase in cash and cash equivalents   (6,645,058)       3,927,199       2,524,513
 
Cash and cash equivalents, beginning of year                     10,286,453        6,359,254       3,834,741
                                                              -------------    -------------    ------------ 

Cash and cash equivalents, end of year                           $3,641,395      $10,286,453      $6,359,254
                                                              =============    =============    ============
See accompanying notes to financial statements.
</TABLE>

                                      F-5
<PAGE>
 
FRONTIER AIRLINES, INC.

NOTES TO FINANCIAL STATEMENTS

MARCH 31, 1998

-------------------------------------------------------------------------------

(1) NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

    NATURE OF BUSINESS AND INDUSTRY RISKS

    Frontier Airlines, Inc. (the "Company") was incorporated in the State of
    Colorado on February 8, 1994 and is a low-fare full service commercial
    airline based in Denver, Colorado which currently serves cities on the west
    and east coasts, as well as intermediate cities in relatively close
    proximity to Denver.  The Company commenced airline operations on July 5,
    1994.

    The airline industry is highly competitive primarily due to the effects of
    the Airline Deregulation Act of 1978, which has substantially eliminated
    government authority to regulate domestic routes and fares and has increased
    the ability of airlines to compete with respect to flight frequencies and
    fares.  The Company's results are highly sensitive to changes in fare
    levels.  The Company cannot predict future fare levels, which can change
    rapidly, and are subject to actions by the Company's competitors.

    The airline industry is also characterized by fixed costs that are high in
    relation to revenues.  Accordingly, a shortfall from expected revenue levels
    can have a material adverse effect on profitability and liquidity, including
    those of the Company's.  The Company's connecting hub is located at Denver
    International Airport (DIA).  DIA opened in March 1995.  Financed through
    revenue bonds, DIA depends on landing fees, gate rentals and other income
    from airlines, the traveling public and others to pay debt service and
    support operations.  Management believes that the Company's operating costs
    at DIA will continue to substantially exceed those that other airlines incur
    at hub airports in other cities.

    The airline industry is significantly affected by general economic
    conditions.  Because a substantial portion of business and personal airline
    travel is discretionary, the industry tends to experience severe adverse
    financial results during general economic downturns.  The Company's business
    also is seasonal, which affects the Company's results of operations from
    quarter to quarter.

    Fuel is a major component of operating expense for all airlines.  Both the
    cost and availability of fuel are subject to many economic and political
    factors and events occurring throughout the world.  The future cost and
    availability of fuel to the Company cannot be predicted, and substantial
    price increases or the unavailability of adequate fuel supplies could have a
    material adverse effect on the Company's operations and profitability.

                                      F-6
<PAGE>

FRONTIER AIRLINES, INC.

NOTES TO FINANCIAL STATEMENTS, CONTINUED

-------------------------------------------------------------------------------

(1) NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
    (continued)

    PREPARATION OF FINANCIAL STATEMENTS

    The preparation of financial statements in conformity with 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.

    SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

    Noncash Financing and Investment Activities:

    During the year ended March 31, 1998, the Company issued warrants to its
    lender in connection with its $5,000,000 senior secured notes with an
    estimated fair market value totaling $1,645,434, and issued warrants to its
    financial advisor in connection with debt and equity financing with an
    estimated fair market value totaling $109,492.  Also during the year ended
    March 31, 1998, the Company entered into capital lease agreements totaling
    $97,000, and exchanged a note receivable for certain property and equipment
    totaling $47,000.  In the years ended March 31, 1997 and 1996, the Company
    issued warrants to aircraft lessors with an estimated fair market value
    totaling $869,110 and $577,200, respectively.  The unamortized portion of
    deferred lease expense totaled $850,125 and $1,139,703 at March 31, 1998 and
    1997.  In the year ended March 31, 1996, the Company sold equipment and
    accepted a promissory note in lieu of cash for $70,000.

