Q2 2021 Frontier Group Holdings Inc Earnings Call
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Yes.
Thank you.
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Okay.
Hello, and welcome to the Frontier Group Holdings second quarter 2021 conference call. My name is Brian and I'll be moderating today's call. This call is being recorded and a replay will be available on flight frontier Dot com.
The Investor Relations section.
Third today's prepared remarks, there will be an opportunity to ask questions. At this time, all participants are in a listen only mode.
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My pleasure to turn the conference over to Susan Donofrio head of Investor Relations.
Sir you may begin.
Thank you operator, and welcome everyone to frontier second quarter earnings call. 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 are very difficult frontier's, President and CEO, Jimmy Dempsey EVP.
And CFO and Daniel <unk> senior VP commercial as well as other members of the management team. Following our prepared remarks, there will be a question and answer session for 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.
Expectation and are not a guarantee of future performance there could be significant risks and uncertainties that 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.
And in comparing results today, we will be adjusting all periods to exclude special items. Please refer to our second quarter 2021earnings 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 Barry.
Thank you Susan and thank you everyone for taking the time to tender earnings call.
Although this is only our second quarter as a public company. We recently celebrated our 27th year as an airline and it couldnt be more proud of how we've evolved as a company and the strength and resiliency of our ultra low cost business model underpinned by our low fares done right strategy.
In a moment I'll be turning the call over to Daniel and Jimmy to breathe through the details of the second quarter and our expectations going forward.
But I wanted to first provide you with some high level thoughts.
We're very pleased that our expectation of pent up demand as a result of widespread vaccinations proved to be true.
Based upon this expectation we had planned for and successfully completed the return of all our aircraft and employees into service across our stations during the quarter and consequently operated at capacity levels that were higher than compare from the same comparable quarter in 2019, the utilization of our aircraft and load factors achieved during the quarter were significantly higher.
And then last year and further improvement to the pre COVID-19 levels as expected as we enter 2022.
I want to personally thank our T frontier members for their hard work dedication and professionalism through the pandemic and during our return to full operations along with their commitment to our mission of low fares done right with the safety of our team members and customers continuing to be our top priority.
Our success in navigating the pandemic and returning to full operations as the direct was direct result of all of our teams efforts looking forward. We're closely monitoring the impact of the Delta variant, we expect any impact to be short term in nature, given the availability of vaccines and the likely increase in vaccination rates in response to the Delta variant.
We therefore expect a resumption of the pace of recovery.
As the Delta very cases fall similar to what was experienced elsewhere in the world as we return the airline back to full operations, we remain financially disciplined.
<unk> strength of our balance sheet liquidity, coupled with our low cost structure positions us well to address.
Any delays in the timing and pace for the recovery, resulting from the Delta variant and to facilitate our planned growth as the recovery continues to unfold.
Our growth since last quarter has continued in both domestic and international network.
Domestically. This includes new service from Atlanta, Dallas, Denver, Las Vegas, Orlando, Salt Lake City, and the announcements of even more leisure destinations from Philadelphia Burbank for.
Pleased to have the governor of Colorado, and our first flight to Grand junction as well.
Actually our Caribbean and Latin America presence continues to grow including expansion into Antigua Aruba beliefs, Costa Rica, St Martin and Turks and Caicos.
To keep up with this group we've opened a new free based in Tampa during the quarter and plan to add Atlanta in due course.
We remain committed to being great American's greenest airline as well.
This is not only through the use of more fuel efficient aircraft, which generated over 100 ASM per gallon during the quarter, but also through other initiatives, including the campaign, we launched this quarter highlighting Florida animal conservation.
We partnered with visit Orlando, representing for Orlando, while our parks and preserves customers were invited to choose from among resident animals from a central Florida Zoo and botanical Gardens, Gator land Sea life, Orlando aquarium and while Florida.
Terminal, which animal would be on the tail of the new Frontier Airlines aircraft Ted the turtle was our winter from this highly successful contests and will appear on our frontier aircrafts in 2022.
Our efforts are resonating with customers as well.
With a number of new discount didn't remember surging in June to the highest monthly level. Since the program was initiated in June. We also reached the highest level of new Barclays Frontier credit card member sign ups for company's history. This performance helped us achieve $60 per passenger in non ticket for the first time.
Overall I'm encouraged by the pace of recovery, we experienced during the quarter and our timing of the capacity deployment to meet that recovery.
There may be delays in the recovery, resulting from adult to variance, but I expect those delays to be temporary given the existing availability of vaccines and observation of the movement in case levels experienced in other impacted areas of the world.
Further as the confusion subsides and Americans understand how powerful vaccinations are in preventing severe outcomes, we expect confidence to build and the pent up demand will surge again.
Now I'll turn it over to Daniel who will provide more details on our performance for the quarter.
Yeah.
Thank you Barry and I want to join you and also thanking all of our team from team members for continuing to take such good care of each other and of course all of our customers.
