Q3 2022 Frontier Group Holdings Inc Earnings Call
Hello, Thank you for standing by and welcome to the Frontier Group Holdings, Inc. Third quarter earnings call. At this time all participants are in a listen only mode. After the speaker presentation. There will be a question and answer session to ask a question during the <unk>.
Session, you will need to press star one one on your telephone please be advised that today's conference maybe 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 third quarter 2022 earnings call. Today's speakers will be buried before president and CEO , Jimmy Dempsey EVP and CFO .
Annual shares senior Vice President commercial each.
Each will deliver brief prepared remarks, and then we'll get to your questions but.
But first let me quickly review the customary 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 along with the reports we file with the SEC.
We will also discuss non-GAAP financial measures, which are reconciled to the nearest comparable GAAP measure in the appendix of the earnings announcements. In addition comments about relative operating statistics exclude pandemic affected quarters during 2020.
Lastly, if you didn't already noticed the announcement in the earnings release, we will be hosting an investor day. The morning of November 15th in New York.
That will be live streamed and archived on our website.
Registration is required for all participants whether in person or virtual however in person participants must register at least 24 hours in advance registration link is provided on our Investor Relations Web page at IR that fly for them to your Dot com.
I'll give the floor to bear to begin his comments Baird. Thanks.
Thanks, David and good afternoon, everyone.
First I want to thank all of team frontier employees for serving our customers in the quarter.
<unk> and doing a great job producing great results with a supportive demand environment for affordable travel record ancillary revenue performance and improving unit costs, we posted back to back quarterly profits and expanded our adjusted pre tax margin to five 2% nearly double the second quarter margin.
Total operating revenue was 35% higher over the 2019 quarter, while capacity increased by 8% over the same period contributing to a 26% increase in revenue per available seat mile.
Fact over the first nine months of the year, we've grown capacity by 12%, while increasing total operating revenues of 31% compared to the same period in 2019, demonstrating the strength of our leisure focused ultra low cost business model.
The strong revenue performance was underpinned by the achievement of a record $78 of ancillary revenue per passenger during the corner, which eclipsed the record set last quarter by $3. Since the third quarter of 2019, we've grown ancillary revenue per passenger a remarkable 38% and we're confident in achieving our targeted run rate of $85 per passenger by the end of 2023, we'll talk.
More about how we plan to continue to innovate and optimize our ancillary product offerings at our Investor day on November 15th.
Leisure travel demand remains strong and has undergone a fundamental increase versus customer propensity to travel prior to the pandemic to gain more insight into emerging trends. We recently pulled our customers to understand how they're thinking about future travel plans and their ability to travel the results of the survey revealed an installation to fly more frequently than they did pre pandemic.
With over half of the survey respondents indicating that they now have more money and more flexibility to do so the results of this poll demonstrate resiliency in the leisure segment, we expect the benefits from this resilient demand to be amplified by industry capacity, which continues to lag GDP growth as we look to capitalize on this consumer sentiment.
We expect to benefit from our ability to offer ultra ultra low fares.
These bears are underpinned by our industry, leading position in both ancillary revenue per passenger in unit costs, we operated with the lowest adjusted CASM plus net interest of all U S based carriers in the first half of 2022 and our unit costs improved from the second quarter. We are focused on expanding our cost advantaged versus the rest of the industry supported by increased utilization.
Cost management, and a significant gauge benefit from <unk> hundred 21 Neo aircraft.
Our firstly through 'twenty, one Neil arrived about a month ago, it's an incredible aircraft with a livery, reflecting the new Pratt <unk> Whitney geared turbofan technology, which is helping to deliver a stunning 120 ASM per gallon along with significantly lower carbon emissions and engine noise.
All are fundamental elements to furthering our standing as America's greenest airline.
This is the first of 168 <unk> hundred 21, neo scheduled to be delivered through 2029, including direct leases 36 of which are expected by the end of 2023 with 240 seats. This aircraft will provide a transformational shift in our business, we will be able to fly more passengers more sustainably and with lower CASM.
We launched our cadet program in the third quarter and have over 1300 applications. Today, We also announced our rotary transition program last week, coupled with our University aviation programs. These three recruiting platforms will provide the backbone for our pilot recruiting in 2023 and beyond and we expect the majority of our new pilots will come from these programs within a year over.
