Q1 2022 Frontier Group Holdings Inc Earnings Call
Good day and thank you for standing by welcome to the Frontier Group Holdings first quarter 2022 earnings call. At this time all participants are in listen only mode. After the speaker's presentation there'll be a question and answer session.
Ask a question during this session you'll need to press star one on your telephone.
Please be advised that this conference.
Conference May be recorded I would now like to hand, the conference over to your speaker today, David Erdman Senior director of Investor Relations. Please go ahead.
Thank you and good afternoon, everyone welcome to our first quarter 2022 earnings call.
Today's speakers will be Barry Biffle, President and CEO , Jimmy Dempsey, EVP, and CFO and Daniel <unk> Senior Vice President commercial each will deliver brief prepared remarks, and then we'll get to your questions.
But first let me quickly cover the safe Harbor provisions. During this call we will be making forward looking statements, which are subject to risks and uncertainties actual results may differ materially from those predicted in these forward looking statements additional information concerning risk factors, which could cause such differences are outlined in the announcement.
We published earlier and with reports, we have filed with the SEC.
We may also discuss non-GAAP financial measures, which are reconciled to the nearest comparable GAAP measure in the appendix of the earnings announcements as well during the call any commentary regarding the proposed combination of frontier and spirit does not constitute an offer to sell or the solicitation of any offer to buy any sick.
<unk> or solicitation of any vote or approval, our registration statement and subsequent amendment, where previously filed form S. Four with the SEC and you should closely read those documents as they contain important information related to the proposed combination and just lastly, we will be participating in several investor conferences in the coming months and we hope to see.
See you at one of those events with that I'll give the Florida Barry to begin his comments.
Thanks, David.
Afternoon, everyone and thanks for joining our call.
As we progress through the first quarter, we entered a period post pandemic when demand for air travel is on solid path to recovery.
Our revenue for the first quarter was 11% higher than the comparable pre COVID-19 quarter in 2019 and included $69 of ancillary revenue per passenger 21% higher than the first quarter of 2019. In addition capacity in the first quarter increased by 20% versus the comparable pre COVID-19 quarter in 2019, the recovery began in earnest in March.
And has continued into the second quarter the street those recoveries the strongest I've experienced in my career and we expect it to gain momentum as we progress through the year. Accordingly, we expect record revenue in the second quarter with RASM growth of over 20% compared to the second quarter of 2019 and continued strength in our ancillary performance leading to an expectation.
Of a further improvement to $70 per passenger in the second quarter.
As we position the airlines to be a leader in the post pandemic recovery. We are focused on balancing capacity in response to elevated fuel prices and the current demand environment to enable the airlines to return to profitability in the second quarter and full year 2022.
Utilization in the first quarter was impacted by Covid in January and February and severe weather in March exacerbated by staffing shortages at the Jackson Air traffic control Center, Daniel will elaborate further on this in his prepared remarks later.
Yes.
We plan to grow second quarter capacity, 10% to 12% versus the comparable quarter in 2019, and full year capacity by 12% to 15% versus the full year 2019 utilization should continue to improve overall passenger volumes increased through year end, our expectation of record revenue for the second quarter and our industry, leading fuel efficiency validate our ulf.
Our low cost model, even in a high cost fuel environment, providing confidence in our return to profitability.
Before I turn the call over to Daniel for a commercial update I wanted to highlight how proud I am of teen frontier, which has successfully navigated the airline through the pandemic and positioned us to succeed in the recovery, while upholding our mission of loafers done right with that I'll now hand, the call over to Daniel.
Thank you Barry and good afternoon, everyone.
Total operating revenue in the first quarter was $605 million or approximately $111 per passenger.
Total revenue per passenger was inline with the level achieved in the comparable pre COVID-19 quarter. Despite the lingering effect of film comparison in January and February due in large part to the strength and resiliency of our ancillary products.
Our ancillary revenue per passenger of $69 in the first quarter was 21% higher than the amount from the comparable pre COVID-19 quarter and represented 62% of our total revenue per passenger.
