Third Quarter 2023 Summary:
“Elevated fuel prices, uneven demand recovery, and operational disruptions all impacted third quarter results," commented Barry Biffle, President and CEO. "To strengthen our competitive position, we are focused on simplifying our operations, concentrating growth in underserved markets, delivering the lowest costs and enhancing our loyalty program offering. I'm extremely proud of Team Frontier for their unwavering resolve to deliver Low Fares Done Right.”
Third Quarter 2023 Select Financial Highlights
The following is a summary of third quarter select financial results, including both GAAP and adjusted (non-GAAP) metrics. Refer to “Reconciliations of Non-GAAP Financial Information” in the appendix of this release.
Revenue Performance
Total operating revenue for the third quarter of 2023 was $883 million, reflecting a revenue per available seat mile (“RASM”) of 9.10 cents, on capacity growth of 21 percent as compared to the 2022 quarter. The RASM decrease from 11.27 cents in the 2022 quarter was driven by a 15 percent decrease in revenue per passenger to $115, a 2.5 percentage-point decrease in load factor to 80 percent, and stage length which was 2 percent longer compared to the 2022 quarter.
Ancillary revenue for the third quarter was $76 per passenger, 3 percent lower than the 2022 quarter.
Cost Performance
Total operating expenses for the third quarter of 2023 were $937 million, including $291 million of fuel expenses at an average cost of $3.08 per gallon. Total operating expenses (excluding fuel), a non-GAAP measure, were $646 million.
CASM was 9.66 cents in the third quarter of 2023, 9 percent lower than the 2022 quarter. CASM (excluding fuel), a non-GAAP measure, was 6.66 cents, 1 percent lower than the 2022 quarter, and 3 percent lower than the 2022 quarter on an adjusted, non-GAAP basis.
Earnings
Pre-tax loss for the third quarter of 2023 was $(45) million, reflecting a margin of (5.1) percent. Net loss for the third quarter of 2023 was $(32) million.
Cash and Liquidity
Unrestricted cash and cash equivalents as of September 30, 2023 was $640 million. The Company has access to substantial liquidity, if desired, through its co-branded credit card program and related brand assets, based on similar debt financing by other airlines.
Fleet
As of September 30, 2023, Frontier had a fleet of 134 Airbus single-aisle aircraft, as scheduled below, all financed through operating leases that expire between 2023 and 2035.
Frontier is “America's Greenest Airline” measured by ASMs per fuel gallon consumed. During the third quarter of 2023, Frontier generated 103 ASMs per gallon.
Frontier took delivery of eight A321neo aircraft during the third quarter of 2023, of which five were direct leases, increasing the proportion of the fleet comprised of the more fuel-efficient A320neo family aircraft to 77 percent as of September 30, 2023, the highest of all major U.S. carriers. The A321neo is expected to unlock meaningful scale efficiencies by way of fuel savings and higher average seats per departure. As of September 30, 2023, the Company had commitments for an additional 214 aircraft to be delivered through 2029, including purchase commitments for 67 A320neo aircraft and 147 A321neo aircraft, representing 69 percent of future committed deliveries.
Forward Guidance
The guidance provided below is based on the Company's current estimates and is not a guarantee of future performance. This guidance is subject to significant risks and uncertainties that could cause actual results to differ materially, including the risk factors discussed in the Company's reports on file with the Securities and Exchange Commission (the "SEC"). Frontier undertakes no duty to update any forward-looking statements or estimates, except as required by applicable law. Further, this guidance excludes special items and the reconciliation of non-GAAP measures to the comparable GAAP measures because such amounts cannot be determined at this time.
Looking to the fourth quarter, stage-adjusted, non-fuel unit costs are expected to sequentially improve and booking volume has stabilized, driven by low fare stimulation albeit at higher fuel prices. Fourth quarter capacity is expected to grow by 12 percent to 14 percent over the comparable 2022 quarter. Adjusted (non-GAAP) total operating expenses (excluding fuel) are expected to be $655 to $665 million. Fourth quarter adjusted (non-GAAP) pre-tax margin (excluding special items) is expected to be (6) percent to (9) percent, including the impact of the higher fuel cost environment.