We're all we're positioned to capitalize on our strong leisure market given we have the lowest breakeven fair driven by the highest ancillary revenue per passenger in the lowest cost with that I'll now hand, the call over to Daniel for a commercial update.
Thank you Barry and good afternoon, everyone.
Our third quarter revenue performance was once again exceptional.
Price of 35% over the same quarter in 2019. This is the third consecutive quarter, we posted double digit revenue growth over the respective 2019 quarters and is a testament to the strong travel recover that we believe is sustainable as Barry covered earlier.
Our third quarter capacity was up over 8% over the 2019 quarter, while RASM increased 26% over the same period from $8 96 to $11 two seven <unk>.
Despite the high concentration of capacity closure in off peak periods in September .
Revenue per passenger increased 24% to $135 with ancillary revenue contributing $78 of that amount, both RASM and revenue per passenger set an all time third quarter record and.
And then some of the revenue per passenger eclipse the previous record I'm.
Solid performance continues to benefit from recent product expansion and enhancement strong attachment rates.
<unk> revenue in type of thing.
As the third quarter progressed utilization increased over 11 hours per day.
I'll schedule for the fourth quarter sees a further equivalent to over 11 and a half hours per day, as we continue to normalize and stage lengths.
We continue to grow our international footprint beginning next February we will launch service from Denver, Chicago, Midway and St. Louis to Montego Bay.
We also began five new Caribbean routes from Atlanta next week.
With the opening of our new crew base in Phoenix next month, we announced 12 rigs from the city to destinations across the country.
With these new rules, we will offer a total of 23 destinations for Phoenix, a rapidly growing market, which has been underserved by you all species.
That concludes my prepared remarks, so I'll now hand, it over to Jimmy.
Thank you Danielle and welcome everyone.
We generated a pretax margin of six 4% on a GAAP basis, and five 2% on an adjusted basis during the third quarter above the top end of our guidance range. Adjusted pre tax margin, primarily includes $12 million net transaction and merger related credits associated with the company's terminated combination with spirit Airlines and reflects a nearly 250 <unk>.
At this point improvement over the prior quarter.
Margin improvement is driven by the record ancillary revenue per passenger performance that drove a 35% increase in total operating revenue on a 26% increase in RASM versus 2019.
With an 8% reduction in our adjusted CASM plus net interest over the second quarter unit cost improvement is related to both a 13% reduction in the average fuel cost per gallon $3 85 per gallon as well as a 5% reduction in our adjusted CASM ex fuel to six nine.
Due to improving utilization and cost management efforts across the business we.
We expect the fourth quarter to deliver further improvement in our unit costs driven by improvements in utilization and continued cost management efforts. Our cost strategy is focused on expanding the cost advantage we have over the industry. The pillars of this strategy are one growing our industry, leading fuel efficiency to having the lowest debt service costs and three achieving the lowest CASM X fuel capable and our <unk>.
<unk> with a 2023 CASM ex fuel target of below two six times, we intend.
To maintain the lowest unit cost in the industry, including field non fuel costs and interest.
As Barry mentioned during the first six months of 2022 frontier operator, with the lowest adjusted CASM plus net interest of all U S based carriers with the improvements in our unit cost during the third quarter on the execution of our cost strategy. We expect our total unit cost advantage versus the industry to expand.
We ended the third quarter in a strong financial position with $674 million of unrestricted cash and cash equivalents and 251 million massive total dose. In addition, we previous as previously highlighted we have the ability if needed to access substantial liquidity through our loyalty program and brand related assets.
We had 115 aircrafts in our fleet on September 30th after taking delivery of two <unk> hundred 20, Neo aircrafts on our first <unk> hundred 21 Neo aircraft.
During the quarter and returning to <unk> hundred 20, CEO aircrafts in the fourth quarter, we expect to take delivery of another 7% <unk> hundred 20, Neo family aircraft, including five <unk> hundred 21, Neo aircraft and looking forward to the fourth quarter, we expect a continuation of the favorable demand environment capacity as expect anticipated to grow by between 15 and 27.
Percent over the comparable 2019 quarter.
Fuel costs are anticipated to be between three seven and $3 75 per gallon based upon the blended jet fuel curve on October 21, adjusted non field operating expenses are expected to be between 565 and $585 million in the third quarter, reflecting further unit cost improvements on the planned capacity growth are.