    Interest and Taxes Paid During the Year:

    Cash paid for interest totaled $184,999, $20,435, and $22,671, for the years
    ended March 31, 1998, 1997 and 1996, respectively.  No income taxes were
    paid during the years ended March 31, 1998, 1997, and 1996.

                                      F-7
<PAGE>
 
FRONTIER AIRLINES, INC.

NOTES TO FINANCIAL STATEMENTS, CONTINUED

-------------------------------------------------------------------------------

(1) NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
    (continued)

    RESTRICTED 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 market value.  Maturities are for one year or less and the
    Company intends to hold restricted investments until maturity.

    VALULATION AND QUALIFYING ACCOUNTS

    The allowance for doubtful accounts was $139,096 and $72,713 at March 31,
    1998 and 1997.  Provisions for bad debts net of recoveries totaled $267,000,
    $160,000, and $222,000 for the years ended March 31, 1998, 1997 and 1996.
    Deductions from the reserve totaled $200,000, $120,000, and $190,000 for the
    years ended March 31, 1998, 1997, and 1996.

    INVENTORIES

    Inventories consist of expendable 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.

    The Company has two aircraft parts agreements for the Company's 14 Boeing
    737 aircraft discussed in note 3, one with another air carrier and another
    with an aircraft parts supplier.  The Company is required to pay a monthly
    consignment fee to each of these lessors, based on the value of the
    consigned parts, and to replenish any such parts when used with a like part.
    At March 31, 1998 and 1997, the Company held consigned parts and supplies in
    the amount of approximately $8,161,000 and $7,105,944, which are not
    included in the Company's balance sheet.

    PROPERTY AND EQUIPMENT

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

    Flight equipment                   5-20 years
    Improvements to leased aircraft    Life of improvements or term of lease,
                                       whichever is less
    Ground property, equipment, and
      leasehold improvements           3-5 years or term of lease

                                      F-8
<PAGE>

FRONTIER AIRLINES, INC.

NOTES TO FINANCIAL STATEMENTS, CONTINUED

-------------------------------------------------------------------------------

(1) NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
    (continued)

    Assets utilized under capital leases are amortized over the lesser of
    the lease term or the estimated useful life of the asset using the straight-
    line method.  Amortization of capital leases is included in depreciation
    expense.

    MAINTENANCE

    Routine maintenance and repairs are charged to operations as incurred.

    Under the terms of its aircraft lease agreements, the Company is required to
    make monthly maintenance deposits based on usage; such deposits are applied
    against the cost of major airframe maintenance checks, landing gear and
    engine overhauls.  These deposits are expensed in the month the usage was
    incurred and a liability for accrued maintenance is established.  Deposit
    balances remaining at lease termination remain with the lessor and any
    remaining liability for maintenance checks is reversed against the deposit
    balance. Additionally, a provision is made for the estimated costs of
    scheduled major overhauls required to be performed on leased aircraft and
    components under the provisions of the aircraft lease agreements if the
    required monthly deposit amounts are not adequate to cover the entire cost
    of the scheduled maintenance.  Accrued maintenance expense expected to be
    incurred beyond one year is classified as long-term.

    REVENUE RECOGNITION

    Passenger, cargo, and other revenues are recognized when the transportation
    is provided or after the tickets expire, and are net of excise taxes.
    Revenues which have been deferred are included in the accompanying balance
    sheet as air traffic liability.

    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.

    FREQUENT FLYER AWARDS

    The Company had maintained a frequent travel award program that provided
    awards to program members based on accumulated segments flown, which was
    discontinued effective September 11, 1996.  The Company allows its
    passengers to accumulate mileage on Continental Airlines' OnePass frequent
    flyer program.  The cost of providing mileage on the OnePass program is
    based on an agreed upon rate per mileage credit, which is paid to
    Continental Airlines on a monthly basis.

                                      F-9
<PAGE>

FRONTIER AIRLINES, INC.

