Q4 2022 Frontier Group Holdings Inc Earnings Call
Okay.
Okay.
Great.
Good day, and thank you for standing by walking to the Frontier Group Holdings fourth quarter 2022 earnings Conference call.
This time, all participants are in a listen only mode. After the speaker's presentation, there will be a question and answer session.
Ask a question during the session you will need to press star one on your telephone you would.
Then here an automated message advising your hand is raised to withdraw your question. Please press star one again, please be advised that today's conference is being recorded.
Like to hand, the conference over to just forget today, David Erdman Senior Director Investor Relations. Please go ahead.
Thank you and good afternoon, everyone welcome to our fourth quarter of 2022 earnings call.
The speakers will be very difficult, president and CEO , Jimmy Dempsey, EVP, and CFO and Daniel <unk> Senior Vice President commercial.
Will deliver brief prepared remarks, and then we'll get to your questions.
First let me 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.
So that we published earlier along with reports we file with the SEC.
We will also be discussing non-GAAP financial measures, which are reconciled to the nearest comparable GAAP measure in the appendix of the earnings announcement.
With that I'm going to give the floor to barrick to begin his comments Gary.
Thank you David.
And good afternoon, everyone.
Posted strong fourth quarter results, achieving an adjusted pre tax margin.
Our third straight quarterly rise.
Results were underpinned by record ancillary revenue performance.
Any more improvements in our unit cost and utilization.
Strong tempered by major disruptions.
During the busy holiday travel.
Okay.
In that regard.
We're building, our modular network and the dedication of team frontier.
So please ensure passenger biopsy.
I'd like to extend my gratitude.
The effort they overcame treacherous weather conditions.
Extended shifts and manage customer disruptions to get them to their destination.
At our Investor Day last November .
Leisure travel demand has undergone a fundamental shift in how we're uniquely positioned to exploit it.
Customers have more flexibility.
The propensity to travel than.
Pandemic and its compelling evidence points to the resiliency of the leisure travel segment.
We expect the benefits from the management amplified by industry capacity constraints.
Alex shortages and supply chain bottlenecks.
This creates a significant opportunity for frontier.
Got it.
Turning to these issues.
Together with our robust pilot recruiting and training platforms.
Gives us the foundation to harvest the growth opportunity before us.
Last year, we launched our cadet.
And both are driving strong demand in Canada.
Over 100 products have already been accepted.
That program.
Nearly 5000 applications last year through all of our hiring channels in fact.
From the program will be joining us as first offered in just a few weeks.
Although aircraft manufacturers are dealing with supply chain issues.
We are experiencing from Airbus are between 1% to five months.
We're disappointed in the delay David effectively represents a manageable one quarter shift on average across the network.
Okay.
Our strategy has been to focus on the areas that we can control.
Well focus on hitting our near term target of $85 in ancillary revenue per passenger and we achieved $82 for the fourth quarter enhancing our confidence in hitting the five in the fourth quarter It will happen.
We lowered our total adjusted CASM, including interest by 8% from the prior quarter and widened our total cost advantage with the industry trend of equivalent over $70 per passenger.
Yes.
And we expect to maintain this advantage for years to come.
Tom.
Put simply our strong ancillary performance and industry, leading unit costs are the variables that make it possible for us to capitalize on strong leisure markets and stimulate profitable growth for the rest of the decade.
All of those two things here are unified in this pursuit and it gives me confidence to reaffirm our target of returning the airline to pre pandemic profit per claim.
Half of 2023 on a run rate basis with that I will hand, the call over to Daniel for a commercial update.
Thank you Bob and good afternoon, everyone.
Fourth quarter revenue was $906 million.
I think Christian with Rocky Mountain water market.
It's a quarter in which revenue has grown by double digits.
That's very important.
Rich.
All right perfect. Thank you very much.
Great.
Auto became some high level commentary.
Total revenue per passenger was $133 one of our impressive financial results, which were very much rich.
Awesome.
Alright demonstrates.
Unbundled product.
Brian , it's probably half of them off the table.
Sure.
But as a fresh start program.
So I'm just hoping chip, we're confident in achieving our target of $85 per customer in the fourth quarter of trucks.
Well as a link from probably the one.
Goodbye.
