Q3 2023 Frontier Group Holdings Inc Earnings Call
Okay.
Speaker 1: transcript
Good day and thank you for standing by welcome to the Frontier Group Holdings, Inc. Third quarter 2023 earnings Conference call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During the session you will need to press star one on your.
Speaker 1: transcript
Telephone you will then hear an automated message advising you that your hand is raised.
Speaker 1: transcript
What's your all your question. Please press Star one again, please be advised that today's conference is being recorded.
I would now like to hand, the conference over to your Speaker today, David Erdman Senior director of Investor Relations. Please go ahead.
Speaker 1: transcript
Thank you good morning, everyone and welcome to our third quarter 2023 earnings call.
Speaker 2: transcript
Speaker 2: transcript
On October 19th we announced changes to our management team and so I'm pleased to introduce today's speakers in their new roles with me or Barry before Chief Executive Officer, Jimmy Dempsey, President and Mark Mitchell Chief Financial Officer.
Each will deliver brief prepared remarks, and then we'll get to your questions, but first let me quickly review the customary safe Harbor provisions. During this call we will be making forward looking statements, which are subject to risks and uncertainties actual results may differ materially from those predicted in these forward looking statements additional information concerning risk factors.
Speaker 2: transcript
Speaker 2: transcript
Speaker 2: transcript
Speaker 2: transcript
Factors, which could cause such differences.
Lyne do media announcement, we released yesterday or earlier this morning.
Along with reports, we filed with the Securities and Exchange Commission.
Speaker 2: transcript
We will also discuss non-GAAP financial measures, which are reconciled to the nearest comparable GAAP measure in the appendix of the earnings announcements and so I'll give the floor to bear to begin his prepared remarks spirit.
Speaker 2: transcript
Thank you David and good morning, everyone.
I want to recap the recent changes to our senior leadership team.
Including the promotion of Jimmy Dempsey, President and Mark Michelle to CFO, Jimmy will now oversee commercial customer care and operations research design and planning functions and Mark will assume Jimmy his former role do.
Do you mean, Mark had been invaluable members of frontier senior leadership team over the years and I'm excited about their contributions going forward. We also welcomed <unk> to our to frontier as our Chief Information Officer, and Matt <unk> as our new Treasurer Raj that has extensive experience, including leadership roles at Lowe's companies and at United Airlines, and Matt comes to us with significant.
Speaker 2: transcript
Cross functional experience at Airbus.
Joining me in welcoming Roger and Matt to frontier and congratulating, Jimmy and Mark on their promotions frontier has a deep bench of executive talent and we're well positioned to help guide the growth of our airline into the future.
Speaker 2: transcript
Our third quarter results reflect a pre tax loss.
5%.
Speaker 2: transcript
Non fuel operating expenses at the low end of our guidance as we continued a rigorous focus on cost management.
Speaker 2: transcript
The quarter was impacted by elevated fuel prices uneven demand recovery and uneven industry domestic capacity deployment as well as increased black cancellations from whether other operating challenges. Additionally, we observed softer than expected demand in the off peak periods in the quarter.
Speaker 2: transcript
Speaker 3: transcript
Looking to the fourth quarter stage adjusted non fuel unit costs are expected to sequentially improve we've also been we've also seen booking volume stabilized driven by low fare stimulation, albeit at higher fuel prices.
Speaker 3: transcript
Speaker 3: transcript
And the 24, we believe demand patterns will normalize and industry capacity growth will moderate and rebalance across geographies. We believe unit cost leadership will be fundamental to long term success and we expect frontier will be the lowest cost provider of a seat in the United States for years to come further operating a high utilization highly reliable airline will be important to our success.
And long term growth as well as delivering a low cost and rewarding customer experience I'll turn the call over to Jimmy to elaborate on our plan to dramatically simplify our operating model to align with the OCC best practices and to fuel the next stage of frontier scalable growth Jimmy.
Speaker 3: transcript
Speaker 4: transcript
Thanks, Barry and good morning, everyone I will start with with recapping the quarter.
Total operating revenue for the third quarter was $883 million, reflecting RASM of $9 one.
Down 19% from a strong prior year comp on 21% capacity growth on a 2% increase in stage.
Speaker 4: transcript
Fair revenue was $39 per passenger lower than the $558 in 2022 quarter, primarily just the impact of the additional capacity industry capacity concentrated in certain of our key markets weakness in the off peak periods and heightened flight cancellations, resulting from weather and continued challenges in the operating environment in contrast.
Unknown Executive: Good day and thank you for standing by.
Unknown Executive: Welcome to the Frontier Group Holdings Inc.
Unknown Executive: 3rd quarter, 2023 earnings conference call. At this time all participants are in a list and only mode. After the speakers presentation, there will be a question and answer session to ask a question during this session. You will need to press star 11 on your telephone. You will then hear an automated message advising you that your hand is raised. To withdraw your question, please press star 11 again. Please be advised to today's conference is being recorded.
Speaker 4: transcript
<unk> revenue was $76 per passenger only 3% down from the prior year quarter, demonstrating the resilient nature of our suite of ancillary products and services.
Speaker 4: transcript
While we've achieved the highest utilization in the industry. This year, it's been challenging to reach higher utilization due to the post COVID-19 operating environment, including ATC staffing challenges and reliability that has underperformed as a result in.
Unknown Executive: I would now like to have the conference over to your speaker today.
Speaker 4: transcript
In my new role one of the primary objectives is to plan and allocate resources to achieve improved reliability, resulting in our ability to operate at high utilization and deliver lower costs transitioning to a more simplified operating design will result in industry, leading low costs higher reliability and the best value proposition in the industry.
David Erdman: David Erdman, Senior Director, Investor Relations, please go ahead. Thank you.
Barry Biffle: Good morning everyone and welcome to our 3rd quarter, 2023 earnings call. On October 19th, we announced changes to our management team and so I'm pleased to introduce today's speakers and their new roles. With me are very Biffle, Chief Executive Officer, Jimmy Dempsey, President and Mark Mitchell, Chief Financial Officer. Each will deliver brief prepared remarks and then we'll get to your questions.
Speaker 4: transcript
Speaker 4: transcript
After careful analysis, we have determined that simplifying our business in a manner similar to European Uscc's will provide improved reliability and enabled the airlines to make continued progress toward pre COVID-19 utilization levels. Despite similar operating issues experienced over the past decade. This essentially means returning aircraft to base nicely.
Barry Biffle: But first, let me quickly review the customary Safe Harbor provisions. During this call, we will be making forward looking statements which are subject to risks and uncertainties. Actual results may differ materially from most predicted in these forward looking statements. Additional information concerning risk factors which could cause such differences outlined in the announcement we released yesterday or earlier this morning, along with reports we filed with the Securities and Exchange Commission. We will also discuss non-gap financial measures which are reconfiled to the nearest comfortable gap measure in the appendix of the earnings announcement.
Speaker 4: transcript
As we expect consumers will see greater value in travel we recently launched get at all for less as a first step we've enhanced the frontier miles program to be revenue base rewarding customers for fair and ancillary purchases, we've expanded our elite status levels to incorporate many new features including waves change and counsel fees free bags and seat assignments on them.
Speaker 4: transcript
Multitude of other benefits.
Speaker 4: transcript
Additionally, elite status is more easily attained including our gold status after spending just $3000 on the frontier Barclays Barclays Mastercard in the coming months, we expect to broaden get at all for us to further enhance our customer value proposition.
Barry Biffle: And so give the Florida Bayer to begin his prepared remarks. Spirit. Thank you, David.
Speaker 4: transcript
Barry Biffle: Good morning, everyone. I first want to recap the recent changes to our senior leadership, including the promotion of Jimmy Dempsey to President and Mark Mitchell to CFO. Jimmy will now oversee commercial customer care and operations research design and planning functions and Mark will assume Jimmy's former role. Jimmy and Mark have been invaluable members of Frontier Senior Leadership Team over the years and I'm excited about their contributions going forward. We also welcome Rajat Kanna to our Frontier as our Chief Information Officer and Matt Sacks as our new treasure.
Speaker 4: transcript
I'll now yield to mark to provide a financial update.
Thank you Jimmy and good morning, everyone.
Speaker 5: transcript
Third quarter pre tax loss margin was five 1%, reflecting a challenging environment as very covered earlier total revenue was $883 million down 3% compared to the 2022 quarter and fuel expense was in line with guidance at an average cost per gallon of $3 eight.
Speaker 5: transcript
Barry Biffle: Rajat has extensive experience including IT leadership roles with the Loads Company and at United Airlines and Matt comes to us with significant cross-punch control and experience at our bus. Please join me in welcoming Rajat and Matt to Frontier and congratulating Jimmy and Mark on their promotions.
Speaker 5: transcript
Adjusted non fuel operating expenses were $646 million or six six <unk> on a unit basis, 3% lower than the 2022 quarter in an inflationary environment and at the low end of our guidance, reflecting our continued focus on costs. We have the lowest total unit cost in the industry and we are focused on continued.
Barry Biffle: Frontier has a deep bench of executive talent and we're well positioned to help guide the growth of our airline into the future. Our third quarter results reflect a pre-tax loss of 5%. With non-fuel operating expenses at the low end of our guidance as we continued our rigorous focus on cost management. The quarter was impacted by elevated fuel prices, uneven demand recovery and even industry domestic capacity deployment as well as increased flight cancellations from weather and other operating challenges.
We can maintain our cost leadership through high utilization improve reliability and simplification of the operation.
Speaker 5: transcript
To that end, we've identified more than $200 million of annual run rate cost savings related to fundamentally changing the way we operate as presented earlier, which we expect to be fully implemented by the end of 2024, we will provide more details as we progress through next year.
Barry Biffle: Additionally, we observed softer than expected demand in the off-peak periods in the quarter. Looking to the fourth quarter, stage adjusted non-fuel unit costs are expected to sequentially improve. We've also seen booking volume stabilized driven by low-fair simulation albeit at higher fuel prices. In the 24, we believe demand patterns will normalize and industry capacity growth will moderate and rebalance across geographies. We believe unit cost leadership will be fundamental to long-term success and we expect Frontier will be the lowest cost provider of a seat in the United States for years to come. Further, operating a high utilization, highly reliable airline will be important to our success and long-term growth as well as delivering a low cost and rewarding customer. Experience.
We exited the quarter with $640 million of unrestricted cash and cash equivalents.
Speaker 5: transcript
As a reminder, we also have access to substantial liquidity through our unencumbered loyalty and brand related asset.
Speaker 5: transcript
We had 134 aircraft in our fleet at September 30th after taking delivery of eight <unk> hundred 21 Neo aircraft during the quarter.
Five of which were financed with direct leases.
Speaker 5: transcript
Two aircrafts scheduled to be returned in September were delayed into early October.
And with another four deliveries expected in the fourth quarter all financed through sale leaseback transactions are forecast to exit the year with 136 aircraft is unchanged.
Speaker 5: transcript
Turning to fourth quarter guidance.
Jimmy Dempsey: I'll turn the call over to Jimmy to elaborate on our plan to dramatically simplify our operating model to align with the ULCC best practices and to fuel the next stage of Frontier's scalable growth. Jimmy? Thanks, Barry, and good morning everyone.
<unk> growth is anticipated to be in the range of 12% to 14% over the 2022 quarter on stage length, which is expected to average 950 miles, 8% lower than the 2022 quarter, which reflects network optimization in response to today's heightened fuel prices and demand environment.
Jimmy Dempsey: I will start with recapping the quarter. Total operating revenue for the third quarter was $883 million, reflecting rise of 9.1 cents, down 19% from a strong prior year comp on 21% capacity growth and a 2% increase in stage. Fair revenue was $39 per passenger, lower than the $58 in 2022 quarter, primarily just the impact of the additional capacity, industry capacity, concentrated in certain of our key markets. Weakness in the off-peak periods and heightened flight consolations resulting from weather and continued challenges in the operating environment.
Speaker 5: transcript
Accordingly, we estimate fuel to remain elevated at $3 20 to $3 30 per gallon based on the blended fuel curve on October 24th.
Speaker 5: transcript
Adjusted non fuel operating expenses are expected to be between $655 million to $665 million, which on a stage adjusted CASM basis is in line with the prior year and lower than the prior quarter.
Speaker 5: transcript
Taken together, our adjusted pre tax loss margin in the fourth quarter is expected to range from six months to 9%, which at the midpoint is slightly wider than the third quarter, mainly due to higher fuel expense.
Jimmy Dempsey: In contrast, ancillary revenue was $76 per passenger, only 3% down from the prior year quarter, demonstrating the resilient nature of our suite of ancillary products and services. While we have achieved the highest utilization in the industry this year, it's been challenging to reach higher utilization due to the post-COVID operating environment, including ATC staffing challenges and reliability that has underperformed as a result. In my new role, one of the primary objectives is to plan and allocate resources to achieve improved reliability, resulting in our ability to operate as high utilization and deliver lower costs.
That I will turn the call back to Barry for closing remarks, Thanks, Marc I want to thank team frontier for staying focused on providing loafers done right and a challenging commercial and operating environment.
Speaker 3: transcript
Speaker 3: transcript
We're disappointed in our results for the quarter and the outlook for the fourth quarter and were taking methodical steps to ensure we deliver a reliable and rewarding experience to our customers to remain the lowest cost provider of a seat in the United States for the long term. We believe these steps will position the airline to return to profitability. Thanks.
Speaker 3: transcript
Jimmy Dempsey: Transitioning to a more simplified operating design will result in industry-leading low costs, higher reliability, and the best value proposition in the industry. After careful analysis, we have determined that simplifying our business in a manner similar to European ULCCs will provide improved reliability and enable the airline to make continued progress toward pre-COVID utilization levels despite similar operating issues experienced over the past decade. This essentially means returning aircraft to base nightly. As we expect consumers will seek greater value and travel, we recently launched Get It All for Less.
Thanks again for joining us this morning, we're ready to begin the Q&A portion of the call.
Speaker 1: transcript
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. Please press star one again, we ask that you. Please limit yourself to one question and one follow up please standby, while we compile our Q&A roster.
Speaker 1: transcript
And our first question is going to come from the line of Savi <unk> with Raymond James Your line is open. Please go ahead.
Jimmy Dempsey: As a first step, we've enhanced the Frontier Miles program to be revenue-based, rewarding customers for fair and ancillary purchases. We've expanded our elite status levels to incorporate many new features, including waves, change in cancel fees, free bags and seed assignments, and a multitude of other benefits. Additionally, elite status is more easily attained, including our gold status after spending just $3,000 on the Frontier Barkey's master card. In the coming months, we expect to broaden Get It All for Less to further enhance our customer value proposition.
