Q1 2021 Frontier Group Holdings Inc Earnings Call
To ask the question during the session you will need the press star one on your telephone. It is now my pleasure to turn the conference over this in some of your head of Investor Relations you may begin.
Thank you operator, and welcome everyone to frontier of his first earnings call as a publicly traded company. This call is being recorded and simultaneously webcast. A replay of this call can be found on our website on the call with me today are Barry before frontier as President and CEO, Jimmy Dempsey, EVP and Chief financial.
Officer, and Daniel chose our senior VP of commercial as well as other members of the management team. Following our prepared remarks, there will be a question and answer session for the sell side analysts. We also wanted to remind everyone on the call that today's discussion contains forward looking statements that are based on the company's.
Current expectations and are not a guarantee of future performance there could be significant risks and uncertainties. The cause actual results to differ materially from those reflected by the forward looking statements, including the risk factors discussed in our reports on file with the SEC, we undertake no duty to update any forward looking.
Statements in comparing results today, we will be adjusting all periods to exclude special items. Please refer to our first quarter 2021 earnings release, which is available on our website for the reconciliation of our non-GAAP measures with that I will turn it over to Barry for his opening remarks.
Yeah.
Thank you Susan and thanks, everyone for taking time to the tender first earnings call as the public company.
In a moment Daniel Jimmy will bring you through the details of the first quarter and our expectations going forward.
First and foremost we're pleased with what we're seeing in the demand for travel the vaccine is truly unlocking of the pent up demand everyone anticipated bookings are getting stronger every week.
We believe our focus on leisure travel coupled with our low first on the right strategy positions us as an industry leader in this recovery.
Well this has been a challenging year across the industry, we're very thankful to all of our team frontier members for their commitment and diligence to ensuring our successful navigation through the pandemic and they have helped US ensure we are well positioned to succeed in the recovery of.
I want to thank our Union leadership as they are partnered with us on a range of solutions to help keep our employees and customers safe over the past year.
One thing of certain seem frontier of stronger than ever as we emerge from this crisis.
I think the positioning the business to maximize the rebound opportunity, we're adding routes to both new and existing cities in our domestic network and growing our near international network footprint as well.
As an example, we added leisure destinations for the summer's debt that include Nassau, San Jose Costa Rica.
And the St. Martin These additions come on the heels of New service already introduced the Guatemala, Guatemala City sales.
Salvador as well in Central America.
We've also added new non stop routes from Atlanta, Dallas, Denver, Las Vegas, and Salt Lake City.
Further our commitment to being America's Greenest airline was enhanced by the addition of three new <unk> hundred 20 Neo aircraft added to the fleet during the first quarter of 2021.
In addition to the fuel efficient engines. There was the first aircraft in our fleet to feature a new record of lightweight seats, which are 30% lighter than our existing seats and considerably more comfortable with.
We achieved significant milestones during the quarter, including executing on IPO to enhance our liquidity.
Becoming cash positive in March of 'twenty, 'twenty, one and getting our departures back to 2019 levels in March of 2021.
We're now focused on moving the business back to profitability in the second half of 2021 and operating at full utilization next year in 2022.
Overall, there's positive energy across the team frontier as we move beyond the COVID-19, our momentum aligned with the growth trajectory of the fleet positioned frontier to maximize shareholder value on the recovery of Ed I'll now turn it over to Daniel who will provide more details on our performance for the quarter.
Thank you Barry on I want to join me on.
All of whom frontier for comparing the same subject of tariff each other and our customers.
So on to reiterate how pleased we all of that all of the first online travel mobile has resonated so well with our customers. We firmly believe you shouldn't have to pay a high price to get the high quality family friendly travel experience on.
The low cost model has allowed us to rollout reasonably priced unbundled unbundled auctions and we continue to listen to our customers from fine tune. These all firms just kind of on subscriptions, providing members with exclusive access to frontier is lowest available for us continuing to growth.
Working with our multi port on the Barclays, but just on some new office to of trying to even more card members the <unk>.
It is also part of the frontier of islands of world's most of the cost have already been recognized by money don't come with the best airline called of the 'twenty to 'twenty one.
And we were one of the among the first to initiate the variety of heightened health and safety initiatives on the owner of the pandemic and we will continue to make our customers our foremost priority with respect to comfort the safety and operational performance.
As Barry mentioned, we continued to increase our Caribbean and Latin America footprint on this some of them on the reach of is expected to account for over 13% of on capacity.
We're also targeting additional new international growth over the next few years.