Cost and capacity guidance alongside the favorable demand environment is expected to deliver an adjusted pre tax margin in the range of 3% to 7% with that I'll turn the call back to Barry to deliver closing remarks before the Q&A.
Thanks, Jimmy.
Demand for affordable travel is greater than ever with a customer base that has more flexibility and plants are traveling more often than they did pre pandemic, we are better positioned than anyone to exploit this opportunity as our ultra low cost fares are the most attractive for leisure customers as our results demonstrate our focus is to build shareholder value through our low fares done right business model, we look forward to expanding on.
Our results and commentary for the quarter and other elements of our business at the upcoming Investor Day November 15th we hope to see you. There we will now move to Q&A.
Thank you as a reminder to ask a question you will need to press star one one on your telephone please standby, while we compile the Q&A roster.
Okay.
Yes.
Our first question comes from Stephen Trent with Citi. You May proceed.
Good afternoon, gentlemen, and thanks very much for taking my question.
Just going to start off with one for now.
I was wondering if you have any high level thoughts about.
The ultra low cost business model.
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The event that we get downturns. So if you look back at the credit Crunch.
Any sort of high level view.
Extent to which.
Carriers like frontier thrive because.
You had consumers, maybe leaving the legacy if theyre looking for cheaper fares, while oil rolled off but just love to get your high level thoughts on that thank you.
Sure. So Steven I think everyone knows if you look at history, the lowest cost model going back to the Eighty's is generally the winter and any recessionary environment, we've seen that with southwest back in the 80 to 90 as we saw with Ryanair.
We saw it with spirit back in there in the great recession. So typically you would find an ultra low cost carriers, especially ourselves which is the lowest cost.
Fair most likely the best.
A recessionary environment.
And then part of that is just simply because we will have the lowest cost so it's easier to cover our costs.
There is generally trade down that you see in those type of recessions, but we also have higher ancillary we see a lot more stickiness in that.
Versus the fair revenue and it doesn't seem to fluctuate as much. So I think we're probably better positioned than most.
I do think though that debt.
From what we know today and it depends upon how deeper recession could be but if you look at the increase in propensity to travel and the fact that people are traveling more times per year.
At least in there and what they've been doing right now and what they plan to do I think a recessionary impact could only maybe just bring that back to what you had kind of pre pandemic. So I think you couple that with the constrained industry capacity and I'm not just going to say there won't be any turbulence in our space, but I think we could see a very mild recession, if anything impacts us at all.
<unk>.
Okay. That's super helpful really appreciate it and nice to not be gagged anymore. Thanks, gentlemen.
Okay.
Thanks Steven.
Thank you one moment for questions.
Our next question comes from Jamie Baker with Jpmorgan you May proceed.
Hey, Thanks, gentlemen that was not my dog.
So like other airlines, you are citing consumer shifting consumer travel patterns.
Is it driving any changes and how you schedule and fly the airline or is it just as simple as kind of sitting back and letting the revenue roll in.
Hey, Jeremy it's Daniel shows.
So look as we've as.
As we see demand as we seek demand spread out a little bit across the week and we move away from the very peak, the very peak Friday Sunday pattern.
What is already starting to allow us to do is increase increased utilization on.
The shoulder days of the week and even to some extent now in the off peak days of the week, because we're seeing demand <unk>, possibly it's actually benefits actually beneficial to the business.
Because of that because we've got we're getting better demand across the week.
And we're also expecting we're also spectrum with things so evidence that it's starting to these season lies the business to some extent I'm not going to say the off peak periods of suddenly compete that's not that's not it but we're not going to we're not we're seeing a little bit less we're seeing a little bit less in the way of seasonality as well so.
I think it's I think it will lead us to pushing utilization up a little bit because we've gotten what we got more ability to generate cash we got more ability to have cash positive fly in.
In periods, where compares one when previously we might have left a few airplanes sitting on the ground.
Does it disrupt maintenance schedules and any sort of measurable way.
No no.
Any ways in many ways actually in many ways actually flat flattening things out and making things more consistent across the week actually tends to help operationally in all sorts of ways.
Okay.
It helps because you've got consistent access consistent access patterns for maintenance at health resort consistent patterns of patterns at the airport for staff and the staff and purposes. It helps because you get more efficiency from crews when you have consistency.