We're seeing strength across our ancillary product portfolio.
In addition, we introduced new ancillary product offerings during the first quarter, including a broad first in Green bank programs, which are providing further strength.
With this quarter's results we have significantly surpassed our previously stated ancillary target of $65 per passenger up and as Byron mentioned, we're now targeting $70 per passenger in the second quarter.
We will continue to expand and enhance our ancillary product offering to further strengthen our loyalty programs our customers ability to personalize the travel experience and our ability to offer low fares to our customers.
We averaged over 420 departures per day during the quarter, 30% higher than the comparable 2019 quarter, while our capacity as measured by I S. Ams increased by 20% over the same period.
Stage length was 9% lower than the comparable 2019 quarter. The intended consequence of our modular network strategy, which is engineered to reduce costs and enhance operational performance.
As travel demands gained momentum during the first quarter capacity amongst 2022 was 26% higher than the corresponding recovered month of 2019 and load factors and market trends towards to improve to 80%.
Average aircraft utilization was 10.8 hours per day during the first quarter given the lingering demand impact from Covid in January and February and severe weather patterns during march across parts of Florida, where we operate a high concentration of flights.
The weather issues, and resulting download impacts were exacerbated by staffing shortages at the Jacksonville Air traffic control center, which controls as space over the northern two thirds of Florida.
Further improvement of our aircraft utilization is expected as operations normalize on a recovery from the pandemic progresses.
As Byron mentioned the demand recovery is expected to continue into the second quarter in the lead up to the summer travel season, and supported an improvement in both load factor and passenger yields.
Tonnage commercial highlights earlier this year, we announced the launch of 14 non stop routes from two new apples.
So does that Chicago midway commence today offering daily flights to eight destinations with another route starting in May and two more set to begin this October at Houston Hobby, we will offer nonstop flights to Cancun, Las Vegas, and Orlando beginning Memorial day weekend.
This new service complements our existing operations at Chicago, O'hare in Houston, Bush Intercontinental and it strengthens our position in two of the five largest metropolitan areas in the United States.
We also announced 23, new domestic nonstop routes during the quarter, the majority of which will originate from Raleigh, Darman Philadelphia to rapidly growing markets.
And our international Caribbean Region, We launched service from Orlando to I could hear Puerto Rico and mass numerous in Las Vegas to Guadalajara and Monterrey.
And from Houston attempt to Cancun, and finally from Miami to Kingstone.
As part of our Western expansion, we announced plans for new crew base in Phoenix to open in November 2022.
It will be our eighth pilot base and ninth flights tenant base and is expected to grow to 180 pilots and 275 flights tenants within the first year with additional growth planned in the future.
Finally earlier this month plans were approved to construct a new addition to Denver International hometown Airport and the third busiest in the United States.
Our plans call for new facilities to be constructed at the east end of the Acorn Pollster include 14 grab London like ground loading gates for a preferential use.
The rates will be configured to facilitate and planning on deep planning through the front and rear aircraft doors, providing us with the ability to improve our efficiency with shorter turn times.
The expansion is expect to be completed in 2024 and will provide our customers traveling in and out of Denver with even more travel options at ultra low fares.
That concludes my remarks, so I'll now hand, it over to Jimmy.
Thank you Daniel and welcome everyone. Our financial results for the first quarter reflect the soft travel demand experienced in January and February jus. The lingering effect of the pandemic followed by a substantial recovery and demand on passenger yields in March fuel.
Fuel prices were elevated during the quarter, resulting in $215 million of fuel expenses at an average fuel cost of $2 99 per gallon.
Total operating expenses for the first quarter was $758 million, including $11 million of transaction and merger related costs and adjusted total operating expense, excluding fuel was $532 million.
This resulted in chasm of $10 119 cents with an adjusted CASM, excluding fuel of 7.15 cents in the first quarter as compared to $8.03. A 5.5 cents in the first quarter of 2019, respectively.