Second Quarter 2023 Summary:
“Results this quarter reflect strong execution by Team Frontier. Our earnings before tax delivered our highest post-pandemic, pre-tax margin on 36 percent capacity growth and 35 additional aircraft compared to the 2019 quarter, and we delivered a five percent improvement in non-fuel adjusted unit costs over the prior year quarter," commented Barry Biffle, President and CEO. "I'm proud of the strong work ethic of Team Frontier employees as we managed through the challenging conditions presented by June weather. We are focused on delivering Low Fares Done Right, including sustaining our cost advantage over the industry as we grow the airline.”
Revenue Performance
Total operating revenue for the second quarter of 2023 was $967 million, reflecting a revenue per available seat mile (“RASM”) of 10.4 cents, on capacity growth of 23 percent as compared to the 2022 quarter. The RASM decrease from 12.0 cents in 2022 was driven by a nine percent decrease in revenue per passenger to $127 and stage length, which was eight percent higher, partially offset by a one percentage-point increase in load factor to 85.3 percent, all compared to the 2022 quarter. Ancillary revenue per passenger for the second quarter was $80, six percent higher than the 2022 quarter.
Cost Performance
Total operating expenses for the second quarter of 2023 were $888 million, including $244 million of fuel expenses at an average cost of $2.69 per gallon. Adjusted (non-GAAP) total operating expenses (excluding fuel) were $644 million. CASM was 9.51 cents in the second quarter of 2023, 20 percent lower than the 2022 quarter. CASM (excluding fuel), a non-GAAP measure, was 6.90 cents, eight percent lower than the 2022 quarter.
Earnings
Pre-tax income for the second quarter of 2023 was $88 million, reflecting a margin of 9.1 percent. Net income for the second quarter of 2023 was $71 million.
Cash and Liquidity
Unrestricted cash and cash equivalents as of June 30, 2023 was $780 million.
Fleet
As of June 30, 2023, Frontier had a fleet of 126 Airbus single-aisle aircraft, as scheduled below, all financed through operating leases that expire between 2023 and 2035.
Frontier is “America's Greenest Airline” measured by ASMs per fuel gallon consumed. During the second quarter of 2023, Frontier generated 103 ASMs per gallon. Frontier took delivery of three A321neo aircraft during the second quarter of 2023, increasing the proportion of the fleet comprised of the more fuel-efficient A320neo family aircraft to 75 percent as of June 30, 2023, the highest of all major U.S. carriers. The A321neo is expected to unlock meaningful scale efficiencies by way of fuel savings and higher average seats per departure. As of June 30, 2023, approximately 70 percent of future committed aircraft deliveries, including direct leases, are for A321neo aircraft. As of June 30, 2023, the Company had commitments for an additional 222 aircraft to be delivered through 2029, including purchase commitments for 67 A320neo aircraft and 150 A321neo aircraft as well as commitments for another 5 A321neo aircraft through direct leases.
Forward Guidance
The guidance provided below is based on the Company's current estimates and is not a guarantee of future performance. This guidance is subject to significant risks and uncertainties that could cause actual results to differ materially, including the risk factors discussed in the Company's reports on file with the Securities and Exchange Commission (the "SEC"). Frontier undertakes no duty to update any forward-looking statements or estimates, except as required by applicable law. Further, this guidance excludes special items and the reconciliation of non-GAAP measures to the comparable GAAP measures because such amounts cannot be determined at this time.
Looking forward, the Company expects third-quarter capacity to grow by 21 to 23 percent over the comparable 2022 quarter and full-year capacity to grow 19 to 21 percent over the prior year. Third quarter adjusted (non-GAAP) pre-tax margin (excluding special items) is expected to be 4 to 7 percent, and the full year 2023 adjusted (non-GAAP) pre-tax margin (excluding special items) is expected to be 4 to 6 percent. These ranges reflect the impact of weather-related cancellations in the third quarter, slightly higher fuel cost per gallon than previous guidance, and a moderation in average fares caused primarily by a shift in demand to competing long-haul international destinations.
First Quarter 2023 Summary:
“Post-pandemic demand has increased due, in part, to work from home arrangements and flexible working schedules. We also see a change in passenger behavior with outsized demand on peak days and peak periods," commented Barry Biffle, President and CEO. "Having analyzed this new customer behavior, we are reshaping our capacity beginning in the second quarter to exploit this post-pandemic demand dynamic, and expect the changes to be fully deployed in the second half of 2023. We are excited about our planned network revisions and believe it will both reduce our execution risk through slightly lower total utilization while maximizing revenue and profits."