Yes.
Okay.
Let's do the aircraft utilization.
25%.
Good day over the prior quarter to 11 at the half hours on average thank you Tom.
1032 months.
With a continued progression in line utilization.
So we're on track to achieve whats.
We're on track to achieve average daily utilization of over 12 hours on average stage 123, and so forth at our Investor day.
In the fourth quarter, we opened up.
Check growth market.
Robert.
Thank you Mike Weinstein's in Opex.
60, which we launched in the fourth quarter.
Additionally.
NASA 20 trade destinations for Jacobs.
Additionally, during the fourth quarter, we announced a new probation Dallas Fort worth and matrix structure I would expect some dry powder.
Thank you.
The first year of operation.
We've been the fastest growing carrier DFW since 2009.
Once we launch <unk> sprint.
Project.
Based on destinations.
And last we can get out to 2017.
With additional lonestar reached somewhat of a new social contract customer back to poultry key destinations.
But the response in May we will sell more.
From the company.
Any other app.
Finally, thank you Michael I'm, sorry about that but sounds about what it might cost.
<unk> also been strong this unique product provides travel jumpshot, you're probably limited in fact, all of our domestic and international destination for one low price.
Just last quick maybe just a second bone springs.
Travel during the summer months.
Once again strong demand so much on sale.
Well it takes a borrowing cost control.
It's about 80% engagement this product cadence with our brand both for existing and new customers.
That concludes my remarks, so somebody open pulse check.
Thank you Tommy.
We generated a pretax margin of five 5% on a GAAP basis, and five 7% adjusted basis during the fourth quarter.
Point of our guidance range, despite the impact of the holiday interesting alright.
Alright, just a pre tax margin.
And employee retention.
Termination, Charlie the combination of spirit, but recognition of which is expected.
And the March Chinese thanks, great quarter.
The sequential margin improvement effort by storm impacts largely driven by record revenue and low operating cost per day.
Adjusted CASM ex fuel declined sequentially to $6 four which.
Which was 7% lower than the prior quarter loss expense exiting the pandemic.
The decline was driven by higher utilization along with the timing of aircraft deliveries in aircraft returns.
First by higher other noninterest expenses, particularly thanks Richard.
Her directly exist.
I was told in our earnings release Arabic.
Aircraft deliveries by almost five months.
Rescheduled and 2020th strict Accordingly, 90, 321, Neil aircraft deliveries previously expected this year will shift and it's going to be 24, resulting in about five per cent best capacity. Each month explained to me that we expected and all that.
We therefore expect to encounter slight upward pressure on interest the cows, a mess in the near term given the unit cost efficiencies unlocked by the age of 21 neither.
Accordingly, we anticipate being below six cents during the second half of 2023 and lost Leopold for the full year a level at which we believe is materially below the industry average.
Recapping guidance first quarter capacity, eventually competitive grow 17% to 19% overturned the Chinese Rancho quarter, but full year 2023 is expected to grow funding sure. He gets plenty of 8% over the prior year fuel costs are expected between 350 and 255 per gallon in the first quarter three O five to 315 per gallon for the full.
Tons of 23 as of the plant of fuel curve on January 30th adjusted.
[noise] adjusted Nonfuel operating expenses in the first quarter expected to be between 570 $595 million and 2.425 billion to 2.55 billion for the fourth.
Effective tax rate is expected training, 4% target.
Finally first quarter adjusted pretax margin is expected to be in the range of.
Minus two minus stick with that largely reflecting elevated fuel prices and seasonal soft cellphones with that I'll turn on the call back to borrowing for closing remarks.
Thanksgiving.
Texas for 2020 career clear all 13000 members of team frontier focused on the completing the post pandemic turnaround.
Carpet, if we can sustain the momentum and the last three quarters as we execute on wiping our relatives total cost advantage as we deliver on revenue enhancements, particularly on the ancillary crime together. These two factors will enable us to return the airlines is pre pandemic profit levels.
Thanks again, everyone for joining the thought that now I'm happy to take your questions.
As a reminder to ask a question. Please press star one one on your telephone.
Wait till yearning to be in to withdraw your question. Please print star one one again please.
<unk> <unk> roster.
And our first question comes from my notes Steven <unk> from City. Your line is open.