The airline returns for full operation, we continue to be very focused on strengthening our loyalty membership program. So I assume for the success and momentum from our assets.
During the quarter, we enhanced our website to better highlight the benefits for this kind of program and as Brian mentioned, we've seen a result from southern discount their memberships in June.
A month, we saw our highest level of acquisitions since the program started.
In addition, we mentioned last quarter working with our launch upon the Barclays. We will focus on attracting more card members for Frontier Airlines Master card program.
To highlight the June set a new record for sign ups for the card and we've just exceeded that record in July.
Our capacity during the quarter exceeded the levels to them a comparable pre COVID-19 quarter on 2019.
We've taken a balanced approach to our capacity growth with existing and new flight service and our overall goal is to send markets for 3 to 4 times a week flight service, which I think is ideal for our business model.
Our Caribbean and Latin America footprint has grown to account for over 13% of our capacity this summer.
We've recently announced new destinations to our existing capacity, including Antigua.
He's on the Turks and Caicos.
Our goal by the end of 2023 is for flying in this region to account for 20% of our overall capacity.
Domestically, we announced plans for further raw footprint in the fall and winter with new routes out of Atlanta, Dallas, Las Vegas, Miami and Orlando.
And these new domestic routes almost exclusively taking advantage of our existing brought out for portfolio.
We saw an increase from the recovery of demand as the quarter progressed operating revenues for the second quarter increased 184% year over year to $550 million is the recovery from the pandemic strength and for leisure travel.
We had average somewhere average aircraft in service during the second quarter 2021, as compared to the price where the average daily utilization recovering for over 10 hours per day on a free.
Operating on an 80% load factor for.
Further recovery in our utilization and load factor is expected to the levels achieved in the comparable pre COVID-19 period as the recovery from the pandemic continues as Barry highlighted.
On a per passenger basis, we generated total revenue per passenger of approximately $98, including $60 per passenger of non fair in other revenue, which was 6% higher than the comparable quarter in 2019.
Our capacity levels, we expect to continue to trend at or above 2019 levels as we progress through the coming months.
Our forward bookings was strengthening for the recent uptick in Delta Varian cases.
The impact for the Delta variant on bookings and the length of other impacts are difficult to predict we do expect for those cases decline, we will see a positive impact on total bookings.
With that I will turn it over to Jim to provide more details on our financials.
Thanks Daniel.
First of all thank all of the team frontier members for the hard work and dedication as we restore the airlines for full operation during the quarter, while staying financially disciplined generating approximately $70 million in cash during the quarter and ending with $936 million for unrestricted cash and cash equivalents for <unk>.
Nice bounce in the company's history.
The cash at the end of the quarter reflects the $266 million of net proceeds received from the successful closure of our IPO at the beginning of the quarter and $171 million from additional payroll support program funding under payroll support 2 and 3.
The strength of our liquidity position enabled us to allow the treasury loan facility draw down days of May 28, 2021 to expire without drawing on the remaining funds under the facility, we expect to receive our $161 million.
Other income tax receivable later this year on our focus on repaying the $150 million outstanding under those treasury loan at the appropriate time.
This will enable us to unencumber, our co brand credit card program unrelated brand assets that are currently collateralize, the treasury loan providing standby assets with substantial liquidity it needs.
Our GAAP net income for the quarter was $19 million, our adjusted net loss of $50 million for 24 per share excludes a number of special items. These include $87 million of cares Act credits of 2 million Mark to market related to the warrants held by the U S. Treasury sure IPO closing date of April 6.2021, and $6 million of call.
Costs associated with the early lease termination of our remaining 319 aircraft.
We ended the June quarter with 119 aircraft for 109 aircrafts in our fleet for the addition of 5 new Airbus <unk> hundred 20, Neo aircrafts that were financed through sale leaseback transactions, partially offset by 3 lease returns during the quarter. The lease returns during the quarter into 2019 aircrafts associated with an early lease termination with 1.
1 of our lessors to complete our strategic objective for replacing all 319 aircrafts with larger and more fuel efficient <unk> hundred <unk> hundred 21 aircraft to defence. During July 2021, we signed a letter of intent with 2 of our leasing partners to add 10 incremental <unk> hundred 21 aircrafts through direct leases with deliveries expected to begin in the second half of 2022 and completed in the first half for.
2023.
The incremental <unk> hundred 21 aircraft will enable the company to boost its ASM growth rate.
Recovery from the Covid pandemic continues.
We anticipate taking delivery of an additional 520 news during the third quarter of 2021 with no deliveries expected in the fourth quarter looked.
Looking forward to the third quarter, we continue our focus on getting the airline back to full utilization as we enter 2022, while remaining flexible to address any impact from the delta variant on our bookings within the last week, we've noted softening and the level of bookings over seasonal norms that we believe is directly related to the increased COVID-19 case numbers associated with the Delta there.