Mr. Biffle continued, "The operations performed well in the first quarter with utilization peaking in March at 11.8 hours. Ancillary revenue continued to grow, achieving an industry leading $80 per passenger in the first quarter, and we expect continued improvement through the year. While our overall capacity will be lower as a result of the shift to exploit the new demand dynamic, which will drive a corresponding unit cost impact, we believe our cost advantage of over $701 per passenger will widen further throughout the year, allowing Frontier to remain the lowest unit cost operator in the industry in spite of lower utilization on off-peak days and in off-peak periods. As a result, we are forecasting adjusted pre-tax margins in the range of 7 to 10 percent in the second quarter, our highest post-pandemic margin, further improving to 10 to 13 percent in the second half of 2023."
First Quarter 2023 Select Financial Highlights
The following is a summary of first quarter select financial results, including both GAAP and adjusted (non-GAAP) metrics. Refer to “Reconciliations of Non-GAAP Financial Information” in the appendix of this release.
(unaudited, in millions, except for percentages)
Revenue Performance
Total operating revenue for the first quarter of 2023 was $848 million, a record for any first quarter in company history, driven by RASM growth of 19 percent on capacity growth of 18 percent, as compared to the 2022 quarter. The RASM increase was driven by a nine percentage-point increase in load factor to 82.8 percent and an 11 percent increase in revenue per passenger to $124, both compared to the 2022 quarter.
Ancillary revenue per passenger for the first quarter was $80, 15 percent higher than the 2022 quarter.
Cost Performance
Total operating expenses for the first quarter of 2023 were $873 million, including $1 million in employee retention costs associated with the Company's terminated combination with Spirit Airlines, Inc. ("Spirit"). Excluding this item, adjusted (non-GAAP) total operating expenses were $872 million, including $292 million of fuel expenses at an average cost of $3.45 per gallon. Adjusted (non-GAAP) total operating expenses (excluding fuel) were $580 million.
Cost per available seat mile ("CASM") was 9.95 cents in the first quarter of 2023, while adjusted (non-GAAP) CASM was 9.94 cents. CASM (excluding fuel), a non-GAAP measure, was 6.62 cents, while adjusted (non-GAAP) CASM (excluding fuel) was 6.61 cents, 8 percent lower than the 2022 quarter.
Earnings
Pre-tax loss for the first quarter of 2023 was $(17) million, or $(16) million on an adjusted (non-GAAP) basis excluding special items, reflecting a pre-tax margin of (2.0) percent and an adjusted (non-GAAP) pre-tax margin of (1.9) percent. Net loss for the first quarter of 2023 was $(13) million, or $(12) million on an adjusted (non-GAAP) basis excluding special items.
Cash and Liquidity
Unrestricted cash and cash equivalents as of March 31, 2023 was $790 million.
Fleet
As of March 31, 2023, Frontier had a fleet of 125 Airbus single-aisle aircraft, as scheduled below, all financed through operating leases that expire between 2023 and 2035.
Frontier is America's Greenest Airline measured by ASMs per fuel gallon consumed. During the first quarter of 2023, Frontier generated 104 ASMs per gallon. To learn more about Frontier's sustainability initiatives, visit www.flygreener.com.
Frontier took delivery of its six A321neo aircraft during the first quarter of 2023, increasing the proportion of the fleet comprised of the more fuel-efficient A320neo family aircraft to 74 percent as of March 31, 2023, among the highest of all major U.S. carriers. The A321neo is expected to unlock meaningful scale efficiencies by way of fuel savings and higher average seats per departure. As of March 31, 2023, approximately 70 percent of future committed aircraft deliveries, including direct leases, are for A321neo aircraft.
As of March 31, 2023, the Company had commitments for an additional 225 aircraft to be delivered through 2029, including purchase commitments for 67 A320neo aircraft, 151 A321neo aircraft and another 7 A321neo aircraft through direct leases.
Airbus notified the Company of its intent to shift its remaining aircraft deliveries expected in 2023 by approximately one month, causing two incremental A321neo aircraft to shift into 2024 from 2023 in addition to the previous delays announced earlier this year. No net changes are expected in 2024.
In March 2023, the Company executed an agreement to extend by four years the lease terms on two A320ceo aircraft which otherwise were scheduled to terminate in the fourth quarter of 2023.
