City and County of Denver Municipal Airport System ANNUAL ...

City and County of Denver
Municipal Airport System
INTRODUCTION (UNAUDITED)
December 31, 2010 and 2009
Frontier Group (Frontier and Republic Holdings)
Frontier has the second largest market share at Denver International Airport for 2010 and third largest market share for the
first three months of 2011. Denver International Airport is one of Frontier’s three hubs and, in 2010, the busiest airport in the
Frontier system. Frontier currently leases 18 of the 30 full-service gates on Concourse A, constituting approximately 19.6%
of the current 92 full-service gates at the Airport. The Frontier Group accounted for 21.8% and 20.4% of passenger
enplanements at the Airport in 2010 and the first three months of 2011, respectively.
Republic Holdings has announced its intention to integrate the operations of its Midwest Airlines brand, with Frontier
operations, by the end of 2011. On February 4, 2010, Republic Holdings announced that it planned to discontinue the
operations of Lynx service. Lynx service stopped operation on March 30, 2011.
Frontier filed for bankruptcy protection in April 2008, received approval of a plan of reorganization in September 2009, and
emerged from bankruptcy on October 1, 2009, as a subsidiary of Republic Holdings, which purchased Midwest Airlines in
July 2009.
As part of its bankruptcy proceedings and pursuant to the Frontier Stipulated Order, Frontier assumed its Denver
International Airport use and lease agreement, as well as certain ground service and cargo leases, as part of its reorganization
proceedings. To cure their debt owed to the Airport prior to filing for bankruptcy, Frontier issued and delivered its $3.0
million promissory note payable in three equal installments, plus interest thereon at 3% per annum. The use and lease
agreement was amended to reduce Frontier’s gate commitment to eliminate some administrative space leases such as those
for ticket counters and office space.
The Airport currently holds a $2.0 million letter of credit provided by Frontier as security for its obligations under the terms
of its use and lease agreement.
Southwest Airlines (Southwest)
Southwest Airlines (Southwest) has the third-largest market share at the Airport for 2010 and the second largest market share
for the first three months of 2011. Southwest began service at the Airport in January 2006 and since that time has experienced
strong and continued growth at Denver International Airport which is the airline’s fifth busiest station in its system.
Southwest currently leases 17 gates under a use and lease agreement. Southwest accounted for approximately 18.1% and
20.8% of passenger enplanements at the Airport in 2010 and the first three months of 2011, respectively.
Southwest has entered into a definitive merger with AirTran Holdings, Inc. that provides for Southwest acquiring AirTran
Holdings Inc. Southwest expects the merger to be completed by the second quarter of 2011. Southwest then plans to integrate
AirTran Airways into the Southwest brand and operate as one airline within two years.
Accounting and Internal Control
The Airport System follows accounting principles generally accepted in the United States of America applicable to
governmental unit enterprise funds. Accordingly, the financial statements are prepared on the accrual basis of accounting in
accordance with these accounting principles. In developing and evaluating the Airport System’s accounting system,
consideration has been given to the adequacy of internal controls. The objectives of internal control are to provide
management with reasonable, but not absolute, assurance that assets are safeguarded against loss from unauthorized use or
disposition, and that transactions are executed in accordance with management’s authorization and recorded properly to
permit the preparation of financial statements in accordance with generally accepted accounting principles. The concept of
reasonable assurance recognizes that: (1) the cost of a control should not exceed the benefits likely to be derived, and (2) the
evaluation of costs and benefits require estimates and judgments by management.
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