Q1 2023 Frontier Group Holdings Inc Earnings Call
The strength, we're experiencing leisure travel demand favors peak days in peak periods, where we see an outsized contribution. This outsized contribution is a trend that has developed over the last year as we emerge from the pandemic, having analyzed this new customer behavior and until peak and off peak demand relationship normalizes, we're reshaping our capacity beginning in the second quarter.
To exploit this dynamic and expect the changes to be fully deployed in the second half of 2023, we're excited about the shift in our ability to lower execution risk, while maximizing revenue and profits.
While we expect the update to our network strategy to enhance our operational performance and pre tax margins, the resulting adjustments to capacity and utilization will increase our unit cost with that said, we still expect our total cost advantage, which widened from over $60 per passenger pre pandemic over $70 per passenger in 2022 to further expand in 2020.
Three.
We anticipate our cost advantage to benefit from the ongoing gauge and fuel efficiency benefits from the increasing mix of <unk> hundred 21 Neo aircraft the operational benefits from our enhanced network strategy and a significantly lower debt service exposure, we have compared to the rest of the industry.
Overall as a result of the planned network changes I've highlighted we're adjusting our full year capacity guidance to reflect expected growth of 19% to 22%. The entire organization is aligned and focused on the return to double digit pre tax margins are.
Our second quarter guidance of adjusted pre tax margins in the range of 7% to 10% is a significant step to getting double digit pre tax adjusted margins in the second half of the year and will represent the highest post pandemic margins achieved by the company with that I'll hand, the call over to Daniel for a commercial update.
Thank you Barry and good afternoon, everyone total operating revenue for the first quarter of 2023 totaled $848 million a record for any first quarter in company history.
Driven by RASM growth of 19% on an 18% increase in capacity, both compared to the 2022 quarter.
The RASM increase was driven by a nine percentage point increase in load factor to 83% and an 11% increase in revenue per passenger to a $124 both compared to the 22 quarter.
Ancillary revenue performance continued to be strong even in the seasonally weaker first quarter with $80 per passenger generated during the quarter $11 per passenger higher than the 2022 quarter.
Last month, we opened access to I'll go off pass holders to begin booking travel three weeks earlier than we had originally announced feedback thus far has been overwhelmingly positive with customers taking to social media to procurement benefits in response to consumer demand just yesterday, we announced another go off promotion for the summer 2023, Pos of $499 during the month of May.
The go Wild program is an important addition to our loyalty ecosystem when supplemented with elite spending levels, our frontier World Mastercard customers now have the opportunity to travel on the unlimited amount without incurring on therapies for seat some bags further as customers invest in <unk> costs in the frontier webmaster called the value of that this content becomes an obvious complementary product.
So let me briefly on the shape of our utilization changes to our network.
We conducted a full review of profitability over the past several quarters and observed a clear trends in consumer demand patterns. While overall leisure travel is increasing the breadth of its disproportionate landing on peak days and in peak travel periods.
Prior to the pandemic the RASM premium on peak days versus Tuesday to Wednesday was 19%.
This premium has expanded to over 25% today bye.
By maximizing flying on peak days on peak periods, and reducing underperforming flying in low demand periods. We believe we can generate better profitability with less line, thus de risking our operations.
Given our modular network approach, which has proven to be more resilient from a reliability perspective over the past few years, specifically, reducing midweek fly on longer stage routes is more operationally complex as it would cause significant crew inefficiencies.
For this reason we have eliminated a select number of longer haul routes as part of this network optimization, which will reduce our average state funds from 1070 miles closer to 1000 miles.
That concludes my remarks, and I'll now yield the coal to Jimmy.
Thank you Donald.
Our first quarter results reflect a pre tax loss margin of 2% on a GAAP basis, our minus one 9% on an adjusted basis. The results are reflective of the seasonality of the business with the seasonally weak first half of the quarter substantially offset by us by a strong spring break period RASM increased 19% during the quarter on an 18% increase.
And capacity fuel expense was slightly lower than anticipated driven by an average cost per gallon of $3 45.
Adjusted non fuel operating expenses were in line with expectations of $580 million or.
Our 661 eight.
8% lower than the 2022 quarter, we ended the quarter in a strong financial position of $790 million of unrestricted cash and cash equivalents were $363 million net of total debt.
We had 125 aircrafts in our fleet of March 31, after taking delivery of six <unk> hundred 21 Neo aircraft during the quarter three of which were direct leases as noted in our earnings release Airbus Airbus noticed notified us of its intent to shift its remaining aircraft deliveries expected in 2023 by approximately one month.
This will cost two incremental <unk> hundred 21, Neo aircrafts shift from 'twenty 'twenty four start to shift into 2024 from 2023. In addition to the previous delays from earlier. This year. Additionally, the 2023 delays cascading into 2024 are expected to result in no net change as expected deliveries in 2024 as a similar number of number of delays are expected in.
2024.
Based on the revised schedule from Airbus, We expect to take delivery of $42 21 in the us in the second quarter three of which are direct leases seven in the third quarter four of which are direct leases on four in the fourth quarter. Additionally, we recently executed an agreement to extend the current leases on <unk> hundred 20, <unk> aircrafts by four years.
Otherwise, we're scheduled to return in the fourth quarter. Accordingly, we expect to end the year with 136 aircrafts in our fleet unchanged from our prior estimates.
Turning to guidance second quarter capacity growth is anticipated to be in the range of 22% to 24% over the 2022 quarter. While full year 2023 capacity is expected to reflect growth of between 19% to 22% over the prior year to align with the utilization changes presented earlier on the impact of the Airbus delays.
Fuel costs are expected to be between $2 65 per gallon and $2 75 forgotten in the second quarter and $2 80 to $2 90 per gallon for the full year 2023 based on the blended curve on April 24.
Adjusted non fuel operating expenses in the second quarter expected to be between 645 million to $665 million.
And $2 5 billion to $2 55 billion for the full year, our second quarter cost guide includes the deferral of an aircraft deliveries in the third quarter and excess crew staffing, resulting from the Airbus delays earlier this year full.
Full year costs reflect the deferral of two incremental aircraft deliveries into 2024 as well as the previously noted network changes detailed by borrowing and dunhill, which deliver a similar similar level of departures on a shorter average stage length than previously planned.
We are proud of our relative cost advantage of over $70 per fastener over the industry and are confident that with longer stage and maintaining high utilization. We would have beaten our sub <unk> CASM X objectives. However, we believe our network change to deliver a better profitability outcome for the business second quarter adjusted pre tax margin is expected to be in the range of <unk>.
7% to 10%, which will be our highest post pandemic margin while average adjusted pre tax margin in the second half of the year is expected to be in the range of 10% to 13%.
With that I will turn the call back to Barry for closing remarks.
Thanks, Jimmy.
<unk> proud of team frontier and want to personally thank all of our employees for our performance during the quarter, including the achievement of high utilization during the peak March period.
We're focused on achieving double digit margins and expect that the strength of our ancillary product offerings and widening cost advantaged position us well to achieve this target. In addition, we believe that the network updates, we're making to capitalize on the post pandemic demand changes have created a unique opportunity for us to optimize our capacity and our high utilization capabilities in a manner that enable.
Us to lower execution risk and maximize profits putting us on track to return to pre pandemic margins over the next year. Thanks, everyone for joining the call I'll now turn it over to the operator for questions.