Forward Guidance
The guidance provided below is based on the Company's current estimates and is not a guarantee of future performance. This guidance is subject to significant risks and uncertainties that could cause actual results to differ materially, including the risk factors discussed in the Company's reports on file with the SEC. Frontier undertakes no duty to update any forward-looking statements or estimates, except as required by applicable law. Further, this guidance excludes special items and the reconciliation of non-GAAP measures to the comparable GAAP measures because such amounts cannot be determined at this time.
The Company is adapting its network to more closely align with recent trends which reflect a change in passenger behavior with outsized demand on peak days and peak periods. The network changes, once fully deployed in the second half of 2023, are expected to lower execution risk and maximize revenue and profits, while also resulting in a downward revision to full-year 2023 capacity plans. Accordingly, full-year capacity is anticipated to grow 19 to 22 percent over 2022, while second quarter capacity is expected to grow 22 percent to 24 percent over the 2022 quarter.
Fuel costs in the second quarter are expected to be $2.65 to $2.75 per gallon and $2.80 to $2.90 per gallon for full-year 2023 based on the blended fuel curve on April 24, 2023.
Adjusted (non-GAAP) total operating expenses (excluding fuel) for the second quarter are anticipated to be $645 to $665 million and $2,500 to $2,550 million for full-year 2023.
The effective tax rate for both the second quarter and full-year 2023 is estimated to be approximately 24 percent.
Adjusted (non-GAAP) pre-tax margin (excluding special items) in the second quarter is expected to be in the range of 7 percent to 10 percent, 10 percent to 13 percent in the second half of 2023 and 7 percent to 9 percent for full-year 2023.
Fourth Quarter 2022 Highlights
Looking forward to the fourth quarter, the Company expects strong travel demand and continued RASM strength, with capacity anticipated to grow 15 to 17 percent versus the corresponding quarter in 2019. Adjusted pre-tax margin is anticipated to be between 3 and 7 percent (on a non-GAAP basis excluding special items). See "Forward Guidance" below for further information, including with respect to non-GAAP guidance.
Revenue Performance
Total operating revenue for the fourth quarter of 2022 was $906 million, 38 percent higher than the 2019 quarter, with total operating revenue per passenger of $133, 24 percent higher than the 2019 quarter. Ancillary revenue per passenger was a record $82, 41 percent higher than the 2019 quarter. RASM was 10.45 cents, 21 percent higher compared to the 2019 quarter, alongside capacity growth of 15 percent over the same period.
Average daily aircraft utilization in the fourth quarter increased four percent from the prior quarter to 11.5 hours per day, with further improvement expected to over 12 hours per day, on average, in 2023 as the trend toward normalized operations continues.
Cost Performance
Total operating expenses for the fourth quarter of 2022 were $861 million, including $2 million in employee retention costs associated with the Company's terminated combination with Spirit Airlines, Inc. ("Spirit"). Excluding this item, adjusted (non-GAAP) total operating expenses were $859 million, including $304 million of fuel expenses at an average cost of $3.60 per gallon. Adjusted (non-GAAP) total operating expenses (excluding fuel) were $555 million.
CASM was 9.93 cents in the fourth quarter, while adjusted (non-GAAP) CASM was 9.91 cents. CASM (excluding fuel), a non-GAAP measure, was 6.43 cents, while adjusted (non-GAAP) CASM (excluding fuel) was 6.40 cents, seven percent lower than the prior quarter and two percent lower than the 2021 quarter.
Earnings
Earnings before taxes for the fourth quarter of 2022 were $50 million, or $52 million on an adjusted (non-GAAP) basis excluding special items, reflecting a pre-tax margin of 5.5 percent and an adjusted (non-GAAP) pre-tax margin of 5.7 percent. Winter storm Elliott is estimated to have negatively impacted pre-tax income by approximately $16 million, or 175 basis points on pre-tax margin.
Net income for the fourth quarter of 2022 was $40 million, or $39 million on an adjusted (non-GAAP) basis excluding special items.
Cash and Liquidity
Unrestricted cash and cash equivalents as of December 31, 2022 totaled $761 million, or $332 million net of total debt. The Company repaid its $150 million U.S. Treasury loan (the "Treasury Loan") in February 2022 and is able to access substantial liquidity, if desired, through its co-branded credit card program and related brand assets, based on similar debt financings by other airlines.
Fleet
As of December 31, 2022, Frontier had a fleet of 120 Airbus single-aisle aircraft, per the schedule below, all financed with operating leases that expire between 2023 and 2034.