We're also excited to be identified in the domestic cities to us on the 2020 are on schedule, including the return of frontier of service to Alaska.
Now on to the trends, we are staying within a quarter of results similar to other airlines on January and February performance reflected the third of COVID-19 weighted across the United States on the impact of new travel restrictions on.
Of the Presidents' day, we saw demand for air travel and improve as we moved into the spring break in the used the booking window, but the significant step up in launch demand.
Operating revenues for the March quarter decline due to the impact of COVID-19, the closing of 36% the climate of capacity year over year.
Which led to a 50% year over year decline in operating revenues.
On a per passenger basis, we saw took the revenue declined 13% in the quarter.
While non fair on other revenue declined 19% from.
So the non fair on other revenue remains strong overall of 50 to 55 per passenger and on a total.
Total over the past or for the quarter was $83.38.
Our capacity levels of trending at or above 2019 level as we progress through the coming months, what's been recovering on load factors of the appetite for travel continues on demand returns moving into the summer months with that I will turn it over to Jamie to provide more detail on our financials.
Thank you Daniel.
Sure Ryan Daniels of optimism on the demand recovery, we are saying I want to thank all of the team frontier members the rolled up their sleeves and challenging times during the pandemic on put frontier at the forefront of the recovery in air travel are growing confidence in the recovery enabled us to begin hiring pilots of flight attendants in February on restart projects that were paused as we manage through COVID-19.
In addition, our IPO strengthens our balance sheet, plus frontier and the strong liquidity position, enabling us to emerge from COVID-19 with limited incremental debt.
Now turning to the quarter, our GAAP net loss was $91 million on it.
Adjusted net loss of $173 million or <unk> 86 per share excludes the number of special items. These include $136 million of cares on credits of $20 million Mark to market related to the warrants held by the U S Treasury on.
And the 4 million costs associated with the early lease termination of our remaining <unk> hundred 19 aircraft.
With respect to our revenues and liquidity position, we timed our capacity deployments as the quarter progressed to take advantage of our expectation of the recovery in air travel leading up to spring break this enabled our revenues and cash receipts. The finished the quarter on the strong notes as of March 31, 2021, we have the $853 million of total available liquidity inclusive of the 400.
The $24 million of Undrawn amounts under the <unk>.
Treasury loan facility the liquidity as of March 31, 2021 excludes net IPO proceeds of $265 million given if the April 6th of closing on.
Our liquidity was enhanced in April by the receipt of $96 million on payroll support from the funding from PSP to entry, we expect to receive the final payment of $75 million relate.
Relating to the ESP three in the second quarter. This.
This steps from here in a very strong liquidity position as such we are unlikely to draw further funds under the treasury loan facility.
With the current tax receivable of $161 million the provides us with an opportunity when received to assess the repayment of the $150 million currently outstanding under our treasury loan without utilizing the other existing liquidity the repayment of our Treasury loan will unencumber, our co brand credit card program unrelated brand assets from the currently collateralized.
Facility, we believe that our loyalty program encompassing our co brand credit card on discount on subscription program together with the frontier, Brian could generate substantial liquidity should the need arise.
We ended the March quarter with the 107 aircrafts on our fleet. After the addition of three new Airbus <unk> hundred 20, Neo aircrafts that were financed through sale leaseback transactions. In addition in early May we executed the contract with one of our lessor is to accelerate the return of for remaining <unk> hundred 19 aircraft from the Companys fleet three of the <unk>.
319 aircraft will exit Frontier's fleet during the second quarter of 2021 on the fourth aircraft will exit the fleet in the third quarter of 2020 of them.
This is the completion of an early objective of the transformation of frontier Infinera Ultra low cost carrier by replacing all three of <unk> 19, aircrafts with larger on more fuel efficient <unk> hundred 20, <unk> hundred 21 aircraft.
We anticipate delivering 10 <unk> hundred 20 of those in two spare engines during the remainder of the year with five aircrafts delivering during the second quarter on five aircrafts in the third quarter as we look forward into the second quarter and reflect on the improvements in demand. We expect our net income margin to range between minus 10% from minus 15%, reflecting total adjusted <unk>.
Operating expenses, excluding fuel ranging between 480 $490 million on average fuel cost per gallon of $2 on an effective tax rate of 22% our expectations for Q to exclude any adverse operations impacts our fuel price spikes cost for the cyber attack on attack on the colonial pipeline.
To close our financial discipline on low first on the right strategy has positioned us well as the recovery strength and some demand for travel returns 2021 of the year that we continue to invest in the recovery of the business on <unk>.
