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Frontier Airlines will cut flights and jobs at Denver International Airport because increased taxes and landing fees have made the hub unprofitable, airline CEO Dave Siegel told employees Monday.

Siegel wrote in a letter to employees that Frontier’s tax burden has “doubled in the last two years and (Denver) airport landing fees are up 30 percent over the past three years. The cumulative effect of these increasing costs is that connecting traffic is no longer profitable for our airline. We are also faced with escalating taxes and airport charges at Denver International Airport, where operating costs have risen faster than any other major U.S. airport over the past decade.”

The airline also cites the lack of incentives as reason for the move, which it described as “right sizing.”

“This may come as a surprise, but we do not receive economic incentives as the hometown airline, adding to our cost burden,” the letter reads.

In May, the city of Denver agreed to reimburse Frontier up to $1.6 million for repairs to a mostly unused hangar where the airline said it would open a maintenance facility. The deal included a five-year, nearly $12.4 million lease.

Denver Mayor Michael Hancock also proposed a two-year phaseout of the city’s 3.62 percent aircraft-parts tax in his 2014 budget, which the City Council approved. The sales-and-use tax on aviation parts kept many airlines from doing significant maintenance at DIA.

“Frontier Airlines, and the other airlines that serve Denver, will benefit from the phaseout of the city’s 3.62 percent sales-and-use tax on aviation parts. Frontier has also benefited from DIA’s debt restructuring and recent hangar lease,” airport spokeswoman Laura Coale said in an e-mailed statement. “DIA will remain the third-largest U.S. domestic network, and our airline costs remain competitive as compared to other large hub airports. Frontier currently accounts for less than 20 percent of our total passenger traffic.”

Frontier’s announcement comes one year in advance of contract negotiations between the airline and DIA and, in light of the wheeling and dealing between the airport and United Airlines earlier this year, could be a negotiating maneuver.

DIA sweetened United’s lease deal, doing away with some penalties for missing passenger traffic goals and taking back some unleased space in exchange for the airline’s commitment to maintain 9.1 percent of its total system capacity at the airport through 2025.

As part of that deal, the airport also agreed to restructure some of its bond debt, deferring some variable-rate bonds by six years to 2031. The Denver City Council is expected to vote on the restructuring this month.

Reworking the bonds, according to an executive summary filed with the city council, is “one of the strategic actions aimed at increasing DIA’s cost competitiveness with its airline partners.”

When the United lease deal was made public in August, DIA financial officers estimated that extending the bonds would save all carriers $45 million but cost the airport $20 million in extra interest.

About $35 million in savings would be passed on to United, DIA’s largest carrier, with 40 percent of the market share; $4 million to $5 million to No. 2 Southwest; and about $2.5 million to Frontier, the third-largest carrier.

Denver City Councilwoman Jeanne Faatz, who was critical of the deal, said she’s not surprised that Frontier is crying foul.

“I truly believe the lopsided arrangement that was made before, which heavily benefited one carrier, surely must have figured into their concern,” Faatz said. “They want to free up $45 million, $35 million of which will benefit United. All the other airlines get to benefit from the other $10 million. I don’t mind lowering costs; I just like to be evenhanded about it.”

Frontier’s December schedule has an average of 85 daily departures, which decreases to about 70 in January. Frontier declined to provide details about how the flight schedule might change or how many jobs may leave Denver.

“It is our hope that staffing reductions can be absorbed through retirements and natural attrition,” Siegel’s letter reads. “I also know engaging an outside vendor is a question on minds. As we have stated in the past, it is critical that Frontier be competitive, and this remains an option under review as do a range of other cost-cutting measures.”

Frontier’s local traffic is up about 8 percent, Siegel wrote, and the airline is working on expanding regional service, which it says will be rolled out in early 2015.

Frontier was purchased by Indigo Partners LLC in December 2013 and switched in April to a new, ultra-low-cost carrier fare structure. Siegel pointed out that the success of that strategy can be found in valuing local customers.

“Make no mistake — we are not turning our backs on Coloradans,” he wrote. “We are also working on expanded service within the region to solidify our position as the Rocky Mountain airline of choice.”

The mayor’s office was made aware of the airline’s decision prior to Siegel’s letter to Frontier employees.

“Mayor Hancock and the administration keep lines of communication with DIA’s air carriers, including Frontier Airlines, open at all times,” Hancock’s spokeswoman Amber Miller said in an e-mailed statement. “The mayor has communicated his disappointment but understands the airline’s business decisions as they transition to become an ultra-low-cost carrier.”

Frontier employs about 981 people in Denver. The airline leases 14 gates and accounts for about 18 percent of flight traffic at DIA.

United contributes about 40 percent of traffic, and Southwest 27 percent.

Laura Keeney: 303-954-1337, lkeeney@denverpost.com or twitter.com/LauraKeeney