I'll say across the weeks so it actually helps a little bit and potentially is a little bit of a benefit from a cost perspective as well.
Interesting second question in the release you do you think that aircraft leases are expiring between what this year in 2034 is that front end loaded back end loaded fairly consistent I am just trying to think through.
How the reality of rising interest rates and rising lease rates are going to flow through the P&L going forward.
Yes, Jamie.
Re delivery program is pretty consistent from about 24 through into the next decade, given us we typically do either as a 12 year leases on delivery of the aircraft. So it kind of lags that delivery in the first place eight to 12 years, so pretty consistent from a from a current market perspective.
We're in a really good position in terms of financing the airline.
We have the next 12 months covered in terms of our aircraft deliveries in fact, we have 35 in the next 37 aircraft deliveries financed and we've done it in a way that has kept the interest rate exposure on <unk>.
Lot of these leases so the recent run up that you've seen in interest rates.
Certainly for the next 12 months, we're in really good shape to manage that.
And then we have obviously aircraft deliveries beyond that but that's puts us in a very strong position from a financing perspective for next year.
That's great. Thanks for taking my questions I appreciate it thanks.
Sure.
Thank you one moment for questions.
<unk> you May proceed.
Hey, thanks.
Very pleasant.
<unk> so far unlike unlike.
Publicly questioning your business model in other on other conference calls, but anyway.
On fleet, how would you rate your confidence in ending 2023.
With the 36, <unk> hundred 20 ones and and.
Are we right that did some aircraft actually shift out of this year that you expected.
Yeah, we've had a hydro and we've had a couple of aircrafts shift from the end of this year into next year.
If they were to to deliver right at the end of the year. So it doesn't really have a meaningful impact on an ASM production this year.
We have visibility on our aircraft deliveries probably largely into the middle of next year.
You've certainly seen some delay.
Delays in aircraft deliveries, but it's nothing like Youre seeing with Boeing we're lucky that we're in.
Delivering aircrafts through Airbus, who have some supply chain issues, but not to the extent that youre seeing in other manufacturers and so any any any delivery day.
Delays generally modest of the two months to three months varieties. So the aircrafts are coming its just whether they come in October and November December next year.
Okay look there may be there may be a case, where a couple of aircraft like this year roll from the end of next year into into 2024, but we'll deal with that if that happens.
Can you walk us through the building blocks of capacity next year. It just feels like gauge is going to be up quite meaningfully can you can you how big a contributor would that be to the 30% you're targeting.
Well like about half the capacity that we're bringing next year is already delivered to the aircraft or to the airlines.
We've been under utilizing the gas it's all across this year, we moved to just over 11 five hours and utilization in the fourth quarter of this year, but if you look at the previous three quarters, you've been at 11 are below 11 hours and utilization. So some of that growth comes through through using the assets that are in place today and the rest of it comes with a $3 21.
But we took the first delivery of a month ago and that is that that move to delivering aircraft for 240 seats. It changes the ASM production in the airline quite materially for the block hours that are required to produce that.
That production and so if we are growing the business by towards 30% and ASM production. Our block hour needs are in the low twenty's and so you are getting a significant efficiency gain in the business and so your requirement for pilots or flight attendants mechanics to support the fleet is not as fast as 30%, if we push asm's towards 30%.
Okay.
Okay. That's helpful.
Yes go ahead sorry.
So I was going to ask Daniel to answer the question on how it builds throughout the year.
So.
If you look if you look at the year and you look at the shape of our of our current of our current plans for next year.
We're sitting with we're sitting with sort of similar similar growth in Q1, and Q1 next jets up to Q4 this year and then it picks up.
Above such extent know much about 30% or above 30% for the rest for the rest of the rest of the year.
That was driven by the fact that we return to we return to peak utilization with traditional pre pandemic utilization.
Latent later later in the first quarter and then we retain that we retain that utilization expectations for the rest of Australia said, that's that's roughly half of the growth for next year.
Half of the growth is how much is how much is how much diesel is how much the utilization.
Utilization growth.
And deliberate delivery pace continues to pick up during the year in terms of number of aircraft.
Okay. Thanks, I have one more for you, but I'm going to I'm going to get back in the queue. So we'll talk to you in a bit. Thank you.
Okay.
Thank you and moment for questions.
Our next question comes from Michael Lindenberg with Deutsche Bank You May proceed.