<unk> of ourselves for successful growth in the coming years with the immediate focus on getting our airline back to full utilization as we enter 2022 with that I will hand, it back to Barry for some closing remarks.
Yeah.
Thanks, Jimmy.
It's been a year of enormous change for our company and we continue to thank all of our team frontier members for going above and beyond what was expected of them.
Got the right team in place to navigate what's ahead, along with the right cost structure and the right low fare product.
With that operator, please open up the call for questions.
As a reminder.
Minder task of question you wont need the press star one on your telephone to withdraw your question press the pound key please standby, while we compile the Q&A roster.
Our first question comes from the line of Ravi Shanker from Morgan Stanley. Your line is now open.
Thanks, Good evening everyone.
Couple of questions on the current environment as you see it.
You look at the incremental traffic the Theyre coming on right now do you have any data on weather.
You are expanding the pie and then the traveler Youre seeing right now are like new to add travel. If you will are you just taking share from other Atlanta, Vlccs and legacy assets.
Dan why don't you take the zone.
Thanks, Ravi I think what we're seeing right now is the.
The pent up per ton of travel in the U S. I think it was I think we are seeing lots of lots of customers come back to travel and I think as always our low cost of allowing us top of extremely low fares on continues to stimulate continued to stimulate demand and that's a combination of new customers on the and also.
Each of the OCC model key to our model as customers flying more frequently because they can afford to do so because we deliver lower fares in the marketplace.
Got it and just a follow up to that.
For new feel like does the environment, where.
The U L. Ccs can meaningfully grow their market share and kind of close the gap to and maybe the kind of share that you have in that youll see the have in Europe.
Do you think it takes a little while longer for the market to go in that direction.
Yes.
Okay.
Well look I think if you look at our share in the United States. I mean, we're just getting started right where we're at 10% all of the <unk> compared to two approaching half over in Europe. So, yes, theres a lot more of room ahead.
Great. Thank you.
Thank you. Our next question comes from the line of Mike Lindenberg from Deutsche Bank. Your line is now open.
Yeah, Hey, I'm.
Good job on the first quarter here gentlemen.
I guess a couple of here Barry when you were on the road.
On the deal you know what.
Five six weeks ago.
You had a pretty encourage I mean, a positive outlook I mean trends look like that they were moving in the right direction and things.
<unk> seen good and yet here we are.
Five or six weeks later and yet you have a much higher fuel price and I would argue for.
The favorable.
The margin guide that I think what we saw as recently as five or six weeks ago is the right interpretation debt.
Things have maybe gotten even better than the sort of what you were seeing five six weeks ago. When you were on the road because the guidance would suggest that it does seem like that maybe we're seeing some acceleration here or is that does that the rate of interpretation.
I think that's right, Mike I mean luckily.
Feel better today than I have probably since I guess last January when I first heard of coronavirus right.
And I feel better than I did and I feel better than I did yesterday and I feel better in the last week.
It's it's real right Youre seeing it every day. The vaccine is is is slowing the cases at slowing the hospitalizations and people are feeling free I mean Thats last question, we were talking about the stimulation, but I think I think what's happening is the demand has just been let loose from the vaccination. So it just keeps getting better and so yes, we're feeling.
The good about the world in and couldn't be more excited about the recovery.
And then just my second question for Daniel look I get the whole story of that.
Getting away from the $83 19, you'll have higher gauge its gonna help for unit cost on one hand, but then on the other I guess, there's an argument that maybe it preclude your ability to fly into some of the smaller markets.
You do fly into a lot of smaller cities right now when you look at some of your competitors and they have stayed with whether it's the day $3 19, or even the 737 seven Max as in the case of southwest do you do you think that getting out of that smaller gauge and as your gauge moves up that theres, just going to be a whole slew of the city pairs debt.
That I, just don't work or maybe it's the less than daily strategy.
How do you think of that that you know just your response to that thank you.
Thanks, Mike.
You're absolutely right as we as we go to the higher gauge, we get lower costs and we already have a strategy of applying the right frequency to the right market with what we fly low frequency Rochus, we fly we fly on smaller markets in general today on the <unk> hundred 20, Neo which is the which is the bulk of our fleet today. The majority of our fleet today and we found that works, we find the supply some small market for luxury.
On sell through 'twenty, one on find the unplanned that works.
We have the local we have the lowest cost we aren't going to be of low cost leader on that enables us.
The fly a lot of the Fi as many markets as we can on it.