Speaker 6: transcript
Hey, Thanks, good morning.
Just kind of curious if you could provide a little bit more color on demand, maybe particularly at peak versus off peak if I. If I look at your unit revenue, it's similar on a year over year basis to what Youre seeing in <unk>, but you do have slower capacity growth in your stage length is.
Kind of getting shorter so I would have thought that that would have been the unit revenue.
Tailwind.
Speaker 3: transcript
Well the peak periods are continued to be more resilient in the off peak.
What we're dealing with is an overall slowdown in demand, which has been cited multiple times now since we kind of brought it up over a month ago.
Mark Mitchell: I'll now yield to Mark to provide a financial update. Thank you, Jimmy, and good morning, everyone. Third quarter pre-tax loss margin was 5.1% reflecting a challenging environment as Barry covered earlier. Total revenue was $883 million, down 3% compared to the 2022 quarter, and fuel expense was in line with guidance at an average cost per gallon of $3.8 cents. Adjusted non-fuel operating expenses were $646 million, or $6.66 cents on a unit basis, 3% lower than the 2022 quarter in an inflationary environment and at the low end of our guidance, reflecting our continued focus on costs. We have the lowest total unit costs in the industry, and we are focused on continuing to maintain our cost leadership through high utilization, improve reliability, and simplification of the operation.
We've seen that and that is more acute in the off peak periods and then we're also seeing kind of uneven deployment of capacity in the United States. So so there is there is a lot more capacity versus <unk> 19 in the Las Vegas, and a lot less in our Minneapolis as an example, so that unevenness is impacting frontier. The most as we study that.
Speaker 3: transcript
We're probably more impacted by the unevenness than anybody else in the space, but but to answer your question about the peaks. The peaks continue to main very resilient.
Speaker 6: transcript
And if I might just as you kind of look to kind of capacity and your plans here.
Especially as you kind of reached kind of REIT structure approach.
Mark Mitchell: Foundation. To that end, we've identified more than 200 million of annual run rate cost savings related to fundamentally changing the way we operate, as presented earlier, which we expect to be fully implemented by the end of 2024. We will provide more details as we progress through next year. We had 134 aircraft in our fleet at September 30th after taking delivery of 8 A321neo aircraft during the quarter, five of which were financed with direct leases.
Speaker 6: transcript
How should we think about 'twenty 2024 is it still kind of similar to kind of <unk> level year over year growth or should we see that moderating.
Speaker 3: transcript
So we did moderate our growth somewhat in the fourth quarter versus even just a few months ago as expectations and when as we look to Q1, which is going to be back to where we see the biggest challenges in the demand environment as in Q1 as I mentioned off peak is not as resilient as the peak, we're targeting mid single digit growth for <unk>.
Speaker 3: transcript
Q1, but we are maintaining our mid mid teens.
Speaker 3: transcript
Growth for the year and I think more specifically, we will be targeting growth kind of away from where these places that have been saturated and the more underserved markets as we move into 'twenty four.
Mark Mitchell: Two aircraft scheduled to be returned in September were delayed into early October, and with another four deliveries expected in the fourth quarter, all financed through salally spec transactions are forecast to exit the year with 136 aircraft is unchanged. Turning to fourth quarter guidance, capacity growth is anticipated to be in the range of 12 to 14% over the 2022 quarter on stage lengths which is expected to average 950 miles, 8% lower than the 2022 quarter, which reflects network optimization in response to today's heightened fuel prices and demand environment.
Very helpful. Thank you Bernie.
Thank you and one moment for our next question.
Mark Mitchell: Accordingly, we estimate fuel to remain elevated at $3.20 to $3.30 per gallon based on the blended fuel curve on October 24th. Adjusted non-fuel operating expenses are expected to be between 655 to 665 million, which on a stage adjusted chasm basis is in line with the prior year and lower than the prior quarter. Taken together, our adjusted pre-tax loss margin in the fourth quarter is expected to range from 69%, which at the midpoint is slightly wider than the third quarter mainly due to higher fuel expense.
And our next question comes from the line of Duane <unk> with Evercore ISI. Your line is open. Please go ahead.
Speaker 1: transcript
Hey, thanks.
Speaker 4: transcript
I appreciate the time.
If we could just sort of playback.
Speaker 7: transcript
<unk> revenue outcomes and maybe the variance relative to your initial expectations could.
Speaker 7: transcript
Could you could you maybe bucket what you feel like are contributing factors and maybe one bucket being <unk>.
Speaker 7: transcript
Holding out for higher yields when basically your competitors really went for load and maybe werent doing that to the same degree.
Two the ops challenges, which you, which you highlighted and maybe you have a sense for how acute.
The revenue outcomes were in the markets that had seen those the most.
Speaker 7: transcript
And then three maybe just some sub optimal network bets.
Barry Biffle: With that, I'll turn the call back to Barry for closing remarks. Thanks, Mark. I want to thank team Frontier for sitting focused on providing low fairs done right and challenging commercial and operating environment.
It didn't play out the way you you anticipated maybe there's other buckets, but.
Would appreciate if you could walk through some of that.
Speaker 3: transcript
Well I think I think first and foremost Duane.
Barry Biffle: We're disappointed in our results for the quarter and the outlook for the fourth quarter and we're taking methodical steps to ensure we deliver reliable and rewarding experience to our customers to remain the lowest cost provider of a seat in the United States for the long term. We believe these steps will position the airline to return to profitability.
For your questions I think I think number one.
Throughout the pandemic and post pandemic, we've seen the fall will be much stronger than it has turned out.
Speaker 3: transcript
So that was kind of a surprise.
Maybe we can call it normal, but I think it was more abnormal from a downshift than we've seen in a relationship of the peaks versus past. We also did see and it doesn't help when you've got maybe one or two carriers that are behind material on load factor in the very long.
Barry Biffle: Thanks again for joining us this morning.
Unknown Executive: We're ready to begin the Q&A portion of the call. Thank you, as a reminder to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again.
Unknown Executive: We ask that you please limit yourself to one question and one follow-up. Please standby while we compile our Q&A roster.
Speaker 3: transcript
Speaker 3: transcript
And their promotional activity did Rob a lot of.
Demand at a time when yes, we were planning on getting some bookings.
Savanthi Prelis: And our first question is going to come from the line of savvy peace with Raymond James. Your line is open. Please go ahead. Thanks. Good morning. I'm curious if you could provide a little bit more color on demand, maybe particularly the peak versus off peak. If I look at your unit revenue, it's similar on a year-over-year basis to what you're seeing in 3Q. But you do have slow capacity growth and your stage length is kind of getting shorter.
That didn't help.
But that is normalized now so.
Those are two big factors and I don't know about.
Our execution.
Savanthi Prelis: So I would have thought that that would have been a unit revenue scale. David Erdman. Well, the peak periods continue to be more resilient than the off peak, but what we're dealing with is an overall slowdown in demand, which has been cited multiple times now, since we brought it up over a month ago. We've seen that and that is more acute in the off peak periods. And then we're also seeing kind of an uneven deployment of capacity in the United States.
Speaker 3: transcript
We chased and we always chase what we think is going to be the highest margin the challenges and we've gone back and studied this kind of after 911 and after the great recession and anytime you have a big contraction in capacity and you have a whole bunch of capacity return.
Speaker 3: transcript
It's not all perfectly allocated because different we don't coordinate with other airlines that's not allowed.
So you've got places like Las Vegas that Theyre, just saturated I mean, if you compare the capacity versus 2019, it's up dramatically and in fact, the occupancy rates mid week are actually down so.
Speaker 3: transcript
You've got a tough situation contrast that Minneapolis, where where you haven't seen it even if oil recovery and so when we track.
Speaker 3: transcript
Savanthi Prelis: So there's a lot more capacity versus 19 in the Las Vegas and a lot less in a Minneapolis as an example. So that unevenness is impacting Frontier the most as we study that we're probably more impacted by that unevenness than anybody else in the space. But to answer your question about the peaks, the peaks continue to remain very resilient.
Airline performance in the United States.
It's much closer and much more well explained when you look at the competitive capacity that most carriers are carrying are dealing within their markets.
And frontier is the most impacted by that now history shows that this typically six to 18 months starts to correct itself and we'll be eager to see that rebalancing take place.
Savanthi Prelis: And if I might just, as you kind of look to kind of capacity and your plans here, especially as you kind of restructure, kind of read structure of the approach, how should we think about 2020, 2024? Is it still kind of similar to kind of 4Q level of your growth, or should we see that moderating our experience? So we did moderate our growth somewhat in the fourth quarter versus even just a few months ago's expectations.
Speaker 7: transcript
I appreciate those thoughts and then just just on.
Speaker 7: transcript
Ops.
We had heard about this kind of modular network approach for a while.
And frankly, there were long stretches of time, where youre operations were.
Quite quite good relative.
So I guess, what what went sideways this quarter. Despite the modular design and sorry, if you're repeating it but what is what is different about the new approach.
Savanthi Prelis: And as we look to Q1, which is going to be back to where we see that the biggest challenges in demand environment is in Q1, as I mentioned, off peak is not as resilient as the peak. We are targeting mid single digit growth for Q1, but we are maintaining our mid teens growth for the year. And I think more specifically, you know, we will be targeting growth kind of away from these places that have been saturated in the more underserved markets as we move into 24. Very helpful. Thank you very much.
The new simplified approach versus the modular network approach that you talked about in the past.
Speaker 3: transcript
Unknown Executive: Thank you and one moment for our next question.
I think the challenge that we've had Duane is we had great success with the modularity and coming out of the pandemic. It was great and we've gotten to 50%.
Modularity Outback.
Speaker 3: transcript
The problem is is that the ATC staffing and the delay minutes as an example, we saw a significant increase.
It was something like 10 X the amount of ground delay program minutes that we were dealing with in the system.
Speaker 3: transcript
This summer and so even though we've gone modular we didn't do enough and so when we look at where we are very challenged reliability wise. It is it is dramatically impacted in the multi day trips and so where we're at now we are simply going to deepen the modularity and go straight to a kind of a best in class.
Duane Pfennigwerth: Our next question comes from a line of blame. Fiddingworth with Evercore ISI. Your line is open. Please go ahead. Hey, thanks. Appreciate the time.
Speaker 3: transcript
Duane Pfennigwerth: If we could just sort of play back, you know, 3Q revenue outcomes and maybe the variance relative to your initial expectations, could you, could you maybe bucket what you feel like are contributing factors and maybe one bucket being holding out for higher yields when basically your competitors really went for load. And maybe weren't doing that to the same degree to the options challenges, which you highlighted and maybe you have a sense for how acute kind of the revenue outcomes were in the markets that had seen those the most. And then three maybe just some some optimal network bets that didn't didn't play out the way you anticipated. Maybe there's other buckets, but would appreciate if you could walk through some of that.
<unk> model of Europe, and we're finally at a size and scale that it makes sense for us they have to be a little bigger.
Speaker 3: transcript
You know much about Ryan or with I mean, they can they can make a base with just a few aircraft that doesn't really work with our reserve coverages in the United States, but we're at the point that we can do that and so we will be in a situation, where we don't have anywhere near the multi day trips and we're targeting in the 90% plus range.
Speaker 3: transcript
Speaker 3: transcript
By the time, we get to spring, which will help us mitigate this and.
And I'll just give you an example, even with the 50% out and back we had a situation where if we planned for today for Tomorrow night, where aircraft would be because of the disruption with ATC. We saw consistently over a third of our aircraft not end up where they were supposed to be the.
Speaker 3: transcript
Speaker 3: transcript
Follow site that has massive disruption to your maintenance plan. It causes you to need excess mechanics, it causes you'd need more parts and it's a big step towards the recoverability. So we feel like it not only unlocks the reliability of the airline, but it unlocks our ability to increase utilization because when we look at <unk>.
Barry Biffle: Well, I think I think first and foremost doing thanks for your questions. I think I think number one, you know, throughout the pandemic and post pandemic, we've seen the fall be much stronger than it has turned out. And so that is it was kind of a surprise for that. Maybe we can call it normal, but I think it was more abnormal from a downshift than we've seen in a relationship of the peaks versus past.
Europe, they've dealt with euro control and a tougher operating environment for decades and that is why we have to adopt that model and it's the only model. We believe that is going to work at high utilization in this country.
Speaker 3: transcript
Barry Biffle: We also did see and it doesn't help when you've got maybe, you know, one or two peers, they're behind material on load factor in the very large and their promotional activity kind of did rob a lot of demand at a time when, yes, we were planning on getting some bookings so that didn't help, but that is normalized now. So those are two big factors and I don't know about, and our execution.
Okay. Thank you for the thoughts.
Speaker 1: transcript
Thank you and one moment as we move on to our next question.
Speaker 1: transcript
And our next question is going to come from the line of Brandon.
<unk> with Barclays. Your line is open. Please go ahead.
Speaker 8: transcript
Good morning, and thanks for taking the question.
Barry I guess, if you can.
What do you tell investors that have been with you since the IPO because thats been a pretty tough run here.
Barry Biffle: And we always chase what we think is going to be the highest margin. The challenge is, and we've gone back and studied this after 9-11 and after the Great Recession, and anytime you have a big contraction in capacity and you have a whole bunch of capacity return, it's not all perfectly allocated because we don't coordinate with other airlines, that's not allowed. And so you've got places like Las Vegas that are just saturated.
And if we look at your order book over 200 aircraft on order yet 130 today, that's a lot of growth next 10 years.
Speaker 8: transcript
And I know you are pulling it back in the first quarter, but some of these things like uneven demand off peak weakness fuel pressure ATC delays they seem to be continuing so what's structurally changes in the next year or two that gets you back to that pre tax double digit margin range.
Speaker 8: transcript
Barry Biffle: I mean, if you compare the capacity versus 2019, it's up dramatically. And in fact, the occupancy rates midweek are actually down. So you've got a tough situation, you can contrast that to Minneapolis, where you haven't seen even a full recovery. And so when we track airline performance in the United States, it's much closer and much more well explained when you look at the competitive capacity that most carriers are carrying, or dealing with it, in their markets. And Frontier is the most impacted by that.
I think it's pretty simple one I think youre going to see as I mentioned, I think youre going to see the rebalancing of the capacity in the U S youre not going to have.
Speaker 3: transcript
Speaker 3: transcript
Wild swings of up 20% in one city versus down 15, and others, I think thats going to rebalance and thats going to be significantly beneficial to frontier and absolute and on a relative basis I think youre also going to see a shift a normalization in demand I mean international is invoke but that isn't going to last and so thats going to rebalance as well history shows you that.