The increase in adjusted CASM, excluding fuel was driven by the reduction in average stage length lower average daily use aircraft utilization the timing of aircraft and there isn't an aircraft returns on labor rate increases.
We consequently recognized a $121 million net loss for the quarter on a GAAP basis on a $109 million adjusted net loss after adjusting for transaction a merger merger related costs and costs associated with the repayment of our treasury loan.
We ended the first quarter of 2022, and a strong financial position with $727 million of owner certain cash and cash equivalents. After the repayment in February of the $150 million previously previously outstanding under the Treasury long.
Our loyalty program brand assets are now unencumbered unavailable for debt issuance should the need arise.
We ended the first quarter with 112 aircrafts in our fleet after the delivery of two <unk> hundred 20 Neo.
Our fleet is 5% larger than the comparable prior year quarter of 30% larger than the comparable pre COVID-19 quarter in 2019, our fleet continues to be the most fuel efficient of all major U S carriers when measured by a S. Ams for fuel gallons consumed frontier.
<unk> frontier is positioned to build on its fuel efficiency advantage with the introduction of the <unk> hundred 21 Neo aircraft in the second half of 2022.
Consistent with earlier comments the <unk> hundred 21 Neo aircraft will also enable the company to continuous trend to higher average seats per departure driving cost efficiency into the business.
Looking forward to the second quarter and the bounds of 'twenty 'twenty. Two we expect continued strength in demand and resulting passenger yields the recovery as the travel recovery progresses on our primary focus is on returning the airlines profitability.
Capacity is anticipated to grow by 10% to 12% in the second quarter versus the comparable quarter of 2019 bolstered by continued strength in ancillary revenue per passenger.
RASM is expected to improve by over 20% in the second quarter versus the comparable 2019 quarter fuel costs are anticipated to be between 385 and $3.90 per gallon.
On an adjusted total operating expenses, excluding fuel are expected to be between 545 and $555 million in the second quarter.
As utilization improves and capacity is restored we expect a downward trend in our unit cost metrics of almost one cent as the year progresses as Barry mentioned the benefit of the from the anticipated strength in demand for the balance of the year is expected to more than offset the forecast fuel prices and non fuel expenses, resulting in the company's expectation of profitability.
For both the second quarter and full year 2022, excluding special items.
Adjusted pre tax margin in the second quarter is expected to range between one and 5%.
With that I'll turn the call back to Barry to deliver closing remarks before we enter the Q&A.
Thanks, Jimmy as.
As we fully transition into the post pandemic recovery I'm as optimistic for this business as I've ever been as we showcase the merits of the ultra low cost model. We're here to win we have the right people and optimal fleet of modern fuel efficient aircraft and with more on the way our strong brand and the financial flexibility to meet that objective.
Before we move to questions I'd like to comment on our pending merger with Spirit Airlines.
Our signed agreement remains in place and we continue to be excited about completing the merger and delivering the significant benefits that will come with it.
For shareholders. This combination offers tremendous value in addition.
The structure of the transaction will enable both spirit and frontier shareholders to benefit from the substantial upside potential of the combined company.
Our regulatory process is already well underway and many of months ahead of any alternative for consumers. This merger will supercharge that you OCC model, you've heard it before and I'll say it again together frontier and spirit will offer even more ultra low fares to more people in more places and deliver $1 billion in annual.
Avinger for consumers.
For employees, we expect the combination to create 10000, new direct jobs and thousands more of our business partners.
For the competition the dominant big for Airlines and other high cost Airlines like Jetblue will be faced with a true nationwide ultra low fare competitor.
But that said we're here today to talk about our results for this quarter and our strong outlook. So I ask that you keep your questions focused on these topics.
We appreciate everybody's time this afternoon, let's open the call for questions.
Thank you as a reminder to ask a question you need to press star one on your telephone to withdraw your question press the pound key.
Our first question comes from Duane <unk> with Evercore ISI. Your line is open.
Hey, thanks.