Impact of the Delta variant on bookings and the duration of that impact are difficult to predict other.
As a result, the top end of our guidance range for net income is being adjusted to breakeven providing us with a third quarter net income loss margin range from zero percent to -5%.
We are confident that as cases decline, we will see a positive impact on for bookings more details on our forward guidance can be found in our second quarter earnings release on our website with that I'll hand, it over to Barry for some closing remarks.
Thank you Jimmy.
It's been a year of enormous change for our company and we continue to thank all our team frontier members for going above and beyond as we navigate through the pandemic and the successful return of all of our aircraft.
And employees into service across all of our stations during the quarter, enabling us to take advantage of the strengthening recovery in leisure travel.
Timing of the recovery may be temporary temporarily delayed due to the delta variant. We're in a very strong liquidity position for the proven and very resilient business model that positions us well for continued shareholder value creation as we grow the business with that operator, please open up the call for questions.
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As a reminder, please ask 1 question with 1 follow up then re queue.
Please standby, while we compile the Q&A roster.
Our first question comes from the line of Mike Lindenberg of Deutsche Bank. Please go ahead.
Okay.
Good afternoon, everyone.
Hey, this is Barry maybe to Daniel as well first off just kudos.
For the fact that you guys have this promotion out there as friends with vaccines by free so definitely creative and so definitely my hats off to you on that 1 which is sort of a lead in to my question, which.
On.
For the biting administration is talking about all arrivals overseas arrivals into the U S actually having to be vaccinated.
How does that.
And you're thinking about new international destinations I mean, if we just look earlier. This week, we launched a whole bunch of new international destinations from multiple gateways, where you have good presence I think you've indicated in the past that you are probably going to see more international in 2021.2022 is it less focus on <unk>.
Far and more on pure leisure destinations like Caribbean Turks and Caicos, how does that change and also sort of as a follow up question.
Where are you with respect to your customer base do you have a sense of how many of them are vaccinated I'm, bringing this up because 2 other carriers in previous conference calls this quarter indicated that they gave some statistics 1 set a majority of their customers are vaccinated. Another 1 said theyre most frequent customers something on the order.
For 84% of them were vaccinated any thoughts on that since it will have some impact on people choosing.
Where and when they can fly thank you.
Thanks, Mike I'll try to I'll go I'll work backwards from try to remember all the questions you threw in there.
Sorry.
If we look at who's traveling now and compare that to a year ago. I mean, you've got massive numbers of traveling and people didn't travel a year ago, not because it wasn't bears being too expensive or anything else. They were scared to fly and the vaccinations made them feel safe and that's what got people back out traveling.
And so we've been quietly surveying over the last few days to actually get the exact the latest number but we believe it is the vast majority of everyone who is traveling today is vaccinated.
So I don't see a challenge to your international question I don't see a challenge there either in fact I was with.
The Miami Airport recently in the first month that they offered vaccinations in the airport in Miami. They had 50, some odd thousand people come there. If you were coming off planes from everywhere to get it. So the people that are going to travel and travel the United States I think youre going to see that Theyre vaccinated as well and look we are in the safety business, we would support and continue to support.
Any measures or incentives that it takes to get everybody vaccinated. The facts are real clear theres a lot of confusion over the last week or 2.
Talking about breakthrough cases, and so forth, but there's 3 numbers that every American should know $97.99, and 197% of everybody. That's in the hospital with Covid is unvaccinated, 99% or more of every 1 dime of Covid is on vaccinated, it's time for 100% of everybody who is eligible to EBITDA.
<unk> net it needs to get the vaccine and Thats whats going to get us through.
This delta variant and get US all back on the road to recovery.
Great and just 1 quick follow up.
The withdrawal from L. A X I was surprised presumably it has to do with cost or maybe it's moving to a new terminal which is less convenient.
Thoughts on that because it would seem like that that would be a good market for for you for the long haul.
Mike Thanks, Danielle look by the end of the system, we consistently and constantly focus on keeping our costs low and southern California has a wide selection of airports.
And we were seeing another significant.
I'll ask for them to chief Apple to start with and we saw another significant cost increase.
Happening there as a result of new construction opening out of the airport.
We've moved so we've moved service 2 airports, where we are where we are saving on a CPU basis, a double digit number of dollars per passenger.
And look that gives us flex so that gives us flexibility to use our low faster.
And ultimately ultimately works best for the business, it's not that we're not serving la it's not that we're not sort of in southern California, we're not.
With southern Ontario, Southern Burbank for Southern Orange County, and the La region.
And they're all they're all markedly lower cost Air force from our labs.
Great makes sense thanks, everyone.
Thank you. Our next question comes from Ravi Shanker of Morgan Stanley. Your line is open.
Thank you for having.
1 maybe.
A follow up on the previous commentary in the previous question.