Thank you as a reminder to ask a question. Please press star one on your telephone and wait for your name to be announced to withdraw your question Press Star One again, please standby, while we compile the Q&A roster.
Okay.
Our first question comes from Duane <unk> with Evercore ISI. Your line is open.
Hey, Thanks appreciate the time.
With your with your new or maybe increased emphasis on seasonality.
Could you just put that in context for us maybe compare.
Relative to a trough.
Within a quarter.
I assume it's sort of within the week as well as as kind of month to month. So maybe just pick a September for example, how would you be thinking about at September now.
Relative to July versus.
Before you made this change.
Thanks, Duane Thank you Ms. Danielle it's much more a day a week issue than it is.
A month to month.
Our peak day utilization is going to look very similar we think month to month through the rest of the year, we assume peaks be strong even in even in off peak periods.
What youre going to see I think relative to where we would've been is what youre going to see us.
Yes.
The most significant periods, we're probably going to be about 20% smaller on Tuesday, and Wednesday than we would have been then we would have been it would have been prior to this.
The overall the overall difference.
<unk> difference is about is about 15% in the second half between between off peak days on off peak days and in the most significant about 25%, but you would have seen a small difference in the past so I'll call. It about 20% in a month like September .
Yes.
Okay, and then maybe just for my follow up.
Longer term in nature.
Load factor or something that you're driving to from it from a target perspective, what would be the goal on load factor over time and how do you expect this shift to aid that goal.
Load factor is we only look at it as a function of.
Total revenue in RASM.
It is helpful. When you're in a high ancillary business as the leader in the world to actually run a high load factor and for that reason, we have been targeting it youll actually see that we have been improving in this area and.
And we expect to continue to improve.
I would like to to get to a flown a load factor that starts with a nine.
Maybe just one last little follow up there the go wild.
To the extent you get to a nine.
Go wild how many points would you anticipate that would contribute.
And the 1% to three point range.
Once it's mature.
Thank you.
Thank you one moment our next question.
We have a question from Jamie Baker with J P. Morgan Securities. Your line is open.
Hey, good afternoon everybody.
Barry at Investor Day, you leaned pretty heavy in two.
Work life attributes that will help you navigate the pilot shortage better than some of your competitors.
Several months have elapsed since then several new contracts have been reached.
Spirit admits that its raise isn't particularly helping things I'm just wondering if your pilot staffing confidence issues.
Unfazed by anything you've seen since Investor day.
It's unfazed.
We remain in a surplus position.
And we're really proud of what we offer and nothing's changed in that area and in fact, we were just reviewing it earlier today and the attrition is right on target and I think Jeff remember we have we have.
Competitive compensation, if you look over the first 10 plus years of their of their careers and we've also got a better work life balance as you mentioned with more days off then.
And then practically anybody else in the industry.
I think we're averaging in starts in the 12 range days per month.
For average bid line holders. So now we have a robust.
Recruiting and we don't have the attrition that you.
You are seeing at some of these other carriers perfect and.
Just as a follow up historically, most U S Airlines did not accrue for higher wages new contracts.
Caught me by surprise as that.
Convention appeared to change in the last year or so.
Obviously, it doesn't make sense before you reach your amendable date, but have you given any thought as to whether you might guide 2024.
Adam reflective of a new contract or will you just wait until its ratified which was fueled.
The old the old school way of doing things.
Jamie as Jimmy Dempsey here Hi, Jimmy.
Has it gone we haven't.
We need to open the contract.
The contract expires at the end of the year.
Why you're doing this man I would've thought that some of these changes would have already been implemented but just are you seeing.
Off peak, a lot weaker than you've anticipated and peaks just being that much better just just curious if you're seeing anything on the margin from a from a demand standpoint, that's really changing how you were thinking about your network overall.
Well look at it has changed.
Versus pre pandemic is Daniel laid out.
It was 19% difference.
Off peak versus peak prior to the pandemic and we're seeing levels over 25% down.
So.
In some cases, even more extreme in the off peak months for off peak day. So yes. The reason why we haven't changed is quite candidly we.
We are a high utilization business and and we've actually run a lot higher utilization the most people on on balance.
From a midweek perspective in the past and.
We are now at the point, we've seen several quarters and we just the data is staring us in the face and I think when you look at the first quarter in particular.
I think.
Thanks, most interesting as we believe we could've made money.
From a profitability perspective, when we looked at first quarter had we made these changes and so one of the best ways to stop losing money has stopped doing things and lose money and so we are on a go forward basis, we're reacting to this and if the dynamics change.
Going forward will look at it again, but we think this is the right path to get back to pre pandemic margins.
Okay. That's helpful. And then as you start to think about your 2024 plants and growth over I mean, there's been a lot of talk about capacity constraints, you've talked a fair bit about Airbus delays, just why shouldn't we expect whatever we had in terms of our capacity growth plan for 24 that it should be lower.
Going forward. It just seems like a lot of these issues that we're talking about right now just won't necessarily dissipate going forward. Just curious on how you are thinking about that as we go into 2000 for it. Thanks.
Will there will be delays in 2024, I think the biggest thing that you have to understand though is that the majority of the pain has already been felt so your lapping when they first came in with this big delay you move a whole bunch of airplanes to the right one.
What's going to happen is yes, we will move aircraft out of 24 into 25 at some point, but but the twenty-three that got moved into 24 will actually deliver so I think you have to remember we have enough aircraft on delivery that we expect to consent continue to have a sizeable growth. So I think what's more important when you think about <unk>.
Interior versus the overall industry is that.
If you ask an airline today would you take an airplane from the manufacturer that's may be delayed a few months.
Versus not have one.
They'll take the airplane delayed and we have a very good order book and it's a real asset to the business. So I think Ah, yes will impact 24, but from a year over year perspective, I think you're not going to see the changes that you've seen in the past.
Okay. Thank you.
Thank you.
One moment for our next question.
Question comes from Helene Becker with Cowan Your line is open.
Thanks, very much operator, hi, everybody. Thank you for the time this afternoon.
Mm.
So can you maybe Jimmy talk about the non fuel cost pressures that you're seeing like which airport cough. Maybe is included in that I know salaries or asset the other costs that you're experiencing.
There's a couple of things.
We're not immune to inflation like the entire economy.
We are seeing some inflation in the business being offset by the growth in capacity and the the average seats for departure increasing considerably.
So not as effectively managed inflation, what you're seeing at the moment and the cost base.
Is overstaffing from crew perspective, both in the pilots and flight attendant world.
Then you have some noise around the delivery delays that are happening in the airlines.
Move from one quarter to another.
Some of the financing benefits that we get from selling these bugs and so you have some noise that's going on around around that were.
Typical Airbus delivery delay is now four to five months as opposed to three to five months previously.
Outside of that the business is from a cost perspective is operating very very effectively.
Cost differential to the competition is still over $70 a passenger pre COVID-19. It was $60 a passenger and so our cost advantage against the rest of the industry has widened and we expect that to continue.
That's very helpful. Thank you and then just as a follow up question I noticed in the last I don't know random surfing you guys for last.
In.
I guess.
Humor.
Satisfaction.
Word.
And I'm wondering how you're thinking about retaining customers as opposed to turning customers or do I have that wrong and you are not really churning you just had some bad luck.
Well I think.
We look at the data we have one of the highest repeat businesses.
And the industry, we have over 90% repeat business.