And I might I might violate your request on my first one.
Just just as an attempt looked at this might be a really dumb question.
And clearly there was a.
Spirited defense of the benefits that you see on this call, but I guess why hasn't there been more of a campaign why haven't you been more.
Vocal about those benefits since since the Jetblue bid.
Well I think we've been pretty clear I don't think we have to keep repeating it and I think if we read what's.
What's going on and I think people understand it but.
You know like I said, a while ago. We think this benefits consumers, we think it benefits the employees, we think it benefits shareholders and.
That's there's not much else set.
Okay Barry.
I'll, let you ask a real question Duane if you don't alright, Yeah, I I will that's all that's all I'm going to do on that I appreciate it.
Just with respect to the <unk> and just a massive change the massive inflection that happened.
Over the course of the first quarter.
You know how.
How much of <unk> was was maybe giving away or or sold in a in a very different revenue environment and said differently.
You know when you think about closing and closing inventory.
Do you feel like you have enough of that left.
You know kind of in this in this environment or are there enough of those seats available.
Available in your network to benefit from those you know much higher close in fares and I would I would think that those.
Sort of drive the value proposition of what frontier brings you know very very clearly in a in a in a hosted environment.
Sure. Thanks, Duane it's a good question I mean look we do sell relatively close here and I think versus versus some other airlines in and to be clear while the March revenue really started to take off the sales kind of started turning back in February right.
And so as the sales turned I mean, we've got smart people and revenue management, just like everybody else and they started figuring out that hey, we need to be more conservative around under selling if you will.
Kind of Easter and beyond and so while we might have I guess undersold some part of April .
It was it was a small amount and the majority I would say probably over 80% of the quarter was still available for sale. When we started to see the inflection kind of in your mid to late February . So that's why you're seeing the majority of the benefit in the quarter, but yes, I mean could it have been a little bit better had we.
None in December .
Sure.
Yes, I mean, I guess the point is as you look beyond the second quarter into third quarter and beyond and you had made some.
You know bullish comments about the summer, which which obviously falls across both quarters. So I guess the question is is there incremental upside is sort of everybody adjust.
To this to this new normal and thanks for taking the questions.
Yeah. Thanks, Duane actually I mean may have been subtle, but I referenced just a small amount and in my prepared remarks, but yes, we expect the momentum to continue in your in your correct wallet. While it was a small amount that we had maybe undersold if you will for the quarter.
There'll be none in future quarters, and an interestingly everyday that goes by we're seeing the demand continue to recover even more I mean is great. As everything is right now I think we need to remember that the mask rule, just kind of just chat well.
Based on the ruling the Masters changed last week I mean, there's a lot of excitement I don't know if any have you flown in the last week or so but I mean, there's maybe one out of 10 people still wearing masks people are excited about it so you've got that barrier.
And then now you've got the.
It's still still the international testing, which I can attest to and several people in this room have actually been caught by this.
It's still a drag on the international side and so that that's still a barrier and then you still got a handful of communities like you know like New York and some of the northeast and parts of California are still a little bit behind in lagging so you've still got that benefit to come.
As well as you know kind of the return to office and kind of the full robustness of business travel, which I think will continue to improve through the summer and definitely by fall. So there's there's plenty more legs up from here. So yes that is why we believe that will continue to be sequential improvement in demand.
Thank you.
Yeah.
Thank you. Our next question comes from Jamie Baker with J P. Morgan Your line is open.
Hey, good afternoon.
So the press release, our guidance was refreshingly bereft.
Of any pointed language on the topic of labor strain.
Outside of some H T C commentary, you're obviously aware of what other airlines are saying about pilot challenges are you're sweeping the topic under the rug or do you just think the narrative is a bit overblown here.
Well I don't know it is overblown for some airlines I mean, I think there are some airlines with some some real challenges but.
In our particular case in the near term we have an excess of the pilots for example, and so while we've seen some attrition greater than years past.
Frontier is really in a in a fortunate position, we actually have a lot of tailwind.