NOTES TO FINANCIAL STATEMENTS, CONTINUED

-------------------------------------------------------------------------------
 
(1) NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
    (continued)

    LOSS PER COMMON SHARE

    In February 1997, the Financial Accounting Standards Board issued Statement
    of Financial Accounting Standards No. 128, Earnings Per Share (SFAS No.
    128).  This statement replaces the presentation of primary earnings per
    share (EPS) and fully diluted EPS with a presentation of basic EPS and
    diluted EPS, respectively.  Basic EPS excludes dilution and is computed by
    dividing earnings (loss) available to common stockholders by the weighted-
    average number of common shares outstanding for the period.  Similar to
    fully diluted EPS, diluted EPS reflects the potential dilution of securities
    that could share in earnings.  This statement has been adopted in the
    accompanying financial statements.

    Common stock equivalents are excluded from the computation of diluted loss
    per share as their effect would have been anti-dilutive.

    INCOME TAXES

    The Company accounts for income taxes using the asset and liability method
    prescribed by Statement of Financial Accounting Standards No. 109,
    Accounting for Income Taxes.  Under the asset and liability 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 the existing assets and liabilities.  A valuation allowance for
    net 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.

    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,
    1998.

                                      F-10
<PAGE>
FRONTIER AIRLINES, INC.

Notes to Financial Statements, continued
--------------------------------------------------------------------------------
 
(1) NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
    (continued)

    STOCK BASED COMPENSATION

    The Company follows Accounting Principles Board Opinion No. 25 Accounting
    for Stock Issued to Employees ("APB 25") and related Interpretations in
    accounting for its employee stock options and follows the disclosure
    provisions of Statement of financial Accounting Standards No. 123 (SFAS No.
    123).  Under APB 25, because the exercise price of the Company's employee
    stock options equals the market price of the underlying stock on the date of
    grant, no compensation expense is recognized.  The Company has included the
    pro forma disclosures required by SFAS No. 123 in Note 7.

    IMPAIRMENT OF LONG-LIVED ASSETS

    The Company records impairment losses on long-lived assets used in
    operations when indicators of impairment are present and either the
    undiscounted future cash flows estimated to be generated by those assets or
    the fair market value are less than the assets' carrying amount.

    RECLASSFICATIONS

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

(2) PROPERTY AND EQUIPMENT, NET

    As of March 31, 1998 and 1997 property and equipment consisted of the 
    following:

                                                             1998        1997
                                                          ----------  ----------

    Flight equipment and improvements to leased aircraft  $4,932,024  $3,251,284
    Ground property, equipment and leasehold improvements  3,673,363   2,923,658
                                                          ----------  ----------
                                                           8,605,387   6,174,942
    Less accumulated depreciation and amortization         3,026,368   1,833,960
                                                          ----------  ----------
 
        Property and equipment, net                       $5,579,019  $4,340,982
                                                          ==========  ==========

    Property and equipment includes certain office equipment under capital
    leases.  At March 31, 1998 and 1997, office equipment recorded under capital
    leases was $280,857 and $183,698 and accumulated amortization was $113,364
    and $104,479.

                                     F-11
<PAGE>

FRONTIER AIRLINES, INC.

NOTES TO FINANCIAL STATEMENTS, CONTINUED

--------------------------------------------------------------------------------

(3) LEASE COMMITMENTS

    AIRCRAFT LEASES

    At March 31, 1998, the Company operated 14 aircraft which are accounted for
    under operating lease agreements with initial terms ranging from 2 to 8
    years with certain leases that allow for renewal options.  Security deposits
    related to leased aircraft at March 31, 1998 and 1997 totaled $4,604,750 and
    $4,812,250 and are included in security, maintenance and other deposits on
    the balance sheet.  Letters of credits issued to certain aircraft lessors in
    lieu of cash deposits and related restricted investments to secure these
    letters of credits at March 31, 1998 and 1997 totaled $2,100,000 and
    $1,500,000.