So that's worth three to four points each and then we ourselves are going to take our own self help and we're going to grow away from the from the from the saturation is worth several more points and as we've laid out we're going to actually reduce our costs are significantly which is going to drive a couple more points of margin and Thats also going to drive greater reliability, which also increases your Rev.
Duane Pfennigwerth: Now, history shows that this typically in six, 18 months starts to correct itself, and we'll be eager to see that rebalancing take place. Appreciate those thoughts.
Speaker 3: transcript
Duane Pfennigwerth: And then just on ops, you know, we've heard about this kind of modular network approach for a while. And frankly, there were long stretches of time where your operations were, you know, quite, quite good. Relative.
And when you're cancelling two 3% of your flights the costs stay the same but the revenue goes down and then obviously we've got to.
Speaker 3: transcript
As Jimmy mentioned or get it all for less promise that we rolled out this week, which we think is going to pay massive dividends.
Barry Biffle: So I guess what went sideways this quarter despite the modular design. And sorry if you're repeating it, but what is, what is different about the new approach, the new simplified approach versus the modular network approach that you talked about in the past? I think the challenge that we've had, Dwayne, is we had great success with the modularity. And coming out of the pandemic, it was great, and we'd gotten to 50 percent, you know, modularity out and back.
With.
Speaker 3: transcript
The loyalty approach, which happens to be with barclaycard, so, but we're going to control the things, we can control and that's going to deliver profitability and we believe that low cost will win.
Speaker 3: transcript
I appreciate that Barry I mean are you going through a wholesale change on the network next year is that what we should think like getting out of markets like Vegas, and Florida incrementally.
Barry Biffle: The problem is that the ATC staffing and, you know, the delay minutes as an example, we saw a significant increase. I mean, it was something like 10X, the amount of ground delay program minutes that we were dealing with in the system. And so even though we had gone modular, we didn't do enough. And so when we look at where we are very challenged, reliability wise, it is, it is dramatically impacted in the multi day trips.
No we're not getting it so let me be clear, we are not getting out and we're not leaving anywhere, but we will concentrate the growth that we plan. So in the mid teens. It will be away from places that are saturated it's going to be in places that are underserved.
Speaker 8: transcript
Okay, I'm, sorry, I should have rephrased, not getting out but incrementally moving away from those markets with relative new capacity right now.
Speaker 3: transcript
Barry Biffle: And so where we are at now, we are simply going to deepen the modularity and go straight to a kind of a best in class ULCC model of Europe. And we're finally at a size and scale that makes sense. You know, for us, they have to be a little bigger. You know, if you know much about Ryan or with them, they can make a base with just a few aircraft. That doesn't really work with our reserve coverages in the United States, but we're at the point that we can do that.
We are the lowest cost provider in Las Vegas, we're not going anywhere we do believe that the industry will probably slow its growth and probably contract there, but we will not be contracting we will just the growth that we add to the company will be an underserved will not add more capacity to markets that we believer over saturated.
Okay I appreciate the response thank you.
Speaker 1: transcript
Thank you and one moment as we move on to our next question.
Barry Biffle: And so we will be in a situation where we don't have anywhere near the multi day trips. And we're targeting in the 90% plus range by the time we get to spring, which will help us mitigate this. And I'll just give you an example, even with the 50% out and back, we had a situation where if we plan for today, for tomorrow night, where aircraft would be because of the disruption with ATC, we saw consistently over a third of our aircraft not end up where they were supposed to be.
Speaker 1: transcript
And our next question is going to come from the line of Michael Lindenberg with Deutsche Bank. Your line is open. Please go ahead.
Speaker 9: transcript
Yeah, Hey.
Good morning, everyone.
Barry just back to your view on next year.
<unk> talked about mid single growth in the March quarter than aiming for mid teens for full year. So you would obviously have to ramp up as we move through the year are there any sort of whether its margin targets or return metrics that youll have to achieve in order to then sort of.
Barry Biffle: That has massive disruption to your maintenance plan. It causes you to need excess mechanics. It causes you to need more parts. And it's a big step towards the recovery ability. So we feel like it not only unlocks the reliability of the airline, but it unlocks our ability to increase utilization because when we look at Europe, they've dealt with Euro control and a tougher operating environment for decades. And that is why we have to adopt that model. It's the only model we believe that it's going to work with high utilization. Okay, thank you for the thoughts.
Unknown Executive: Thank you, and one moment as we move on to our next question.
Greenlight that type of growth.
Speaker 9: transcript
Maybe it's by the June quarter, where you start to ramp up because im sure theres metrics, you'd probably want to hit before you want to accelerate that.
Youre thinking around that thank you.
Speaker 3: transcript
Yes, Thanks, Mike.
Not guiding for 2020 for margins at this point okay.
Thank you and then.
Speaker 9: transcript
Just a question.
Mark and congratulations on your promotion.
I wanted to go back just on the guidance you had mentioned that the.
The pre tax margin guide for the fourth quarter versus the third.
Brandon Oglenski: And our next question is going to come from the line of Brandon Oglenski with Farclays. Your line is open, please go ahead. Yeah, good morning, and thanks for taking the question. Barry, I guess if you can step back, you know, what do you tell investors that have been with you since the IPO? Because it's been a pretty tough run here. And if we look at your order book, you know, over 200 aircraft on order yet 130 today, that's a lot of growth next 10 years. And I know you're pulling it back in the first quarter, but somebody seems like uneven demand off peak weakness, fuel pressure, APC delays, they seem to be continuing.
You said a lot of that had to do with the higher fuel price assumption are you assuming sort of similar demand.
Speaker 9: transcript
We saw in September quarter continues.
Speaker 9: transcript
Into December or is that is that fair a fair assumption.
Speaker 5: transcript
Yes, I mean, I think as was highlighted.
In the initial remarks booking trends appear to have.
Stabilized and so what you see in that guide range is primarily the impact of the higher fuel fuel costs.
Brandon Oglenski: So what structurally changes in the next year or two that gets you back to that pre-tax double digit margin range? I think it's a thing is pretty simple. One, I think you're going to see, as I mentioned, I think you're going to see that the rebalancing of the capacity in the US, you're not going to have, you know, these wild swings of up 20% in one city versus down 15 and others.
Okay, great. Thank you.
Yes.
Speaker 1: transcript
Thank you and one moment as we move on to the next question.
Speaker 10: transcript
And our next question is going to come from the line of Stephen Trent with Citi. Your line is open. Please go ahead.
Yes.
Brandon Oglenski: I think that's going to rebalance and that's going to be significantly beneficial to Frontier in absolute and on a relative basis. And I think you're also going to see a shift in normalization and demand. I mean, international is invoked, but that isn't going to last. And so that's going to rebalance as well. History shows you that. So that's worth, you know, three to four points each. And then we ourselves are going to take our own self-help and we're going to grow away from the, from the saturations worth several more points.
Okay.
Stephen Good morning, everybody.
<unk>.
Yes. Good morning, Rick can you hear me okay.
Yes, we can.
Speaker 11: transcript
Okay, sorry about that little tripled my phone.
And congrats I share mikes comments, congrats to Jimmy and Mark on those new moves that's great stuff.
Brandon Oglenski: And as we've laid out, we're going to actually reduce our costs significantly, which is going to drive a couple more points of margin. And that's also going to drive greater reliability, which also increases your revenue. When you're canceling two, three percent of your flights, you know, the costs stay the same, but the revenue goes down. And then obviously we've got, as Jimmy mentioned, our get it all for less promise that we rolled out this week, which we think is going to pay massive dividends with the loyalty approach, which happens to be with Barclay Card. So we're going to control the things we can control, and that's going to deliver profitability. And we believe that low cost will win. I appreciate that, Barry.
Speaker 3: transcript
Just one or two for me here.
Could you tell me with your 2024 plan.
What are your basic assumptions about.
The air traffic control situation and sort of infrastructure.
Infrastructure investment in <unk>.
Is there any change there or youre, assuming everything stays as it is now.
Yes, Thanks, David actually we're assuming it gets worse.
And that is why we had always planned by 'twenty five 'twenty six to get to above 80% to 90%.
Speaker 3: transcript
Kind of Outback simplified network.
We have to accelerate that.
Brandon Oglenski: I mean, are you going through a wholesale change on the network next year's that what we should think, like getting out of markets like Vegas and Florida incrementally? Oh, no, we're not getting it. So, so let me be clear. We are not getting out and we're not leaving anywhere, but we will concentrate the growth that we plan. So in the midteens, it will be away from places that are saturated. It's going to be in places that are underserved.
We've studied this extensively for now six to eight months, we have studied what how they manage this in Europe very similar situations and so we believe that their traffic drove its works because if you look at the staffing levels relative to the departures.
Speaker 3: transcript
Brandon Oglenski: Okay, and sorry, I should have rephrased like not getting out, but incrementally moving away from those markets with relative new tasks. No, right. No, no, no. We are the lowest cost provider in Las Vegas. We're not going anywhere. We do believe that the industry will probably slow its growth and probably contract there, but we will not be contracting. We will just the growth that we add to the company will be an underserved will not add more capacity to markets that we believe are oversaturated. Okay, appreciate this. Thank you.
It's going to be more constrained than it is now and so we are planning around that by ensuring that we no longer have that kind of the.
Unknown Executive: Thank you, and one moment as we move on to our next question.
Dependencies, and the risk of running multi day trips that are vulnerable.
Three to four to five hour GDP programs.
Speaker 11: transcript
Alright, I really appreciate that Brian and just one other quick question could you refresh my memory.
Regarding what percentage of your.
Fuel exposure is west coast refined.
Yes.
Speaker 4: transcript
Stephen's Jimmy here.
It's less than 20% of our of our exposure covers the.
The West Coast and we also have an exposure of about 10 or 15% in Denver, as well, which is incorporated into that kind of more.
Higher kind of.
Michael Linenberg: On our next question is going to come from the line of Michael Linenberg with Deutsche Bank. Your line is open. Please go ahead. Yeah, hey, good morning, everyone. Hey, Barry, just back to your view on next year, you know, talked about middle growth in the March quarter and then aiming for mid teens for full year. So you would obviously have to ramp up as we move through the year. Are there any sort of, you know, whether it's margin targets or return metrics that you'll have to achieve in order to then, you know, sort of green light, that type of growth.
The crack spread and higher jet fuel cost.
But over half of our exposure to fuel is around U S Gulf Coast.
Speaker 11: transcript
Okay perfect. Thanks, very much Jimmy let me leave it there.
Thanks.
Speaker 1: transcript
Thank you and one moment as we move on to our next question.
Speaker 1: transcript
Our next question is going to come from the line of Helane.
Speaker with TD Cowen Your line is open. Please go ahead.
Speaker 12: transcript
Thanks, very much operator.
Hi, everybody and thanks for the time here.
Michael Linenberg: You know, maybe it's by the June quarter where you start to ramp up because I'm sure there's metrics you probably want to hit before you want to accelerate that. You're thinking around that. Thank you. Yeah, yeah, thanks, Mike.
Is there a way for you to quantify what the Barclay card spend is and whether it's up down or the same as it was six months or a year ago.
Michael Linenberg: We're not guiding for 2024 margins at this point. Okay.
Speaker 3: transcript
We don't actually disclose that but I can tell you we're very pleased with the performance.
Mark Mitchell: Then just a question to Mark and congratulations on your promotion. I want to go back just on the guide and some you had mentioned that the pretext margin guides for the fourth quarter versus the third. You said a lot of that had to do with the higher fuel price assumption. Are you assuming sort of similar demand that what we saw in September quarter continues into December is that is that fair, fair assumption.
Speaker 3: transcript
Credit card partnership with Barclays.
And we are investing significantly in the loyalty as we announced earlier this week our get it offer less promise includes changes to how people earn on the program our elite status levels, but also use the fact that you can actually earn gold status by just spending $3000 on the credit card, which unlocks free bags.
Speaker 3: transcript
Speaker 3: transcript
Speaker 3: transcript
Free seats, no change fees no cancel so just a lot of value and so what we believe is that there is no. One in this space that if you travel a few times a year and spend at least $10000 on a credit card that you earn as much as you will on us in terms of free travel and.
Mark Mitchell: Yeah, I mean, I think, you know, as was highlighted, you know, in the initial remarks, you know, both trends here to stabilize. And so, you know, what you see, you know, in that guide range is primarily, you know, the impact of the higher fuel fuel costs. Okay. Great.
Speaker 3: transcript
Mark Mitchell: Thank you.
When you couple that with what we're doing on the modularity and where we're going to be concentrating our basis. We also believe that we're going to see much more market maturity as we can continue to be much more relevant for customers in our basis.
Unknown Executive: And one moment as we move on to the next question.
Okay.
Hugely helpful actually the relevance is very helpful. But the question I have about the comment you made on.
Speaker 12: transcript
Stephen Trent: Our next question is going to come from the line of Stephen Trent with city. Your line is open. Please go ahead. Stephen, can you hear me? Yeah. Good morning, Rita. Can you hear me? Okay. Yeah, we can. Okay. Sorry about that. I have a little trouble with my phone. And congrats. I share Mike's comments. Congrats to Jimmy and Mark on those new moves. That's great stuff.
Underserved markets and kind of thinking about growing in those markets I understand why you would want to do that and it makes perfect sense.
Speaker 12: transcript
Speaker 12: transcript
Do you need to have smaller aircraft to do that because those markets may not be as robust.
Speaker 12: transcript
<unk> demand driven as some of the other markets that.
Sir I.
Speaker 12: transcript
I feel like American so now it's a good question leases right.
Speaker 13: transcript
It's a good question, but no.
Speaker 3: transcript
Okay.
Barry Biffle: Just one or two from me here. Could you tell me with your 2024 plan, you know, what are your basic assumptions about the air traffic control situation and sort of infrastructure investment in the US airport. I mean, any change there or you're assuming everything stays as it is now. Yeah, thanks. Actually, we're assuming it gets worse. And that is why we had always planned by 2526 to get to above 80% to 90% kind of out and back simplified network.
Look when you have got the 321 neo and our configuration. It provides the lowest cost in the industry and it enables you to fly more places whether it's just a couple of times a week for small markets or several times a day.
We have an amazing amount of stimulated.
Maybe you can build instead stimulate demand, but I think what you should look at is just take the cities in the U S. Take all the airports and just go in and look at the fourth quarter capacity.
Speaker 13: transcript
By city look how many seats and.
In each city.
Speaker 3: transcript
And compare that to the same quarter in 2019.
And Youll see a dramatic.