[noise] good afternoon, gentlemen, and thanks very much for taking my question.
I appreciate the the teller and.
You mentioned about the Kid that program and what have you and that's great to hear I was wondering if you wouldn't mind, giving us some color on what you're seeing in terms of mechanics sort of availability mechanics, and if you're seeing sort of.
Any hiccups in terms of engine maintenance.
Super issues with any content. Thanks again.
Yeah. Thanks, so so so.
So look we we've been talking about the mechanics shortage for years and everyone's focused on the pilots, but actually the mcnett shortages.
Just as problematic we have seen some of our business partners as a reminder of the majority of our maintenance on the line is actually providing a five business partners and we've seen some some challenges there [noise].
Particular, we've seen issues, especially places where we have a spot on call maintenance, where we don't do maybe someday, sometimes the availability lots of times how quickly they respond Ah has deteriorated.
As a result of their staffing levels, but we are working with them. We we've had a lot of talks with him recently the other thing is that it's been impacting US you mentioned, the engines, which which hasn't been a major issue for US. However, there has been significant challenges with parts overall and we have seen in many cases over the last several months we've had.
Multiple instances with aircraft out five to seven days waiting on parts and so we can see the supply chain issues that that a lot of people have had and so we are working with all our providers and spending a lot of time on that magenta supply chain issue this year across other industries, including our own they are real.
[laughter].
Okay. That's super helpful. I really appreciate it thank you.
Yeah.
Thank you one moment our next question.
Our next question comes the line of Jamie Baker from J P. Morgan Your line is open.
Hey, good afternoon, everybody. So the first question I wasn't planning to ask until last night.
Of your total ancillary take.
What percentage comes from seat assignment fees on reservations with more than one traveler and the PNR.
Citizen, Australia suits suits suits were originally important Palmer how are we don't we don't we don't we don't disclose a breakdown on Sunday I got some of them have a breakdown.
Nope rundown of exactly exactly what's going on what what what the mix isn't permanent practice on the piano animal style on what's going on.
Almost like a world.
Obviously conscious of those things being talked about yeah.
Why I'm asking.
Well, Jamie I know why you're asking the question and first of all we we have for years and is the standard breakfast across the industry. We have shown every option available to a customer before they complete their bookings so everyone knows prices well invest if a blind cancelled or significantly late we provide prompt refunds on request.
And also as it comes to families and seeding families. We actually do that today.
For for free and we have a high success and actually getting families. Together there are operational challenges last time and flexible and there's plenty of other seats in the last few seats were sold to Ah.
Family is it's a little harder but.
We do a really good job with that so I think there's I think there's a lot of confusion with that.
And I appreciate that bears so let me just ask and and I apologize because I'm gonna give it a <unk> give away. The fact that I I don't fly frontier very often but if I go to book a flight right now for a party of five for traveling June you're telling me that all five of us will be able to make a jason.
Simon's for free.
No.
No we will make every company. If you don't have six times will make every effort.
Okay.
To get you together, but not the whole family together, we will put an adult with the the smaller children.
Okay fair enough all experiments more within seconds.
I'm sure the five per cent reduction in 2023 capacity.
You know it takes some pressure off part of the hiring and you know I I know you made an excellent point had investor de emphasizing you know new crew bases out in back flying you know as as.
His lifestyle benefits, but given recent wage increases it looks like you are now bringing up the rear in the industry in terms of pay save I guess for maybe a velo and Breeze. Obviously this whole you know change with the new pilot contract in 2024, but until.
Well, then why shouldn't we assume that the pilot shortage hurts you more than other low cost airlines in the U S.
Because it hasn't.
We have an aggressive hiring program and and we're not bringing up the rear I think.
We've gotten the brunt of a lot of this dialogue.
This is a regional situations.
We are significantly higher than the regionals and we are successful in all of our classes and we're still getting over 10 applications a day of qualified applicants so.
I think you're welcome to come out Jamie I'll I'll introduce you to recruiting go round. The recruiting we can show you our classes.
It's not the problem that I think that the perception is out there in fact, we will have to slow our hiring in order to to accommodate the Airbus stories excellent understood. Thanks, so much gentlemen.
Thank you one moment for our next question.