    In addition to scheduled future minimum lease payments, the Company is
    required to pay to each aircraft lessor monthly cash deposits based on
    flight hours and cycles operated to provide funding for certain scheduled
    maintenance costs of leased aircraft.  The lease agreements provide that the
    Company shall pay taxes, maintenance, insurance, and other operating
    expenses applicable to the leased property.  At March 31, 1998 and 1997,
    aircraft maintenance deposits totaled $11,466,033 and $8,142,176 and are
    reported as a component of security, maintenance and other deposits on the
    balance sheet.

    Any cash deposits paid to aircraft lessors for future scheduled maintenance
    costs to the extent not used during the lease term remain with the lessors,
    and any remaining liability for maintenance checks is reversed against the
    deposit balance.  Maintenance deposits are unsecured and may be subject to
    the risk of loss in the event the lessors are not able to satisfy their
    obligations under the lease agreements.

    OTHER LEASES

    The Company leases a office and hangar space, a spare engine and office
    equipment for its headquarters, airport facilities, and certain ground
    equipment.  The Company also leases certain airport gate facilities on a
    month-to-month basis.

    At March 31, 1998, commitments under capital and noncancelable operating
    leases (excluding maintenance deposit requirements) with terms in excess of
    one year were as follows:

                                      F-12
<PAGE>

FRONTIER AIRLINES, INC.

NOTES TO FINANCIAL STATEMENTS, CONTINUED
--------------------------------------------------------------------------------

(3)  LEASE COMMITMENTS (CONTINUED)

                                       Capital        Operating
                                        Leases         Leases
                                       --------     ------------
     Year ended March 31:
     1999                              $ 69,069     $ 35,944,976
     2000                                43,167       32,112,675
     2001                                24,636       22,715,742
     2002                                24,636       18,688,397
     2003                                24,636       17,773,916
     Thereafter                            -          32,987,326
                                       --------     ------------
        Total minimum lease payments    186,144      160,223,032
                                                    ============
 

 
     Less amount representing interest  (34,041)
                                       --------

 
     Present value of obligations 
       under capital leases             152,103

 
     Less current portion of 
       obligations under capital 
       leases                            54,346
                                       --------

 
     Obligations under capital leases,
       excluding current portion       $ 97,757
                                       ========

     The obligations under capital leases have been discounted at imputed
     interest rates ranging from 10.5% to 12.2%.

     Rental expense under operating leases, including month-to-month leases, for
     the years ended March 31, 1998, 1997 and 1996 was $36,573,509, $25,336,749
     and $12,625,175, respectively.


                                      F-13
<PAGE>

FRONTIER AIRLINES, INC.

NOTES TO FINANCIAL STATEMENTS, CONTINUED

--------------------------------------------------------------------------------
 
(4) SENIOR SECURED NOTES

    In December 1997, the Company sold $5,000,000 of 10% senior secured notes to
    Wexford Management LLC ("Wexford").  The notes are due and payable in full
    on December 15, 2001 with interest payable quarterly in arrears.  The notes
    are secured by substantially all of the assets of the company.  The Wexford
    agreement contains restrictions primarily related to liens on assets and
    requires prior written consent for expenditures outside the ordinary course
    of business.  In connection with this transaction, the Company issued
    Wexford warrants to purchase 1,750,000 shares of Common Stock at $3.00 per
    share.  The Company determined the value of the warrants to be $1,645,434
    and recorded the value as equity in additional paid-in capital.  The balance
    of the notes will be accreted to its face value over the term of the notes
    and included as interest expense.  The effective interest rate on the notes
    is approximately 22.5% including the value of the warrants.

(5) INCOME TAXES

    The Company has not recognized any income tax benefit related to net
    operating losses incurred for the years ended March 31, 1998, 1997 and 1996
    because the benefit of the net operating losses were offset by an increase
    in the valuation allowance for net deferred tax assets.

