Frontier Airlines Reports Second Quarter 2024 Financial Results

Frontier Group Holdings, Inc. (Nasdaq: ULCC), parent company of Frontier Airlines, Inc., today reported financial results for the second quarter of 2024 and issued guidance for the third quarter and full-year 2024.

Highlights:

• Total operating revenues were $973 million, 1 percent higher than the comparable 2023 quarter
• Achieved annual run rate cost savings of more than $100 million from the cost savings program launched in the third quarter of 2023
• Cost per available seat mile ("CASM") was 8.98 cents, a reduction of 6 percent over the comparable 2023 quarter
• Adjusted CASM (excluding fuel), a non-GAAP measure, was 6.24 cents, on a 13 percent shorter average stage length; adjusted CASM (excluding fuel) on a stage-length adjusted basis to 1,000 miles, a non-GAAP measure, was 16 percent lower than the comparable 2023 quarter
• Pre-tax income and adjusted (non-GAAP) pre-tax income were each $32 million; pre-tax margin and adjusted (non-GAAP) pre-tax margin were each 3.3 percent
• Took delivery of six A321neo aircraft during the second quarter, increasing the proportion of the fleet comprised of the more fuel-efficient A320neo family aircraft to 80 percent as of June 30, 2024, the highest of all major U.S. carriers
• The Company's aircraft delivery schedule with Airbus was updated to defer 54 aircraft deliveries, with original delivery dates in 2025-2028 (based on the March 31, 2024 delivery schedule), out to 2029-2031 (refer to "Fleet" section for more detail)
• Frontier's fleet age is, on average, approximately 4 years, making it the youngest among all U.S.-based carriers
• Generated 104 available seat miles ("ASMs") per gallon, reaffirming Frontier's position as "America's Greenest Airline" as measured by fuel efficiency (ASMs per fuel gallon consumed during the second quarter; compared to all other major U.S. carriers)
• Opened bases in Cincinnati, Chicago and San Juan, bringing the total to 13, and reached targeted levels of scheduled out-and-back flying in June 2024, driving an improvement to on-time performance versus prior year
• Introduced 'The New Frontier,' a significant transformation in the Company's product and customer service offerings reflecting a commitment to deliver an exceptional value and superior travel experience to customers

"Despite industry oversupply across the United States, we effectively navigated the quarter due in part to our network and revenue diversification, combined with our industry-leading and improving cost advantage," commented Barry Biffle, Chief Executive Officer. "While consumer travel demand has remained resilient on peak days of the week, post-pandemic travel patterns have compelled us to concentrate our flying on peak days. Coupled with the maturity of new revenue initiatives and our cost advantage, we believe we will drive margin improvement and be the clear low-cost winner in 2025 and beyond."

Second Quarter 2024 Select Financial Highlights

The following is a summary of second 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 second quarter of 2024 increased 1 percent to $973 million on capacity growth of 13 percent, both compared to the corresponding 2023 quarter. Departures increased 26 percent over the corresponding 2023 quarter as average stage length decreased 13 percent to 899 miles. Total revenue per passenger was $109 and the flown load factor was 78.1 percent.

Revenue per available seat mile ("RASM") was 9.21 cents, 11 percent lower compared to the corresponding 2023 quarter, largely driven by the impact of domestic seat growth, which outpaced seasonal demand, trends. RASM was also impacted by the effects from the above-average concentration of capacity in new markets and the launch of 'The New Frontier' during the quarter, which, among other things, eliminates change fees on certain product bundles, provides more transparent pricing and greatly expands customer benefits and support.

With scheduled seat growth for both the industry and Frontier expected to decelerate beginning in the third quarter, coupled with the expected progression in the maturity of Frontier's network enhancements and new product and distribution offerings, including the 'The New Frontier,' year-over-year RASM is expected to inflect positive in the fourth quarter of 2024 and into 2025.

Cost Performance

Frontier's sustainable cost advantage delivered total operating expenses of $948 million in the second quarter, including $288 million of fuel expenses at an average cost of $2.84 per gallon. Adjusted total operating expenses (excluding fuel), a non-GAAP measure, were $660 million, including benefits from the cost savings program launched in the third quarter of 2023 as well as the cost benefit from aircraft lease extensions executed during the quarter. Since the launch of the cost savings program, the Company has achieved annual run rate cost savings of more than $100 million, with more expected to come.