Right strategy for tomorrow to maximize our opportunity.
Very good thanks, everyone.
Thank you. Our next question comes from the line of Jamie Baker from Jpmorgan. Your line is now from.
Hey, good afternoon everybody.
Question on the aircraft leases I know you've engaged in sale leasebacks with various lessors, but for for future deliveries for the pipeline do aircraft have to be sourced from the indigo pool I mean, the order the big order back from 2017, or if somebody like I don't know pick a name of Aercap came to you.
With the more attractive lease rate could you take it.
Yes, Jimmy they wanted to announce here.
Yes.
In 2017, we were part of a joint purchasing initiative.
Delivered.
430 aircraft into the airlines on the indigo portfolio.
We contracted for our aircraft like all the other airlines in the portfolio of separately and so frontier of contracted for 130 for aircraft and we're committed to those aircraft and they deliver over the next kind of seven years or so.
We could look at the aircrafts that pop up beyond that order book like any other airline com.
If there are opportunities, we'll certainly look at it.
We're looking at.
Potentially adding <unk> hundred 20 ones of the incremental true 371 of our fleet.
They could come either directly of the manufacturer.
Or for leasing companies and so yes, we of absolute flexibility to do that.
Okay, Alright that helps and also the second question do you have any ability to track how much basic economy competitors are putting in your markets against you given the strength in the summer demand I would think that they'd be allocating less unusual and United said as much on it.
Paul I'm, just wondering if you have a way to actually measure it and if you have any idea as to how those trends might look.
Yeah look I mean, I think if you look at basic economy, I think theres a lot of confusion out there. So basically the economy is of product and then theres price points right. So it doesn't matter how much basic economy is out there what matters is the prices that they are charging.
But I will tell you that both the product is less than it was Ah theres lots of it out there and the price points as many of you reported on I mean, there are slowly moving up I mean is the.
<unk> is coming back or filling up load factors going up it's just how revenue management work right. The the fares are going up and so on.
I think everybody's looking at this and realizes on the next few months Youre demand is going to outstrip supply.
And if I could just sneak in the third.
We're in the middle of May now between now and the end of June how much inventory hasnt been sold and how much higher would fares have to be on that remaining inventory for you to breakeven in the quarter.
Talking.
$5 $50 I'm, just trying to get a feel for how close you might actually get but if you don't have that fingertips I get it.
Well, it's algebra on I'm sure, we could calculate it real fast I'm not sure we would disclose that.
Okay fair enough.
But look I will tell you we said it in the opening remarks, we feel very confident with the trends that we will be profitable in the second half of the year and feel pretty good about it.
Okay. Thanks, everybody congrats.
Thank you. Our next question comes from the line of Hunter Keay from Wolfe Research. Your line is now open.
Hey, everybody congrats on the IPO, Thanks for having me on.
The.
The very what would you say your top.
One or two financial targets as you think about the next couple of years of just just running the business for the long term would you is it just raw dollar profit would you would you trade a little bit of margin to drive more EPS I mean.
Obviously, the balance of what are the top one or two of the yearly youre going to prioritize over the next couple of years.
Profitability and cost.
Alright, just Rob just like absolute raw profit dollars.
Well I mean, I would actually expand it and I would say theres, one into sort of profitability one of them.
The cost number two but within profit because of one a witch's is margins themselves in those levels and an <unk> of the aggregate profit which drives EPS.
Okay.
Cool and then.
Couple of quick ones here when you when you talk about full utilization you said in your script in 2022 or are you talking about youre at one point, you're going to hit 12.2 hours per day or are you actually going on average that over the course of the year.
We expect by the end of the year to be in a position to begin and operate all of 'twenty two at full utilization.
Okay. So you'll be exiting 'twenty two at full utilization of is what youre, saying basically no no no no no on 'twenty. One we're investing today, we're investing today and in hiring and ramping everything up so that we can be ramped up to full utilization by the end of the year such that 2022 will be of full operating year.
Got you Okay. Thank you and then just a quick one here.
Of your thoughts on potential the PSP for program is that something you would support.
I doubt, it's going to be necessary.
Okay.
Thank you everybody.
Thank you our next question.
Yeah.
Thank you. Our next question comes from the line of Duane <unk> from Evercore ISI. Your line is now open.
Hey, thanks.
Could you characterize I'd love to hear your answer on on what inning, you think we're in from of leisure.
Coverage perspective domestic leisure recovery.
Some have suggested bookings are kind of all the way back to 2019.
It feels like there's more recovery still on the table here even in the U S certainly in.