Frontier is America's Greenest Airline measured by ASMs per fuel gallon consumed. During the fourth quarter of 2022, Frontier generated 103 ASMs per gallon, four percent higher than the 2019 quarter. To learn more about Frontier's sustainability initiatives, visit www.flygreener.com.
Frontier took delivery of two A320neo and three A321neo aircraft during the fourth quarter of 2022, increasing the proportion of the fleet comprised of the more fuel-efficient A320neo family aircraft to 72 percent as of December 31, 2022, among the highest of all major U.S. carriers. The A321neo is expected to unlock meaningful scale efficiencies by way of fuel savings and higher average seats per departure. As of December 31, 2022, over 70 percent of future committed aircraft deliveries, including direct leases, are for A321neo aircraft.
As of December 31, 2022, the Company had commitments for an additional 231 aircraft to be delivered through 2029, including purchase commitments for 67 A320neo aircraft and 154 A321neo aircraft and another 10 A321neo aircraft through direct leases.
In December 2022, Airbus notified the Company of its intent to shift aircraft deliveries by a range of one to five months for aircraft initially scheduled in 2023, causing nine A321neo aircraft to shift into 2024 from 2023 and reducing available capacity growth in 2023 by approximately five percent.
Forward Guidance
The first quarter 2023 and full-year 2023 guidance provided below is based on the Company's current estimates and is not a guarantee of future performance. This guidance is subject to significant risks and uncertainties that could cause actual results to differ materially, including the risk factors discussed in the Company's reports on file with the SEC. Frontier undertakes no duty to update any forward-looking statements or estimates, except as required by applicable law. Further, this guidance excludes special items and the reconciliation of non-GAAP measures to the comparable GAAP measures because such amounts cannot be determined at this time.
Capacity is anticipated to grow 17 to 19 percent in the first quarter of 2023 compared to the 2022 quarter, while full-year capacity is expected to grow 23 to 28 percent over 2022 after accounting for the aforementioned delays in A321neo aircraft deliveries. Given the unit cost efficiencies expected from the A321neo aircraft, the Company now expects adjusted (non-GAAP) CASM (excluding fuel) to be below six cents during the second half of 2023 and modestly above six cents for the full year, a level which the Company expects will be materially below the industry average.
Fuel costs in the first quarter are expected to be $3.50 to $3.55 per gallon and $3.05 to $3.15 per gallon for full-year 2023 based on the blended fuel curve on January 30, 2023. Adjusted (non-GAAP) total operating expenses (excluding fuel) for the first quarter are anticipated to be $570 to $595 million and $2,425 to $2,525 million for full-year 2023. The effective tax rate for both the first quarter and full-year 2023 is estimated to be approximately 24 percent. Elevated fuel prices and the seasonal effect of leisure travel flows are anticipated to result in an adjusted (non-GAAP) pre-tax loss in the first quarter, reflecting an expected margin between (2) and (6) percent (excluding special items). Pre-delivery deposits, net of refunds, are expected to be in the range of approximately $120 - $200 million and other capital expenditures are expected to be $145 to $165 million, each for full-year 2023.
Third Quarter 2022 Highlights:
Looking forward to the fourth quarter, the Company expects strong travel demand and continued RASM strength, with capacity anticipated to grow 15 to 17 percent versus the corresponding quarter in 2019. Adjusted pre-tax margin is anticipated to be between 3 and 7 percent (on a non-GAAP basis excluding special items). See "Forward Guidance" below for further information, including with respect to non-GAAP guidance.
Revenue Performance
Total GAAP operating revenue for the third quarter of 2022 was $906 million, 35 percent higher than the corresponding quarter in 2019, with total operating revenue per passenger of $135, 24 percent higher than the corresponding quarter in 2019. Ancillary revenue per passenger during the quarter was a record $78, 38 percent higher than the corresponding quarter in 2019, contributing to a 26 percent increase in RASM over the same period. The exceptional revenue performance was achieved alongside capacity growth of eight percent over the corresponding quarter in 2019 to eight billion ASMs.
Average daily aircraft utilization increased to 11.1 hours per day in the third quarter of 2022, with a further improvement to over 11.5 hours per day expected in the fourth quarter as operations continue to normalize through the travel recovery.