Barry Biffle: But we have to accelerate that. We have we've studied this extensively for now six to eight months. We have studied what how they manage this in Europe. You know, very similar situations. And so we believe that their traffic control gets worse because if you look at the staffing levels relative to the departures, it's going to be more constrained than it is now. And so we are planning around that by ensuring that we no longer have the kind of dependencies and the risk of running multi-day trips that are both. You know, three to four to five hour GDP programs?
Speaker 3: transcript
Dramatic difference.
You are talking probably 30% to 40 points swing between the top and Nevada. So if demand is similar and you have a 30% swing in capacity that can that can be a 20 to 30 point jump in RASM or it can be a 20 to 30 point drag on a relative basis. So that's what we're talking about when we say uneven capacity deployment in the U S.
Speaker 3: transcript
And I think youll find something very interesting if you do that analysis, you'll find that there's a large correlation between the airlines that are doing well and the ones that are struggling margin wise when you compare where theyre concentrations are and Thats why we say.
Speaker 3: transcript
Jimmy Dempsey: All right, really a present that, Barry, and just one other quick question. Could you refresh my memory regarding what percentage of your fuel exposure is West Coast refined? Stephen, Jimmy here, I mean, it's less than 20% of our exposure covers and the West Coast, and we also have an exposure of about 10% or 15% in Denver as well, which is incorporated into that kind of higher kind of crack spread and higher jet fuel cost. Bit over half of our exposure to fuel is around US Gulf Coast. Okay, perfect. Thanks very much, Jimmy.
And history shows that these things will normalize over the next six to 12 months.
Unknown Executive: Let me leave it there. Thank you.
Alright that makes sense yeah, Okay. That's really helpful. Barry Thanks for all of that.
Speaker 14: transcript
Speaker 1: transcript
Thanks Lee.
Thank you and one moment for our next question.
Helane Becker: And one moment as we move on to our next question.
Speaker 1: transcript
Our next question comes from the line of Jamie Baker with JMP.
Morgan Securities. Your line is open. Please go ahead.
Speaker 15: transcript
Hey, good morning, everybody.
Congrats to Jimmy and Matt.
And I'm, sorry, Jamie and Mark.
As well it's already been a long morning can you update us on Capex for the next couple of years.
Everybody.
Hoping for a better year next year, but just in the event that 2024 ends up resembling.
Speaker 15: transcript
Speaker 15: transcript
Helane Becker: Our next question is going to come from the line of Helane Baker Becker with TD Cowan. Your line is open. Please go ahead. Thanks very much operator. Hi everybody. And thanks for the time here.
2023, particularly after you reach a pilot deal I just want to make sure I understand your ability to raise incremental capital I know you cited the credit card program and IP. So.
Guessing that liquidity is on your mind as well.
Helane Becker: Is there a way for you to quantify what the Barclay Card spend is and whether it's up, down, or the theme as it was six months or a year ago? We don't actually disclose that, but I can tell you we're very pleased with the performance of credit card partnership with Barclays. And we are investing significantly in the loyalty as we announced earlier this week or get it off for less promise includes changes to how people earn on the program are elite status levels, but also the fact that you can actually earn gold status by just spending $3,000 on the credit card, which unlocks free bags, free seats, no change fees, no cancel, so just a lot of value.
Speaker 4: transcript
Yes, Jamie as Jimmy here.
It's not it's not a secret that we have spent a lot of time over the years fostering relationships across the leasing community to fund the growth in the business.
Speaker 4: transcript
We have about 22 23 aircraft delivering next year, we have a really good pipeline certain leaseback on those aircrafts all the way through to the end of next year with most of them most of our aircraft commitment really in the first seven or eight months of next year. So we feel really good about the material capital spend on aircraft assets.
Speaker 4: transcript
The other capital spend that we have in the business is clearly engine shop visits.
And then just funding the growth in the business they tend to be much lesser in terms of capex spend.
Helane Becker: And so what we believe is that there is no one in the space that if you travel a few times a year and spend at least $10,000 on the credit card that you earn as much as you will on us in terms of free travel. And when you couple that what we're doing on the modularity and where we're going to be concentrating our bases, we also believe that we're going to see much more market maturity as we continue to be much more relevant for customers in our bases. Okay. That's hugely helpful actually.
The aircrafts themselves, albeit the leap.
Speaker 4: transcript
Aircraft is coming in the next few years into its window, where youll see some more engine shop visits developed for those aircrafts.
Speaker 4: transcript
And the other thing that we're watching quite closely although.
We are.
We're unclear right now is that the impact it will have on frontier is really what's happening with the GTS.
Speaker 4: transcript
<unk> delivered its first <unk> engine in September 2022.
Helane Becker: The relevance is very helpful, but the question I have about the comment you made on underserved markets and kind of thinking about growing in those markets. I understand why you would want to do that, and it makes perfect sense. But do you need to have smaller aircraft to do that because those markets may not be as robust or as demand driven as some of the other markets that, you know, you are serving ready.
Outside of the initial window, where inspections on those.
Engines are occurring at the moment, but we do anticipate we'd have to do some inspections towards the back end of 2024.
And into 2025 and beyond and so.
Albeit we think it's going to be a minimal impact on frontier.
In relation to how we understand it at the moment.
It's obviously a fluid situation, we're watching it quite closely.
Speaker 4: transcript
And so that will determine our spares ratio in various different things.
Helane Becker: I feel like American. No, it's a good question, right? Well, it's a good question. But no, you know, look, when you've got the 321 neo in our configuration, it provides the lowest seat cost in the industry and it enables you to fly more places, whether it's just a couple of times a week for small markets or several times a day. Okay, we have an amazing amount of time, and you know, amazing buildings that it's similarly demand.
Engine engine capacity in the airline.
Speaker 15: transcript
Okay.
So no definitive Capex guide, but we should be thinking about sale leaseback activity is as we model for that.
The summary.
Speaker 4: transcript
Yes.
That market has been really good to frontier on AR continues to be so so I mean, obviously interest rates are higher and higher for everybody and we operate within the world but.
Helane Becker: But I think what you should look at is just take the cities in the US, take all the airports and just go in and look at the fourth quarter capacity by city, look how many seats in each city and compare that to the same quarter in 2019 and you'll see a dramatic, dramatic difference. You know, you're talking probably 30 to 40 points swing between the top and the bottom. So if demand is similar and you have a 30% swing and capacity, that can, that can be a 20 to 30 point jump in in Rasm or it can be a 20 to 30 point drag on a relative basis.
The pipeline of operating leases that we have coming are pretty good.
Great.
Speaker 15: transcript
Got it and then second Barry you talked about lower ex fuel CASM next year, what's your confidence on getting there. If you Mark your pilots to Mark and let's just assume you did that on January 1st for illustrative purposes, I'm not asking you to negotiate in public.
Speaker 15: transcript
I'm, just asking you to speak to your confidence in achieving lower ex fuel CASM.
After a pilot hit of whats.
Helane Becker: So that's what we're talking about when we say uneven capacity deployment in the US. And I think you'll find something very interesting if you do that analysis. You'll find that there's a large correlation between the airlines that are doing well and the ones that are struggling margin wise when you compare where their concentrations are. And that's why we're talking about when we say, you know, in history shows that these things will normalize over the next six to 12 months. Right. That makes sense. Yeah. Okay. That's really helpful. Barry. Thanks for all of that. Thanks, Lee.
Speaker 15: transcript
Sort of best case scenario, I'm guessing 50 million of annual incremental expense.
Guessing I'm analyzing but.
Probably a figure potentially north of that.
Speaker 3: transcript
Well, we plan on as we outlined earlier, we plan on saving over $200 million on 2023 size with.
With the simplification of the operation. So we believe we have adequate capacity to more than cover okay pilot like labor cost increase.
Okay perfect. Thank you very much.
Jamie Baker: Thank you and one moment for our next question. Hi, next question comes from the line of Jamie Baker with JMP JP Morgan security. Your line is open. Please go ahead. Hey, good morning, everybody. And congrats to Jimmy and Matt, and I'm sorry, Jimmy and Mark and Matt as well. It's already been a long morning.
Thank you and one moment as we move on to our next question.
Speaker 1: transcript
Speaker 1: transcript
And our next question is going to come from the line of Andrew <unk> with Bank of America. Your line is open. Please go ahead.
Speaker 2: transcript
Hi, good morning, everyone.
Barry or Mark.
Two parter for you.
What are the buckets of the cost opportunities within that $200 million that you cited in your prepared remarks.
Jamie Baker: Can you update us on CapEx for the next couple of years? Obviously, you know, everybody hoping for a better year next year, but, you know, just in the event that 2024 ends up resembling 2023. Particularly after you reach a pilot deal, I just want to make sure I understand your ability to raise incremental capital. I know you cited the credit card program and IP. So, you know, I'm just guessing that liquidity is on your mind as well.
Speaker 2: transcript
And then Barry.
The road back to profitability or stopping the margin degradation kind of really just be accomplished on the cost side and utilization side, particularly with pilots coming or is it really just a revenue issue whereby you can just kind of have to.
We think your longer term capacity plans.
In the high teens.
Just trying to dissect those those two parts.
Jamie Baker: Yeah, Jamie is Jimmy here. Look, you know, we it's not it's not a secret that we've spent a lot of time over the years fostering relationships across the leasing community to fund the growth in the business. And, you know, we have about 20 to 23 aircraft delivering next year. We've a really good pipeline on certain east backs and on those aircraft all the way through to the end of next year. But most of our aircraft committed really in the first seven or eight months of next year.
Speaker 5: transcript
Yes. So this is mark so from the.
Jamie Baker: So we feel really good about the material capital spend on aircraft assets. The other capital spend that we have in the business is clearly engine shop visits and then just funding the growth in the business. They tend to be much lesser in terms of CapEx spend than the aircraft themselves, albeit the leap aircraft is coming in the next few years into its window where you'll see some more engine shop visits developed for those aircraft.
The $200 million that we highlighted so broad strokes.
As we simplify.
The schedule and the operational design.
Going to have the benefit of that lower crew travel a better ability to utilize reserves and just better predictability of people and parts.
To drive cost benefits through the organization and then with that you're also going to position the organization to drive higher utilization.
Think that's really the foundation of the $200 million.
Speaker 13: transcript
Yeah, and as far as the growth rate.
I don't see a challenge with that I think if you look at if you look under the Hood.
We feel confident with the cost savings.
Speaker 3: transcript
Savings that we're going to have even net of the pilot cost like I said youre going to see the uneven deployment of capacity in the market saturation start to normalize.
Huge benefit to us youre going to see the rebalanced youre going to see people come back and travel more domestic than they did on a relative basis to Europe, that's just going to happen and so those two together are massive benny.
Jamie Baker: And the other thing that we're watching quite closely, although we are, you know, we were on clear right now is that the impact it will have on frontier is really what's happening with the GTF. You know, frontier delivered its first GTF engine in September 2022. We're outside of the initial window where inspections on those engines are occurring at the moment. But we do anticipate and we'll have to do some inspections towards the back end of 2024 and into 2025 and beyond.
Speaker 3: transcript
Speaker 3: transcript
Benefit and then you've got our own self help that we're going to grow in places that are also underserved ourselves. So I think you couple that with the better reliability, what we're doing with our loyalty on the revenue side and we believe that we will get back to profitability and get back to great margins and therefore, we don't have a challenge with the broker.
Jamie Baker: And so, you know, albeit we think it's going to be a minimal impact on frontier as in relation to how we understand it at the moment. And it's obviously a fluid situation we're watching it quite, closely. And so that will determine our spares ratio and various different things, engine capacity in the year.
Speaker 3: transcript
Got it.
Barry I was just curious if you have any updated thoughts I know theres been continued articles out there in the press just with regards to the government in kind of the excise tax on ancillary revenues.
How do you think that plays out and at what point.
Jimmy Dempsey: Okay, so no definitive capex guide, but we should be thinking about sale weeks back, you know, activity as we model for that, that's the summary. Yeah, I mean, that market has been really good to Frontier and it continues to be so. So I mean, obviously interest rates are higher and higher for everybody, and we operate within that world. But, you know, the pipeline of operating leases that we have coming are pretty good.
What would trigger kind of a change in terms of how you account for that thank you.
You can see that.
Apologize I Didnt see the article that you're referencing.
Jimmy Dempsey: Okay.
<unk>.
What specifically.
Speaker 16: transcript
Yes.
Excise tax on ancillary revenues.
Potential of putting taxes.
Matt.
Okay.
That's.
Speaker 3: transcript
Yes, so that actually has been out there for a long time and I think there is.
Barry Biffle: Good, and then second, you know, Barry, you talk about lower xio chasm next year. What's your confidence on getting there? If you mark your pilots to market and let's just assume you did that on January 1st for illustrative purposes, I'm not asking you to negotiate in public. I'm just asking you to speak to your confidence in achieving lower xio chasm after a pilot hit of what's, you know, sort of best case scenario.
Really good.
Think kind of precedent on this it goes back I think to the 19 fifties actually.
Look if it's optional and it is not part of the core service.
I think the statute was very clear.
Sure.
Okay. Thank you.
Thank you and one moment for our next question.
Barry Biffle: I'm guessing 50 million of annual incremental expense. Well, I'm not guessing. I'm analyzing, but, you know, probably a figure potentially north of that. Well, we plan on as we outlined earlier, we plan on saving over $200 million on 2023 size with the simplification of the operation. So we believe we have adequate capacity to more than cover any pilot labor cost increase.
Speaker 1: transcript
And our next question is going to come from the line of Conor Cunningham with.
Unknown Executive: Okay, perfect.
Unknown Executive: Thank you very much.
Melius Research. Your line is open. Please go ahead.
Speaker 8: transcript
Hi, everyone. Thank you a couple of questions on revenue.
Unknown Executive: Thank you and one moment as we move on to our next question.
And a lot of discounting happening right now in the U S domestic market.
As you run ferrous sales I'm just curious if the uptake rate has been any different than it has been in the past just trying to understand.
The difference between load factor and so on as you kind of go forward. Thank you.
Speaker 17: transcript
I'm going to let James Fintor, our vice president of revenue.
Yes.
Yes.
As we look at the results certainly we saw a bit of a slowdown in the second half of August and September, but we've been pleased with the results as we've.
Andrew Didora: And our next question is going to come from the line of Andrew D. Dora with Bank of America. Your line is open. Please go ahead. Hi, good morning, everyone. I'm a barrier or mark, you know, maybe two quarter for you.
Continued to run promotional activity.
Through the last six to eight weeks and are optimistic as we.