Certainly in places here like New York.
And of course part of that view is going to depend upon how folks are.
Revenue managing so maybe just a follow on Relatedly to Jamie's question.
How are you managing inventory now versus say this time in 2019.
And how do you think the industry is in other words is the industry opening up more future inventory now at low price points.
Yes, so look I don't know what inning.
Somewhere between I guess, the second third inning.
What I would.
Mean by that Duane is we've started.
Sort of trickling bookings up in February the continued accelerate through March the accelerated through April we're now seeing them.
We continue to build but there were there's another.
Another factor right. So as the demand recovers then capacity recovers right everybody talks about pent up demand, but there's also a pent up capacity. The good news is now you are starting to reach pretty close to.
2019 levels the summer and.
So you are now going to probably of the demand continues to go you're going to see demand outstrip supply and so that will move us to I don't know inning four of five and that's what's going to cause fares.
Fares to go up in yields to go up and that's that's revenue management.
And so I think you probably don't get to any number of seven until you get towards the end of the year and you are probably going to have pretty aggressive Thanksgiving and Christmas just because so many people missed it last year right. So youre going to have you're going to have way more demand than youre going to have seats as of <unk>.
Compares to last year at this time there.
There was zero inventory management alright.
19 of the base of the basic point.
Exactly like how are you managing your inventory in May of 2021 versus what you might of been doing in may of 2019.
Yes, I think we're still behind because not everyone has reflated their booking curve completely.
And I think there is also still certain segments.
That arent quite there.
There may be great, but certain cities arent quite there, but I think if you look at even even today I mean, just this recent announcement of you can have your mask off from the last few hours from the CPUC.
If you're indoors.
That's big news. There is also now another leg of demand you've now got 12 to 16 year olds eligible today for.
For the vaccine so I think theres more to come but I think we're still a little bit soft versus where we were because the fares aren't back to where they were.
In 2019, but again I think in the next few innings, if you will call. It in the next six to 12 weeks you should start seeing that.
That's great. It makes a lot of sense and then just for my follow up I Am sure. You got asked this question a lot when you're on the road I didn't get to hear your answer to it. So I'm curious if you could share of it now.
Can you provide your views on on industry consolidation, how likely that is specifically in the low cost sector.
Yeah.
Okay, well look we're focused on profitability and start to hit that in the second half and focused on shareholder value and for that reason, obviously, we're leaders in the industry and we'll look at any opportunity that presents itself, but right now we're focused on returning to profitability.
Okay. Thank you.
Thank you. Our next question comes from the line of branding of Glinski from Barclays. Your line is now open.
Hey, good afternoon, everyone and congrats on the first quarter here.
Barry I guess following up on that question and the target to be at full utilization I think by the end of this year right.
Are you managing towards reaching two of them.
The goal of profitability in second half the of the year, but are you managing towards a certain profit target right now or is it just that we can be in the black in 2022 is where we've readjusted the focus on getting margins up because that's the right way to think about it.
Well I mean, yes, you got to cross over the line and moved to the Black first and then you start focusing on on increasing that.
And getting back to.
Previously.
The expected levels, if you will from profitability, but the yes look right now we're just we're just really excited across that market and we feel like we're on the eve of it as I just kind of answered. The last question, we feel like we're on the eve of it given the way that the demand is recovering and starting to shape up.
And I think that will drive it in the second half and look 22 is still a ways away, but theres a lot of positive things that happened before then but yes, we will be focused on maximizing margins in 'twenty two.
Okay.
Jimmy do you mind, helping us with the free changes that you announced so I think youre going to take delivery of 10 additional aircraft. This year, so you're going to end the fleet in the year with the fleet of like $1 15 net about right.
No Theres no real change in the total fleet count for the year were just laying out the five in this quarter and five of the following quarter. So 10 for the rest of the year will end the year of about 110 aircrafts.
And just just to recap on what Barry said one of the things that you got to be focused on for our businesses at the end of the 19, we had 98 aircrafts.
At the end of 2022 would have of 120 aircraft. So the business is significantly bigger between pre COVID-19 on post COVID-19 size.
So just want to point out of it but no. There's no change for our fleet kind of right now what we did with the 319 was effectively accelerate them from re deliveries at the end of the year.
The towards the early part of next year. So we're moving from the fleet now clearly, where we're moving fleet from storage and bringing them back into service on our view of this stage was it didn't make a whole lot of sense.
To redeliver, our two return on those aircraft of full service across the summer months.