Oh, Hey, good afternoon, guys. Just a couple here I want to go back just on utilization.
Daniel You had mentioned I think you're roughly 11, one youre going to go to 11 five.
For the fourth quarter.
Next year.
Where can we get on utilization and I'm talking about hours per day is that whats the aspirational number.
How should we think about how that helps on CASM like if we go from say 11 hours to 12 hours is that like half a cent of CASM CASM.
Unit cost improvement.
Jamie how should we think about that thanks.
Well, so I'll answer the first part yes, we're looking to we're looking to get utilization next year to open over 12.
Got it Bob.
Slightly above slightly above 12 on the fleet.
Is the plan for them.
As the patent portfolio.
As the CASM impact I'll, let Jimmy.
I mean, you can see this in your model like an hour and utilization is probably about a point to 2.3.
In CASM X fuel.
Okay that makes sense, so the fixed overhead fixed overhead that youre carrying just drives that number.
Yes, Okay. So that's significant and then just second question and this is probably to Daniel.
You guys had pretty meaningful overlap with Florida, and even the Caribbean now and yet you didn't call out in your release.
Any sort of impact from Ian.
Fiona the two hurricanes.
Either last quarter or this quarter.
Any anything on impact on revenue or costs that we should be aware.
So.
So do.
Do we have an impact yes, we estimate by about a 101 point margin impact in the third quarter and we're looking at looking at the fourth quarter on some of the demand impacts, but guessing probably about a one point impact.
In the fourth quarter, I will say and we could see it.
Hurricane we were able to we were able to recover our operation more quickly than some of the other airlines who have significant operations in Florida. So do we.
Again, some of the benefits we've talked about the module the module a network on the modular why we designed the operation were once again once again visible recover recovery operations.
Post.
Post hurricane, but look yes.
One island is really called it out.
Our presence in Florida is almost exactly the same as vas.
So.
Very good very.
Alright, good thanks, everyone.
Thank you one moment for questions.
Our next question comes from Brandon <unk> with Barclays. You May proceed.
Hey, good afternoon, everyone. It's good to be like when you guys again.
You guys didn't necessarily have a pilot availability issue. This summer, but it was compounding factors external to your company I think.
That made you pull back your schedule a little bit. So do you think you now have the pieces in place and the externalities solved that you can sustain that growth outlook into 2023.
Yes look we had the challenges that a lot of airlines faced it was it was probably back to the overlap in Florida I think those are with high concentrations in Florida were more impacted than others and we were in that category in Jacksonville Center was the big culprit that hit us back in March and April .
I know that.
They are working on their staffing issues, what we did.
As a knee jerk reaction as we cut a lot of flying into Florida and crossed the Jacksonville Center and that hurt our utilization in the summer we have rejiggered. The scheduled now and so we're in a situation where.
We are more even more extreme modularity as Daniel described.
So that we don't get impacted we've also looked at the pairings, we talked about this before where we don't we don't have three or four times that of crew crosses Jacksonville Center, a maximum two per.
For duty period, so we've lessened our risks now and so we'll see what happens I mean, we're we're eager to watch the holiday periods with air traffic control.
And what happens during the spring break period, but what we've done is we've lessened our risk there and so we think our ability to grow is.
Kind of cleared for takeoff.
Okay.
You feel you have the available pipeline of pilot hiring and training as well no bottlenecks there.
Oh, yes, so we had a surplus as a result of pulling back this summer.
Slowly filtering them back and we hope to have them fully utilized by the end of the quarter and then growing in but as I said in my opening remarks, our cadet program has been wildly popular we've had over 1300 applications. So far.
Roughly half of those that have gone through financing with ATP have already gotten financed.
That's great to see we announced our rotary transition program last week, there's a lot of pilots to come from there and we've had our University program, which we haven't talked about a lot, but we've had it in place for several years and that's really starting to finally come to.
Fruition producing pilot so between those three programs, we expect within one year. The majority of our pilots will come from that and we continue to see good good numbers. So we feel pretty good about our our our pilot hiring at this point.
Alright, Thank you and last one from me Jimmy do you think it's still right to be targeting a sub six ex CASM I mean, theres been a lot of inflation across the board.
Still think that's an attainable number though.
Yes look there's been inflation in frontier has experienced some inflation across its business, particularly around the airport world.