Well look I saw one of these with these recent surveys I think I'd be very careful about the sources of some of these and how they how they based off of the other thing is when you look at the at the weightings of some of these these these I.
I guess studies or analysis.
They really don't wait price like they should and what you see is that consumers when they buy air travel the number one thing they look for especially for leisure customers as price.
And so if you wait price as it should be weighted I think we're a clear winner when you look at the overall value for consumers and that's why we continue to have such high repeat business.
Thank you very helpful. Thanks skies.
Thank you and our next question comes from Andrew The Dora with Bank of America. Your line is open.
Hey.
Everybody.
Just in terms of the network changes right I know Berry you speak about it lowering your execution risk but.
I would think that more peak flying maybe.
Might increase operational risk a bit here and my right to think about it that way and maybe what are you. What are you doing to potentially mitigate some of this.
Operational risk at peak times.
So Andrew Daniel with broadly speaking flying the same utilization on peak peak days what what.
What I was sinus, obviously, we're just going to keep the peak utilization.
Plus slightly Hopkins utilization in off peak month, because we found a peak data and those all three months I perform better, but we're not pushing we're not pushing off peak utilization higher than it was before.
So the the lower execution risk is simply you've got with lower off peak fly you brought more recovery time during the middle of the week Memorial coverage time on Saturday, which helps you and we've seen that we've seen evidence that it helps us wrong about for operation on both those days add on the pink days a follow up.
The other thing I would point out too is that if you look at the.
March and especially April where the highest utilization airline in total not just big days in total and yet we've been midpac or higher I think we're fourth place an incompletion in April as an example, so if you can trust anyone to run high utilization effectively and reliably it's frontier.
Got it and then sort of a follow up to and currently your question regarding your cost.
I guess 2023 capacity came did come down a decent chunk, but you're so let me point of view or Opex guidance higher.
Perfect May provide a bridge on what is driving that.
Maybe some of the bigger cause buckets.
That's driving opex higher even while capacity is coming down.
Yeah, I mean I mentioned this earlier to Elaine's question. The movement of aircraft out of the period is one of the big drivers of increasing the higher range. The higher end of the range. The only thing that's happening in the business is you have a similar number of departures.
But lower ASM production, because the stage length of shortening and so you have a very similar overall cost base.
Albeit slower ASM produced capacity, but a similar level of departures and so you end up with a similar cash cost effectively you do save some money on fuel, but your airport charges. Your station cost in general the Groundhandling costs typically stay similar.
So that's all you're seeing at the moment.
Got it and if I could please speak one on one more one more.
More in there.
Just in terms of premium pretax margins for the year, obviously fuel.
<unk> came down a bit.
The costs are moving moving higher.
Anything change from your perspective, and the way you were thinking about the revenue cadence throughout the year.
No no no not really.
What to expect.
We expect we're expecting the revenue for the rest of it was expecting domestic look much more like normal.
We're expecting people.
To be good we're expecting them to some level 2323 is to be strong.
With the usual spots in the usual holidays strength in queue full spectrum of the cadence through the to be to be much more much more of like a normal domestic here.
Okay. Thank you.
Thank you.
Our next question is coming from Brandon Glinski from Barclays to your line is open.
Hey, good afternoon, and thanks for taking my question I guess this was for barrier Daniel.
With the off peak changes does this change in any way like your new market strategy, especially in the back half of the year as you get into the more trough periods. After.
After the summer.
This wouldn't change.
Our new market strategy.
In particular, although.
Longer halls are more complicated because if you do want to reduce midweek flying it causes inefficient crew bearings. It causes deadheads as an example.
And I would say if you just look at a specific city, where this has been most pronounced it is las Vegas.
We have seen that the mid week is just nowhere near what it was.
Prior to the pandemic and you can see it in the pricing of hotels in Las Vegas.
Can see it everything you can see the strip is packed on a Friday night, but on Tuesdays.
The reservation, where he won and so that is reflecting.
Our loads as well as well as fairs, and so that impacts Las Vegas, and it especially impacts long hauls from Vegas as an example, so but overall, we haven't seen anywhere else be that challenged like we've seen in Las Vegas.
I mean, I guess some of the concern in the market.
You definitely have the absolute cost advantage, but is that does not result in in the stimulation that you guys were seeing maybe pre pandemic.
No upfront and I'll tell you. This one with seeing apps, we're seeing the same demand strength was seeing the ability to stimulate demand to new markets. We are still aggressively expanding me online we are aggressively adding new markets and we're absolutely, saying, saying that santa that strength to come through.
What was that some players in off peak periods off peak days a week.
Further underperforming relative to what we saw pre pandemic.
Again.
Not to say that we don't want to say, we're going to we're not going to find that we're not gonna find expansion stimulation I can I can.
I can point to market, which were new last September compared to pre pandemic. We're on the peak days a week, we still very strong performance. We saw greatly so great demand and we and we couldn't run we can.
Continue we continue to see in the future lot small markets, where we kept then we're going to see exactly the same thing.
Okay I appreciate that and maybe just one last one on utilization. If you are taking down off peak, how do you plan to match utilization or do you take a swipe it will be there too.
I would.
Slight pin it'll leave there too in addition to what I mean.
Utilization be slightly lower but.
Overall, our cost advantage, we expect to widen.
So let's be clear that are cost advantages widening even with these changes. So this is of less than a 10% move. This is this is.
That dramatic of a change we expect that this is accretive.
A couple of points and margin.
From a profitability perspective, so this isn't a major change in our business is just a tweak that we're just seeing that travel patterns people are willing to pay a lot more to travel Thursday Sunday than they did even before and there's more of them.
But the work from home and I would actually argue it's less the work from home, but more flexibility where people are working two and three days a week in the office. The most common two days in the office are Tuesdays and Wednesdays it's no coincidence.
Not some.
This mysterious black box of information that's why travel for leisure is the hardest on Tuesdays and Wednesdays and so that to be blunt, we've got to utilize the airline and we were better at it than anybody on the other days of the week, but Tuesday Wednesday is just not as not as not as pronounced as it was before.
But it's not going to kill our business. Thank you very going to make a strong.
Thank you thanks.
Thank you.
And our next question comes from.
Michael Lindenberg from Deutsche Bank. Your line is open.
Hi, Good afternoon. This is actually Shannon Dougherty on for Mike Barry I. Appreciate the details that you gave him the script about to go Wild pass and saw that you recently put summer task.
I think for for 99.
I, just wonder whether that was demand driven where if you're just trying to sell even more.
Like do you have a limit on the number of passes that you can sell.
Credit card.
That <unk>.
Free growth in capacity.
Well, they're actually I mean, ultimately there is a limit.
We want to we want go while to be.
The highest NPS product that's out there we want to sell it favorable prices, but ultimately there is a limit to be just like there's a limit on how many seats you can sell and even I think credit cards would actually eventually have a limit.
Two people because they only have so much capacity, but no. We're really excited about it it's probably been the best received product that we've ever launched and.
If I recall I think you were personally interested in it yourself. So hopefully you've taken advantage of the great deals and we're really excited about it but yes, there is ultimately going to be a limit.
We've said this before publicly and that's why I said it could be a couple of points and load factor is look we had $6 million seats that we're going to potentially go empty. We've said if we could just fill a third of those that's 2 million seats. This this isn't this isn't tough math right.
Several points load factor and so you can kind of back into their yes, there will be a limit based on how many times they fly.