Our next question comes from the line Elaine Baker from Kellen. Your line is open.
Mm thanks, very much operator for your time, thanks team.
I appreciate that color, just just one or two questions here.
Mmm.
I heard what you said about demand.
In the fourth quarter, but as you were looking at the cadence of demand in the first corner can you just talk about what you saw in January and what you're seeing you know for the rest of the disc corner, maybe the second corner.
Yeah. So so what we've seen continued robust demand for leisure travel and it continues to do very well in fact, I think if you look.
At our at our results you can see.
In the fourth quarter I think we were second place in terms of capacity.
Compared to 2019, and we put up an impressive RASM number against that and and Q1, we continue to see that trend continue where we're gonna be in a really good raza position physician, even though we are now the largest carrier in terms of size relative to our 2019, so even with significant growth in capacity.
We're we're seeing a continued strengthened in and leisure demand and especially when we look to the peaks, we got presence there right around the corner and we've got the spring break period, we see really robust demand probably the best we've ever seen and I expect that the current rate we will I've never seen a spring break this is as good as this year.
That's that's.
Usually helpful. Thank you for that and then I think I'm I don't know if it's the last earnings call or the one before that you talked about seeing trade down.
From other carriers to you guys are are you still seeing that and then you know maybe a non traditional friend to your customer.
We have seen a significant uptick in customers that did not fly us before so so it's a growing carrier you're always seeing new customers cause you're in new markets and so forth and you are always adding new customers in cities, even if you're already fly too, but we did see a significant uptick in customers over the past year.
Not fullness before we've seen a significant uptick in customers that are buying or go out past. An example, who we've never seen before.
At frontier, it's hard to say if that if that's if that's a price pressure of them being priced out of the legacy carrier or is it just simply that our branch getting that much stronger it's hard to say, but yes, we continue to see a significant amount of new customer.
Mm that's very helpful.
Comment thank you very much.
Excellent.
Thank you one moment for next question.
Our next question comes from the line of Michael Lindenberg from Deutsche Bank. Your line is open.
Good afternoon, everyone, Hey, I guess can bury him I think if you're sort of in a unique position in the sense that you are one of the few carriers that I think you have both the leap engine on your <unk> hundred 20 meal and I believe you are bringing the GTS on your <unk> hundred 21 he was.
Curious if you're seeing anything now or is it just because you just started getting the GTS and you're free and what Pete from maybe conversations that you are having with the aliens what what is the issue like what do you think is the route constantly when a year or two or three down. The road you are not taking engines off the wing.
[laughter].
Well I think that's that's a question for the engine manufacturers, but yes, we operate both both engines.
We in.
In fact, it's it seems like yesterday, but we've been operating in neo now for seven years.
We had a lot of teasing challenges.
With the with the Lee.
There were shroud issues, there were a number of challenges fuel nozzles, all all types of things as there is with every every new technology <unk> come in we're past most of those issues now may be still a few lingering we're not as familiar with with the GTS as you as you pointed out we.
Just started operating aircraft basically in the fourth quarter.
So we're very new to it we haven't had many of the issues a lot of the issues as we understand them.
R. R earlier productions series parts enzymes Uh-huh, we're fortunate and we're fortunate to have many of those upgrades later, but.
<unk>, obviously can be challenged I think the biggest issue is.
Is not.
If the reliability is there, but the turnaround time on the on the engines themselves. So how long.
How long it takes if you have an agent come off Wayne how long it takes to get that engine overhaul them back at.
And I think what we're seeing not just in India has been all types of components.
Seeing it take longer to get components repair and back to the airlines. This is this is one of the challenges we're seeing with our provider on parts. It's just you know things were taking longer to get repaired and so it takes longer to get them back on the shelf.
And I do know, yes, there's another airline to call. This out recently in the United States, but there's several around the world that have and the engine space that actually have aircraft sitting without inches and so we're we're watching this closely but yes. We are we are pretty good ways away from having any of these challenges and hopefully given the improvements that they've already made the inches.
It's on to Profounder frontier.
Okay. That's that's helpful I kind of reinforces the adage that you kind of never wanted to be first in line for the new technology, let it let it T. Then.
You know be the airline number four or five so that's that's good and then my my second question and maybe this is buried a U N and Jim see Gimme the.