So for some of the maintenance cost associated with them.
So it makes sense to actually remove them from the fleet early on.
And Thats something that we did and took advantage of something thats cropped up very quickly.
Okay I appreciate that and then I guess the last one from me.
As did announce a couple of new international destinations as debt looking more lucrative in the future here as domestic and international kind of an equal opportunity at this point.
Yeah look I mean, if you if you look at international versus domestic over the last several years what's the.
Part of the pandemic and and we had seen debt yields were considerably higher and we had begun investing and going back in the 18 19 period.
And the international so as we recover.
We are looking back again.
Making that happen and we think the dynamics will actually be.
Even better than pre COVID-19, just because of the competitive landscape on a relative cost advantage.
In the near International but also just the fact that the international is being delayed if you will from a recovery on compared to the domestic and so when it does come back from a demand perspective, we think it's going to come back with the vendors. So so we're positioning ourselves. So that we can exploit this in 'twenty, two and 'twenty three and we think that that really does a lot.
The position our revenue back drop to be a lot stronger than even what it was before.
Thanks Barry.
Thank you. Our next question comes from the line of Helane Becker from Cowen. Your line is now open.
Thanks, very much operator, hi, everybody and thank you very much for the time.
Well, let's say when you talked about cash burn being positive in March did that that did you say that the continued at the same rate in April and May or is the continuing at the same rate or is that accelerating.
Yeah.
Thanks, Lynne assuming here, yes, yes look we turn cash positive just as we turned into into March really.
Bookings started to improve.
The Big change post Presidents' day.
On the airline performed reasonably well through March on DHL has started to fill out for forward bookings that's continued.
Our anticipation is that we are cash positive through through the quarter on.
Moving on from from a liquidity of discussion on back into really getting the airline back up the full utilization.
Perfect is there.
My next question is is there.
The toy or is there a time when you would when it would make sense for you the switch from a fully leased fleet two of.
Partially lease fleet and our partially owned fleet when do you consider that.
Yes, we would.
We talked about this the last one we were doing the IPO, it's something that we can look of as we develop like this year and we've chosen to use operating leases all of the Red Cross this year, we've actually one aircraft left to financing at.
At the end of Q.
Q3.
We can look at us in terms of how we shape going forward, it's really of commercial decision around.
The tax whether you have to put on the equity into the aircrafts on what the cash position as a point of delivery of the aircraft.
For us commercially we haven't found anything that makes commercial sense on an NPV basis like an operating lease sale leaseback transaction for us and so we will continue to do is on benchmark against all the other forms of financing.
But at the moment of the operating leases makes a lot of sense, particularly when youre growing the business.
Quite dramatically like VR and not burdening the cash flow on the business.
With funding the growth we have been funding the big portion of the business and our PDP into delivering these aircrafts.
And so that's the focus of some of our cash flow over the last like five or six years has been to manage on a pre delivery payments to Airbus as opposed to managing the actual delivery itself and so it's been quite successful for us.
Right right I am not sure it ever makes sense for on an aircraft, but the question does come up.
On the other my last question is are your aircraft Etops certified and is Hawaii, a realistic option for you at some point in your future.
Hello.
Yeah.
So no current.
Current aircraft on not I'm, not capable of flying to Hawaii with the full for the full passenger load on before we don't want nominally the top satisfied as a result of note.
Needs to be without cost of the business. We do have a <unk> hundred 20 onex on <unk> on order on when they join when they joined the fleet from a few years, we will look of Hawaii amongst other opportunities for the performance of other aircraft.
<unk>.
It may it may become they become part of the network of that time, but it's not the issue it's not the short term profitability for the airline.
Gotcha, Okay, well, thanks, gentlemen, thanks for the answers.
Thanks Blake.
Yes.
Thank you. Our next question comes from the line of Andrew The Dora from Bank of America. Your line is now open.
Hey, good afternoon, everyone and congrats on the IPO.
First question.
Where do you think your pre tax margins can go over of your growth period as I say I think 2019 pretax was like 14% or so with the mid to high teens business or are you at some level of below that for you.
Thoughts there.
Well look I mean when we.
We get back to 2019 levels. We will then focus if we can make it bigger but I think of the focus right now is to just get back of 2019.
We feel good about our cost on.
Relative advantage and where that's headed.
And we think that expands over the next year to two years and so we feel good about getting it and once we get to 19, then we can probably talk about if we can exceed it.
Okay Fair enough and then.
I guess when you think about the the leisure recovery clearly you see kind of the pent up demand environment extending into the holiday period, but when you think about kind.