And how much the usages is how many we could actually sell and so but we don't believe we've hit that yet.
Great. Thanks.
This is my second question I noticed that you guys file a schedule through spring 2024, but about a week ago fully cut it beyond November what was that about was that more just unsure about the demand beyond the summer or does it have to do with this peak off peak months in day changes that you guys are making anything.
Okay.
It's Daniel I'm, not that was actually an Arab narrowed by the industry schedules provided they mistakenly took they mistakenly took off full schedule them is just extended it forward into the winter we.
We put we have a schedule on sale to customers through November through November 15th.
The farthest out extension, we have for this year and we've never had the date on sale to customers beyond that time.
Got it makes sense alright, thank you guys.
No. Thank you.
Our next question comes from Christopher that whole lawfulness.
Susquehanna investment group.
Good afternoon, everyone. Thanks for taking my questions. So.
Mary I think this is the.
The second cut to the 2023 capacity Guy.
Around I think 42 billion.
<unk> you outlined.
In November February was an Airbus today is network changes and it sounds like some additional delays, but a smaller.
Size at this point if there are additional delays.
And deliveries can you offset that with utilization or something else.
And.
How do we get comfortable with the current guide in light of what looks to be Mike elevated risk with.
At least three year and thank you.
Well I think we.
We have been disappointed in and their delivery stream, but I think as we get closer and closer and we're watching them.
Like a hawk to be honest.
Think we're growing in confidence that yes, it's firming up.
I think they've gotten their bad news out.
And I think it's.
I think free time.
But again I.
I'm not going to speak for Airbus that could have another challenge, but it looks pretty good on a utilization basis look I mean, if fuel prices change.
If demand changes somewhat we could we have the ability to to add more capacity.
But I think at this point give.
Given that they're four months in and they pushed another two aircraft.
I think that kind of shows the magnitude of the change which is not not a big material piece from here on out and again like the capacity change, we're making right now.
This is this is elective we could we could put these asm's back in and we just think that we can make more money without martyrdom and quite honestly will will make more money and we continue to have the lowest cost.
In the business and will have even widening cost advantage. So it's really unnecessary utilization.
Okay and as a follow up so as we look at the network plans that you outlined.
In November which included this focus on building a more modular network does this change and capacity.
Impact the plans as it sort of unchanging, just there's a different path now to get there or is it going to take longer just if you could put a little finer point on how we should think about the plans you outline at your Investor day versus this new dynamic plans.
Plans you have.
Absolutely. This is that this is daniel from a modularity perspective, we were talking November we implemented that we implemented that high but increasingly high module Hi, Modularity network in November .
We we have continued continued to work and that would that would that design approach to the network that will continue that will continue even with these amland awfully capacity.
We will we've made that we've made with the network increasingly designed around one day crew trips one day.
Obviously, what perfectly with.
With that we variance because you have the trip in the schedule on Monday, and you don't have it on Tuesday, that's fine.
And to the extent, we are a mix of one and two day Kreutz was primarily two day cruise ships.
We'll make sure they're in market, so I actually want to fly seven days a week. So there is no. There is not a problem with that either so I don't expect any change to the module dioxide aspect any changes to the <unk> to the crew efficiency from from moving it from moving in this direction.
Okay. Thank you.
Okay.
Thank you as a reminder, if you would like to ask a question press star one on your telephone.
Then that's star one one to ask a question.
Our next question comes from Philippe Nielsen from City. Your line is open.
I guess.
Speaking from Ethan Trent's team Etsy.
Thanks for taking my question, we could give you is about to hear from you about to what extent do you see a slide from co chairing with Nike from carrier lotteries engaged in Mexico.
Gainesville, particularly one status on <unk> and then I have a follow up question yesterday.
Okay dinner can answer so so yes, I guess, so we hope so how about we have <unk>, we have the coach there with the loss with with suspend was suspended.
Under the downgrade in Mexico.
We're not allowed to coach on Valores Flores continues to offer to coach on from Tiff flights.
I am assuming assuming Mexico is assuming Mexico's when Mexico as well.
Category, one we will resume putting all code on Valero saw price on flights.
Okay, great great color and just a second follow up on my side.
How do you feel about a lot of your 30 pipeline of mechanics.
Do you see any risks there.
Here's to hear about.
That's a great question for <unk>.
Talk a lot about the pilots, but actually the mechanic shortages is also realize kind.
The numbers that we've seen for the pilots but.
It is a challenge.
The industry overall has had had some difficulty I think.
Tracking the younger generations to go and choose that vocational path and get into training.
We have actually seen.
Pockets of issues, so it's a little different than the pilots because because of the pilots. You know you can move them around the system. If you will it seems to be much more local market issue.
Where we have challenges in some places.
But we've seen strength and kind of the Sun belt.
In the pockets of where we grow in the network.
But then you also seen some cities there are shortages.
So.
And it changes the incentives you have to have to in order to hire them and they vary by city.
And we've been doing a lot of things to actually just like we've done we've been talking about it but just like we've been doing our cadet program or our head of Hr's.
He has been going out and putting together recruiting team and we're working with a lot of the schools that are that are producing Ah mechanics, and so we feel good about the pipeline that we put together, but yes. It is an issue a lot of people don't want to talk about it or haven't recognized it but it is an issue with managing it now for.
Well over a year.
But the truth is is that frontier remains an attractive place to work for our pilots as well as as well as mechanics, and so we have a pretty good pipeline of folks coming in.
Great typically a thanks for thanks for the call.
Hey, thanks for leaving.
Thank you.
I'm showing no further questions in the queue I'd like to turn the call back over to Barry That's all for closing remarks.
Hey, Wanna, Thank everybody for joining today and especially those of you that ask questions. I appreciate the thoughtful questions and we look forward to talking to you again.
In the next quarter.
Everyone.
This concludes today's conference call. Thank you for participating you may now disconnect.
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Good day and thank you for standing by welcome to the Frontier Group Holdings first quarter.
2023 earnings call at this time, all participants are in a listen only mode. After the Speakers' presentation. There are question and answer session to ask a question. During the session you will need to press star one on your telephone you will then hear an automated message advising you. Your hand is raised to withdraw your question. Please press star one again.
Please be advised that today's conference is being recorded I would now like turn the conference over to your speaker today.
David Erdman Senior director of Investor Relations. Please go ahead.
Good afternoon, everyone and welcome to our first quarter 2023 earnings call. Today's speakers will be very difficult 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 review the customary safe Harbor.
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 do you mean 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. So I'll give the floor to bear to begin his remarks spirit.
Thanks, David and good afternoon, everyone.
Our results for the first quarter, reflecting adjusted pre tax loss margin of one 9% slightly outperforming expectations on a strong spring spring break period, while demand during January and the first half of February it was seasonally weak, particularly in off peak day demand strengthened as we progressed from presence dates through the spring break period in fact.
We operated an average utilization of $11 eight hours per day in March the progression in demand throughout the quarter helped drive revenue of $848 million a record for any first quarter in our company's history.
We expect the strength in demand for leisure travel to continue to extend into the busy summer travel season.
The leisure demand is supported by consumer, which today has a greater propensity and ability to travel compared to pre pandemic periods more notably they have far more flexibility to travel and to do so more often with work from home arrangements and flexible work schedules. We believe this is largely the basis for the surge in total leisure travel demand.