    The differences between the Company's provision for income taxes and such
    provisions (benefit) for income taxes computed at the federal statutory rate
    is comprised of the items shown in the following table:

    <TABLE>
    <CAPTION>
                                                         1998          1997          1996
                                                         ----          ----          ----
     <S>                                                 <C>           <C>           <C> 
                   Income tax benefit at the
                    statutory rate                        34%           34%           34%
                   Net operating loss producing
                   no current benefit                    (34%)         (34%)         (34%)
                                                    ----------------------------------------
                                                           -             -             -
                                                    ========================================
</TABLE>

                                      F-14
<PAGE>

FRONTIER AIRLINES, INC.

NOTES TO FINANCIAL STATEMENTS, CONTINUED

--------------------------------------------------------------------------------
 
(5) INCOME TAXES, CONTINUED

    The tax effects of temporary differences that give rise to significant
    portions of the deferred tax assets at March 31, 1998 are presented below:

<TABLE>
<CAPTION>
                                                                    1998             1997
                                                               ---------------  ---------------
                 <S>                                          <C>              <C> 
                 Deferred tax assets:

                  Net operating loss carryforwards              $  13,434,000     $  7,603,000
                  Start-up cost deferred for tax purposes             108,000          198,000
                  Accrued maintenance not deductible for
                   tax purposes                                       899,000          717,000
                  Accrued vacation and health insurance
                   liability not deductible for tax purposes          527,000          395,000
                  Other                                               110,000          117,000
                                                             ---------------------------------
 
                      Total gross deferred tax assets             15,078,000        9,030,000
 
                      Less valuation allowance                   (14,832,000)      (8,934,000)
                                                            ---------------------------------
 
                                                                     246,000           96,000
                                                            ---------------------------------
 
                 Deferred tax liabilities:
 
                 Equipment depreciation and amortization            (246,000)         (96,000)
                                                            ---------------------------------
                   Net deferred taxes                                   -                -
                                                            =================================
</TABLE>

    The valuation allowance is provided since it is uncertain that the
    deferred tax assets will be realized.  The Company established the valuation
    allowance based principally on its historical financial results from
    operations.  Additionally, the utilization of these carryforwards may be
    limited due to the ownership change provisions as enacted by the Tax Reform
    Act of 1986 and subsequent legislation.

    The valuation allowance for deferred tax assets as of March 31, 1997 was
    $8,934,000.  The increase in the valuation allowance for the year ended
    March 31, 1998 was $5,989,000.  At March 31, 1998, the Company had net
    operating loss carryforwards of approximately $36,015,000, which expire in
    the years 2010 to 2013.

                                      F-15
<PAGE>

FRONTIER AIRLINES, INC.

NOTES TO FINANCIAL STATEMENTS, CONTINUED

--------------------------------------------------------------------------------
 
(6) WARRANTS

    The Company issued 2,670,000 warrants to purchase common stock in
    conjunction with a private placement and its initial public offering.  Each
    warrant entitled the warrant holder to purchase one share of common stock
    for $5.00.  These warrants were subject to redemption at $.05 per warrant by
    the Company on 45 days written notice if certain conditions were met.  The
    Company met these conditions in May 1996 and on May 14, 1996, the Company
    notified the warrant holders of the Company's intent to exercise its
    redemption rights with respect to the warrants not exercised on or before
    June 28, 1996.  2,666,133 warrants were exercised with net proceeds to the
    Company totaling $13,275,000.

    At completion of the Company's initial public offering in 1994, an
    underwriter acquired options to purchase up to 110,000 shares of common
    stock exercisable at a price equal to $5.525 per share.  Additionally, the
    underwriter was granted up to 110,000 warrants to purchase common stock at a
    price equal to $.325 per warrant and $5.00 per share of common stock.  The
    underwriters in a secondary public offering by the Company in 1995 received
    a warrant to purchase 168,500 shares of common stock at $5.55 per share.
    The options and warrants issued to underwriters in connection with the
    initial and secondary public offerings expire, respectively, on May 20, 1999
    and September 18, 2000.