Cost Performance
Total operating expenses for the third quarter of 2022 were $850 million, including $12 million in net transaction and merger-related credits associated with the Company's terminated combination with Spirit Airlines, Inc. ("Spirit") and $1 million of costs related to a one-time contract ratification incentive for the Company's aircraft technicians. Excluding these items, adjusted (non-GAAP) total operating expenses were $861 million, including $306 million of fuel expenses at an average cost of $3.85 per gallon. Adjusted (non-GAAP) total operating expenses (excluding fuel) were $555 million. On a unit basis, CASM was 10.57 cents in the third quarter, while adjusted CASM was 10.71 cents and adjusted CASM (excluding fuel), was 6.90 cents.
Adjusted CASM including net interest in the third quarter totaled 10.68 cents and was eight percent lower than the prior quarter, primarily due to a 13 percent lower average fuel cost per gallon coupled with lower station costs, higher utilization and longer stage length, partly offset by higher maintenance costs.
Adjusted CASM (excluding fuel), declined 5 percent compared to the prior quarter, to 6.90 cents, and is expected to further improve in the fourth quarter as utilization continues to normalize towards pre-pandemic levels and cost management efforts materialize. Additionally, the Company accepted delivery of its first A321neo aircraft at the end of September 2022. This aircraft is expected to drive meaningful scale efficiencies by way of fuel savings and higher average seats per departure. Another five A321neo aircraft deliveries are expected during the fourth quarter of 2022, with a total of 36 expected by the end of 2023, including direct leases. Compared to the corresponding quarter in 2019, Adjusted CASM, excluding fuel, was higher due, in part, to lower average daily aircraft utilization and stage length, which are continuing to recover to more optimal levels, as well as labor cost inflation.
Cash and Liquidity
Frontier ended the third quarter of 2022 with $674 million of unrestricted cash and cash equivalents, or $251 million net of total debt. The Company is able to access substantial liquidity, if desired, through its co-brand credit card program and related brand assets based on similar debt financings by other airlines.
Fleet
As of September 30, 2022, Frontier had a fleet of 115 Airbus single-aisle aircraft, all financed with operating leases that expire between 2022 and 2034.
Frontier’s fleet is the most fuel-efficient of all major U.S. carriers when measured by ASMs per fuel gallon consumed, generating 101 ASMs per gallon during the third quarter of 2022, four percent higher than the corresponding quarter in 2019.
Frontier took delivery of two A320neo and its first A321neo aircraft during the third quarter.
As of September 30, 2022, the Company had commitments to take delivery of an additional 236 aircraft to be delivered through 2029, including purchase commitments for 69 A320neo aircraft, 157 A321neo aircraft and another 10 A321neo aircraft through direct leases.
During the fourth quarter of 2022, the Company expects seven A320neo family aircraft deliveries, of which five are A321neo aircraft. By the end of 2023, the Company expects to have a total of 36 A321neo aircraft in its fleet. The A320neo family of aircraft is anticipated to contribute meaningfully to a reduction in CASM, supported by the A321neo's materially higher seats per departure compared to the Company's current average and significantly higher fuel efficiency, leading to improved cost efficiency versus industry carriers.
Forward Guidance
The fourth quarter 2022 guidance provided below is based on the Company's current estimates and is not a guarantee of future performance. This guidance is subject to significant risks and uncertainties that could cause actual results to differ materially, including the risk factors discussed in the Company's reports on file with the SEC. Frontier undertakes no duty to update any forward-looking statements or estimates, except as required by applicable law. Further, this guidance excludes special items because such amounts cannot be determined at this time.
Second Quarter 2022 Highlights:
Cash and Liquidity
Frontier ended the second quarter of 2022 with $766 million of unrestricted cash and cash equivalents. Additionally, the Company is able to access substantial liquidity, if desired, through its co-brand credit card program and related brand assets based on similar debt financings by other airlines.
As previously announced, on June 30, 2022, in connection with the financing of pre-delivery payments for certain aircraft the Company has on order, Frontier entered into an Amended and Restated Credit Agreement whereby, among other things, lender commitments under the facility increased from $200 million to $280 million.
Revenue Performance
Total GAAP operating revenue for the second quarter of 2022 was $909 million, 43 percent higher than the corresponding quarter in 2019, with total operating revenue per passenger of $139.40, 24 percent higher than the corresponding quarter in 2019. Ancillary revenue per passenger during the quarter was a record $74.96, 33 percent higher than the corresponding quarter in 2019, contributing to a 29 percent increase in RASM.