Comment in the relief about second half of 2023 getting back to the.
Profit profitability per aircraft in 2019, and go back to 2019, and icy 14% pretax margins that makes me salivate, probably makes you guys salivate as well.
Is it a margin EBITDA per aircraft what are you referring to what metric do you hope to hit.
Back half of the year. Thank you. Thanks.
Yeah, Michael we have an internal target of getting back to pre pandemic profit levels. Obviously I think the entire industry is trying to do that but like we have a real line of sight to moving back to pre profit per plan on the net income basis.
Great faith second half of the year.
This is a lot of work to do together moving our unit costs.
Well I think the cost of nonsense against the competition.
Gives us a real runway and to moving margins higher and obviously, we want to move margins higher but it's it's not necessarily a margin race, it's more of a profit level per plan. Okay. Okay very good. Thanks. Thanks.
Thanks, everyone.
So it might be it.
It's.
Total dollars of net income per plan.
And again and and just what we did with the fourth quarter kind of illustrates if you look sequentially at the last three quarters, you can see the cost trajectories clear and so and you can see that the ancillary revenue trajectories clear and so it's it's just math and if you look were already back up pretty close.
To pre pandemic utilization, we got maybe half hour ago, but we we already did love and a half hours just in just in the fourth quarter. So it's all systems go in and then we have a clear path is it's not a ah maybe someday it's radovan <unk>.
Thanks, Thanks, Thanks, everyone.
Thank you one moment for next question.
[laughter].
Our next question will come from the line Oh, Duane sending word from Evercore ISI. Your line is open.
Hey, thanks.
The the take down on pull your growth makes sense more near term can you just speak to the March quarter, how many how much of this is just short on deliveries in in the here and now.
Vs. Some increased conservatism in your in your planning assumptions.
Uh huh.
When it's all today is an aircraft deliveries, we we have been working with Arab us for some time on understanding the supply chain issues that they have in their business.
And we have been notified recently.
Significant delays across this year that were previously unaware of what we have been seeing as it is today as of between four and six weeks in aircraft are there is we have not seen that extend out between one as we said in the release between one and five months. So the change in capacity is really driven by by those aircraft deliveries lives and I'm wondering how many.
Sorry, sorry go ahead.
Well Q1 in particular this is the first time we've had this close in this many aircraft pretty late but we had a full four lines.
Out as a result, so it's pretty significant even close to anyone.
Yeah, how many how many are you short like right now where where did you think you would be and where are you.
Whereas Robert overseeing Duane is aircraft today start to like extend that so you're seeing today that were occurring months six weeks two months now go into three four months and so that's what you're seeing cascading across the year.
So if you go all the way to the end of the year and given the profile of our delivery schedule you see nine aircraft actually dropping out of the fourth quarter and answer the first order I'm a bit beyond the first quarter of next year.
So that's what you are saying right now we've taken them as far as that four lines of effects before and there was already one so we're actually down five now into this quarter and throws to nine by the end of the year.
Okay. That's helpful. And then just maybe a hypothetical maybe more than a hypothetical on on spirit slots engaged.
If there was a package that became available can you comment on your your willingness to bid on that any thoughts on that conceptually.
No we can't come in.
Okay. Thank you.
One moment for next question.
Our next question will come from the line of Brandon Alinsky from Barclays. Your line is open.
Hey, good evening, everyone and thanks for taking the question [noise].
Barry can you talk to I guess, the resiliency of your network and your operation I mean, I know I hear Ya on the pilot issue that maybe that's.
Not really one that's fair to apply to you guys, but last summer you did have constraints across the network, whether it was like airport capacity or FAA ATC capacity. So what are you doing to mitigate those challenges this year and what gives you. The confidence you can grow with the levels. You think you are.
Yeah, so actually it wasn't the summer he was actually in the spring we saw some challenges, particularly in flora some curators I.
I guess, it's a bigger brought up at that we did what we did is we we re oriented are fine on pairing preparing for that actually crossed Jacksonville Center.
And so effectively you don't have an any aircraft ready crew that actually process Jacksonville more than twice and so this helps mitigate.