    In October 1995, the Company issued to each of two of its Boeing 737-300
    aircraft lessors a warrant to purchase 100,000 shares of Common Stock for an
    aggregate purchase price of $500,000.  In June 1996, the Company issued two
    warrants to a Boeing 737-200 lessor, each warrant entitling the lessor to
    purchase 70,000 shares of common stock at an aggregate exercise price of
    $503,300 per warrant.  In connection with a Boeing 737-300 aircraft to be
    delivered in August 1997, the Company has issued to the lessor a warrant to
    purchase 55,000 shares of Common Stock at an aggregate purchase price of
    $385,000.  Warrants issued to aircraft lessors, to the extent not earlier
    exercised, expire upon expiration of the aircraft leases in March 2000, May
    and June 2001, and September 2005.

    In February 1998, in connection with the $5,000,000 senior notes as
    discussed in note 4, the Company issued a warrant to the lender to purchase
    1,750,000 shares of the Company's Common Stock at a purchase price of $3.00
    per share, which warrant expires in December 2001.  In May 1998, the Company
    issued a warrant to its financial advisor, in connection with debt and
    equity financings, a warrant to purchase 548,000 shares of the Company's
    Common Stock at a purchase price of $3.00 per share, which warrant expires
    in May 2003.  Of the 548,000 shares, 116,450 were recognized as of March 31,
    1998 as part of the sale of the senior secured notes discussed in note 4.
    The Company recorded a value of $109,492 for these shares and recorded the
    value as equity in additional paid in capital and deferred loan expenses.
    The value will be amortized over the life of the notes.

                                      F-16
<PAGE>

FRONTIER AIRLINES, INC.

NOTES TO FINANCIAL STATEMENTS, CONTINUED
--------------------------------------------------------------------------------
 
(7)  STOCK OPTION PLAN

     The Company has a stock option plan whereby the Board of Directors or its
     Compensation Committee may issue options to purchase shares of the
     Company's common stock to employees, officers, and directors of the
     Company.

     Under the plan, the Company has reserved an aggregate of 2,250,000 shares
     of common stock for issuance pursuant to the exercise of options. With
     certain exceptions, options issued through March 31, 1998 generally vest
     one year from the date of grant and expire from March 9, 1999 to December
     11, 2007. At March 31, 1998, 308,750 options are available for grant under
     the plan.

     A summary of the Plan's stock option activity and related information for
     the years ended March 31, 1998, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
 
                                              1998                   1997                    1996
                                   ------------------------------------------------------------------------ 
                                                  Weighted-              Weighted-               Weighted-
                                                   Average                Average                 Average
                                                  Exercise                Exercise                Exercise
                                       Options      Price     Options      Price      Options      Price
                                   ------------------------------------------------------------------------
     <S>                           <C>            <C>        <C>         <C>         <C>         <C>
     Outstanding-beginning of year   1,911,250     $1.85     1,731,250     $1.27     1,631,250     $1.17
     Granted                            30,000      2.77       180,000      7.40       100,000      3.07
     Exercised                        (409,188)     1.06
     Surrendered                      (180,000)     7.40
     Re-issued                         180,000      3.00
                                   ------------------------------------------------------------------------

                                     1,532,062     $1.56     1,911,250     $1.85     1,731,250     $1.27
                                   ========================================================================
 
     Exercisable at end of year      1,445,394     $1.48     1,761,250     $1.39     1,671,250     $1.20
</TABLE>

     Exercise prices for options outstanding under the plan as of March 31, 1998
     ranged from $1.00 to $3.75 per option share. The weighted-average remaining
     contractual life of those options is 5.6 years. A summary of the
     outstanding and exercisable options at March 31, 1998, segregated by
     exercise price ranges, is as follows:

<TABLE>
<CAPTION>
                                                            Weighted-
                                                             Average
                                           Weighted-        Remaining                     Weighted-
           Exercise Price    Options        Average        Contractual     Exercisable     Average
               Range       Outstanding   Exercise Price  Life (in years)     Options      Exercise Price
           ---------------------------------------------------------------------------------------------
           <S>             <C>           <C>             <C>               <C>            <C>
           $1.00 - $ 2.75     1,200,812       $1.11             5.0         1,200,812         $1.11
           $3.00 - $ 3.75       331,250        3.19             7.8           244,582          3.26
                           -----------------------------------------------------------------------------
                              1,532,062       $1.56             5.6         1,445,394         $1.48
                           =============================================================================
</TABLE>


                                     F-17
<PAGE>
FRONTIER AIRLINES, INC.