Just your commentary on the Delta area, and kind of showing up and in your booking activity that seemed a little bit different than some of the other airlines probably all the other airlines. So far there has said that theyre not seeing any impact so far.
Is it just because you're reporting later on them and so you have kind of a more up to date information here or do you think theres something different with the way, where you'll fly or type of customers that you're maybe seeing a slightly different delta impact than some of the other airlines.
But if we would have reported 2 weeks ago, we wouldn't have the Massachusetts study, we wouldn't have the new CDC guidance and you wouldn't had all this new information about the Delta variant and I hate to be the the bearer of news that this.
Masks and the resurgence has an impact on economic activity, but it is and so if you want to look at the kayak search data. It's public that's out there you can look at it it's been trending down for the last 2 weeks. This is very clear if you compare that to what was going on in June compared to now there's been a little slow slowing in the recovery none.
Like we saw obviously a year ago the.
For the most recent art data shows you an online travel agencies for example that we're seeing a little bit of a setback as well and so we have factored that into our numbers that we're presenting today I understand you're comparing it to carriers that havent factored any of this in but.
We felt we were in a position where it's very clear with our data we've seen some softness in future sales, we're still seeing great demand close in but as we look beyond the summer peak, we have seen some softness and that is reflected in the public debt. It was well and so that's why we reflected in our guidance.
Very good a crystal clear that makes a lot of sense.
Can I shifting gears, a little bit for my follow up there was an executive order from the Baidu administration, a few weeks ago, we're targeting a number of industries, including the airline industry, particularly focused on increased a fair disclosure as.
As well as potentially looking at kind of slots in certain airports I would love to get your take on.
What do you think of that and kind of how much of that is actually actionable. Thank you.
Yes. This is how our diamond.
There's nothing in those executive orders that we were concerned about we feel like we're already compliant.
He's been in the works for quite a bit of time. So we're fully prepared to comply we absolutely believe in transparency and providing the best customer experience.
Thank you. Our next question comes from Hunter Keay of Wolfe Research. Your line is open.
Hey, Hey, guys doing.
Yeah.
Okay. Barry So is business travel coming back whenever it does Disney channel claimed that good because it creates a pricing umbrella and alleviate some competitive capacity pressure or is it bad because it gives network airlines revenue stream they could use to subsidize low fares to compete against you in a way that you per.
Probably consider to be short term irrational.
It's good.
It's very good look if your cost structure requires really high fares to make money.
They do irrational things when thats not available to them.
It's good for the entire industry as business travel come back.
And I think what's exciting what we've seen I mean prior to the Delta variant in the last week or so.
You've seen business travel coming back I think a lot faster the data supports that a lot faster than any of us ever expected I mean, I can't tell you, how many business dinners and events and things I've been to in the last 6 for 6 to 8 weeks. So I think it's good.
While we may take a little bit of temporary delay the recovery has not canceled I just think it may.
They may push back some of the office openings.
That just means that you're probably going to be more people traveling in October than there was in September.
Hum.
Okay.
And then a couple of questions on capacity for you the third quarter was a little bit lower than I expected would be did you dial it back because of Delta variant and then second how does the new <unk>.
Planes you just acquired in July impact the outlook for growth next year. Thanks, a lot.
Yes, I'll just deal with the second part of the question the next year's growth rates.
Head towards about 30% given the year over year change from.
Having lower utilization this year and it doesn't really materially change the growth rate in 2022.
It does is it an infill some growth hunter for 2023 that we talked about other Virginia IPO our growth rate at that time was around.
10, 11% ASM growth, we think that will rise to maybe high teens in 2023.
It gives us.
Some confidence now given what we're seeing in our cost base, where the efficiency that's coming through in a more modular network on the back of what we've learned through Covid plus also incremental free 20 ones coming into the fleet that we think our CASM ex fuel actually will be modestly below <unk> in 2023, which is which is a.
Real positive move for for the business from a unit cost perspective.
And it gives us better confidence in terms of getting to the airline back to pre COVID-19 margins as we progress through 2023.
Alright.
That's on a year over year sorry, yes.
Jimmy Yes, Okay, that's what I thought all right sorry, Dan go ahead, where you can say something.
Our capacity growth from Q3.
We've lowered it we've lowered it slightly we expect we expect from slightly lower slightly lower capacity and respond in response to what we're seeing but it's a it's a marginal change from a point or a point or so and we still expect we still expect to be growing fourth quarter. ASM is more significantly with Congress back from fourth quarter to grow in the 12% to 14% range.
Okay got it very helpful. Thank you.
Thanks, Andrew.
Thank you. Our next question comes from the line of Duane if anywhere of Evercore. Please go ahead.
Hey, guys.
On on lease payment deferrals, you noted youre caught up on those I Wonder if you could give us the cash flow impact.
The opex impact from the catch up in <unk> in other words, the amounts that will not be recurring.
Yes, like the big the big payment Duane in Q.