Speaker 17: transcript
Andrew Didora: What are the buckets of the cost opportunities within that 200 million dollars that you cited in your prepared remarks? And then the road facts of profitability or stopping the margin degradation. Can it really just be accomplished on the cost side and utilization side, particularly with pilots coming? Or is it really just a revenue issue whereby you just kind of have to rethink your longer term capacity plans of kind of in the high teams? Yeah, just trying to dissect those, you know, those two parts. Thanks.
I see a trend, particularly for the peak periods as Barry mentioned, our more resilient here in the fourth quarter.
We believe low fare stimulation is fundamental to around the OCC and remain focused on that.
Speaker 8: transcript
Okay and then.
These new markets that are underserved.
When I think about that.
They are underserved for a reason so as you guys look to go into those markets is your expectation that the spooling period is going to be a lot quicker than it probably has been in the past is trying to understand if theres going to be a drag on RASM as we start to add these new markets and so on because new market development tends to be at.
Speaker 8: transcript
Mark Mitchell: Yeah, so this is Mark. So from, you know, that the 200 million that we highlighted. So, you know, broad strokes, you know, as we simplify, you know, the schedule and the operational design. You're going to have, you know, as a benefit of that, you know, lower crew travel, a better ability to utilize reserves and just, you know, better predictability of people and parts. You know, they're going to drive, you know, cost benefits through the organization.
Mark Mitchell: And then with that, you're also going to position the organization to drive higher utilization. You know, and so I think that's really the foundation of the 200 million. Yeah, and as far as the growth rate, I don't see a challenge with that. I think if you look at, if you look under the hood. You know, we feel confident with the cost savings that we're going to have is even net of the pilot cost.
At the margin dilutive just trying to understand that thank you.
Speaker 13: transcript
So I've read some things about this I think there is some misunderstanding in the marketplace. In this so when you are always growing right you always have a percentage of your airlines, it's immature and that is kind of a permanent if you will kind of degradation to your RASM that you take on and this is why.
Speaker 13: transcript
Some airlines you see there's one in particular you can go look at that stopped their growth this year and people.
Slowed down or even contracted and they pop the RASM. The challenge with that is it's temporary because once they go back to growing.
Speaker 3: transcript
Take the drag on RASM now in our case, what we're seeing is that yes, new growth in the over saturated market will continue to use Las Vegas as an example, the new growth is actually not performing at levels that were accustomed to but we're also seeing our mature markets.
Mark Mitchell: Like I said, you know, you're going to see the uneven deployment of capacity and the market saturation start to normalize. That's a huge benefit to us. You're going to see the rebalance. You're going to see people come back and travel more domestic than they did on a relative basis to Europe. That's just going to happen. And so those two together are massive benefit. And then you've got our own self-help that we're going to grow.
Speaker 3: transcript
Seeing significant incursion.
<unk> reduction in RASM on mature market so.
I think there is confusion about that it's the growth that's the problem, it's not our growth that's the problem. It's the.
Mark Mitchell: And places that are also underserved ourselves. So I think you couple back with the better reliability, what we're doing with our loyalty on the revenue side. And we believe that we will get back to profitability and get back to great margins. And therefore, we don't have a challenge with.
Even deployment of capacity into a lot of our core markets in Las Vegas, and certain Florida markets. As an example that has caused the degradation.
Okay. Thank you.
Thank you and one moment for our next question.
Barry Biffle: And Barry, I'm just curious if you have any updated thoughts. I know there have been continued, you know, articles out there in the press, just with regards to the government and kind of the excise tax on ancillary revenues. You know, how do you think that plays out and at what point, you know, what would trigger kind of a change in terms of how you you account for that. Thank you. I apologize.
Barry Biffle: I didn't see the article that he's referencing. What specifically. Just the excise tax on ancillary revenues, the potential of putting tax on that. Yeah, so that that actually has been out there for a long time. And I think there's there's really good. I think kind of precedent on this that goes back to the 1950s, actually. So, you know, look, if it's optional and it's not part of the core service, I think statute is very clear. Okay.
Speaker 1: transcript
Our next our last question comes from the line of Christopher Stefan <unk> with Susquehanna Financial Group. Your line is open. Please go ahead.
Unknown Executive: Thank you.
Hi, Good morning, Thanks for taking my question. So buried in your prepared remarks.
Speaker 13: transcript
Speaker 8: transcript
Unknown Executive: And one moment for our next question.
You spoke about.
Your belief that industry capacity is going to rationalize next year and.
There are fewer carriers today in the U S and there were.
Speaker 8: transcript
10 to 15 years to go so perhaps less of an opportunity here for some.
Irrational behavior, but the marginal cost per seat is such where.
Speaker 8: transcript
Well capitalized carriers can continue to add inventory into the market here. So just.
Help us or if you could kind of explain your.
Speaker 11: transcript
Your view there, particularly when you look at southwest this morning, it looks like there their order book is growing and of course, you have a full order book. So just kind of wanted to better understand the comments around it I appreciate the time.
History of analogy I think to Europe, but.
Here in the U S. Here is perhaps a little bit of a dip.
That dynamic thanks.
Speaker 3: transcript
One less convinced of the overall capacity in what will let I'll, let those bigger airlines decide what they think is the right amount of deployment on what we're seeing.
Conor Cunningham: And our next question is going to come from the line of Connor Cunningham with.
Conor Cunningham: Millious research. Your line is open. Please go ahead.
Speaker 3: transcript
Week after week in the schedule change adjustments and some of the most recent commentary is expectation for their capacity deployment is coming down down down and we're seeing it for example, we've seen.
James Fenner: Everyone, thank you. A couple questions on revenue. You know, there's been a lot of discounting happening right now in the U.S, domestic market. You know, as you run fair sales, I'm just curious if the uptake rate has been any different than it has been in the past is trying to understand, you know, the difference between load factor and so on as you kind of go forward. Thank you.
Attrition in pilot rates slowing down as a result, because they are slowing down their hiring a pilot so so.
Speaker 3: transcript
Speaker 13: transcript
There is evidence that the big airlines are actually slowing down their capacity what I was really more referencing was not the total capacity and I was talking about the unevenness of the capacity deployment and ultimately if everyone showed their cards I think you would find that some of the over saturated Las Vegas and over saturated Florida.
James Fenner: I'm going to let James thinner our vice president. As we look at the results, you know, certainly we saw a bit of a slow down in the second half of August in the September, but we've been pleased with the results as we've been getting to run from actual activity through the last six, eight weeks and are optimistic as we see a trend, particularly for the peak periods, very much more resilient here in the fourth quarter. You know, we believe low fair stimulation is fundamental to run the ULCC and remain focused on that. Okay.
Speaker 13: transcript
Markets It doesn't matter, who you are.
The P&L is on those routes regardless of airline are probably a little bit under pressure.
And so we see that capacity being redeployed.
At a minimum.
Speaker 13: transcript
And possibly in some cases just eliminated so at <unk>.
It's maybe retire the aircraft, but at worse. It's just gets redeployed so that unevenness, we will get itself sorted out and Thats really what I was referencing not total capacity.
Speaker 3: transcript
Barry Biffle: And then I'm on these new markets that are that are underserved, you know, when I think about that, like I kind of think that they're underserved for reason. So as you guys look into those markets. Heads, is your expectation that the spooling period is going to be a lot quicker than it probably has been in the past, just trying to understand if there's going to be a drag on Rasmus, we start to add these new markets and so on, because new market development tends to be at the margin, just trying to understand that.
Speaker 11: transcript
Okay. Thank you and then.
Comments for next year, and thinking about capacity allocation to be clear youre not arguing one Ryan.
Speaker 18: transcript
While wholesale change here to some of your core markets and Youre looking at some of these underserved market switch to the earlier question comes with its own set of challenges, but if we take a step back and think about your net route growth next year, so with no wholesale change to markets like Vegas alike.
Barry Biffle: Thank you. Well, so yeah, I've read some things about this. I think there's some misunderstandings in the marketplace in this. So when you're always growing, right, you always have a percentage of your airline that's in immature. And that is kind of a permanent if you will kind of degradation to your Rasmus that you take on. And this is why some airlines you see, you know, there's one in particular you can go look at that stopped their growth this year and people have slowed it down or even contracted and they've popped the Rasmus.
And these new underserved markets just if there is a number or kind of directionally. How we should think about your net routes for 2024. Thank you.
Speaker 13: transcript
Yes, I don't think that the.
Overall routes.
Speaker 3: transcript
Is going to change that much and I think when you look at the percentage of our of our capacity that's an immature market.
Hovering around 10%.
Barry Biffle: The challenge with that is it's temporary because once they go back to growing, they take the drag on Rasmus. Now in our case, what we're seeing is that yes, new growth in the over saturated markets continue to use Las Vegas as an example, the new growth is actually not performing at levels that we were accustomed to, but we're also seeing our mature markets, seeing significant incursion and reduction in Rasmus on mature markets.
And it could go a little closer to 12% with some of the new markets, but when they are in underserved markets.
We think that that's going to do really really well.
But.
It probably wants to be a little more when we look at kind of the underserved places.
Okay. Thank you.
Speaker 1: transcript
Thank you and that concludes our question and answer session for today's conference and I would like to hand, the conference back over to Barry before for any closing remarks.
Barry Biffle: So, you know, I think there's this confusion about it that it's the growth that's the problem. It's not our growth that's the problem. It's the uneven deployment of capacity into a lot of our core markets in Las Vegas and certain Florida markets. As an example, that is caused the degradation. Okay. Thank you.
Speaker 3: transcript
Well. Thank you. Thank you everybody for joining and we look forward to updating you at the next quarterly call. Thanks, everyone.
Barry Biffle: In one moment for our next question.
Speaker 1: transcript
This concludes today's conference call. Thank you for participating you may now disconnect.
Yes.
[music].
Okay.
Yes.
[music].
Christopher Stathoulopoulos: Our next our last question comes from the line of Christopher stuff with Seth Gujana Financial Group. Your line is open. Please go ahead.
Okay.
Okay.
Okay.
Christopher Stathoulopoulos: Hi, good morning. Thanks for taking my question. So, Barry, you're preparing remarks. You spoke about your belief that industry capacity is going to rationalize next year. And, you know, there are fewer carriers today in the US than there were 10, 15 years to go. So perhaps less of an opportunity here for some irrational behavior, but you know, the marginal cost per seat is such where well capitalized carriers continue to add inventory into the market here.
[music].
Yes.
Yes.
[music].
Yes.
[music].
Christopher Stathoulopoulos: So just, you know, help us work. You could kind of explain your view there, particularly when we look at, you know, Southwest this morning, looks like they're there, they're, they're what our book is growing. And of course, you have a full word of work. So just kind of want to better understand the comments around it. I appreciate the history and analogy. I think to Europe. But here in the US here is perhaps a little bit of a different dynamic.
Okay.
Okay.
Yes.
Christopher Stathoulopoulos: Thanks. We're less convinced of the overall capacity and what we'll let, we'll let those bigger airlines decide what they think is the right amount of deployment. What we're seeing week after week in the schedule change adjustments and some of the most recent commentary is expectation for their capacity deployment is coming down, down, down. And we're seeing it, for example, we've seen, you know, attrition in pilot rates slowing down as a result, because they're slowing down their hiring of pilots.
Christopher Stathoulopoulos: So, so there's evidence that the big airlines are actually slowing down their capacity. What I was really more referencing was not the total capacity, however. And I was talking about the unevenness of the capacity. Appointment. And ultimately, if everyone showed their cards, I think you would find that, you know, some of the oversaturated Las Vegas and oversaturated Florida markets, it doesn't matter who you are, the root PNLs on those routes, regardless of airline, are probably a little bit under pressure.
Christopher Stathoulopoulos: And so we see that capacity being redeployed at a minimum, and possibly in some cases, just eliminated. So at best, it's, it's, it's, they maybe retire the aircraft, but it works, it just can't redeploy it. So that unevenness will get itself sorted out. And that's really what I was referencing, not total capacity. Okay, thank you.
Barry Biffle: And then on the comments for next year, and thinking about capacity allocation to be clear, you're not arguing around a wholesale change here to some of your core markets, and you're looking at some of these underserved markets, which to the earlier question comes with its own set of challenges. But if we take a step back and think about your net route growth next year, so with no wholesale change to markets like Vegas and alike, and these new underserved markets, just if there's a number of work, kind of directly how we should think about your net routes for 2024.
[music].
Barry Biffle: Thank you. Yeah, I don't think that the overall routes is going to change that much. And I think when you look at, you know, the percentage of our capacity that's in immature markets, you know, it's hovering around 10%. And it could go a little closer to 12% with some of the new markets, but when they're in underserved markets, we think that that's going to do really, really well. But it probably wants to be a little more when we look at, you know, kind of the underserved places. Okay, thank you.
[music].
Speaker 19: transcript
[music].
Speaker 1: transcript
Good day and thank you for standing by welcome to the Frontier Group Holdings, Inc. Third quarter 2023 earnings Conference call. At this time, all participants are in a listen only mode.
Speaker 1: transcript
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 will then hear an automated message advising you that your hand is raised.
Speaker 1: transcript
Your question. Please press Star one again, please be advised that today's conference is being recorded.
I'd now like to hand, the conference over to your Speaker today, David Erdman Senior director of Investor Relations. Please go ahead.
Speaker 1: transcript
Speaker 2: transcript
Thank you good morning, everyone and welcome to our third quarter 2023 earnings call.
Speaker 2: transcript
On October 19th we announced changes to our management team and so I'm pleased to introduce today's speakers in their new roles with me or Barry before Chief Executive Officer, Jimmy Dempsey, President and Mark Mitchell Chief Financial Officer.
Each will deliver brief prepared remarks, and then we'll get to your questions, but first let me quickly review the customary safe Harbor provisions. During this call we will be making forward looking statements, which are subject to risks and uncertainties actual results may differ materially from those predicted in these forward looking statements additional information concerning risk factors.
Speaker 2: transcript
Speaker 2: transcript
Speaker 2: transcript
Speaker 2: transcript
<unk>, which could cause such differences outlined Dominion announcement, we released yesterday or earlier this morning.
Along with reports, we filed with the Securities and Exchange Commission.
Speaker 2: transcript
We will also discuss non-GAAP financial measures, which are reconciled to the nearest comparable GAAP measure in the appendix of the earnings announcements and so I'll give the floor to bear to begin his prepared remarks spirit.
Speaker 3: transcript
Thank you David and good morning, everyone first I want to recap the recent changes to our senior leadership.
Including the promotion of Jimmy Dempsey, President and Mark Michelle to CFO, Jimmy will now oversee commercial customer care and operations research design and planning functions and Mark will assume Jimmy his former role.