What we have been doing in the last six months or so is really focusing on the on the on the elements of the cost base that we can control and.
And we've started to look at changing the way we do business.
Which is driving real cost savings into the business. If you look at our unit costs in Q3, and our unit costs going into Q4, we're seeing real step changes in our in our path towards <unk>, obviously, the <unk> hundred 21 Neo gives you a significant boost in terms of seat density on the aircraft and average seats per departure, which really helps.
Bring efficiency into the airline but in the context of changing the way, we do business and we really don't want to disclose a huge amount right now on US we have our investor day on November 15th.
Our entire management team will be there, where we will actually gives you some insights into the things that we've been doing to change the way we look at our business from a frontier perspective, and that is driving real savings.
Part of the improvement in unit costs in the last quarter over Q2, and what we're seeing going into Q4.
On top of improving utilization.
And lengthening the stage really in the airline.
Is this project that we've been embarking on which is which is showing real promise on real savings so more to come in November .
I appreciate the preview thank you guys.
Okay.
Thank you one moment for questions.
Our next question comes from Ravi Shanker with Morgan Stanley You May proceed.
Great. Thanks Lynn.
So not to steal any magic away from the analyst day, but I think theres been a lot of.
We're finding that we're finding that we're finding with our ongoing work on optimization, we're obviously driving better and better non ticket revenue you are saying that you saw a new record in the third quarter.
I'm not sure I'm not.
That's driven by we offer we offer we offer we offer we offer the lowest power and the better we can drive our ancillary the more we can we can we can drive the lowest fare in the market.
And we give customers, we give customers a choice of lots of different options and the more products, we add the multi tenant demand potential licenses customers combined customers.
Find options that find appealing and I think this has been this is.
This has been this has been proven.
Are we seeing any huge structural shifts in what people are buying no we're not.
We're seeing better performance.
Broadly across the board on all of our ancillary products.
The proposed regulations.
I'll, just say that I'll, just say this for right now.
Airlines already display transparently all the products, we sell on the pricing for all those products no one buys a frontier ticket on our website without knowing the price for any of the ancillary products they might want to buy they're all they're all extremely visible in the purchase process for those purchased than anything in my prior life.
Extremely clear on extremely obvious we.
Gotcha is in the process they get to see everything that they need.
And we will make that point clearly when we when we respond to respond to any.
Proposals.
Wonderful thank you.
Barry It feels like you talked about pilot hiring.
And then they kind of topic lately.
There is a shift here as you point out.
Relying on regional airlines, the hiring you are going directly and hiring pilots and not relying on others. It seems like that's a shift and maybe Mike strengthen your kind of pilot offering does it lower cost and a long term does it.
<unk>.
How does it change.
Your positioning in the industry or is it just net neutral because you've just shifted where youre getting your pilot.
Well look.
First and foremost we are a safety oriented business and so I think with what we're doing right now it's actually pretty exciting from a training perspective, I think we could end up with a more uniform training program.
And so we're just we're just taking control of it we don't know what's going to happen with regionals and everyone else, but we're just putting in programs that ensure that we have.
A solid supply for years to come.
And then if I might follow up.
On the kind of the chasm.
The commentary on the sub six Jimmy is that given the timing of the capacity and that the.
Kind of utilization rates is that something you'd be able to reach by the second quarter of next year is that a realistic expectation.
I mean, savi, we're not guiding quarters next year at this stage, but look we've progressed through Q1 is always a quarter, that's slightly higher costs in the rest of the year and so your trajectory towards.
<unk> for the year, you should see it in Q1.
It will obviously show up more closer to the second half of the year.
As you.
Drive utilization of the assets come into the business like part of of getting to sub six is delivering on the 321 needs to come into the fleet. During next year I mean, it's not the sole component, but it's a significant portion of the improvement from where you expect to be in the fourth quarter for example, and they're not rolling through next year.
Sure.
Okay. Thank you.
Thank you one moment for questions.
Our next question comes from Conor Cunningham with Melius Research you May proceed.
Pretty surprised at the lack of decline given you have higher capacity.
Ton of noise just in holiday timing can you just talk to the where youre seeing the strength in your markets relative to some of the others.
A lot of the guidance that youre hearing out of other carriers.
The deceleration implied in and you really aren't seeing that right now I would imagine some of its ancillary but if theres any other color that you can provide on that that would be helpful. Thank you.