And lease.
Repayments came in Q1.
That was about 22 million if my memory serves me correct. In Q2. It was it was about $10 million and so we've largely paid it back and it's the same for cash on net income.
Operating costs, so it's a relatively modest.
There's a tiny still of a couple of million dollars needs.
It needs to go out in the rest of the year.
But it's largely repaid at this stage and then in addition to that.
Normalizing our working capital around.
Bounce payable.
1 other big changes that we're seeing in the business is as we as we move back to full or towards full utilization in 2022 were spending a decent amount of money on training.
Underutilized aircraft really.
So effectively carrying rent across across this year as you get the business back up and running going into next year, that's a significant cost headwind.
Businesses is faced with but 1 that we can overcome as we go into next year.
That's helpful and then.
My follow up is on on operations as you take a look at what's going on across the industry.
What is your take on where the pain points are really emanating from.
You've talked about the concept at least for your own network of a more modular network.
Is there anything different about the way you have spooled up either your network or are you planning that helps to insulate you from some of these issues we're seeing.
Yeah, So I'll start it and.
And let's let.
Daniel talk but look we're not immune to the workforce challenges that are happening all across America in just about every sector and the services.
<unk> seen shortages of trucking you've seen shortages of all types thing in supply chain and shortages of people that want to work.
But I'll tell you we've been heavily focused on this since January it got more acute as everyone tried to get back to full operations. This summer and it was almost like we're all stealing from each other at the same same employee pool, but I'll tell you. There is a silver lining I mean, when we talked a lot of the recruiters and the feedback we're getting from the job fairs are finally, starting to see those people get off the <unk>.
Couch and it looks like they're getting ready to go back to work as their unemployment benefits are going to stop. So I think this is this is temporary in nature and as I tell people look these are good problems to have to have I think we're all blessed to have the demand recovery. So we would even have these challenges a lot better have that conversation today versus what we're talking about it about a year ago.
And as far as operational resiliency.
<unk> always been focused on that and our operational design, but I think we've gotten even better at that over the last year and Daniel I'll, just talk a little bit about our modular.
Yes, I think I think Duane it's definitely it's definitely helped US took on more modular we've seen we've seen.
So we've seen some of the same challenges but.
What was what was what we're seeing what we're seeing in the network because what we're seeing in the network as we reduced.
For 2 things as we.
We've obviously opens we obviously opened an opened and expanded our new crew bases.
What we're seeing is that when this when there's disruption, particularly driven by whether we can actually limited we can limit that more effectively than we used to be able to.
We used to be able to.
So those parts of the network and I think that's definitely that's definitely helped us and look going forward.
We've opened a free basis already we're opening 1 in Atlanta reasonably assume we're gonna be opening 1 in Phoenix in 2022, we continue to build out this much allowance for me of the airline.
It's better commercially it gives us more flexibility to give my team more flexibility on how the network's designs and it's better for operations on a daily basis, and it's better for operational recovery and as a result, as a result as for as a result as for as a result.
Net of the cost and as we as we expand and expand in these cities, where we have crew basis. It's good for its good for our high profit on salaries as well as we pointed out we have we had a good quarter on our ancillary performance, we got $60.
<unk>.
As we make these cities because it's good for discount them and it's good for credit card acquisition.
So it's got all round benefits.
Okay appreciate the thoughts.
Thanks Duane.
Thank you. Our next question comes from Savi <unk> of Raymond James Your line is open.
Hey, good afternoon.
Given how international is going to be playing a bigger role and the network and as you get some sunshine curious.
What youre seeing today, and if there's going to be any kind of change in the type of international market mix that you're seeing or how.
How much of your growth is going to be dedicated towards international.
Yes, so I'm going to kick it off and then I'll, let Daniel talk specifically about some of the regions. I mean, he just mentioned the $60 in non ticket and we are targeting $63 now by the time, we get to 2023, that's going to enable us to have a breakeven fair at our target of about $30. So we believe that the.
The ability to grow is exponentially better when we have such a low breakeven fair and we're going to use it to the near international where we see considerably higher yields than we see domestically and we think that that's going to give us a really big tailwind from a RASM perspective for the next few years, but then you want to talk about the some of the shape and specific so sorry.
So in the short in the shorter term savvy, obviously, what we've seen and obviously as you've heard from some of our some of our competitors as it has been a much better it's been a much better.
Some of our new international leisure than it has been for than it has been for VFR and so you've seen that we've seen the same we've seen the same trends and so we are focused.
We're focused on <unk> growth and we focused our winter announcements in the last couple of weeks only on leisure destinations.
As as vaccination rates rise through the region and as announced therefore is that for travel fully resumes through.
For the region, we absolutely anticipate continuing to add to our VFR portfolios, while it's going to be a relatively balanced mix I believe and its.
Wallets today focused very much on our 2 Florida basis, we do anticipate growth, we do anticipate growth through the frontier network internationally.