Capacity during the second quarter of 2022 was 7,594 million ASMs, which was 10 percent higher than the corresponding pre-COVID quarter in 2019. Average aircraft in service was 29 percent higher during the second quarter of 2022 compared to the corresponding quarter in 2019. Average daily aircraft utilization was 10.9 hours per day in the second quarter of 2022, below the corresponding quarter in 2019 due to impacts related to the pandemic recovery, severe weather disruptions and air traffic control limitations. The fleet operated at an 84.1 percent load factor during the second quarter, an improvement of 10 percentage points over the prior quarter.
Cost Performance
Total operating expenses for the second quarter of 2022 were $902 million, including $9 million of transaction and merger-related costs related to the Company's proposed combination with Spirit Airlines, $1 million of costs related to a one-time contract ratification incentive for the Company's aircraft technicians and a $7 million asset impairment. Excluding these items, adjusted total operating expense was $885 million, including $335 million of fuel expenses at an average cost of $4.41 per gallon. Adjusted total operating expenses (excluding fuel) were $550 million.
On a unit basis, the cost per available seat mile ("CASM") was 11.87 cents in the second quarter compared to 7.80 cents in the second quarter of 2019, while Adjusted CASM, excluding fuel, was 7.24 cents compared to 5.47 cents in the second quarter of 2019. The increase in Adjusted CASM, excluding fuel, was driven by lower average daily aircraft utilization, lower average stage length, labor cost inflation and the timing of aircraft returns and deliveries. Adjusted CASM, excluding fuel, is expected to improve as the year progresses as utilization continues to normalize to pre-pandemic levels, stage length increases and cost management efforts further advance, including the introduction of the A321neo aircraft.
Fleet
As of June 30, 2022, Frontier had a fleet of 114 Airbus single-aisle aircraft, consisting of 78 A320neos, 15 A320ceos and 21 A321ceos. All aircraft in the fleet are financed with operating leases that expire between 2022 and 2034. Frontier’s fleet is the most fuel-efficient of all major U.S. carriers when measured by ASMs per fuel gallon consumed, generating 100 ASMs per gallon during the second quarter of 2022, three percent more than the corresponding pre-COVID quarter in 2019.
Frontier took delivery of three A320neo aircraft during the quarter and has four planned aircraft deliveries during the third quarter of 2022 and eight during the fourth quarter of 2022.
As of June 30, 2022, the Company had commitments to purchase an additional 229 aircraft to be delivered through 2029, including 71 A320neo aircraft and 158 A321neo aircraft. The introduction of the A321neo aircraft in the second half of 2022 is expected to advance Frontier's structural fuel cost advantage and further the trend to higher average seats per departure, leading to improved cost efficiency versus industry carriers.
Frontier-Spirit Merger Agreement Termination
On July 27, 2022, Frontier and Spirit mutually terminated the Merger Agreement. Accordingly, Spirit is obligated to reimburse $25 million of Frontier's incurred merger-related costs.
In the event Spirit enters into an acquisition agreement in the next twelve months with another acquiror and it subsequently consummates the transaction, Frontier will be owed an additional $69 million, as provided for in the Merger Agreement.
In a separate release issued today, Frontier highlighted its strong foundation and significant growth opportunities ahead as a standalone company. The release is available on the Investor Relations section of the Company’s website at http://ir.flyfrontier.com.
Forward Guidance
The third quarter and full year 2022 guidance provided below is based on the Company's current estimates and is not a guarantee of future performance. This guidance is subject to significant risks and uncertainties that could cause actual results to differ materially, including the risk factors discussed in the Company's reports on file with the SEC. Frontier undertakes no duty to update any forward-looking statements or estimates. Further, this guidance is for Frontier on a stand-alone basis and excludes transaction and merger-related costs and other special items.
First Quarter 2022 Highlights:
Cash and Liquidity
Frontier ended the first quarter of 2022 with $727 million of unrestricted cash and cash equivalents. During February 2022, the Company repaid the $150 million outstanding under the Treasury Loan, which unencumbered the Company’s co-branded credit card program and related brand assets that secured it, and makes that collateral available to access substantial liquidity, if needed, based on similar debt financings by other airlines.