No.
You've got you've got the sort of the biggest part we are since we're kind of at St.
<unk> continued progress and we expect to see continued progress in the fourth quarter.
Non ticket as we work our way towards that towards the goal of $85 by the end of by the end of 2023.
So that that provides.
That provides some of that.
We've also we've also as part of as part of our as part of our as part of our work on the November schedule, where we've worked on extreme modularity and from a cost center. We are also we also difficult performance of the network. We've also made we've also made changes.
Changes that are going to help that's going to help drive drive volume into the business because we're focused on whether things are doing well.
Okay. Thank you and then and then.
Barry I think you made some comments about potential trans Atlantic and deep South America.
With the extra line.
I understand why that may be appealing about three extra stage length, and all that stuff. So I'm just trying to I mean, there's been some struggles with the ultra low cost long haul model over the year. So I'm just curious on why that may be appealing to you now.
Just any thoughts there that would be great. Thank you.
Sure well look we have we have options on 18, xlr's that could come as early as 2026 and to be clear what I said, what I was describing is what the aircraft can do there.
We're asking where could it fly and obviously, yes. It could go to South America could go to Hawaii Europe .
And with 18 aircraft by the time that comes in this will be a small percentage of the fleet, but I think it will it will enable us to fly some exciting destinations that will make our frequent flyer program and our discount Dan and all of our subscription products just that much more powerful from a brand perspective, and so will it materially change the economics and the financials of the company.
He has no but.
But indirectly it will because it will help propel the brand further.
Thank you.
Thank you one moment for questions.
Our next question comes from Andrew <unk> with Bank of America, You May proceed.
Hey, good afternoon, everyone.
Bunch of questions on utilization, but you've addressed all of those by now.
Maybe I'll ask Barry strategically when you you spoke in your prepared remarks about the structural changes that youre seeing in travel does.
Does that change the way you think about your network construction over the next few years as you grow.
I guess, yes.
How do you think about the do you think there is.
More room for growth within new markets. There is a lot of this is just adding depth and breadth to the.
How you view the structural changes in terms of network construction. Thanks.
I can start and Daniel can add to it I think one thing it helps us it actually you really helped secure your like us it often.
But I think what it's going to cause us to do is just make sure that we have more and more of the right portfolio of places that they want to go and a lot more options because the truth is if you. If you look at the data. They are telling you they're going to travel more and more often and so that means they're going to they're going to explore and experiment with more destination. So so so.
Having a really good footprint and breadth of service I think is going to become more and more important on their own Daniel do you want to.
I think I think Barry's right.
Definitely definitely encourages purchase different encourages frequency.
We're already seeing as we're already seeing that we fly it we have a very large airport footprint and so on.
Already our growth already our growth going forward is going to come from.
P.
So more of a mix of frequency.
Purely heavily new market focused as it was in the past.
We will also watch and I think that this fit as to what we're seeing this broadly and we're seeing that with them within the within the flexibility these trends towards flattening of demand patents broadly so because if it happens broadly across the network it doesn't inherently drive.
It doesn't inherently drive doesn't inherently drive.
<unk>.
One particular, one particular type of network growth.
As we continue to add basis Phoenix was a great example, where I think those 12 routes in Phoenix federal for existing cities and the front end network as we as we continue to grow as we continue drive crew basis, we will find more opportunity to drive market.
The dots within the existing network.
That's helpful. Thank you.
Thank you one moment for questions.
Our next question comes from Thomas Fitzgerald with Cowen You May proceed.
Hi, Thanks, so much for the time a lot of mine have already been answered, but I guess just quickly if you could provide maybe a little more color on the opportunity in the Phoenix market that you see and what you're excited about there that'd be great. Thanks very much.
Well look.
It's the reason, it's a reasonably simple.
Phoenix is a top 10, the top 10 Metro area.
Relatively felt relatively fast growing market.
And it's a great mix of a it's a great mix of a desk.
Have a good destination market a good inbound tourist market honest and a strong outbound market some of the best markets in the country for me OCC perspective, how about how those have those characteristics.
And.
Phoenix Sky Harbor Airport is incredibly well located for the Metro area and it's underserved by it's underserved by Europe by <unk> by your OCC capacity today.
<unk>.
Sure.
And so we're excited and look.
Yeah.