Do you mean, Mark had been invaluable members of frontier senior leadership team over the years and I'm excited about their contributions going forward. We also welcomed <unk> to our to frontier as our Chief Information Officer, and Matt <unk> as our new Treasurer Radnet has extensive experience, including IP leadership roles at Lowe's companies and at United Airlines, and Matt comes to us with significant.
Speaker 3: transcript
Cross functional experience at Airbus.
Joining me in welcoming Roger and Matt to frontier and congratulating, Jimmy and Mark on their promotions frontier has a deep bench of executive talent and we're well positioned to help guide the growth of our airline into the future.
Speaker 3: transcript
Our third quarter results reflect a pre tax loss of 5%.
Speaker 3: transcript
With non fuel operating expenses at the low end of our guidance as we continued a rigorous focus on cost management.
Speaker 3: transcript
Our quarter was impacted by elevated fuel prices uneven demand recovery and uneven industry domestic capacity deployment as well as increased black cancellations from whether other operating challenges. Additionally, we observed softer than expected demand in the off peak periods in the quarter.
Speaker 3: transcript
Speaker 3: transcript
Looking to the fourth quarter stage adjusted non fuel unit costs are expected to sequentially improve we've also been we've also seen booking volume stabilized driven by low fare stimulation, albeit at higher fuel prices.
Speaker 3: transcript
Speaker 3: transcript
And the 24, we believe demand patterns will normalize and industry capacity growth will moderate and rebalance across geographies. We believe unit cost leadership will be fundamental to long term success and we expect frontier will be the lowest cost provider of a seat in the United States for years to come further operating a high utilization highly reliable airline will be important to our success.
And long term growth as well as delivering a low cost and rewarding customer experience I'll turn the call over to Jimmy to elaborate on our plan to dramatically simplify our operating model to align with the OCC best practices and to fuel the next stage of frontier scalable growth Jimmy.
Speaker 3: transcript
Speaker 4: transcript
Thanks, Barry and good morning, everyone I will start with with recapping the quarter total operating revenue for the third quarter was $883 million, reflecting RASM of $9 one.
Around 19% from a strong prior year comp on 21% capacity growth on a 2% increase in stage.
Speaker 4: transcript
Fair revenue was $39 per passenger lower than the $558 in the 2022 quarter, primarily just the impact of the additional capacity industry capacity concentrated in certain of our key markets weakness in the off peak periods and heightened flight cancellations, resulting from weather and continued challenges in the operating environment in contrast.
Unknown Executive: Thank you.
Unknown Executive: And let's conclude our question and answer session for today's conference.
Barry Biffle: And I would like to hand the conference back over to Barry Biffel for any closing remarks. Yes, I want to thank everybody for joining, and we look forward to updating you at the next quarterly call. Thanks, everyone.
Speaker 4: transcript
Unknown Executive: This concludes today's conference call. Thank you for participating. You may now disconnect. Thank you. . [inaudible] . .
<unk> revenue was $76 per passenger only 3% down from the prior year quarter, demonstrating the resilient nature of our suite of ancillary products and services.
Speaker 4: transcript
While we have achieved the highest utilization in the industry. This year, it's been challenging to reach higher utilization due to the post COVID-19 operating environment, including ATC staffing challenges and reliability that has underperformed as a result in.
Speaker 4: transcript
In my new role one of the primary objectives is to plan and allocate resources to achieve improved reliability, resulting in our ability to operate at high utilization and deliver lower costs transitioning to a more simplified operating design will result in industry, leading low cost higher reliability and the best value proposition in the industry.
Unknown Executive: Good day, and thank you for standing by.
Unknown Executive: Welcome to the Frontier Group Holdings Inc. 3rd quarter, 2023 earnings conference call. At this time, all participants are in a list and only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during this session, you will need to press star 11 on your telephone. You will then hear an automated message advising you that your hand is raised. To withdraw your question, please press star 11 again. Please be advised. The day's conference is being recorded. I would now like to hand the conference over to your speaker today.
Speaker 4: transcript
David Erdman: David Erdman, Senior Director, Investor Relations, please go ahead. Thank you. Good morning, everyone. And welcome to our 3rd quarter, 2023 earnings call. On October 19th, we announced changes to our management team. And so I'm pleased to introduce today's speakers and their new roles with me are very Biffle, Chief Executive Officer, Jimmy Dempsey, President and Mark Mitchell, Chief Financial Officer. Each will deliver brief prepared remarks and then we'll get to your questions.
Speaker 4: transcript
After careful analysis, we have determined that simplifying our business in a manner similar to European Uscc's will provide improved reliability and enabled the airlines to make continued progress toward pre COVID-19 utilization levels. Despite similar operating issues experienced over the past decade. This essentially means returning aircraft to base nicely as.
Barry Biffle: But first, let me quickly review the customary safe harbor provisions. During this call, we will be making forward-looking statements, which are subject to risks and uncertainties. Actual results may differ materially from most predicted in these forward-looking statements. Additional information concerning risk factors, which could cause such differences, outlined in the announcement we released yesterday or earlier this morning. Along with reports we filed with the Securities and Exchange Commission. We will also discuss non-gap financial measures, which are reconciled to the nearest comparable gap measure in the appendix of the earnings announcement.
Speaker 4: transcript
As we expect consumers will see greater value in travel we recently launched get at all for less as a first step we've enhanced the frontier miles program to be revenue base rewarding customers for fair and ancillary purchases, we've expanded our elite status levels to incorporate many new features including waves could change and cancel fees free bags and seat assignments on them.
Speaker 4: transcript
Multitude of other benefits.
Speaker 4: transcript
Additionally, elite status is more easily attained including our gold status after spending just $3000 on the frontier Barclays Barclays Mastercard in the coming months, we expect to broaden get at all for us to further enhance our customer value proposition.
Barry Biffle: And so, give the floor to Barry to begin his prepared remarks, Barry. Thank you, David. Good morning, everyone. I first want to recap the recent changes to our senior leadership, including the promotion of Jimmy Dempsey to President and Mark Mitchell to CFO. Jimmy will now oversee commercial customer care and operations research design and planning functions and Mark will assume Jimmy's former role. Jimmy and Mark have been invaluable members of Frontier Senior Leadership Team over the years, and I'm excited about their contributions going forward.
Speaker 4: transcript
Barry Biffle: We also welcome Rajat Kanna to our Frontier as our Chief Information Officer and Matt Sacks as our new treasure. Rajat has extensive experience, including IT leadership roles with the Loes companies and at United Airlines, and Matt comes to us with significant cross-punch control experience at our bus. Please join me in welcoming Rajat and Matt to Frontier and congratulating Jimmy and Mark on their promotions. Frontier has a deep bench of executive talent and we're well positioned to help guide the growth of our airline into the future.
Speaker 4: transcript
I'll now yield to mark to provide a financial update.
Thank you Jimmy and good morning, everyone.
Speaker 5: transcript
Third quarter pre tax loss margin was five 1%, reflecting a challenging environment as very covered earlier total revenue was $883 million down 3% compared to the 2022 quarter and fuel expense was in line with guidance at an average cost per gallon of $3 eight.
Speaker 5: transcript
Speaker 5: transcript
Adjusted non fuel operating expenses were $646 million or $6 six <unk> on a unit basis, 3% lower than the 2022 quarter in an inflationary environment and at the low end of our guidance, reflecting our continued focus on costs. We have the lowest total unit costs in the industry and we are focused on continue.
Barry Biffle: Our third quarter results reflect a pre-tax loss of 5%. With non-fuel operating expenses at the low end of our guidance, as we continued our rigorous focus on cost management, the quarter was impacted by elevated fuel prices, uneven demand recovery and uneven industry domestic capacity deployment, as well as increased flight cancellations from weather and other operating challenges. Additionally, we observed softer than expected demand in the off-peak periods in the quarter. Looking to the fourth quarter, stage adjusted non-fuel unit costs are expected to sequentially improve.
We can maintain our cost leadership through high utilization improve reliability and simplification of the operation to that end, we've identified more than $200 million of annual run rate cost savings related to fundamentally changing the way we operate as presented earlier, which we expect to be fully implemented by the end of 2024.
Speaker 5: transcript
We will provide more details as we progress through next year.
Speaker 5: transcript
We exited the quarter with $640 million of unrestricted cash and cash equivalents.
As a reminder, we also have access to substantial liquidity through our unencumbered loyalty and brand related asset.
Barry Biffle: We've also seen booking volume stabilized driven by low-fair simulation albeit at higher fuel prices. In the 24, we believe demand patterns will normalize and industry capacity growth will moderate and rebalance across geographies. We believe unit cost leadership will be fundamental to long-term success and we expect Frontier will be the lowest cost provider of a seat in the United States for years to come. Further, operating a high utilization, highly reliable airline will be important to our success and long-term growth as well as delivering a low-cost and rewarding customer. Experience.
Speaker 5: transcript
We had 134 aircraft in our fleet at September 30th after taking delivery of eight <unk> hundred 21 Neo aircraft during the quarter.
Five of which were financed with direct leases too.
Speaker 5: transcript
Two aircraft scheduled to be returned in September were delayed into early October.
And with another four deliveries expected in the fourth quarter all financed through sale leaseback transactions are forecast to exit the year with 136 aircrafts is unchanged.
Speaker 5: transcript
Turning to fourth quarter guidance.
Barry Biffle: I'll turn the call over to Jimmy to elaborate on our plan to dramatically simplify our operating model to align with the ULCC best practices and to fuel the next stage of Frontier's scalable growth. Jimmy? Thanks, Barry, and good morning everyone. I will start with recapping the quarter. Total operating revenue for the third quarter was $883 million, reflecting rise of 9.1 cents, down 19% from a strong prior year comp on 21% capacity growth and a 2% increase in stage.
<unk> growth is anticipated to be in the range of 12% to 14% over the 2022 quarter on stage length, which is expected to average 950 miles, 8% lower than the 2022 quarter, which reflects network optimization in response to today's heightened fuel prices and demand environment.
Speaker 5: transcript
Accordingly, we estimate fuel to remain elevated at $3 20 to $3 30 per gallon based on the blended fuel curve on October 24th.
Barry Biffle: Fair revenue was $39 per passenger, lower than the $58 in the 2022 quarter, primarily due to the impact of the additional capacity, industry capacity, concentrated in certain of our key markets. Weakness in the off peak periods and heightened flight consultations resulting from weather and continued challenges in the operating environment. In contrast, ancillary revenue was $76 per passenger, only 3% down from the prior year quarter, demonstrating the resilient nature of our suite ofcillary products and services.
Speaker 5: transcript
Adjusted non fuel operating expenses are expected to be between 655% to $665 million, which on a stage adjusted CASM basis is in line with the prior year and lower than the prior quarter.
Speaker 5: transcript
Taken together, our adjusted pre tax loss margin in the fourth quarter is expected to range from 6% to 9%, which at the midpoint is slightly wider than the third quarter, mainly due to higher fuel expense.
That I will turn the call back to Barry for closing remarks, Thanks, Marc I want to thank team frontier for staying focused on providing low fares done right and a challenging commercial and operating environment.
Speaker 3: transcript
Barry Biffle: While we have achieved the highest utilization in the industry this year, it's been challenging to reach higher utilization due to the post-COVID operating environment, including ATC staffing challenges and reliability that has underperformed as a result. In my new role, one of the primary objectives is to plan and allocate resources to achieve improved reliability, resulting in our ability to operate as high utilization and deliver lower costs. Transitioning to a more simplified operating design will result in industry-leading low costs, higher reliability, and the best value proposition in the industry.
Speaker 3: transcript
We are disappointed in our results for the quarter and the outlook for the fourth quarter and were taking methodical steps to ensure we deliver a reliable and rewarding experience to our customers to remain the lowest cost provider of a seat in the United States for the long term. We believe these steps will position the airline to return to profitability. Thank.
Speaker 3: transcript
Thanks again for joining us this morning already begin the Q&A portion of the call.
Speaker 1: transcript
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. Please press star one again, we ask that you. Please limit yourself to one question and one follow up please standby, while we compile our Q&A roster.
Barry Biffle: After careful analysis, we have determined that simplifying our business in a manner similar to European ULCCs will provide improved reliability and enable the airline to make continued progress toward pre-COVID utilization levels despite similar operating issues experienced over the past decade. This essentially means returning aircraft to base nightly. As we expect consumers will seek greater value in travel, we recently launched Get It All for Less. As a first step, we've enhanced the Frontier Miles program to be revenue-based, rewarding customers for fair and ancillary purchases.
Speaker 1: transcript
And our first question is going to come from the line of Savi <unk> with Raymond James Your line is open. Please go ahead.
Speaker 6: transcript
Hey, Thanks, good morning.
Just kind of curious if you could provide a little bit more color on demand, maybe particularly at peak versus off peak if I. If I look at your unit revenue. It's similar on a year over year basis to what you are seeing in <unk>, but you do have slower capacity growth in your stage length is.
Barry Biffle: We've expanded our elite status levels to incorporate many new features including waves, change and cancel fees, free bags and seed assignments, and a multitude of other benefits. Additionally, elite status is more easily attained, including our gold status after spending just $3,000 on the Frontier Barkey's Mastercard. In the coming months, we expect to broaden Get It All for Less to further enhance our customer value proposition.
Kind of getting shorter so I would've thought that that would have been revenue.
Tailwind.
Speaker 13: transcript
While the peak periods continued to be more resilient in the off peak.
What we're dealing with is an overall slowdown in demand, which has been cited multiple times now since we kind of brought it up over a month ago. We've.
Jimmy Dempsey: I'll now yield to Mark to provide a financial update. Thank you, Jimmy, and good morning, everyone. Third quarter pre-tax loss margin was 5.1% reflecting a challenging environment as Barry covered earlier. Total revenue was $883 million down 3% compared to the 2022 quarter, and fuel expense was in line with guidance at an average cost per gallon of $3.8 cents. Adjusted non-fuel operating expenses were $646 million or $6.66 cents on a unit basis, 3% lower than the 2022 quarter in an inflationary environment and at the low end of our guidance, reflecting our continued focus on costs.
We've seen that and that is more acute in the off peak periods and then we're also seeing kind of uneven deployment of capacity in the United States. So so there is there is a lot more capacity versus <unk> 19 in the Las Vegas, and a lot less in our Minneapolis as an example, so that unevenness is impacting frontier or the most as we study that.
Speaker 3: transcript
We're probably more impacted by the unevenness than anybody else in the space, but but to answer your question about the peaks are the peaks continue to main very resilient.
Speaker 6: transcript
And if I might just you can look to is kind of capacity and your plans here.