That began in earnest last year, it's showing resiliency and we positioned ourselves to capture a disproportionate share of it through our low fares downright strategy and innovative product offerings are.
Ah go well past, which launched last fall is a prominent example, it's a leisure focus product we're best suited to offer before the pandemic. This kind of product would have had limited appeal. Today. However sales have been strong with customers across many consumer segments, creating the building for inexpensive frequent travelers.
<unk> gives them the freedom and peace of mind to unlock unlimited and spontaneous travel to all destinations we serve of the pass sales thus far over half do not have prior travel history with frontier with this previously untapped customer base. We also have the opportunity to expand brand awareness and preference along with driving incremental revenues as these customers.
<unk> engaged with our loyalty platforms, such as discount then and the frontier World Mastercard, It's a key part of our strategy to interest increase the contribution from loyalty subscription related products supporting our goal of achieving ancillary revenue of $85 per passenger by the fourth quarter and $100 per passenger by 2026.
The strength, we're experiencing leisure travel demand favors peak days in peak periods, where we see an outsized contribution. This outsized contribution is a trend that has developed over the last year as we emerge from the pandemic, having analyzed this new customer behavior and until peak and off peak demand relationship normalizes, we're reshaping our capacity beginning in the second quarter.
To exploit this dynamic and expect the changes to be fully deployed in the second half of 2023. We are excited about the shift in our ability to lower execution risk, while maximizing revenue and profits.
While we expect the update to our network strategy to enhance our operational performance and pre tax margins, the resulting adjustments to capacity and utilization will increase our unit cost, but that said, we still expect our total cost advantage with widened from over $60 per passenger pre pandemic to over $70 per passenger in 2022 to further expand in 2020.
Right.
We anticipate our cost advantage to benefit from the ongoing gauge and fuel efficiency benefits from the increasing mix of <unk> hundred 21 Neo aircraft the operational benefits from our enhanced network strategy and the significantly lower debt service exposure, we have compared to the rest of the industry.
Overall as a result of the planned network changes I've highlighted we are adjusting our full year capacity guidance to reflect expected growth of 19% to 22%. The entire organization is aligned and focused on our return to double digit pre tax margins are.
Our second quarter guidance of adjusted pre tax margins in the range of 7% to 10% is a significant step to getting double digit pre tax adjusted margins in the second half of the year and will represent the highest post pandemic margins achieved by the company with that I'll hand, the call over to Daniel for a commercial update.
Thank you Barry and good afternoon, everyone total operating revenue for the first quarter of 2023 totaled $848 million a record for any first quarter in company history.
Driven by RASM growth of 19% on an 18% increase in capacity, both compared to the 2022 quarter.
The RASM increase was driven by a nine percentage point increase in load factor to 83% and an 11% increase in revenue per passenger to $124, both compared to the 2022 quarter.
Ancillary revenue performance continued to be strong even in the seasonally weaker first quarter with $80 per passenger generated during the quarter $11 per passenger higher than the 2022 quarter.
Last month, we opened access to I'll go I'll pass holders to begin booking travel three weeks earlier than we had originally announced feedback thus far has been overwhelmingly positive with customers taking into social media for claimants benefits in response to consumer demand just yesterday, we announced another go off promotion for the summer 2023 costs of $499 during the month of May.
The go Wild program is an important addition to our loyalty ecosystem when supplemented with elite spending levels, our frontier World Mastercard customers now have the opportunity to travel on the unlimited amount without incurring authorities precede some bags further as customers invest in the <unk> cost in the frontier web Mastercard the value of the discount then becomes an obvious complementary product.
So let me briefly on the shape of our utilization of changes to our network.
We conducted a full review of profitability over the past several quarters and observed a clear change in consumer demand patterns. While overall leisure travel is increasing the breadth of its disproportionate landing on peak days and in peak travel periods.
Prior to the pandemic the RASM premium on peak days versus Tuesday to Wednesday was 19%.
This premium has expanded to over 25% today.
By maximizing fly on peak days on peak periods, and reducing underperforming flying in low demand periods. We believe we can generate better profitability with less flyer plus derisking our operations.
Given our modular network approach, which has proven to be more resilient from a reliability perspective over the past few years, specifically, reducing midway fly on longer stays where it is more operationally complex as it would cause significant crew inefficiencies.
For this reason we have eliminated a select number of longer haul routes as part of this network optimization, which will reduce our average stage length from 1017 miles closer to 1000 miles.
That concludes my remarks, and I'll now yield the coal to Jimmy.
Thank you Daniel.
Our first quarter results reflect a pre tax loss margin of 2% on a GAAP basis, our minus one 9% on an adjusted basis. The results are reflective of the seasonality of the business with the seasonally weak first half of the quarter substantially offset by us by a strong spring break period RASM increased 19% during the quarter on an 18% increase.
Capacity fuel expense was slightly lower than anticipated driven by an average cost per gallon of $3 45.
Adjusted non fuel operating expenses were in line with expectations of $580 million or.
Of our 661 eight.
8% lower than the 2022 quarter, we ended the quarter in a strong financial position with $790 million of unrestricted cash and cash equivalents were $363 million net of total debt.
We had 125 aircrafts in our fleet of March 31, after taking delivery of six <unk> hundred 21 Neo aircraft during the quarter three of which were direct leases as noted in our earnings release Airbus Airbus knows notified us of its intent to shift its remaining aircraft deliveries expected in 2023 by approximately one month. This will cost two incremental <unk> hundred 21.
Neo aircrafts shift from 2024 to.
To shift into 2024 from 'twenty to 'twenty three in addition to the previous delays from earlier. This year. Additionally, the 2023 delays cascading into 2024 are expected to result in no net change as expected deliveries in 2024 as a similar number of number of delays are expected in 2024.
Based on the revised schedule from Airbus, We expect to take delivery of 4200 21 years in the second quarter three of which are direct leases seven in the third quarter four of which are direct leases on four in the fourth quarter.
<unk>, we recently executed an agreement to extend the current leases on <unk> hundred 20 aircraft by four years, which otherwise were scheduled to return in the fourth quarter. Accordingly, we expect to end the year with 136 aircrafts in our fleet unchanged from our prior estimates turning to guidance second quarter capacity growth is anticipated to be in the range of 20.
2% to 24% over the 2022 quarter, while full year 2023 capacity is expected to reflect growth of between 19% to 22% over the prior year to align with the utilization changes presented earlier and the impact of the Airbus delays.
Costs are expected to be between $2 65 per gallon and $2 75 per gallon in the second quarter and $2 80 to $2 90 per gallon for the full year 2023 based on the blended curve on April 24 adjusted.
Adjusted non fuel operating expenses in the second quarter expected to be between 645 million to $665 million.
And $2 5 billion to $2 55 billion for the full year, our second quarter cost guide includes the deferral of an aircraft delivery into the third quarter and excess crew staffing, resulting from the Airbus delays earlier this year full.
Full year costs reflect the deferral of two incremental aircraft deliveries into 2024 as well as the previously noted network changes detailed by Varian, Donald which deliver a similar similar level of departures on a shorter average stage length than previously planned.
We are proud of our relative cost advantage of over $70 per fastener over the industry and are confident that with longer stage and maintaining high utilization. We would have beaten our sub six CASM X objectives. However, we believe our network changes deliver a better profitability outcome for the business second quarter adjusted pre tax margin is expect to be in the range of.
7% to 10%, which will be our highest post pandemic margin while average adjusted pre tax margin in the second half of the year is expected to be in the range of 10% to 13%.