In our pilot workforce and our recruiting success versus some of the low cost and regional Airlines I mean number one where the best brand in the low fare space. So theres kind of a natural affinity that folks want to work here. You've also got the fact that our growth enables people to upgrade to captain within four years. So when you look at your first 10 years of.
W Twos youre going to make as much or more money at frontier. Then you will at the Big Airlines, even though we have lower pay rates because you upgrade to captain so much faster and then you have to add in not just pay but lifestyle and when you look at the fact that we've got probably one of the best portfolios of bases available and selection and choice and some of the <unk>.
Cities, including the fact, you know Daniel mentioned while ago. We're opening Phoenix later this year, we've got a lot of attractive places people want to live.
And also because of the growth the other benefit to lifestyle is you're gonna have holidays and weekends off a lot sooner maybe a decade sooner than go into one of the Big Airlines. So so when you put all that together, that's just a completely different much more compelling value proposition that we offered a pilots versus an airline that my base you in <unk>.
J F K or Boston and you're living in a crash pad sit in reserve for time. So that's why frontier is just a much better home for pilots and I don't think we have the distress that you've seen at some of these other airlines.
Very where you prepare for the question or was that just all off the top of your head because that was a really good response.
Second on on fleet.
In the event you find yourself yeah.
Politically.
Year year, and a half from now in a situation where you want more planes, how does that work with the Indigo order book I know allocations have already been determined but.
If you can prove that you can generate a better return on the next airplane then I don't know jet Smart I mean is there a mechanism there or would you have to look outside of the indigo order.
So we have actually disclosed within our within our order are the large order that you referenced we have the ability to move a percentage of aircrafts amongst.
The portfolio carriers that actually did that water, we can always get white tails from leasing companies and then you know there is another huge mechanism that we have that can moderate our capacity growth and one of those would be we could actually extend leases. So we have a lot of aircraft over the next three.
To five years.
That will be falling off lease. So if we found we wanted to to raise our capacity growth greater than the planned that's out there. We can do that pretty quickly. Okay. Very helpful. Thanks, a lot gentlemen, thanks, Mary Thanks, Jamie.
Thank you. Our next question comes from Mike Lindenberg with Deutsche Bank. Your line is open.
Yeah, Hey, good afternoon, everyone Hey.
The fact that in the release you call out some of the issues with the Jacksonville ATC.
This summer can you tell us maybe your Daniel what percent of your capacity actually touches, Florida, maybe June September quarter, and I guess, you're probably correct me and say, maybe it's more important what touches Orlando Tampa Jacksonville.
I'd be interested you kind of know what that is and sort of as a part two we heard on the southwest called there is like an all hands meeting in may with the FAA.
This situation out because it's just it's been unworkable and so maybe you can talk to that as well. Thanks.
Sure and Daniel can get you the percentages here in a moment, but overarching.
We're going to be smaller.
In Florida in the near term.
As a result, the Jimmy mentioned the reduction in capacity and talked about the headwind that that causes in that large reason why we have excess staff in the near term, but we did trim near term.
And it's simply that the air traffic control. He is an unsustainable thing we're really excited that the FAA is stepping in knee deep on this and they are going to to have a.
Our summit in the next couple of weeks and we'll go through it we've got everything from space shuttle launches too to general aviation and other factors, but the good news is ourselves and other carriers have reduced some of the scheduled flying.
And I can tell you that in our particular case, we have looked at some of the most at risk flying. So for example, if an airplane was to transit Jacksonville Center, you know if it transits. Once you know you have a one to three hour delay that's not the end of the world. It transits twice you could have two to four hours of delay.
If it transits three times then almost in every case, we've seen that that that results in the crew timing out. So so we will be taking as we do with everything that the company faces a very active and aggressive role in taking steps that we can to control our destiny and kind of schedule around this and then hopefully that summit ridge.
<unk> and in some some things that will help us by fall, but I can tell you in the near term we're actively looking at rescheduling like I mentioned changing some of the pairings as well as reducing the overall capacity in the impacted airports and as far as percentages.