Jimmy Dempsey: We have the lowest total unit cost in the industry, and we are focused on continuing to maintain our cost leadership through high utilization, improve reliability, and simplification of the operation. Foundation. To that end, we've identified more than 200 million of annual run rate cost savings related to fundamentally changing the way we operate, as presented earlier, which we expect to be fully implemented by the end of 2024. We will provide more details as we progress through next year.
Especially as you kind of reached kind of REIT structure approach.
Speaker 6: transcript
How should we think about 'twenty 2024 is it still kind of similar to kind of <unk> level year over year growth or should we see that moderating.
Speaker 3: transcript
So we did moderate our growth somewhat in the fourth quarter versus even just a few months ago as expectations and we as we look to Q1, which is going to be back to where we see the biggest challenges in advanced demand environment as in Q1 as I mentioned off peak is not as resilient as the peak.
Jimmy Dempsey: We exited the quarter with 640 million of unrestricted cash and cash equivalents as a reminder, we also have access to substantial liquidity through our unencumbered loyalty and brand related assets. We had 134 aircraft in our fleet at September 30 after taking delivery of 8 A321neo aircraft during the quarter, five of which were financed with direct leases. Two aircraft scheduled to be returned in September were delayed into early October, and with another four deliveries expected in the fourth quarter, all financed through sale-respect transactions are forecast to exit the year with 136 aircraft is unchanged.
We're targeting mid single digit growth for Q1, but we are maintaining our mid mid teens.
Speaker 3: transcript
Speaker 3: transcript
Growth for the year and I think more specifically, we will be targeting growth kind of away from where these places that have been saturated and the more underserved markets as we move into 'twenty four.
Very helpful. Thank you Barry.
Very helpful. Thank you Barry.
Thank you and one moment for our next question.
Jimmy Dempsey: Turning to fourth quarter guidance, capacity growth is anticipated to be in the range of 12 to 14% over the 2022 quarter on stage lengths, which is expected to average 950 miles, 8% lower than the 2022 quarter, which reflects network optimization in response to today's heightened fuel prices and demand environment. Accordingly, we estimate fuel to remain elevated at $3.20 to $3.30 per gallon based on the blended fuel curve on October 24. Adjusted non-fuel operating expenses are expected to be between 655 to 665 million, which on a stage-adjusted chasm basis is in line with the prior year and lower than the prior quarter. Taken together, our adjusted pre-tax loss margin in the fourth quarter is expected to range from 69%, which at the midpoint is slightly wider than the third quarter, mainly due to higher fuel expense.
And our next question comes from the line of Duane <unk> with Evercore ISI. Your line is open. Please go ahead.
Speaker 1: transcript
Hey, thanks.
Speaker 7: transcript
I appreciate the time.
If we could just sort of playback.
Speaker 7: transcript
<unk> revenue outcomes and maybe the variance relative to your initial expectations could.
Speaker 7: transcript
Could you could you maybe bucket what you feel like are contributing factors.
Maybe one bucket being.
Speaker 7: transcript
Holding out for higher yields when basically your competitors really weren't furloughed and maybe werent doing that to the same degree.
Two the ops challenges, which you, which you highlighted and maybe you have a sense for how acute.
The revenue outcomes were in the in the markets that had she knows the most.
Speaker 7: transcript
And then three maybe just some sub optimal network bets that didn't didn't play out the way you you anticipated maybe there's other buckets, but.
Barry Biffle: With that, I'll turn the call back to Barry for closing remarks. Thanks, Mark. I want to thank Team Frontier for sitting focused on providing low-fares done right and challenging commercial and operating environment. We're disappointed in our results for the quarter and the outlook for the fourth quarter, and we're taking methodical steps to ensure we deliver reliable and rewarding experience to our customers to remain the lowest cost provider of a seat in the United States for the long term. We believe these steps will position the airline to return to profitability. Thanks again for joining us this morning.
Would appreciate if you could walk through some of that.
Speaker 3: transcript
Well I think I think first and foremost Duane. Thanks for your questions I think I think number one throughout the pandemic and post pandemic, we've seen the fall will be much stronger than it has turned out.
Speaker 3: transcript
So that was kind of a surprise for.
Maybe we can call it normal, but I think it was more abnormal from a downshift than we've seen in a relationship of the peaks versus past. We also did see and it doesn't help when you've got maybe one or two carriers that are behind material on load factor and the very.
Unknown Executive: We're ready to begin the Q&A portion of the call. Thank you, as a reminder to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. We ask if you please limit yourself to one question and one follow-up. Please standby while we compile our Q&A roster.
Speaker 3: transcript
Speaker 13: transcript
Large and their promotional activity did Rob a lot of.
Demand at a time when yes, we were planning on getting some bookings so that didn't help.
Savanthi Prelis: And our first question is going to come from the line of savvy peace with Raymond James. Your line is open. Please go ahead. Thanks. Good morning. I was kind of curious if you could provide a little bit more color on demand, maybe particularly the peak versus off-take. If I look at your unit revenue, it's similar on a year-over-year basis to what you're seeing in 3Q. But you do have slow capacity growth and your stage length is kind of getting shorter.
That is normalized now.
No.
Those are two big factors and I don't know about.
Savanthi Prelis: So I would have thought that that would have been the unit revenue scale. Lynn. Well, the peak periods are continued to be more resilient than the off peak, but you know what we're dealing with is an overall slowdown in demand, which has been cited multiple times now, since we kind of brought it up over a month ago. We've seen that and that is more acute in the off peak periods. And then we're also seeing kind of an uneven deployment of capacity in the United States.
Our execution.
Savanthi Prelis: So there's, you know, there's a lot more capacity versus 19 in the Las Vegas and a lot less in a Minneapolis as an example. So that unevenness is impacting Frontier the most as we study that, we're probably more impacted by that unevenness than anybody else in the space. But to answer your question about the peaks, the peaks continue to remain very resilient. And if I might just as you kind of look to kind of capacity and your plans here, especially as you kind of restructure, kind of read structure of the approach, how should we think about 2020, 2024, is it still kind of similar to kind of 4Q level of your growth, or should we see that moderating our experience?
Speaker 3: transcript
We chased it.
Always chase, what we think is going to be the highest margin the challenges and we've gone back and studied this kind of after 911 after the great recession and anytime you have a big contraction in capacity and you have a whole bunch of capacity return.
Speaker 3: transcript
It's not all perfectly allocated because different we don't coordinate with other airlines that's not allowed.
So you've got places like Las Vegas that Theyre, just saturated I mean, if you compare the capacity versus 2019, it's up dramatically and in fact, the occupancy rates mid week are actually down so.
Speaker 13: transcript
You've got a tough situation can contrast that to Minneapolis, where where you haven't seen it even a full recovery and so when we track.
Speaker 3: transcript
Airline performance in the United States.
It's much closer and much more well explained when you look at the competitive capacity that most carriers are carrying are dealing within their markets.
And frontier is the most impacted by that now history shows that this typically six to 18 months starts to correct itself and we'll be eager to see that rebalancing take place.
Speaker 7: transcript
I appreciate those thoughts and then just just on.
Speaker 7: transcript
Ops.
We had heard about this kind of modular network approach for a while and frankly there were long stretches of time, where youre operations were.
Quite quite good relative.
Savanthi Prelis: So we did moderate our growth somewhat in the fourth quarter versus, you know, even just a few months ago's expectations. And as we look to Q1, which is going to be back to where we see that the biggest challenges in the demand environment is in Q1, as I mentioned, off peak is not as resilient as the peak. We are targeting mid single digit growth for Q1, but we are maintaining our mid teens growth for the year.
So I guess, what what went sideways this quarter. Despite the modular design and sorry, if you're repeating it but what is what is different about the new approach.
The new simplified approach versus the modular network approach that you talked about in the past.
I think the challenge that we've had Duane is we had great success with the modularity and coming out of the pandemic. It was great and we've gotten to 50%.
Speaker 3: transcript
Savanthi Prelis: And I think more specifically, you know, we will be targeting growth kind of away from with these places that have been saturated in the more underserved markets as we move into 24. Very helpful. Thank you very.
Modularity Outback.
Speaker 13: transcript
The problem is is that the ATC staffing and the delay minutes as an example, we saw a significant increase.
It's something like 10 X the amount of ground delay program minutes that we were dealing with in the system.
Speaker 3: transcript
Savanthi Prelis: Thank you and one moment for our next question. And our next question comes from a line of Dwayne Phinnyworth with Evercore ISI. Your line is open. Please go ahead. Hey, thanks. Appreciate you for the time. If we could just sort of play back, you know, 3Q revenue outcomes and maybe the variance relative to your initial expectations, could you, could you maybe bucket what you feel like are contributing factors and maybe one bucket being holding out for higher yields when basically your competitors really went for load.
This summer and so even though we've gone modular we didn't do enough and so when we look at where we are very challenged reliability wise. It is it is dramatically impacted in the multi day trips and so where we're at now we are simply going to deepen the modularity and go straight to a kind of a best in class.
Speaker 3: transcript
Savanthi Prelis: And maybe weren't doing that to the same degree to the options challenges, which you would you highlight it and maybe you have a sense for how acute kind of the revenue outcomes were in the markets that had seen those the most. And then three, maybe just some some optimal network bets that, you know, didn't didn't play out the way you anticipated. Maybe there's other buckets, but would appreciate if you could walk through some of that.
You will see model of Europe, and we're finally at a size and scale that it makes sense for us they have to be a little bigger.
Speaker 3: transcript
If you know much about Ryan or with I mean, they can they can make a base with just a few aircrafts that doesn't really work with our reserve coverages in the United States, but we're at the point that we can do that and so we will be in a situation, where we don't have anywhere near the multi day trips and we're targeting in the 90% plus range.
Speaker 3: transcript
Speaker 3: transcript
By the time, we get to spring, which will help us mitigate this and.
And I'll just give you an example, even with the 50% out and back we had a situation where if we planned for today for Tomorrow night, where aircraft would be because of the disruption with ATC. We saw consistently over a third of our aircraft not end up where they were supposed to be the.
Speaker 3: transcript
Speaker 3: transcript
Followed side that has massive disruption to your maintenance plan.
Savanthi Prelis: Well, I think, I think first and foremost Dwayne, thanks for your questions. I think, I think number one, you know, throughout the pandemic and post pandemic, we've seen the fall be much stronger than it has turned out. And so that is, it was kind of a surprise for that. Maybe we can call it normal, but I think it was more abnormal from a downshift than we've seen in a relationship of the peaks versus past.
Cause you to need excess mechanics, it causes you'd need more parts and it's a big step towards the recoverability. So we feel like it not only unlocks the reliability of the airline, but it unlocks our ability to increase utilization because when we look at.
Europe, they've dealt with euro control and a tougher operating environment for decades and that is why we have to adopt that model and it's the only model. We believe that is going to work at high utilization in this country.
Savanthi Prelis: We also did see and it doesn't help when you've got maybe, you know, one or two pairs, they're behind material on load factor in the very large. And their promotional activity kind of did rob a lot of demand at a time when yes, we were planning on getting some bookings so that didn't help. But that is normalized now. So those, those are two big factors. And I don't know about, and our execution.
Okay. Thank you for the thoughts.
Speaker 1: transcript
Thank you and one moment as we move on to our next question.
Speaker 1: transcript
And our next question is going to come from the line of Brandon <unk>.
<unk> with Barclays. Your line is open. Please go ahead.
Speaker 8: transcript
Good morning, and thanks for taking the question.
Barry I guess, if you can.
What do you tell investors that have been with <unk> since the IPO, because thats been a pretty tough run here.
Savanthi Prelis: And we always chase what we think is going to be the highest margin that the challenge is, and we've gone back and studied this, you know, kind of after 9-11 and after the great recession. And anytime you have a big contraction in capacity and you have a whole bunch of capacity return, it's not all perfectly allocated because we don't coordinate with other airlines that's not allowed. And so you've got places like Las Vegas that they're just saturated.
And if we look at your order book over 200 aircraft on order yet 130 today, that's a lot of growth next 10 years.
Speaker 8: transcript
And I know you are pulling it back in the first quarter, but it seems like uneven demand off peak weakness fuel pressure ATC delays they seem to be continuing so what's structurally changes in the next year or two that gets you back to that pre tax double digit margin range.
Speaker 8: transcript
Savanthi Prelis: I mean, if you compare the capacity versus 2019, it's it's up dramatically. And in fact, the occupancy rates midweek are actually down. So you're you've got a tough situation can contrast that to Minneapolis where where you haven't seen a even a full recovery. And so when we track airline performance in the United States, it's it's much closer and much more well explained when you look at the competitive capacity that most carriers are carrying or dealing with in their markets. And Frontier is the most impacted by that. Now, history shows that this typically in six, 18 months starts to correct itself and and will be eager to see that rebalancing take place.
Well I think it's I think it's pretty simple one I think youre going to see as I mentioned, I think youre going to see that the rebalancing of the capacity in the U S youre not going to have.
Speaker 3: transcript
Speaker 3: transcript
Wild swings of up 20% in one city versus down 15, and others, I think thats going to rebalance and thats going to be significantly beneficial to frontier and absolute and on a relative basis I think youre also going to see a shift a normalization in demand I mean international is invoke but that isn't going to last and so thats going to rebalance as well history shows you that.
So thats worth three to four points each and then we ourselves are going to take our own self help and we're going to grow away from the from the from the saturation is worth several more points and as we've laid out we're going to actually reduce our costs are significantly which is going to drive a couple more points of margin and Thats also going to drive greater reliability, which also increases your rep.
Speaker 3: transcript
Duane Pfennigwerth: Appreciate those thoughts. And then just just on ups, you know, we've heard about this kind of modular network approach for a while. And frankly, there were long stretches of time where your operations were, you know, quite quite good, relative. So I guess what what went sideways this quarter despite the modular design. And sorry, if you're repeating it, but what is what is different about the new approach, the new simplified approach versus the modular network approach that you talked about in the past.
Speaker 3: transcript
<unk> when you cancel and two 3% of your flights the costs stay the same but the revenue goes down and then obviously we've got.
Speaker 3: transcript
As Jimmy mentioned are good at all for less promise that we rolled out this week, which we think is going to pay massive dividends.
With the.
Speaker 3: transcript
The loyalty approach, which happens to be with barclaycard, so, but we're going to control the things, we can control and that's going to deliver profitability and we believe that low cost will win.
Duane Pfennigwerth: I think the challenge that we've had doing is we we had great success with the modularity and coming out of the pandemic, it was great. And we've gotten to 50% you know modularity out and back. The problem is that the ATC staffing and you know the delay minutes as an example, we saw a significant increase. I mean, it was something like 10X, the amount of grain ground delay program minutes that were we were dealing with in the system.