With that I'll turn the call back to Barry for closing remarks.
Thanks, Jimmy.
Extremely proud of team frontier and want to personally thank all of our employees for our performance during the quarter, including the achievement of high utilization during the peak March period.
We're focused on achieving double digit margins and expect that the strength of our ancillary product offerings and widening cost advantaged position us well to achieve this target. In addition, we believe that the network updates, we're making to capitalize on the post pandemic demand changes have created a unique opportunity for us to optimize our capacity and our high utilization capabilities in a manner that enable.
Plus a lower execution risk and maximize profits putting us on track to return to pre pandemic margins over the next year. Thanks to everyone for joining the call I'll now turn it over to the operator for questions.
Thank you as a reminder to ask a question. Please press star one on your telephone and wait for your name to be.
Announced to withdraw your question Press Star one again, please standby, while we compile the Q&A roster.
Our first question comes from Duane <unk> with Evercore ISI. Your line is open.
Hey, Thanks, I appreciate the time.
With your with your new or maybe increased emphasis on seasonality.
Could you just put that in context for us maybe compare.
Relative to a trough month.
Within a quarter.
I assume it's sort of within the week as well as as kind of month to month. So maybe just pick a September for example, how would you be thinking about at September now.
Relative to July versus.
Before you made this change.
Thanks, Duane Thank you Daniel it's much more a day of week issue than it is than it.
As a month to month, if you will.
It's going to a peak day utilization is going to look very similar month to month through the rest of the year, we've seen peaks be strong even in even in off peak periods.
What youre going to see I think relative to where we would've been is what youre going to see us.
And the most significant periods, we're probably going to be about 20% smaller on Tuesday, and Wednesday than we would have been then we would have been it would have been prior to this.
The overall the overall difference. The overall difference is about is about 15% in the second half between between off peak days on off peak days and in the most significant compared to about 25%, but you would have seen a small difference in the past so I'll call. It about 20% in a month like September .
Yes.
Okay.
And then maybe just for my follow up.
Longer term in nature.
Load factor.
That you're driving to from it from a target perspective.
What would be the goal on load factor over time.
And how do you expect as this shift to <unk>.
With that goal.
Load factor is we only look at it as a function of total.
Total revenue in RASM.
It is helpful. When you are in a high ancillary business as the leader in the world to actually run a high load factor and for that reason, we have been targeting it youll actually see that we have been improving in this area and.
And we expect to continue to improve.
We would like to to get to a flown a load factor that starts with a nine.
Maybe just one last little follow up there the go wild.
To the extent you get to a nine.
Go wild how many points would you anticipate that would contribute.
And the 1% to three point range.
Once it's mature.
Thank you.
Thank you.
Our next question.
We have a question from Jamie Baker with J P. Morgan Securities. Your line is open.
Hey, good afternoon everybody.
Barry at Investor Day, you leaned pretty heavy in two.
Work life attributes that will help you navigate the pilot shortage better than some of your competitors.
Several months have elapsed since then several new contracts have been reached.
Spirit admits that it raises in particularly helping things I'm just wondering if your pilot staffing confidence issues.
Unfazed by anything you've seen since Investor day.
It's unfazed.
We remain in a surplus position.
We're really proud of what we offer and nothing's changed in that area and in fact, we were.
We're just reviewing it earlier today and the attrition is right on target and I think Jeff remember we have we have.
Competitive compensation, if you look over the first 10 plus years of their of their careers and we've also got a better work life balance as you mentioned with more days off then.
And then practically anybody else in the industry.
I think we're averaging in starts in the 12 range days per month.
For average bid line holders. So now we have a robust.
Recruiting and we don't have the attrition that youre.
You are seeing at some of these other carriers perfect and just as a follow up historically most U S Airlines did not accrue for higher wages new contracts.
Caught me by surprise as that convention appear to change in the last year or so.
Obviously, it doesn't make sense before you reach your amendable date, but have you given any thought as to whether you might guide 2024.
CASM reflective of a new contract or will you just wait until its ratified which was.
The old the old school way of doing things.
Jamie as Jimmy Dempsey here Hi, Jimmy.
Has it gone we haven't.
We need to open the contract.
The contract expires at the end of the year.
The early opener for pilots is in July I mean, we will address next year's guidance when we get closer to next year.
Clearly, we've we were aware of what's happening in the pilot world.
We are staffing or the airlines very effectively managing our contracts and our relationship with the pilots in a very effective manner.
Some of those other contracts were open for quite some period of time and also had deals on the table.
That's showed substantial increases in pay we're some ways away from doing that so.
Judy.
Got it thanks for the feedback I appreciate it gentlemen take care.
Okay.
Okay.
Thank you.
We have a question from Conor Cunningham from Meles Research Your line is open.
Everyone. Thank you for the time just in terms of the changes to the reshaping of your network I'm just trying to understand why youre doing this I would've thought that some of these changes would have already been implemented but just are you seeing.
Peak a lot weaker than you anticipated and then peaks just being that much but I'm just curious if you're seeing anything on the margin front from a demand standpoint, that's really changing how youre thinking about your network overall.
Well look it has changed.
Versus pre pandemic as Daniel laid out.
It was 19% difference.
Off peak versus peak prior to the pandemic and we're seeing levels over 25% now.
So in some cases, even more extreme in the off peak months for off peak day. So yes. The reason why we haven't changed as quite candidly.
We are a high utilization business.
And we've actually run a lot higher utilization that most people on on balance.
From a mid week perspective in the past, but we.
We are now at the point, we have seen several quarters and we just the data is staring us in the face and I think when you look at the first quarter in particular.
I think what I think is most interesting is we believe we could've made money from a profitability perspective, when we looked at first quarter and we made these changes and so one of the best ways to stop losing money to start doing things that lose money and so we are on a go forward basis, we're reacting to this and if the dynamics change.
Going forward, we will look at it again, but we think this is the right path to get back to pre pandemic margins.
Okay. That's helpful. And then as you start to think about your 2024 plants and growth overall.
Ben.
Sort of talk about capacity constraints, you've talked a fair bit about Airbus delays, just why shouldnt, we expect whatever we had in terms of our capacity growth plan for 24 hours and it should be lower going forward. It just seems like a lot of these issues that we're talking about right now just won't necessarily dissipate going forward just curious on.
How youre thinking about that as we go into 'twenty four thanks.
Well there will be delays in 2024, I think the biggest thing that you have to understand though is that the majority of the pain has already been felt so youre lapping when they first came in with this big delay you moved a whole bunch of airplanes to the right what's going to happen is yes, we will move aircraft out of 24 into 25 at some point.
But the 'twenty threes that got moved into 'twenty four we will actually deliver so I think you have to remember we have enough aircraft on delivery that we expect to continue to have a sizable growth. So I think what's more important when you think about frontier versus the overall industry is that.
If you're asking airline today would you take an airplane from the manufacturer Thats may be delayed a few months.
Versus not have one.
They'll take the airplane delayed and we have a very good order book and it's a real asset to the business.
So I think yes, it will impact 'twenty four but from a year over year perspective, I think youre not going to see the changes that you've seen in the past.
Okay. Thank you.
Thank you.
One moment for our next question.
Our question comes from Helane Becker with Cowen Your line is open.
Thanks, very much operator, hi, everybody. Thank you for the time this afternoon.