We are what we are we are a western wear a western brand, but were national brands, but we have a brand that we have a brand that's rooted in roussillon rooted in the west rooted in our roots inherent in our hometown of as they've done that.
Well across the across the western United States.
I think I think if you look at if you look at the city of that scale. When you look at the Metro area.
All over four and a half million now and you look at if you look at how few you LCC departures are often therefore.
It's a natural it's a natural opportunity.
So much leisure demand.
Thank you and as a reminder to ask a question you will need to press star one one on your telephone.
Our next question comes from Duane <unk> with Evercore you May proceed.
Hey, Thanks for taking the follow up and maybe you answered it.
With Phoenix, but but Barry and Daniel as you observed the domestic industry rebuild.
With regional carrier constraints in general pilot constraints and every carrier, having a focus on scheduling that supports reliability.
Are there any new surprises or new thinking regarding the types of markets you want to target.
We got to think Theres more more white space and mid sized markets given the industry's constraints, but maybe there isn't a good way to target those with less than daily service and focus on reliability at the same time, So would love some thoughts on that on that topic and then one more for you.
I'll start and I'll, let Barry so yes, when we look when we look at when we look at capacity growth capacity built back in I would say your point that she is lack of capacity build back would be a better way to describe it in some cases right.
Lower regional capacity.
It Hasnt advantage, maybe not always not always directly for us in the markets, where there isn't while there isn't the capacity at some of those regional markets, obviously quite small but.
We look at the examples of some of the longer haul markets. We recently added from Las Vegas. The most notable with a lack of original capacity how many fewer connect options exist for example.
How often that that creates market opportunities because there are simply fewer options fare options for customers even in some relatively bigger market.
I think look our expectation is that will there will be some there'll be some changes in the way the network carriers build big three network carriers built their networks as they have less regional craft supply, it's going to create opportunity for us. We've got the lowest we've got the lowest total costs, we're focused on maintaining those lowest total cost increasing our cost advantage and.
As we do that we will find that we will we will continue to find more markets. We can we can add to a about I don't know if there's more you want to yes.
I think you are right I mean, it's just it's just math and it's economics right as.
You shrink the regional footprints and what's left is increasing its cost dramatically.
They're starting to knock on.
Pilot rates of our size.
All of our levels.
With a third the seats.
So when you start thinking about the economics of these these flights.
The costs are going up so there's going to be fewer seats and much more expensive and small to mid size markets, which is going to create an opportunity for carrier like us. So.
It's just economics, one on one time ill add one more thing as we add more as we continue to have a pilot basis, there's more and more opportunity to be monitored 12 months of operations.
As more markets. We can we can find ways to enter that we can operate reliably and.
And that's going to be that's going to be that's going to be a growing opportunity over the years to come with this with this growth there's more proved basis to come.
Thanks, and then just real quick I can't see it in your results and maybe you said it but just given the overlap on some of those Florida markets, how much did hurricane Ian impact you in <unk> and in <unk> here. Thanks for taking the question.
Yes, sorry.
What was that was asked what Australia do answer, but I'll give it again, we think about it about a one point impact on our margin in Q3, and we think we think from the advanced the demand the demand destruction effecting in Q4, probably about a one point impact probably about a one point impact in Q4.
Thank you.
Okay.
Thank you one moment for questions.
Our next question comes from Anthony <unk> with Susquehanna You May proceed.
Hi, good evening, everyone. Thanks for taking my question.
Just a quick question on next year's Capex I'm, assuming with all these deliveries capex will probably step up but if you could just give us any sort of rough.
A rough ballpark of that that would be helpful. Thank you.
Yes, we've financed the.
Vast majority of the fleet deliveries next year and they're through operating leases. So.
<unk>.
Obviously, we are delivering a significant portion of aircraft over 30 aircraft next year and so that will be reflected in the capex number. However, because we find out some upward on operating leases they will not be coming onto the books.
As a typical asset like.
Other airlines, where they finance.
Their aircraft on balance sheet through through some sort of debt structure.
Thank you.
Thank you and I'm not showing any further questions. At this time I would now like to turn the call back over to Barry <unk> for any further remarks.
Well. Thank you everybody for joining us and we look forward to seeing you on November 15th at the NASDAQ in New York at our Investor Day.
Thank you.
Thank you. This concludes today's conference call. Thank you for participating you may now disconnect.
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