Kind of beyond that do you think leisure reverts to the the growth rates, we're seeing say pre pandemic or is there something that youre seeing or you believe that you think there is some maybe more positive structural change going forward here from the from the leisure passenger we'd love to get your thoughts on that and thank you for the questions.
Yes.
So look.
Listen we've talked about this all the time and all we have for a bunch of anecdotes at this point, but people are starting to form judgments on views.
Look I mentioned I think Thanksgiving is going to be the best thing we've ever had and the industry simply for Christmas and same thing for new year's and I think you're going to see the same thing for Presidents' day, and even spring break by the time, we get the spring break next year.
There will be there would've been some people that didn't go on spring break for.
Basically they missed tuner all of its almost three years, so I think youre going to see the surge continue for at least 12 to 18 months on cheap.
Until people get caught up on vacation.
Caught up seeing family and friends and so so I feel I feel very good about it and then when the then when you think about getting past kind of the pent up demand component that I think the last 12 18 months then you get to this new phenomenon.
Of all of this work from home is going on.
And which is really translates to work from anywhere.
And we're seeing more and more people traveling mid week no change in the cities and working off of parents couch in North Carolina. This week and then.
The next week they are in California. So I was just a whole new travel segment that we didn't have plus with the additional flexibility people can travel more and Jimmy and we've debated. This in the past and when we look at carriers in Europe like Ryanair in the <unk>.
<unk> jet with and all of those when you look at the vacation the.
The average European assets.
How many days of off they have for years and you compare that to the average American how much they literally have double more than double the vacation days and so on.
Look it.
What that does for us in terms of all of this additional flexibility of that people are going to have that's just going to create much more leisure travel. So I think this could last for several years.
Great. Thank you for the thoughts.
Thank you. Our next question comes from the line of Savi <unk> from Raymond James Your line is now open.
Hey, good afternoon, everybody and congrats on the IPO and the first question for me is actually a math question Aida, implying the revenue for Q2 is down about maybe around 16% on a year of Ritchie of basis, if I'm doing that math correctly.
Sorry, Savi, we'd have to we'd have to come back to the on the exact math on that like we gave you a range of outcomes of.
And as income of minus 10, 15, and gave you the operational costs associated with us.
We're not guiding the exact revenue numbers at this stage.
Okay understood and then just on the the comment about getting back to utilization by the end of this year that faster than I had anticipated.
What does that mean from your ability to kind of get back to maybe pre crisis trend on unit cost and how should we think about that that unit cost trends.
Yes look our view Hasnt changed since we talked about the or during.
During the IPO, when we talked about unit costs.
There is there is some inflation.
Across the industry that we had to deal with we're very focused on our total total cost and so are our CASM plus net interest if we continue to invest very heavily in the fleet and we're very different to other airlines in terms of how we finance the airline through 100% of operating leases and so therefore, our CASM ex fuel.
Slightly inflated by the fact that we pay rent as opposed to having some of the ownership costs down on the interest line and then we get a huge benefit from the fuel efficiency that the debt the.
Neo aircraft is delivering into the fleet and by the time you get to mid year next year, we start delivering 320 ones again and so.
The change in the business of this happened in the last two years of three years or so is the fact of 'twenty three 'twenty ones of become less than 20% of our fleet.
And they will actually start moving back up in terms of the percentage of the fleet as you progress beyond 2022 and into 'twenty three 'twenty for when we get to about half of the fleet.
Operator, the 321 by the time, you get to about $25 26.
'twenty 'twenty five 'twenty six.
Anticipation is that our unit costs are similar.
Where are we talked about them a few weeks ago and Theres no real change in our utilization.
The went into our thoughts during the IPO process. So we think we'll be on track for them.
Okay appreciate that and if I might ask one last question just on I know of business demand is not a big component that you do carry from business and intensity of SME.
Alright, thank the recoveries the SaaS.
Faster just curious what youre seeing on that front and if you're seeing any improvement along with the improvement youre seeing the at leisure here near term.
Yes.
I'll take it.
I will tell you, though our go ahead of it.
Yes, sorry.
Very small portion of our traffic we've seen from a from the day. So we've got we've seen a little bit of an improved a little bit of an improvement in the last in the last couple of months.
Yes, yes.
It seems to be recovering a bit we obviously don't have a lot of data on the rest of the us on the rest of the trends in the industry. So I don't know about I don't know of our recoveries on the bathroom anyone else's.
It is it is a small portion of of what we take on obviously the much bigger story of how much of the laser demand is recovering.