Notes to Financial Statements, continued
--------------------------------------------------------------------------------
 
(7) STOCK OPTION PLAN, CONTINUED

    Pro forma information regarding net income and earnings per share is
    required by SFAS No. 123, which also requires that the information be
    determined as if the Company has accounted for its employee stock options
    granted subsequent to March 31, 1995 under the fair value method of that
    Statement.  The fair value for these options was estimated at the date of
    grant using a Black-Scholes option pricing model with the  following
    weighted-average assumptions for 1998, 1997 and 1996, respectively:  risk-
    free interest rates of 6.42%, 6.55% and 6.08%, dividend yields of  0%, 0%
    and 0%; volatility factors of the expected market price of the Company's
    common stock of 64.33%, 58.78% and 60.86%, and a weighted-average expected
    life of the options of 7 years for each year.

    The Company applies APB Opinion 25 and related Interpretations in accounting
    for its plans.  Accordingly, no compensation cost is recognized for options
    granted at a price equal to the fair market value of the common stock.  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 net loss for the years ended March 31, 1998, 1997 and 1996, would
    have been $17,843,000, $12,367,000 and $5,628,000, and loss per common share
    would have been $1.96, $1.52 and $1.24 per share.

(8) EMPLOYEE STOCK OWNERSHIP PLAN

    The Company has established an Employee Stock Ownership Plan (ESOP) which
    inures to the benefit of each permanent 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 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, will be
    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
    will 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.

                                      F-18
<PAGE>
FRONTIER AIRLINES, INC.

Notes to Financial Statements, continued
--------------------------------------------------------------------------------
 
(8)  EMPLOYEE STOCK OWNERSHIP PLAN, CONTINUED

     The initial Company contribution to the ESOP was made on June 22, 1995 and
     consisted of 137,340 shares of Common Stock, of which 27,468 shares relate
     to the plan year ended March 31, 1995 and 109,872 shares relate to the
     period from April 1, 1995 to December 31, 1995.  During the years ended
     March 31, 1997, the Company contributed 78,869 shares to the plan and none
     during the year ended March 31, 1998.  The Company recognized compensation
     expense during the year ended March 31, 1997 and 1996 of $500,000 and
     $721,000 related to its contribution to the ESOP and none during the year
     ended March 31, 1998.

(9)  CONCENTRATION OF CREDIT RISK

     The Company does not believe it is subject to any significant concentration
     of credit risk relating to trade receivables. At March 31, 1998 and 1997,
     60% and 75% of the Company's trade receivables relate 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, or the United
     States Postal Service. These receivables are short-term, generally being
     settled shortly after sale or in the month following ticket usage.
 
(10) CONTINGENCIES

     The Company is party to legal proceedings and claims which arise during the
     ordinary course of business. In the opinion of management, the ultimate
     outcome of these matters will not have a material adverse effect upon the
     Company's financial position or results of operations.
 
(11) SUBSEQUENT EVENTS

     In April 1998, the Company sold 4,363,001 shares of its common stock, no
     par value, through a private placement to an institutional investor. Gross
     proceeds to the Company from the transaction was $14,179,753, of which the
     Company received net proceeds of approximately $13,850,000. The Company
     issued a warrant to this investor to purchase 716,929 shares of common
     stock of the Company at a purchase price of $3.75 per share, which warrant
     expires in April 2002.

                                      F-19