So can you maybe Jimmy you talk about the non fuel cost pressures that youre seeing like which airport cost maybe is included in that.
I know salaries, but the other costs that you're experiencing.
There's a couple of things.
We're not immune to inflation.
The entire economy.
We are seeing some inflation in the business being offset by the growth in capacity in.
The average seats per departure increasing considerably.
That has effectively managed inflation, what youre seeing at the moment in the cost base as Overstaffing from a crude perspective, both in the pilot and flight attendant world.
And then you have some noise around the delivery delays that are happening in the airline.
Move from one quarter to another some of the financing benefits that we got from sale leasebacks and so you have some noise that's going on around around up there.
The typical Airbus delivery delays now four to five months as opposed to three to five months previously.
Outside of that the business is from a cost perspective is operating very very effectively.
Our cost differential to the competition is still over $70 a passenger pre COVID-19. It was $60 a passenger and so our cost advantage against the rest of the industry has widened and we expect that to continue.
That's very helpful. Thank you and then just as a follow up question I noticed in the last.
On a random survey you guys for last.
Ian.
Hi, guys.
Tumor.
Satisfaction.
Good.
And I'm wondering how you're thinking about retaining customers as opposed to churning customers or do I have that wrong and you are not really churning youre just Hudson Scotland.
Well I think when we look at the data we have one of the highest repeat businesses.
And the industry, we have over 90% repeat business.
Look I saw one of these or these recent surveys I think I'd be very careful about the sources of some of these and how they how they based off of the other thing is when you look at the at the weightings of some of these these.
I guess studies or analysis.
They really don't wait price like they should and what you see is that consumers when they buy air travel the number one thing they look for especially for leisure customers as price and so.
If you wait price as it should be weighted I think we're a clear winner when you look at the overall value for consumers and Thats why we continue to have such high repeat business.
Thank you very helpful. Thanks, guys.
Thank you and our next question comes from Andrew <unk> with Bank of America. Your line is open.
Hey, good afternoon everybody.
Just in terms of the network changes right I know Barry you speak about it.
During your execution risk.
I would think more peak flying maybe.
Might increase operational risk a bit here am I right to think about it that way and maybe what are you. What are you doing to potentially mitigate some of that.
Operational risk at peak times.
So Andrew its Daniel we're broadly speaking flying the same utilization on Pete on peak days will keep what I was saying is actually we're just going to keep the peak utilization.
Plus slightly higher peak utilization in an off peak month, because we found on peak days and those optical on the transformed Patterson, we're not pushing we're not pushing our peak utilization higher than it was before.
So the lower execution risk is simply you've got with lower off peak flying you bought more recovery time during the middle of the week of memorial coverage time on Saturday, which helps you when we've seen that we've seen evidence of it helps us run a better operation than on both those days and on peak days of follow up.
The other thing I would point out too is that if you look at March and especially April where the highest utilization airline in total not just peak days in total and yet we've been mid Pac or higher I think we're fourth place and completion in April as an example, so.
You can trust anyone to run high utilization effectively and reliably it's frontier.
Got it and then sort of a follow up to an earlier question regarding your costs.
I guess 2023 capacity can come down a decent chunk, but you're so let me point of your Opex guidance higher can.
Can you maybe provide a bridge on what is driving that.
Jimmy maybe providing some of the bigger cost buckets.
That's driving opex higher even while capacity is coming down.
Yes, I mean, I mentioned it earlier to <unk> question. The movement of aircraft out of the period is one of the big drivers of increasing the higher range. The higher end of the range. The other thing thats happening in the business as you have a similar number of departures.
But lower ASM production because of the stage length is shortened and so you have a very similar overall cost base.
Albeit slower ASM produced capacity, but a similar level of departures and so you end up with a similar cash cost effectively you do save some money on fuel.
Your airport charges your station cost in general the ground handling costs typically stay similar.
So thats all youre seeing at the moment.
Got it and then if I could sneak one more.
One more in there.
In terms of pre <unk> pre tax margins for the year, obviously fuel fuel came down a bit.
The costs are moving moving higher.
Anything changed from your perspective in the way Youre thinking about the revenue cadence throughout the year.
No no no not really.
What I expect.
<unk>.
We're expecting we're expecting on the revenue for the rest of it we're expecting domestic to look much more like normal yes, we're expecting we're expecting we're expecting peaks picks to be good we're expecting some of that for Q3 Q3 to be strong.
With the usual suspects and the usual holiday strengthen going forward. So I would expect on the cadence through the year to be to be.
Much more much more like a normal domestic here.
Okay. Thank you.
Thank you.
Our next question is coming from Brandon Glinski from Barclays. Your line is open.
Hey, good afternoon, and thanks for taking the question.
This one's for barrier Daniel.
With the off peak changes does this change in any way like your new market strategy, especially in the back half of the year as you get into the more trough periods after the summer.
This wouldn't change our new market strategy in particular, although.
Longer hauls are more complicated because if you do want to reduce midweek flying it causes inefficient crew bearings. It causes deadheads as an example.
And I would say if you just look at a specific city, where this has been most pronounced it's Las Vegas I mean, we have seen that.
The mid week is just nowhere near what it was.
Prior to the pandemic and you can see it in the pricing of hotels in Las Vegas.
Can see if everything you can see the strip is packed on a Friday night, but on a Tuesday system, you can get a reservation anywhere you want.
And so that is reflecting in our loads as well as well as fares and so that impacts Las Vegas, and it especially impacts long hauls from Vegas as an example, so but overall, we haven't seen anywhere else be that challenged like we've seen in Las Vegas.
I mean, I guess marry some of the concern in the market as you do definitely have the absolute cost advantage, but is that just not resulting in the stimulation that you guys are seeing maybe pre pandemic.
Now Brendan I'll take this one we're seeing apps, we're seeing we're seeing demand strength, we're seeing the ability to stimulate demand in new markets. We are still aggressively expand EMEA and we are aggressively adding new markets and we're absolutely seeing that starting to come through.
<unk>.
What was that simply isn't in off peak periods off peak days of week have been.
First I'll further underperforming relative to what we saw pre pandemic.
But again that's.
Not to say that we don't want to say, we're going to we're not going to findings when not when the final sponsor market stimulation.
Point to I can point to markets, which were new last September compared to pre pandemic, where on the peak days a week. We saw very strong performance. We saw great. We saw great demand and.
And we continue we continue to see in the future lot small markets, where we can say, we're going to see exactly the same thing.
Okay I appreciate that and then maybe just one last one on utilization. If you are taking down off how do you plan to match utilization or do you take a slight penalty there too.
I would.
A slight penalty there too in addition to what I mean look utilization would be slightly lower but.
Overall, our cost advantage, we expect to widen.
So let's be clear that our cost advantage is widening even with these changes. So this is less than a 10% move. This is this is it.
Not that dramatic of a change we expect that this is accretive.
A couple of points in margin.
From a profitability perspective, so this isn't a major change in our business. It's just a tweak that we're just seeing that travel patterns people are willing to pay a lot more to travel Thursday Sunday than they did even before and there's more of them.
But the work from home and I would actually argue it's less the work from home, but more of that flexibility where people are working two or three days a week in the office. The most common two days in the office, our Tuesdays and Wednesdays it's no coincidence.
This is not some.