It comes down naturally an awesome awesome and also on our schedule my.
We see strength in the rest of the country. So.
If we go from we go from the mid fifties in March down was down to 50% in April and by June we have made some changes to the schedule were down 40% of all 40% of our operations in and out of Florida.
And as far as that we're taking we're taking the right actions and the things we can control we're trying to make it we're going to make adjustments to make to make sure that we can maintain our operational integrity.
That's awesome just a quick follow up on the pilots.
Really encouraging to hear that it sounds like you guys either have a good pipeline or you have a good amount of like you said, Barry Youre scaling that capacity and so you have some excess.
One of the issues that we hear all shows just the whole process, where you bring the pilot on board. They go through the classroom training the new hire and the next thing you know youre waiting three months firsthand to get some time.
I mean, I never even thought to ask this question, but do you have a training center with a bunch of things are you running into the lack of ship flight simulator availability.
Any color on that because I think it's all part of.
Whats kind of creating this bottleneck.
Sure and so yes, Michael we've been all been dealing with it.
We've gone from negligible attrition to a measurable attrition maybe not at the level that other carriers have and so was that just simply causes you to to hire more and which needs necessitates the need to train more and so while there's been a shortage maybe of pilots that's caused by this bottleneck. The good news is we continue to.
Half 14 to 15, good applications a day.
Coming in we've got plenty of folks in the class as you as you describe the gating item in frontier as case is the simulator and that is why I'm pleased to say that we have secured that we've been working on that for months and by August we literally will be doubling our ability from a class size perspective per month. So.
So we don't see any challenges and it kind of lines up with what we've seen from the demand the fuel environment, the ATC and so forth. So so we think that we will be more than and in position to make up any any deficit that we've seen as we move into the fourth quarter. So we still remain on track that we can kind of hit the pilot.
<unk> that we are that.
We had hoped for very good thanks, everyone.
But if you didn't get your Sim Sims lined up it's getting harder that's right great. Thanks, Thanks, guys.
Yes.
Thank you. Our next question comes from Savi <unk> with Raymond James Your line is open.
Hey, good afternoon. This is actually Matt on for Savi. Thanks for the time.
I hate to belabor, the labor point, but maybe if you could just quantify.
The surplus in the pilots that you talk about a little bit more when you look at tier two.
2022 growth rate.
How big is that surplus versus year end 2021 levels.
And then if you have any idea out in mid 2020 can lead based on growth expectations. There I mean is it sufficient or how much further do you have to go.
Well look I mean to give you an idea of magnitude I mean, we have over 2000 qualified applicants on file right now and we've got we've got a robust pipeline, there's plenty coming and as I just mentioned, we're going to double our training footprint.
Beginning in August so so as far as 2023, we believe that with the robust nature of our pipeline. The attractiveness of frontier that I mentioned earlier that we should be able to solve twenty-three as far as access it's probably in the area code of high single digits percentages. This summer on that.
Hopefully that will moderate as we're able to to to get the utilization back and hopefully they come up with some great solutions for the ATC, but we're hopeful that by fall.
We'll not have an excess it's not it's not a good idea to these are our most expensive workforce, so having a lot of extra ones laying around and look and they want to work too. So you don't you don't want to have a lot of pilot stuck at the minimums.
So we should be able to resolve that and get moderated back to not having a whole lot of excess by fall.
Okay, Great I really appreciate the extra detail there and then.
Then maybe into 2023, if you could provide any any color about how youre thinking growth there.
If possible.
Yeah, Matt This is Jimmy Dempsey here, we're not guiding into 2023 at the moment.
And clearly clearly the business is designed to grow by mid teens every year, we will go through the planning process as the year progresses, and we will have ample.
Capability training capability to feed the pilot requirement for for next year.
We would anticipate adding somewhere between 200 and 250 pilots per annum.
And given the number of applicants we have on file we feel pretty good about filling that capacity should we showed the actual capacity go to a higher level of utilization of this thing.