CASM was 8.98 cents in the second quarter of 2024, 6 percent lower than the comparable 2023 quarter. CASM (excluding fuel), a non-GAAP measure, was 6.24 cents, 10 percent lower than the 2023 quarter. Adjusted CASM (excluding fuel) stage-length adjusted to 1,000 miles, a non-GAAP measure, was 16 percent lower than the comparable 2023 quarter due primarily to five additional aircraft sale-leaseback transactions in the quarter and the cost benefit from aircraft lease extensions, along with aggressive cost management across the organization that helped mitigate year-over-year inflationary impacts, supported by network simplification.

Earnings

Pre-tax income and adjusted (non-GAAP) pre-tax income for the second quarter of 2024 were both $32 million, reflecting a pre-tax margin of 3.3 percent.

Net income and adjusted (non-GAAP) net income for the second quarter of 2024 were both $31 million.

Cash and Liquidity

Unrestricted cash and cash equivalents as of June 30, 2024 was $658 million. Cash net of debt was $206 million, $50 million higher than March 31, 2024.

Fleet

As of June 30, 2024, Frontier had a fleet of 148 Airbus single-aisle aircraft, as scheduled below, all financed through operating leases that expire between 2025 and 2036.

Frontier is "America's Greenest Airline" as measured by fuel efficiency (ASMs per fuel gallon consumed during the second quarter; compared to all other major U.S. carriers). During the second quarter of 2024, Frontier generated 104 ASMs per gallon, similar to the corresponding 2023 quarter.

Frontier took delivery of six A321neo aircraft during the second quarter of 2024, all financed with sale-leaseback transactions, increasing the proportion of the fleet comprised of the more fuel-efficient A320neo family aircraft to 80 percent as of June 30, 2024, 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, 2024, the Company had commitments for an additional 198 aircraft to be delivered through 2029, including purchase commitments for 49 A320neo aircraft and 149 A321neo aircraft, the latter of which represents 75 percent of future committed deliveries.

In August 2024, the Company executed a binding term sheet with Airbus which defers aircraft deliveries with original delivery dates in 2025-2028, out to 2029-2031, lowering fleet inductions in each of the next four years, thereby reducing the Company's financing needs and PDP commitments in the coming years. The expected remaining orderbook of 187 aircraft as of January 1, 2025 are now expected to be delivered as summarized in the following table:

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.

The Company reached targeted levels of out-and-back flying in June 2024 and continues to make significant progress in allocating capacity growth to high-fare and underserved "VFR" (Visiting Friends and Relatives) markets. While these network enhancements, along with new product and distribution offerings, including 'The New Frontier,' are expected to be key contributors to Frontier's success, the Company, along with other domestic carriers, is currently experiencing fare pressure caused by excess domestic capacity growth which is expected to begin to decelerate in the second half of 2024 and into early 2025.

The Company determined in June that off-peak demand was underperforming expectations, which led to an adjustment to scheduled capacity for late-August 2024 and beyond. Since this change, average selling fares for September 2024 have inflected positively compared to the prior year.

Third Quarter 2024

Capacity is expected to grow by 4 to 6 percent over the comparable 2023 quarter. Pursuant to the shift to high-fare, underserved markets, a significant portion of scheduled capacity in the third quarter of 2024 is allocated to new markets which the Company believes will drive higher RASM as they mature and industry capacity better aligns with demand. Fuel costs are expected to be $2.60 to $2.70 per gallon based on the blended fuel curve on August 5, 2024. Adjusted (non-GAAP) total operating expenses (excluding fuel) are expected to be $700 to $720 million. Adjusted (non-GAAP) pre-tax margin (excluding special items) is expected to be (3) to (6) percent, including an estimated 4 percentage point impact related to weather, including Hurricane Debby, and the July Microsoft/CrowdStrike outage.

Full Year 2024

Capacity is expected to increase 5 to 7 percent compared to 2023 and adjusted (non-GAAP) pre-tax margin is expected to be (1.5) to 1.5 percent (excluding special items). Fuel costs are now expected to be $2.70 to $2.80 per gallon based on the blended fuel curve on August 5, 2024. Adjusted (non-GAAP) CASM (excluding fuel), stage-length adjusted to 1,000 miles, is expected to be down 1 to 2 percent over the prior year, despite significant capacity reductions implemented since the last guidance update on May 2, 2024. Pre-delivery deposits, net of refunds, are expected to be $(20) to $0 million and other capital expenditures are expected to be $150 to $170 million.

The current forward guidance estimates are presented in the following tables:

Conference Call

The Company will host a conference call to discuss second quarter 2024 results today, August 8, 2024, at 12:00 p.m. Eastern Time (USA). Investors may listen to a live, listen-only webcast available on the investor relations section of the Company's website at https://ir.flyfrontier.com/news-and-events/events. The call will also be archived and available for 90 days on the investor relations section of the Company's website.