We've said before and I'll share my earlier comments, we anticipate getting to 20% of our capacity by the end of 2023 being an international and Caribbean market.
That's helpful. Thank you and just as a quick follow up on that Delta there and comments have you seen a difference in impact and kind of where that demand softening is or is it just kind of broad day.
So.
Daniel again with Sig.
We're seeing it we're seeing a reasonably broad based for the moment I think.
I think its closer its closing concern that's closing for his closing consensus people look to book trucks further out and I think.
That's a relatively general concern across the market.
And I'll just add I mean look theres a lot of confusion out there right now over the last week, it's probably it's day.
<unk> is probably the worst time in terms of People's understanding.
Again, I mentioned it earlier I think as people that are vaccinated.
Getting a little freaked out over the last week.
Understand the facts, they're going to they're going to settle down they're going to they're going to realize as long as the data holds up again, 97% of our buy in the hospital is unvaccinated and over 99% of every dime is unvaccinated. So I think everybody just got scared a little bit they heard about these breakthrough cases, but they are extremely extremely rare and so as people start.
To understand that we expect that people will get back to the normalized.
Thank you alright, alright, great. Thank you.
Thanks for your next question comes from Stephen Trent of Citi. Your question. Please.
Yes, good afternoon, everybody and thanks for taking my question.
I just wanted to touch base a little bit.
On what.
You guys are seeing from weather events, I mean, we've seen kind of extreme drought in parts of the desert southwest and and.
Forest fires and what have you I'm just wondering is any of these occurrences have created.
Any.
Operational disruption versus what you would have previously anticipated.
Yeah look I can I can kick it off.
Some of the ocean or even talk to look yes, we have seen some unprecedented.
Weather events, yes, setting records in the West setting records in the east.
Thunder storms lasting longer seeing day after day of ground stops in airports.
Usually happen, but yes, the intensity and some of the records are very difficult I can tell you again, we're blessed to have the modularity of our network and it hasn't rippled through other parts of the business as a result of that design feature.
But it is challenging I mean.
It does win in a world, where we're largely staffed very well I think on a relative basis, maybe better than others, but whether stretches those folks right in.
End up stretching duty periods on the CRU you end up stretching the day for people that work on the ground if they have to sit there for <unk>.
<unk> gone in and wait for the weather to clear to finish unload an airplane and unfortunate our customers oftentimes you get in that I think thankfully, though seasonally we should be moving into better weather over the next couple of months.
And hopefully all the supply chain issues that are here in the U S and all the other things normalize as well as the unemployment benefits run out and so by the time, we can get back to winter everybody will have plenty of staff to deal with these issues.
Oh, great very helpful. And then just 1 very quick follow up I.
I heard you mentioned that the detail about some of the southbound routes and for Latam.
Given the FAA is a downgrade of Mexico to category 2 is.
Has that created kind of any incremental opportunities for frontier or is it way too short a timeframe too.
<unk> have any meaningful benefit from that.
No it doesn't change the calculus for us as we look at the different opportunities in Latin America, especially Mexico.
We've continued to add routes there, but I.
I assume that's going to be short lived though I understand.
The Mexican authorities are working on this and theyre going to work for that.
I think this is just temporary I don't think it creates any long term strategic opportunity for anyone on the us side.
Okay very helpful. I appreciate the color.
Thank you. Our next question comes from Jamie Baker of Jpmorgan. Please go ahead.
Hey, This is Ian Snyder JP Morgan with 2 quick questions on behalf of Jamie I'll jump right in with it.
Last call you mentioned that work from home flexibility could theoretically lead to people taking more trips each year. Obviously, it's too early to know if that's happening but are there any interesting trends youre seeing when tracking repeat customers.
This is Daniel it doesn't seem it does seem a little bit it does seem a little bit too early to say we were actually expecting so we're actually expecting this.
Towards the end of this year to start to see as we were waiting for the main return to office to see what amount of additional flexibility in that.
When officers returned to not for whatever the new normal is that we will really get the indication as to what it what it does to travel patterns and obviously, obviously, we're not there yet.
That's helpful.
Yes go ahead.
But we still do believe that it's going to happen I mean, theres a lot of permanent remote working that's going to take place, it's going to cause conferences and meetings and training travel that's going to be necessary, but it also just gives them a lot of flexibility. So.
I haven't seen any indications that we're not going to move to more flexibility. So I think the theory still holds.
Great. Thanks for that and then just 1 more quick follow up on the leasing side I know, we've gotten just a little bit with the lease payment deferrals, but.
We have had a lot of discussion with praises on this could you give some color on the sort of.
<unk> hundred 20, Neo offers you're getting perhaps on a percentage basis.
How current offers compared to your average lease rate for aircraft already in service.
At a 10% lower at 30% lower just just some order of magnitude would be helpful for us.
Yes.