We ended up with three and four hour graduate program skin, we could just trim, the flying and unfortunately west Kansas for ATC, but it doesn't disrupt the aircraft for the next several days right. So you don't get any situations, where these carriers that have airplanes that are you know kind of do these daisy chain multi leg all across the.
Nice days that lead proven on certain cities, we don't we're not impacted by that so that's one of the reasons why I think you know you look at the the storm.
We did so much better I think recovering after the fact, even though we were much more impacted.
The most when you look at that argue aggravating Daniel Wanna talk about schedule. The store I was going to say one thing. One can also check one thing that has changed since last summer is.
Mmm, we've increased the level of modularity, we've we've further and further tightened up.
In terms of.
We have a higher percentage of prove just doing the one day one of their parents.
Full offline and want them to one of them to de Paris proof of sponsor.
Got more aircraft got more aircraft based based overnights and I'll make a screw basis.
Just simply.
Something prices are more resilient and see where they where they put the whole month. When he gets an increase of a bunch of options on that one was on the set something a good place I want them to this I'm requesting phone number.
Okay. I appreciate that I guess, you know I appreciate the outlook as well for second half profitability just like the earlier question, but.
Barry what what's the viewer of Jimmy maybe you know the right now that you can't generate that profitability cause you have got your costs down here recently, you know aircraft utilization is coming up is it really just the outlook for lower fuel prices. That's the difference.
Mmm.
I mean, there is a relationship between fuel prices some revenue nothing you've seen over the course of the last year.
So I mean, there's no it's not just lower oil prices. If you look at our valued today you know we've given you the market price for oil for too long. We've given me what the curve is for for that we're seeing for for oil prices for the year and that's reflected in what we believe we can achieve throughout the year.
What we've seen so far this year, particularly actually towards the end of the last year and I'm going into the peak parts of this quarter as it is a real strength in demand coming through into the business and allied $282 going to $85 and non ticket closer unit costs.
Moving towards <unk>, and plus the business and I'm ready to go position to to improve profitability, which is ready to you objected that we're working towards.
But specifically to your question Britain Wow now look Youre seasonally you one is actually the worst for our network the lowest random time. So the seasonality does come back but also your costs continue to sequentially go down and so I was just mechanical I mean is the revenue comes up seasonally and the costs continue to go down and we've also got further tailwinds.
Coming in.
Ancillary the data and found mentioned 82 point 85 about Europe , those things come together Dakota was back to pre pandemic profitability.
Thanks very Thanksgiving.
Thank you one moment for next question.
Alright next question comes the line of Connor Cunningham from Mileas Research. Your line is open.
Everyone. Thank you maybe to talk a little bit more about just the pilots in general and staffing. So some of the other airlines has talked about needing to be like five per cent have five per cent more pilots they hit their like prior production levels and you appear to be overstaffed, right now, but I assume that has to do with blaze in hopes of gross but just longterm.
Do you think that there's a structural change in staffing and maybe employee productivity at frontier.
We don't completely understand that we heard that commentary, but but we do not have more pilots per plane. We don't we have not seen a need for more pilots per plan. There is slightly higher pilot costs.
Because we do have attrition that we talk about the past and we have a higher level of interest in which causes.
Have to train more but.
But if you look at like credit to block for example that that's the main source and back we see more efficiencies as Daniel kind of talking about the modular network, we actually see more efficiencies coming to this so.
We're not sure what those businesses, what other things, they're doing but we don't understand.
Why they would need more pilots per line.
Okay.
I'll take that and then just on crew basis, and generally you've opened up a lot and I understand the the idea around.
The modularity of your network can I get the benefits too so the operational side of the business, but you know.
When a when a crew basis opened why shouldn't we just turn around and assume that there was a and there was some additional cost to.
Different here you know, it's like a structurally higher cost. The fact that I mean, it is a much different stance and you had pre pandemic. So just curious on how you think about crew basis and the impact to your overall profitability. Thank you.
Yeah. So we spend a lotta time on this and Daniel can spend hours with your explaining it but.
As long as we have a minimum amount of of sizing in fact today were in Phoenix.
Hosting this call in and we just open a base here and we're already at the minimum a scale that we need so the only inefficiencies. If you will that you get with a base or are in reserves and so as long as you reserve ratios don't don't get too high as a result of your base coverage.