Revenue Performance
Total operating revenue for the first quarter of 2022 was $605 million, 11 percent higher than the corresponding pre-COVID quarter in 2019, with total operating revenue per passenger of $111.48, which is in line with the corresponding pre-COVID quarter in 2019. Ancillary revenue performance during the quarter was strong, with $69.28 of ancillary revenue per passenger, 21 percent higher than the corresponding pre-COVID quarter in 2019.
Capacity during the first quarter of 2022 was 7,442 million ASMs, which was 20 percent higher than the corresponding pre-COVID quarter in 2019. Average aircraft in service was 34 percent higher during the first quarter of 2022 compared to the corresponding pre-COVID quarter in 2019. Average daily aircraft utilization was 10.8 hours per day in the first quarter of 2022, below first-quarter 2019 levels driven by the impact of the COVID-19 variants, and severe weather disruptions and air traffic control limitations in March. The fleet operated at a 74.2 percent load factor during the first quarter. Load factors are expected to continue to improve as the recovery from the COVID-19 pandemic progresses.
Cost Performance
Total operating expenses for the first quarter of 2022 totaled $758 million, including $11 million of transaction and merger-related costs. Adjusted total operating expense was $747 million, including $215 million of fuel expenses at an average cost of $2.99 per gallon. Adjusted total operating expenses (excluding fuel) was $532 million. This resulted in a CASM of 10.19 cents with an Adjusted CASM (excluding fuel) of 7.15 cents during the quarter compared to 8.30 cents and 5.50 cents in the first quarter of 2019, respectively. The increase in Adjusted CASM (excluding fuel) was driven by lower average stage length, lower average daily aircraft utilization, timing of aircraft deliveries and returns and the associated sale leaseback gains and lease return costs, respectively, and labor rate increases. Although Frontier has strategically reduced its average stage length as a result of the Company's modular network, unit costs excluding fuel are expected to improve as the year progresses primarily due to rising utilization and cost management efforts, including the introduction of the A321neo.
Fleet
As of March 31, 2022, Frontier had a fleet of 112 Airbus single-aisle aircraft, consisting of 75 A320neos, 16 A320ceos, and 21 A321ceos. All aircraft in the fleet are financed with operating leases that expire between 2022 and 2034. Frontier’s fleet is the most fuel-efficient of all major U.S. carriers when measured by ASMs per fuel gallon consumed, generating 103 ASMs per gallon during the first quarter of 2022, a slight improvement compared to the corresponding prior year quarter and six percent higher than the corresponding pre-COVID quarter in 2019.
Frontier took delivery of two A320neo aircraft during the quarter and has four planned aircraft deliveries during the second quarter of 2022.
As of March 31, 2022, the Company had commitments to purchase an additional 232 aircraft to be delivered through 2029, including 74 A320neo aircraft and 158 A321neo aircraft, enabling the Company to significantly increase in size in the future. Additionally, the introduction of the A321neo aircraft in the second half of 2022 is expected to advance Frontier's structural fuel advantage and further the trend to higher average seats per departure, leading to improved cost efficiency versus industry carriers.
Frontier-Spirit Proposed Combination
On February 7, 2022, Frontier announced a merger agreement with Spirit Airlines, Inc. ("Spirit"). That signed agreement remains in place.
“We continue to be excited about completing the merger and delivering the significant benefits that will come with it. This combination offers tremendous value for shareholders. The structure of the transaction will enable both Spirit and Frontier shareholders to benefit from the substantial upside potential of the combined company. Our regulatory process is already well underway and many months ahead of any alternative. For consumers, this merger will super-charge the ULCC model. Together, Frontier and Spirit will offer even more ultra-low fares to more places and deliver $1 billion in annual savings for consumers. For employees, we expect this combination to create 10,000 new direct jobs and thousands more at our business partners. For the competition, the dominant ‘Big Four’ airlines and other high-cost airlines like JetBlue will be faced with a true nationwide ultra-low fare competitor,” said Biffle.
Forward Guidance
The second quarter and full year 2022 guidance provided below is based on the Company's current estimates and are not a guarantee of future performance. This guidance is subject to significant risks and uncertainties that could cause actual results to differ materially, including the risk factors discussed in the Company's reports on file with the SEC. Frontier undertakes no duty to update any forward-looking statements or estimates, including any such information provided in its Form S-4 on file related to the business combination with Spirit Airlines, Inc. Further, this guidance is for Frontier on a stand-alone basis and excludes transaction and merger-related costs and other special items.
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