And.
Look the market.
During 2020.
Got challenged in the leasing world.
Largely because of the liquidity squeeze that came from airlines into leasing companies to fund their businesses in the short term and yourself pricing expand youre seeing pricing head back or actually in some cases go below what you saw free Covid, which is really really helpful.
I'm not going to start getting into exact numbers in terms of what we're achieving on lease rates, but we will be considered 1 of the better end credits and leasing world for leasing companies in order to.
Our aircraft into or buy our aircraft office and leased them back from.
So we feel in a really really good shape in terms of how we progress into next year from a from a leasing perspective and financing for fleet I think.
It's very helpful that it's returned to pretty.
Pretty much pre COVID-19 levels.
In some cases, not quite but we're seeing some aggressive pricing out there and thats driving below pre COVID-19 levels, which is which is very encouraging.
That's great to hear and I appreciate the kind of index that's it for me.
Thanks.
Thank you our next Chris <unk> question comes from Chris Stephanopoulos of Susquehanna. Your line is open.
Good afternoon, and thanks for taking my question. So I appreciate the color on the impact Youre seeing from the Delta Varian and it looks to be more.
So the system as a whole growth versus any specific areas, but I'm wondering if you could comment prior to the acceleration in the Delta cases over the last 2 weeks what your guidance might have looked like for adjusted net income margin.
Hi, Chris This is Jimmy here, so look we expected to deliver to you.
Guidance range, maybe 2 to 3 points higher on the top end and what we gave you today from a net income perspective. So we gave you of breakeven to -5%.
Probably we're 2% to 3% positive on us about a week and a half ago as we saw things progress over the weekend and we made a revision to our guidance. If you wanted to look at that in dollar terms, it's probably somewhere in the region of $20 million to $30 million.
In terms of revenue.
That has hurt.
It's going to hurt the business in the next couple of months.
But we think we feel pretty good about the debt.
Progress that we're achieving on recovery if you look at the business.
We had a negative EBITDA through last year into the first quarter of this year you have a positive EBITDA of 13% in the second quarter our anticipation.
The EBITDA levels from head back above 20%.
Sure how much above 20%, but I'm really positive trajectory for the business as it recovers and heads into 2022.
That's probably stalled a little bit, but we'll probably end up slightly below 20% from an EBITDA perspective in the third quarter.
We'll see how things develop from the Delta variance and how behavior changes in the next couple of months as we assess the rest of the year.
Okay. Thank you for that color, if we do start to see.
Vaccination requirements for inbound travel or any renewed measures.
Net reinstated domestically could you walk us through some of the ways that.
You could perhaps get agile within network, whether that's reallocating flights for aircraft that just what have you learned over the last 18 months of average.
Moving to constantly adjusted network and if you do have to make these changes.
How perhaps you can be more efficient now into the fall versus where we were last spring.
Yes look I mean, we're not here to speculate about the future.
And I think I think we all need to remember something let's not get distracted with the Delta variant. This as a temporary issue. We always knew these things could happen, it's going to take 6 to 8 weeks as it did in the U K as it did in southwest Missouri.
People enact some new things like requiring a vaccine I actually think if you look at the Broadway and they're sold out so everybody is worried about protecting the unvaccinated feelings, let's let's start talking about the vaccinated vaccinate people feel better about everybody on the plane or at their destination or at the restaurant other cruise ship.
Feel better about it when they know it so it's actually we believe and why we've been studying it we believe it's actually an accelerant for demand. So I don't think you would you would make any any long term.
Strategic decisions on your network just off a 6 to 8 week issue.
Thank you.
Thank you. Our next question comes from Myles Walton of UBS. Please go ahead.
Thanks, Good afternoon could.
Could you comment a bit on through the quarter trends, particularly as it relates to a load factors.
Maybe comparing June 2 to April or May and what Virtualized looking like.
Hey, Myles.
We saw we saw we saw a trough we saw traffic recovered sharply during the quarter.
<unk> is capacity continue to as capacity continues to increase.
And we certainly saw low practice continued to growth continued to grow during the quarter.
We've seen we've seen that continued we're seeing that trend continue into continue into July.
And obviously and obviously the peak of some of the peak months for summer travel.
So are you anticipating the <unk> loads to be similar to 2019.3 kilos.
Okay.
We own.
We are not yet we have not yet recovered to 20 to 2019 load factors. While we are seeing recovery, we're not we're not yet recovered for 2019 levels.
And then maybe Jimmy the size of the sale leaseback gains in the quarter or is it 25 million on the 5 deliveries and is that a similar number that's baked into the <unk> guidance as well.
I think it was a little bit less than that but yes. It's consistent you actually 5 aircraft in Q2.5 aircraft in Q3.
<unk> III you actually have no aircraft in Q4, just to point out to all of you and so you won't see any sale and leaseback gains in Q4 related to aircraft.