Is it's not a big deal some times, what we have learned is depending upon the windows that you cover.
For your reserves you could end up with percentages that don't make sense. If the basic is too small, but we believe we've largely crackdown on this and we're not opening basis.
We don't believe in it that are that are efficiency on racial perspective, and then when we think about from a reliability perspective, and resiliency others, there's not a better.
A better way to operate.
I appreciate it thank you.
One moment for next question.
Our next question comes from the line of Christopher <unk> from Susquehanna Investments Group. Your line is open.
Good afternoon, everyone up very D going back to the outlook for pre pandemic profitability.
Profitability for planes.
What what are the assumptions around seasonality, there and utilization does the outlook assume.
Macro softening or is.
Easily in line plus are worse any color here and how you were thinking about demand as we walk through the quarters.
And utilization thank you.
Yeah. So from a utilization perspective, we looked to be at 12 12 hours, we were actually at 11 and a half in the fourth quarter, we've been operating plus that level now. So so there's not much more to go and utilization so utilization will be what it is the big leverage that you get is the delivery of the 321 and the other with 200.
Seats, and just simply delivers a.
A major.
Chasm advantage, we actually do assume as a result of that RASM is going down I mean, we we we actually have a.
Assumed that the.
Those those incremental seats will come at a at a Martin welfare. So we expect that there will be a kind of ability to withstand any kind of weakness. If you will in the economy by us further reducing our costs levels and so but we find on a major 2009 top of it no, but we can withstand.
And a medium to mild recession.
Okay I follow up so November is outlook modestly above six I think it was too or or yeah. Today's outlook modestly above six to November is less than six I understand this slippage here, but if there are more delays you called out for four to six weeks has moved to want to five months.
What are some of the levers that you could pull here uhm because it sounds like at 11 to have her 12, there's not much more you can do on utilization two.
To to offset what could be perceived as upward pressure on your your cost should the different additional tails slip. Thank you.
[noise] well.
Let's just talk about our trajectory on unit cost is heading in a really good direction.
What's your what's your what's happening with the Airbus delays.
It is a delay in the benefit of the 321, new coming into the fleece.
And that's Ah, maybe a quarter and so you're on a very strong trajectory on a unit cost benefit and efficiency benefit in the business.
And are are are in order to mitigate the delays and we can certainly look to us.
And filling some capacity by standing leases are looking at distressed aircraft from around the world to replace some of the capacity. What we believe is but this is not a single year event, where the amount of factor our house delays and supply chain issues and delivers we believe this is a multi year of that so we're looking to plan.
[noise] our business accordingly.
So we may end up to fill some capacity.
From outside of the business for over from it into business like standing some nieces in order to manage the capacity profile of the business because the changes that were singing.
And deliveries break some lumpiness in capacitance lots of business are meant to smooth.
And just to clarify on on what we thought versus November I mean, we were looking at sub six and now we're talking low six for the year.
Right and we expect it to still be below six in the second half.
Even with the delays.
Okay. Thank you.
[noise] one moment for our next question.
Our next question was over the line of service site from Raymond James Your eyes open.
Hey, good afternoon, everyone. Just for the first question just to follow up on what corner of it you know your your cough came in much better than you had thought even though you had the storms I was just curious what was tried in that and just.
Trying to gauge what level of conservatism might be there and you're not appeal guy here for the 24 2023.
I mean, that's a big driving force in our business does you know it was overcoming fixed overhead exists I'm moving utilization to 11 and a half hours from full Culver How's It has a big impact on the unit call centers measure task next few or something like that.
I mean look at that I mean.
We are giving you what we know today in terms of of our Alcatel com cost for the year, where the business is very focused is ensuring that we had a stroke and it'll cost advantage versus industry that's sustainable.
So you know as we move towards the six cents and.
And you know that puts us in a very strong.
Versus the competition.
If we come in at six or $6. One I mean, it's still puts us in a in a place overall on total cost less than interest.
Somewhere in the in the mid purchase percent lower cost and the entire industry average I think borrowing talked about earlier like we were over $70 a passenger.
<unk> costs in the industry average in the last quarter and that's moving hires as her unit costs come down so it wasn't a great place.
To grow the business and short term in the medium term.
That's that's something that we're very focused on.