Okay.
Alright, thank you.
I would just add one other thing too just on the business discussion.
I look at my calendar and I'm traveling almost every week for the next six weeks.
And I'm, starting to hear more and more of this and as offices reopen I've joked about this a lot but.
Do you really think people are going to be sitting in the queue, but do you think they'll go back to the Marriott and I think you will see business travel return, but in our case, it's going to be small business, it's not corporate managed.
Makes sense all right. Thank you.
Thank you. Our next question comes from the line of Myles Walton from UBS. Your line is now for them.
Thanks, Jamie I was wondering if you could maybe touch on the ATL performance in the quarter and when you talk about the recovery of a normal booking curve should we expect debt to expand towards sort of where you were in 2019 from retail perspective, maybe adjusted upward given the larger fleet towards $300 million by the end.
For the year.
Yes, my assuming here at book.
Our ACL of its been recovering at the end of December at habits.
At the lowest point given the seasonality, but also the effect of COVID-19 and it's been slowly and gradually improving in certain accelerated in March on the run into the spring break and you would expect it to recover across the year really predicting where our <unk> is at the end of the year is difficult to do at this stage.
But you would expect it to somewhat normalize as the year progresses on Theres still a ways to go on that.
Okay. Okay.
I guess in the.
I don't know who asked the question around earnings, but I think of <unk> was when you put the.
For the line towards pricing is normalized 2019 is that is that sometime towards the end of the year, where yields of absolute baked in and recovers.
Yes, I mean I think.
In the United States domestically for sure the <unk>.
International will obviously I think lag that.
It's going to take you tool.
The mid 'twenty, two or even the 23 for certain regions just depending upon how they are able to control of the coronavirus.
No I think domestically I think I think you should be by the end of the year on I'll, even go back to your.
Your earlier question about ACL in.
In the back of my mind I'm looking towards the next few holidays and peak periods and I think there is a risk for the consumer that we're going to get shut out of where they want to go or they may have to fly a day or two earlier or later for Thanksgiving and that's going to cause them to book further out when they get burned and so look.
When the when they're not able to it's one thing to say fairs are likely to rise and it's another thing to say well they may not even get a fair because theres going to be more demand than there is supply. So if you're thinking about traveling youre going to want to do it sooner rather than later and I think when that happens the summer we're going to start book on the holidays and then when they get burned at the holidays are going to sort of book in the next summer.
Spring break so I think you could see ATL, it's across the industry would go up just from that phenomenon.
But as far as pricing firming up work you've got to be full before he can focus on price.
I think that takes.
For the industry I think that takes for the latter part of the year for our for all of it for all of the industry.
Got it thanks guys.
Okay. Thank you.
Thank you. Our next question comes from the line of Stephen Trent from Citigroup. Your line is now from.
Good afternoon, everybody and thanks for taking my question.
Just two quick ones from me I know you guys don't have a massive exposure to the southeast, but given the disruption we saw with the gasoline supply in parts of the country did you guys feel any of that in any of your operations or was it not really an issue for you.
Yes, so we had some some challenges we did some tinkering.
And but we didn't have to do any tech stops.
We think it's largely it looks like it's going to be largely resolved now.
Sure.
Okay, Great news.
And just very quickly during the IPO.
The number of investors were intrigued by how high your ancillary revenues are and when we go forward you mentioned on the Barclays Co branded card and what have you do you see kind of.
The additional opportunities to kind of push the envelope even further than you have.
This is Daniel.
We look we see we do see continued opportunity and we're focused on on salary on the highest on the highest profit margin within the on salary within all of us ancillary offerings and of the airline gets bigger the relevant the relevance of the relevance of both of our credit card program of the Barclaycard and our discount on continue to get continue to get.
The more from.
More customers more routes more opportunity to take advantage of the benefits.
We're focused on continuing to work with Barclays. As we said on the opening remarks on improving off of and.
And on the discount them. We're looking we're looking to continue making enhancements to the program to increase the to increase the value of the office.
To increase the number of customers who sign up for it. It's the paid loyalty program and its a very good program of a.
Results on there's a lot of opportunity to continue to build up.
Okay. That's very helpful. I'll leave it at that thanks, guys and congrats.
Thank you at this time on Im showing no further questions I would like to turn the call back over to Barry stifle for closing remarks.
I just want to thank everybody for joining us today, and we look forward to updating you on our next quarter. Thanks for everyone.
This concludes today's conference call. Thank you for participating you may now disconnect.
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