This mysterious black box of information that's why travel for leisure is the hardest on Tuesdays and Wednesdays and so that to be blunt, we have got to utilize the airline and we're better at it than anybody on the other days of the week, but Tuesday Wednesday is just not is not is not as pronounced as it was before.
But it's not going to kill our business. Thank you Barry I can make a strong.
Thank you.
Yeah.
Thank you.
And our next question comes from.
Michael Lindenberg from Deutsche Bank. Your line is open.
Hi, Good afternoon. This is actually Shannon Doherty on for Mike Barry I. Appreciate the detail that you gave in the script about the go Wild pass and saw that you recently put summer.
So I think for 499.
Wonder whether that was demand driven or if youre just trying to sell even more.
Do you limit the number of passes that you can sell unlike credit card just thinking about <unk>.
Growth in capacity.
Well, they're actually I mean, ultimately there is a limit.
We want to we want go wild to be.
The highest NPS product that's out there we want to sell at favorable prices, but ultimately there is a limit to be just like there is a limit on how many seats you can sell and even I think credit cards would actually eventually have a limit.
Two people because they only have so much capacity, but no. We're really excited about it it's probably been the best received product that we've ever launched and.
If I recall I think you were personally interested in it yourself. So hopefully you've taken advantage of the great deals and we're really excited about it but yes, there is ultimately going to be a limit.
We've said this before publicly and Thats why I said it could be a couple of points and load factor is look we had 6 million seats that were going to potentially go empty. We've said if we could just feel a third of those thats 2 million seats. This isn't this hidden tough math right.
Several points of load factor and so you can kind of back into their yes, there will be a limit based on how many times they fly.
And how much the usages is how many we could actually sell and so but we don't believe we've hit that yet.
Great. Thanks.
Just my second question I noticed that you guys filed with schedule through spring 2024, but about a week ago fully call. It beyond November what was that about was that more just unsure about the demand beyond the summer or does it have to do with this peak off peak months and day changes that you guys are making anything you have there.
Yes.
Yes.
It's Danielle that was answering Arab narrow by the industry schedules provided they mistakenly took they mistakenly took a full schedule of lenders just extended it forward into the winter. We put we have a schedule on sale to customers through November through November 15th.
Further south extension, we have for this year and we've never had the data on sale to customers beyond that time.
Got it makes sense all right. Thank you guys.
No. Thank you.
Our next question comes from Christopher Statoil Lopolith from Susquehanna.
<unk> group.
Yes.
Good afternoon, everyone. Thanks for taking my questions. So.
Barry I think this is the.
The second cut to the 2023 capacity guide.
It's around I think 42 billion.
<unk> outlined.
In November February was on Airbus today, as network changes and it sounds like some additional delays, but a smaller.
Size at this point if there are additional delays.
And deliveries can you offset that with utilization or something else.
And we just.
How do we get comfortable with the current guide in light of what looks to be like elevated risk with the Oems at least through year end. Thank you.
Well I think look we have been disappointed in and their delivery stream, but I think as we get closer and closer and we're watching them.
Like a hawk to <unk> I think we're growing in confidence that yes, it's firming up.
I think they've gotten their bad news out.
And I think it's.
I think pretty tough.
But again.
I'm not going to speak for Airbus. They could have another challenge, but it looks pretty good on a utilization basis look I mean, if fuel prices change if.
If demand changes somewhat we have the ability to add more capacity.
But I think at this point.
Given that they're four months in.
Pushed another two aircrafts.
I think that kind of shows the magnitude of the change which is not a not a big material piece from here on out and then again the capacity change, we're making right now.
This is this is elective we could we could put these ASM back in and we just think that we can make more money without one of them and quite honestly, we'll make more money and we continue to have the lowest cost.
In the business and will have an even widening cost advantaged. So it's really on us.
Necessary utilization.
Okay and as a follow up so as we look at the network plans that you outlined.
In November which included this focus on building a more modular network does this change in capacity impact. The plans is it sort of unchanged just theres a different path now to get there or is it going to take longer just if you could put a little finer point on how we should think about the plans you've outlined at your Investor day.
This new dynamic yes go ahead, yes. Thanks.
Perhaps some of this is that this is Daniel from our modularity perspective, we were talking in November we implemented that we implemented that.
Increasingly high module high Modularity network in November .
We have continued we have continued to work and that would that would that design approach to the network that will continue that will continue even with these and what is the off peak capacity.
We will.
Made that we've made in the network increasingly designed around one day crude trips one thing Chris.
Obviously, what perfectly with with that variance because you have the tripling of the schedule on Monday, and you don't have it on Tuesday, that's fine.
And to the extent, we are mix of one and two day, Chris was primarily to de crew ships.
We'll make sure they are in markets that actually want to fly seven days a week, so theres not theres not a problem with that either so I don't expect any change to the modularity aspect any change to the coefficient to the crew efficiency from from moving it from moving in this direction.
Okay. Thank you.
Okay.
Thank you as a reminder, if you'd like to ask a question press star one on your telephone.
Again, Thats star one to ask a question.
Our next question comes from Philippe Nielsen from Citi. Your line is open.
Hey, guys.
Philippe speaking from Stephen Kim.
Thanks for taking my question.
We are curious about.
To hear from you about to what extent do you see upside from gold Chevy with Mexican carrier of lawyers engaged Mexico regains its a category one status.
On safety rating.
And I have a follow up question yesterday.
Yes, Dan who can answer so so yes, I guess, so we obviously haven't we haven't we have the codeshare with valores.
With suspend was suspended.
Under the downgrade in Mexico, we are not allowed to culture on Dolores with ours continues to offer the culture on from tier slides.
Im assuming assuming Mexico as soon in Mexico, when Mexico credits.
Category, one we will resume putting all code on Dolores operating flights.
Okay, great great color guys.
The second one follow up on my side.
How do you feel about your current pipeline of mechanics.
Do you see any risks there.
Curious to hear about.
That's a great question.
People talk a lot about the pilots, but actually the mechanic shortages is also realized tonight.
The numbers that we've seen for the pilots but.
It is a challenge.
The industry overall has had some difficulty I think attracting the younger generations to go and choose that vocational path and get into training.
We have actually seen.
Think pockets of issues. So it's a little different than the pilots because because the pilots you can move them around the system. If you will it seems to be much more local market issue where.
Where we have challenges in some places.
But we've seen strength in kind of the Sun belt.
And the pockets, where we're growing the network.
But then you're also seeing some cities there are shortages.
So.
And it changes the incentives you have to have in order to hire them and they vary by city.
And we've been doing a lot of things to actually just like we've done we've been talking about it but just like we've been doing our cadet program are our head of HR.
He has been going out and putting together a recruiting team and we're working with a lot of the schools that are that are producing a mechanics.
So we feel good about the pipeline that we've put together, but yes. It is an issue a lot of people don't want to talk about it or haven't.
<unk>, but it is an issue and we're managing it now for well over a year.
But the truth is is that frontier remains an attractive place to work for our pilots as well as well as mechanics, and so we have a pretty good pipeline of folks coming in.
Great so quickly thanks.
Thanks vertical guys.
Hey, Thanks Louie.
Thank you.
Im showing no further questions in the queue I would like to turn the call back over to Barry for closing remarks.
I want to thank everybody for joining today and especially those of you to ask questions. I appreciate the thoughtful questions and we look forward to talking to you again.
In the next quarter.
Thanks, everyone.
Yes.
This concludes today's conference call. Thank you for participating you may now disconnect.