But yeah, it's effectively 5 aircraft in the last 2 quarters.
Okay, Alright, I'll leave it there too thanks.
Thanks.
Again to ask a question. Please press star 1 and you touched on telephone again Thats Star 1 on your Touchtone telephone to ask a question. Our next question comes from Eric Morgan of Barclays. Your line is open.
Hey, good afternoon, Thanks for taking my question.
Just wanted to ask 1 a little bit longer term on your growth plans in the context of whats what your fleet is going to look like in a few years. So.
You'll have the larger mix of the 320 ones as we go into 2023 and beyond.
You had the letter of intent announced today as well. So just wondering if you could speak to how.
This change in mix of aircraft size.
Impacts your growth strategy if at all just in terms of markets you can endure and.
Any limitations or or.
Otherwise on your ability to stimulate demand.
Good morning.
Okay. So.
What we're expecting in terms of growth rate in the next couple of years as I said earlier to.
Hunter I asked the question for 2023, it will be just under 20% somewhere around the high teens in terms of percentages on the way the delivery profile works for the next for 5 years beyond that it starts to slow down in 'twenty 5 'twenty 6 'twenty 7.
You deliver as you deliver aircraft and we have some optionality.
Incremental aircraft.
That we can bring from leasing companies that we've talked about before and we have displayed today that we have 10 aircraft, but also the potential to extend the series of aircraft that we have that are on 8 year leases.
Kind of expire.
The 26, 2007 period and that gives us an ability to tip some of those growth rates up a little bit.
In relation to the size of the aircraft, yes, our average seats per departure from today's announcement for example that we out of 10 aircrafts our average seats for the for arch in 'twenty 3 we will go to just over 200 seats.
It really causes us from a unit cost perspective in the business.
It actually opens up opportunities for us.
And destinations around the United States that we think are interesting and maybe Don you want to talk about where we've placed our current aircraft for absolutely absolutely if not sometimes thanks Jeremy.
Hello.
We've deployed.
Total contract for 320 ones for example across most of most of our net what we've tried to in various markets.
They they walk in big markets. They work in small markets, they bring lower unit costs.
Marginal cost on our fleet.
Module cost from the extra seats is very low we think we believe we can successfully deploy the additional 320 ones in almost every airport in our system. There are a few for a few airports where operationally we have to use for 320, but broadly speaking the 321, almost everywhere and all system when we.
The mix of our fleet continues to move towards the 321.
What youll see Youll see us deploying it system wide.
Great appreciate it.
Thank you we have a follow up from Hunter Keay.
Wolfe Research your line is open.
Hi, Thanks, just a couple quick clarification questions on the <unk>.
30% growth in 'twenty, 2 that was a year over year growth rate or 2 year I realize it's almost the same thing, but it just it's year over year.
Okay. Thanks, Jimmy and then I'm sure I know the answers question too, but just want to clarify the sub 6% CASM in 'twenty 3 that that's obviously, a CASM ex fuel CASM ex fuel and interest expense correct. Yeah. Yeah look we anticipate CASM ex fuel in 'twenty, 2 will be slightly above 6.
<unk> 23, it will be slightly below <unk>.
On the back of adding these aircraft into the business and also some other things that we've learned as we emerge from Covid with multiple network.
Great.
Okay. That's it thank you.
Thank you I have a follow up from Chris Steffler stuff for the populace Susquehanna. Your line is open.
Hi, Thanks for taking my follow up just if you could comment on the share dynamic that youre seeing and if there's anything notable.
Perhaps at the system level or specific areas of your network. Thanks.
Well.
In brief we'd seen the fare environment is improving as demand of demand improved on surprise unsurprisingly Unsurprisingly a summer demand came in and as demand improves.
From program, we sold we saw sort of this whole system what system wide fare improvements both for ourselves, but also for the industry more broadly.
And I think what we're seeing what we're seeing right now is coming towards the end of summer.
We obviously think we obviously see every year industry for us industry pays off as drop off as we head off for the summer peak into the into the full shoulder.
Being a bit with a bit of promotional evidenced from losses in the last week in particular as far as mentioned.
Some of those losses are getting more aggressive, which we think again is also tied to <unk>.
For the relative weakness in demand, but deltas closer.
Delta variances for closing.
Great. Thanks.
Thank you I show no further questions in queue. At this time are there any closing remarks.
No just want to thank everyone for joining the call today, we're really pleased with our results in the second quarter. We remain very encouraged about the business going going forward, especially as we look to 2023, when we expect to be sub 6.
As I'm heading to $63 in non ticket, which will make our breakeven fair we're targeting at $30, which we think is really powerful for our business and I just want to thank all of our employees and partners team frontier for helping us produce great operations and continue to get things back to normal as we get into 2022 and have full utilization again, thanks, everyone.
For joining the call and we'll talk to you soon.
This concludes today's conference call. Thank you for participating you may now disconnect.
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