Great. Thank you all for the time.
Thank you and as a reminder, if you'd like to ask a question press Star one on your telephone. Our next question comes from Myles Walton with UBS. Your line is open.
Thanksgiving I was wondering if you could touch on the ancillary expectation here in the second quarter, obviously, if you get them.
Pretty pretty boundless opportunity on the on the PRASM side. So I'm just wondering why 70 is the number you used in giving you did 69.
In the first quarter.
Thanks, Myles, it's Danielle look.
We're saying that is our current expectation we were as I said able to rollout to rollout some new products in the first quarter.
We've made we made price adjustments, we've been focused on ancillary since twice since the pandemic has been going on and we've been looking for that we've been looking for the opportunities with the teams from working on ideas and.
Looking at working on ways, we can further increase our non ticket revenue and we're going to continue to work to work to build to build the pipeline and to build to build our performance in this area.
Based on what we see currently that's alright, that's our expectation and we would expect that to continue to increase beyond the second quarter.
We're obviously focused on non ticket because it's more stable and we're also focused on because it allows us to offer the lowest for us.
Maybe one question I should probably know this but how how close in or how disparate as the timing of booking the ancillary from the actual ticket itself a coincident to those two occurrences.
It's.
It's a mix we have we have a we have a healthy portion of customers who book.
Book directly who book by their ancillary uptime of booking that's when they get the best value, we incentive we incentivize paying paying for your ancillary as soon as possible the longer you wait the more you will pay.
We obviously do have customers, who pay a check and notably a higher rates of third party customers, who pay who payer who pay up checking.
But we we thought we'd do everything we can to incentivize all their payment and communicate and communicate that customers will save money if they buy early.
And obviously, we also give customers savings with bundles and we encourage customers to buy bundles of product. That's been another successful part of our business and we we optimize we optimize the price down.
We optimize the offerings, we make to customers and that's part of how we're increasingly increasing the revenue.
Alright, thank you.
Thank you. Our next question comes from Helane Becker with Cowen Your line is open.
Thanks, very much operator, hi, everybody. Thank you for the time.
And.
Have a question Jamie about the Treasury alone you paid that off.
Is there are there any warrants or anything outstanding that treasury still has related to.
The cares Act.
Yes Helane.
I hope you're keeping well they are we have warrants linked to the treasury loan outstanding.
Both to the Treasury loan and also to the payroll support program that we participate in them. So that they continue to be outstanding.
Okay would you consider buying those back if it was available to you.
Certainly we would not we would look at this it's not something that we've been looking at in the short term, but its certainly something we would look at it if an opportunity existed absolute.
Okay, Great. That's helpful. And then my other follow up question is on.
I saw an article.
About four or five weeks ago about hiring pilots from Australia on an E three visa.
Or are you actually doing that and if so how many pilots can you hire I know they can only stay for 24 months, but is that something that youre doing or was that like a throwaway comment from that.
Oh no.
No Helane I wonder.
Throw away we're excited about it.
We've always been aggressive.
Creative and innovative and.
We've been looking at this for a while and we've been really successful with it and.
There's the <unk> program from Australia, but we're looking at other parts of the World and we think the <unk> three program alone could do at least 50 plus pilots a year. So.
You could solve call it a quarter of your your demands just from that we're looking at other parts of the world.
So I just think that yeah.
Yeah, and just kind of shows how creative we are but they want the job and there's lots of opportunities and some of these can end up depending upon their situation and whatever type of visa program. It can it can be a lot longer than 24 months that could end up possibly with citizenship.
I think what's really important to that people seem to miss on the pilot side with us as Jimmy mentioned, it's not a throw away comment the 321 Neo Thats coming in later this year is 240 seats.
And so think about the precious use and how the scarce resources getting used here at frontier and we're gonna be able to spread to pilots over 240 seats not 129 $140 on 180 240 seats. So so we're getting aggressive to make sure. We have plenty of pilots, but we're also using them in a very efficient and productive.