Achieving while we're what we're trying to do with you guys is educate you on how we get there.
And the fourth quarter, you are seeing and reading the moves forums.
<unk>.
If you love sequentially across the ear utilization was lower came up costs came down and we expect that to continue as you progress through this year, that's where we get our competitive edge.
And just to clarify too just.
Just to clarify we were we were 70.
Over 70 dollar advantage for the full year of 2022 and by the fourth quarter of that has expanded over $80 upper back either. So this cost advantage of this is what gives us the confidence that the momentum is going to continue and we'll be back to a pre pandemic of profit per plan in the second half.
Well that makes sense. Thanks, and then if I might and then after that you talked about you know somebody moving from high touch to sell transactions and other things you've tried some cost benefit does not not as much as 80 321, but I'm just curious on how the kind of a switch and call Center and then I'll have some of those initiatives are being connect <unk>.
By customers.
Yeah. So so so look I think contributed maybe some of the news reports, we've actually seem really good performance. In fact, we're just reviewing it. This morning, we've seen NPS go up dramatically Ah compared to the call Center and the reality is I mean, if you just think about it in your personal life, how how often do you tax versus out with you call and I think this is the way people wanted.
Interact and as long what we see is is the biggest driver can you solve your issue and and or do you do it properly and when I think when you compared to some of these other carriers that recently have had 10 2030 minute Ah ways to get a hold of an agent. That's why we're seeing such in Madison So customers.
Customers like it and it and it's working well.
Thanks.
One moment for next question.
Our next question comes from the line of Scott Group from Wolf Research. Your line is open.
Hey, Thanks afternoon guidance. So if I look in the fourth quarter capacity is up about 15% versus 19 and <unk> low twenties.
If I look at Q1 capacity is now going to be up about 40% versus 2019, but.
<unk> is still up low twenties why aren't we I guess my question is why aren't we seeing.
Better sort of unit cost leverage is capacity is.
Really already ramping up pretty meaningfully.
Well <unk> you have a lower utilization poorer than is typical.
And our business so you've got to see.
Dot progression throughout the year.
<unk> is higher than second third fourth quarter than those in Q1. So so just purely comparing Q4 and Q1.
What's the challenge them under unit matrix.
Oh, we've made no we haven't had an beyond the fact that the 391 introduction to the fries, a substantial efficiency into our business.
The 321, Neo and just to remind you is 204 succeeds.
Our fleet today is dominated by the <unk>.
96 seats.
Average seats for departure move quite dramatically, creating a lot of efficiency business. So the more deliveries of those Nomura does that they operate in our business more efficiency to come into the into our area.
So that's a large part of of of the efficiency and drive from where it is in queue for $6 for half.
Has a mixed view I'm down to two were our targets.
Okay, and then any Samsung vitamins.
Sorry, Scott, we'd like to look at total unit costs and so one of the things that we watch and our business is a matrix is watching our comparison total costs versus the industry in mountain soon as that is chasm and very few because we have a very fuel efficient fleece, it's very important to.
How you price your tickets.
<unk> cost of fuel is very important plus also net interest.
So if you are looking at just purely are causing maxfield and you're ignoring the the ownership cost them a lot of the of the airlines have in their business and also the the investment that we've made in our business.
On fuel efficient aircraft over the last seven years.
And continues.
Yeah, that's a good point.
Can you just talk about within your view of.
Getting back to to the margins you were at or the profitability or at per plane, what how should we think about full year revenue growth of RASM, just what's what's in the plan.
We don't guide and unit revenues, obviously, it's a function of of what happens with oil prices are across here. Let me give you a sense of where we where we see oil prices at the moment based on I think it was January 30th Okay for them, but we're not go ahead and unit revenues across here.
Okay, Alright, thank you guys.
Thanks, Yeah.
Thank you I'm not showing any for the question in the queue I'd like to turn the call back over to the company for any closing remarks.
I want to thank everybody for joining our call again, especially want to thank the Phoenix Airport for hosting a call and we look forward to talking again after the first quarter that concludes our call. Thanks.
This concludes today's conference call. Thank you for participating you may not disconnect everyone have a great day.
The conference will begin to T to raise and lower Johan <unk> you can dial 911.
[music].