Give way by ensuring we're getting plenty of passengers moved up per airplane per pilot.
Right got it yeah, that's that's totally helpful.
You very much have a nice afternoon.
Okay.
Thank you and our next question comes from Andrew <unk> with Bank of America. Your line is open.
Hey, good afternoon, everyone.
Jimmy I know you were highly focused on the balance sheet and the pandemic.
It's in a good spot right now I guess when you look out into more recovered earnings power later this year into 2023.
At what leverage level do you have kind of the most comfort running you're running your business.
Upper cap, we should be thinking about in terms of net leverage levels.
Well I suppose during the pandemic, we've been really focused on spending as little money as possible and preserving as much liquidity as we as we could without actually burdening the business with that and so we've emerged from the pandemic in a really good shape from a balance sheet perspective.
Our focus at the moment is really getting our liquidity levels back to like if you looked at us pre COVID-19 , we always had about 30% of trailing 12 months and cash on the balance sheet and the only debt. We had on the balance sheet was effectively productive desk. So we had that related to PDP facilities for pre delivery payments service and then also clear.
Operating lease desk that linked to the aircraft fleet we have.
And so we want to get back to that type of scenario, where the death of sitting on the balance sheet is really for funding growth and into the business and so my focus at the moment on across the business is really getting our cash as a first measure.
30% of trailing 12 months of normalized revenues and we're a little bit short of that at the moment, we do sit in a good place, but we're little bit shortlist and a normalizing our leverage ratios based on the productive aircraft. We have in the business, we don't disclose publicly our leverage targets.
But if you look at us pre Covid you can you can get a sense of where we are we would anticipate to go to.
Got it.
Helpful and I guess I wanted to go back to the non ticket front.
Really good results in the quarter, obviously the $70.
It's kind of already exceeding your your kind of your prior targets.
We get a lot of questions around demand elasticity around fares as they continue to move higher here, but I guess, how do you think about that in terms of non ticket like where do you think it maybe.
Maybe maybe Max is out in terms of percentage of total fair or something something like that.
Just curious to get your thoughts thanks.
Andrew I'll start and I think Barry might have some thoughts as well.
We don't we don't know we don't know what we don't know where the limit is and we're going to keep we've got a lot of ideas and we go and we've got a lot of experience obviously continuing to continuing to build this.
And what you watched as I said, what it was during the pandemic was we continued we set target we set targets last year 60, 365, when we kept we kept what we kept moving the needle up and we've delivered higher than that.
As we continue as we continue to find as we continue to find opportunities we build we build we build products.
A lot of what we're now doing a lot of what we're now doing is finding things that truly have no impact on truly fun to have no impact on fab, one introducing new we're introducing new products that customers value.
And.
We think that we think that we took was plenty plenty of opportunities to do that and obviously as we've talked and I again, there's more.
<unk> overtime as we grow.
Third party type problems discount down our own program on our credit card program will continue to get stronger we got to be a larger airlines these products become more and more relevant to customers and will drive and will drive more revenue.
So a buyer then it's.
Anything else you wanted to add.
I just want to add I'm really proud of Daniel and his team I mean, we've got an impressive result, and we didn't waste the pandemic they've been really busy and in growing the non ticket and in years past I think we thought a 50 50 split of non ticket in ticket was a good idea we've kind of learned in the in the independent.
<unk> that debt the non ticket is a lot more sticky.
And if you'll be creative and to Daniel's point work on things that are truly incremental that don't have any degradation to the ticket that's where the real profit potential is so so I'm really pleased with what they've put together as he said we announced last year a target of 63, then 65, we keep blowing through these so all I can tell you is that theyre not done there.
They're really busy and and really excited about what we get done but 50 50 is no longer the idea. We think it's going to be considerably higher and we will deliver a lot more sustainable profitability in the years to come if we can grow that percentage.
Great. Thank you.
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Thanks, everyone for joining we'll talk next quarter.
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