Speaker 3: transcript
I appreciate that Barry I mean are you going through a wholesale change on the network next year is that what we should think like getting out of markets like Vegas, and Florida incrementally.
No we're not getting it so let me be clear, we are not getting out and we're not leaving anywhere, but we will concentrate the growth that we plan. So in the mid teens. It will be away from places that are saturated it's going to be in places that are underserved.
Duane Pfennigwerth: And so even though we had gone modular, we didn't do enough. And so when we look at where we are very challenged reliability wise, it is it is dramatically impacted in the multi day trips. And so where we are at now, we are simply going to deepen the modularity and go straight to a kind of a best in class ULCC model of Europe. And we're we're finally at a size and scale that makes sense, you know, for us, they have to be a little bigger.
Speaker 8: transcript
Okay, I'm, sorry, I should rephrase like not getting out, but incrementally moving away from those markets with relative new capacity right. Now no. We are the lowest cost provider in Las Vegas, we are not going anywhere we do believe that the industry will probably slow its growth and probably contract there, but we will not be contracting we will just.
Duane Pfennigwerth: You know, if you know much about Ryan or with them, they can make a base with just a few aircraft that doesn't really work with our reserve coverages in the United States. But we're at the point that we can do that. And so we will be in a situation where we don't have anywhere near the multi day trips. And we're targeting in the 90% plus range by the time we get to spring, which will help us mitigate this.
Speaker 3: transcript
The growth that we add to the company will be an underserved will not add more capacity to markets that we believe are over saturated.
Okay I appreciate the response thank you.
Thank you and one moment as we move on to our next question.
Speaker 1: transcript
Speaker 1: transcript
And our next question is going to come from the line of Michael Lindenberg with Deutsche Bank. Your line is open. Please go ahead.
Speaker 9: transcript
Yeah, Hey.
Duane Pfennigwerth: And now just giving example, even with the 50% out and back, we had a situation where if we plan for today, for tomorrow night, where aircraft would be because of the disruption with APC, we saw consistently over a third of our aircraft not end up where they were supposed to be the fall aside. That has massive disruption to your maintenance plan. It causes you to need excess mechanics. It causes you to need more parts.
Good morning, everyone.
Barry just back to your view on next year.
<unk> talked about mid single growth in the March quarter than aiming for mid teens for full year. So you would obviously you have to ramp up as we move through the year are there any sort of whether its margin targets or return metrics that youll have to achieve in order to then sort of.
Greenlight that type of growth.
Speaker 9: transcript
Duane Pfennigwerth: And it's a big step towards the recovery ability. So we feel like it not only unlocks the reliability of the airline, but it unlocks our ability to increase utilization. Because when we look at, you know, Europe, they've dealt with Euro control and a tougher operating environment for decades. And that is why we have to adopt that model. It's the only model we believe that is going to work at high utilization in this country.
Maybe it's by the June quarter, where you start to ramp up because im sure Theres metrics, you would probably want to hit before you want to accelerate that.
Duane Pfennigwerth: Okay, thank you for the thoughts. Thank you and one moment as we move on to our next question.
Youre thinking around that thank you.
Speaker 3: transcript
Yes, Thanks, Mike.
Not guiding for 2020 for margins at this point okay.
Speaker 9: transcript
Thank you and then.
Just a question.
Mark Congratulations on your promotion.
I wanted to go back just on the guidance you had mentioned that the.
Pre tax margin guide for the fourth quarter versus the third.
Brandon Oglenski: And our next question is going to come from the line of Brandon Oglenski with Farclays. Your line is open, please go ahead. Yeah, good morning and thanks for taking the question. Barry, I guess if you can step back, you know, what do you tell investors that have been with you since the IPO? Because it's been a pretty tough run here. And if we look at your order book, you know, over 200 aircraft on order yet 130 today, that's a lot of growth next 10 years.
You said a lot of that had to do with a higher fuel price assumption are you assuming sort of similar demand.
Speaker 9: transcript
What we saw in the September quarter continues.
Speaker 9: transcript
Into December or is that is that fair a fair assumption.
Speaker 5: transcript
Yes, I mean, I think as was highlighted.
In the initial remarks bookings trends appear to have stabilized and so what you see in that guide range is primarily the impact of the higher fuel fuel costs.
Brandon Oglenski: And I know you're pulling it back in the first quarter, but somebody seems like uneven demand off peak weakness, fuel pressure, APC delays, they seem to be continuing. So what structurally changes in the next year or two that gets you back to that pre-tax double-digit margin range? I think it's pretty simple. One, I think you're going to see as I mentioned, I think you're going to see the rebalancing of the capacity in the US.
Okay, great. Thank you.
Yes.
Speaker 1: transcript
Thank you and one moment as we move on to the next question.
Speaker 1: transcript
And our next question is going to come from the line of Stephen Trent with Citi. Your line is open. Please go ahead.
Brandon Oglenski: You're not going to have, you know, these wild swings of up 20% in one city versus down 15 and others. I think that's going to rebalance and that's going to be significantly beneficial to Frontier in absolute and on a relative basis. I think you're also going to see a shift in normalization and demand. I mean, international is invoked, but that isn't going to last. And so that's going to rebalance as well.
Yes. Good morning, Rick can you hear me okay.
Yes, we get.
Speaker 11: transcript
Okay, sorry about that I got a couple of my phone.
And congrats I share mikes comments, congrats to Jimmy and Mark on those new moves that's great stuff.
Brandon Oglenski: History shows you that. So that's worth, you know, three to four points each. And then we ourselves are going to take our own self-help, and we're going to grow away from the from the saturations worth several more points. And as we've laid out, we're going to actually reduce our costs significantly, which is going to drive a couple more points of margin. And that's also going to drive greater reliability, which also increases your revenue.
Just one or two for me here.
Speaker 13: transcript
Could you tell me with your 2024 plan.
What are your basic assumptions about.
The air traffic control situation and sort of infrastructure.
Infrastructure investment in <unk>.
<unk> Airport I mean, any change there or youre, assuming everything stays as it is now.
Brandon Oglenski: When you're canceling two, three percent of your flights, you know, the costs stay the same, but the revenue goes down. And then obviously we've got, as Jimmy mentioned, our get it all for less promise that we rolled out this week, which we think is going to pay massive dividends with the loyalty approach, which happens to be with with Barclay Card. So we're going to control the things we can control. And that's going to deliver profitability.
Yes, Thanks, David actually we're assuming it gets worse.
And that is why we had always planned by 'twenty five 'twenty six to get to above 80% to 90%.
Speaker 3: transcript
Kind of Outback simplified network.
But we have to accelerate that we studied this extensively for now six to eight months. We have studied what how they manage this in Europe very similar situations and so we believe that their traffic drove its works because if you look at the staffing levels relative to the departures.
Speaker 3: transcript
Brandon Oglenski: And we believe that low cost will win. I appreciate that, Barry. I mean, are you going through a wholesale change on the network next year's that what we should think, like getting out of markets like Vegas and Florida incrementally? Oh, no, we're not getting it. So, so let me be clear. We are not getting out and we're not leaving anywhere, but we will concentrate the growth that we plan. So in the mid teams, it will be away from places that are saturated.
Brandon Oglenski: It's going to be in places that are underserved. Okay, sorry, I should have rephrased like not getting out, but incrementally moving away from those markets with relative. No, we are the lowest cost provider in Las Vegas. We're not going anywhere. We do believe that the industry will probably slow its growth and probably contract there, but we will not be contracting. We will just the growth that we add to the company will be an underserved will not add more capacity to markets that we believe are oversaturated. Okay, appreciate there's fun.
It's going to be more constrained than it is now and so we are planning around that by ensuring that we no longer have that kind of.
Brandon Oglenski: Thank you. Thank you and one moment as we move on to our next question.
Dependencies, and the risk of running multi day trips that are vulnerable.
Three to four to five hour GDP programs.
Speaker 11: transcript
Alright, I really appreciate that Brian and just one other quick question could you refresh my memory.
Regarding what percentage of your.
Fuel exposure as a west coast refined.
Speaker 4: transcript
Stephen's Jimmy here I mean.
It's less than 20% of our of our exposure covers the.
The West Coast and we also have an exposure of about 10 or 15% in Denver, as well, which is incorporated into that kind of more.
Higher kind of.
The crack spread and higher higher jet fuel cost.
But over half of our exposure to fuel is around U S Gulf Coast.
Okay perfect. Thanks, very much Jimmy let me leave it there.
Speaker 11: transcript
Michael Linenberg: On our next question is going to come from the line of Michael Linenberg with Deutsche Bank. Your line is open, please go ahead. Yeah, hey, good morning, everyone. Hey, Barry, just back to your view on next year, talked about middle growth in the March quarter, and then aiming for mid teens for full years, so you would obviously have to ramp up as we move through the year. Are there any sort of, you know, whether it's margin targets or return metrics that you'll have to achieve in order to then, you know, sort of green light, that type of growth, you know, maybe it's by the June quarter where you start to ramp up, because I'm sure there's metrics you probably want to hit before you want to accelerate that.
Thanks.
Speaker 1: transcript
Thank you and one moment as we move on to our next question.
Speaker 1: transcript
Our next question is going to come from the line of Helane Becker with TD Cowen. Your line is open. Please go ahead.
Thanks, very much operator.
Speaker 12: transcript
Hi, everybody and thanks for the time here.
Is there a way for you to quantify what the Barclay card spend is and whether it's up down or the same as it was six months.
Year ago.
Speaker 3: transcript
We don't actually disclose that but I can tell you. We're very pleased with the performance of credit card partnership with Barclays.
Speaker 3: transcript
And we are investing significantly in the loyalty as we announced earlier this week our get it all for less promise includes changes to how people earn on the program or our elite status levels, but also use. The fact that you can actually earn gold status by just spending $3000 on the credit card, which unlocks free bag.
Speaker 3: transcript
Michael Linenberg: You're thinking around it. Okay. Okay, too early. Then just a question to Mark, congratulations on your promotion. I want to go back just on the guide in some. You had mentioned that the pretext margin guide for the fourth quarter versus the third. You said a lot of that had to do with the higher fuel price assumption. Are you assuming sort of similar demand that what we saw in September quarter continues into December?
Speaker 3: transcript
Speaker 3: transcript
<unk> free seats, no change fees no cancel so just a lot of value and so what we believe is that there is no one in the space that if you travel a few times a year and spend at least $10000 on a credit card that you earn as much as you will on us in terms of free travel and.
Michael Linenberg: Is that fair assumption? Yeah. I mean, I think, you know, as was highlighted, you know, in the initial remarks, you know, book trends here to stabilize. And so, you know, what you see, you know, in that guide range is primarily, you know, the impact of the higher fuel cost. Okay. Great.
Speaker 3: transcript
When you couple that with what we're doing on the modularity and where we're going to be concentrating our basis. We also believe that we're going to see much more market maturity as we can continue to be much more relevant for customers in our basis.
Mark Mitchell: Thank you. And one moment as we move on to the next question.
Okay. That's hugely helpful actually the relevance is very helpful. But the question I have about the comment you made on.
Speaker 12: transcript
Underserved markets and kind of thinking about growing in those markets I understand why you would want to do that and it makes perfect sense.
Speaker 12: transcript
Speaker 12: transcript
Stephen Trent: And our next question is going to come from the line of Stephen Trent with City. Your line is open. Please go ahead. Yeah. Good morning, Rudy. Can you hear me? Okay. Yeah, we can. Okay. Sorry about that. I'm a little troubled. My phone. And congrats, I share Mike's comments. Congrats to Jimmy and Mark on those new moves. That's great stuff. Just one or two from me here. Could you tell me with your 2024 plan, you know, what are your basic assumptions about the air traffic control situation and sort of infrastructure investment in the U.S. Airport?
What do you need to have smaller aircraft to do that because those markets may not be as robust.
Speaker 12: transcript
As demand driven as some of the other markets that.
Sir I.
Speaker 12: transcript
I feel like American so now it's a good question leases right.
Speaker 13: transcript
It's a good question Helane, but no.
Speaker 3: transcript
Look when you have got the 321 neo and our configuration. It provides the lowest cost in the industry and it enables you to fly more places whether it's just a couple of times a week for small markets or several times a day.
Stephen Trent: I mean, any change there or you're assuming everything stays as it is now. Yeah. Thanks, Stephen. Actually, we're assuming it gets worse. And that is why we had always planned by 2526 to get to above 80% to 90% kind of out and back simplified network, but we have to accelerate that. We have we've studied this extensively for now six to eight months. We have studied what how they manage this in Europe, you know, very similar situations.
We have an amazing amount of stock.
Speaker 3: transcript
Maybe you can building stimulate demand, but I think what you should look at is just take the cities in the U S. Take all the airports and just go in and look at the fourth quarter capacity.
Stephen Trent: And so we believe that their traffic control gets worse because if you look at the staffing levels relative to the departures, it's going to be more constrained than it is now. And so we are planning around that by ensuring that we no longer have the kind of the dependencies and the risk of running multi-day trips that are both. You know, three to four to five hour GDP programs? All right, really a present that, Barry, and just one other quick question, could you refresh my memory regarding what percentage of your fuel exposure is West Coast refined?
By city look how many seats in.
In each city.
Speaker 3: transcript
And compare that to the same quarter in 2019.
And Youll see a dramatic.
Speaker 3: transcript
Dramatic difference.
You are talking probably 30% to 40 points swing between the top and the bottom. So if demand is similar and you have a 30% swing in capacity that can that can be a $20 to $30 jump in RASM or it can be a 20 to 30 point drag on a relative basis. So that's what we're talking about when we say uneven capacity deployment in the U S.
Speaker 3: transcript
And I think youll find something very interesting if you do that analysis, you'll find that there's a large correlation between the airlines that are doing well and the ones that are struggling margin wise when you compare where theyre concentrations are and that's why we say.
Speaker 3: transcript
Stephen Trent: Stephen, it's less than 20% of our exposure covers and West Coast, and we also have an exposure of about 10% or 15% in Denver as well, which is incorporated into that kind of higher kind of crack spread and higher jet fuel cost. Bit over half of our exposure to fuel is around US Gulf Coast. Okay, perfect. Thanks very much, Jimmy.
And history shows that these things will normalize over the next six months to 12 months.
Alright that makes sense yeah, Okay. That's really helpful. Barry Thanks for all of that.
Speaker 14: transcript
Thanks Lee.
Thank you Anne one moment for our next question.
Speaker 1: transcript
Our next question comes from the line of Jamie Baker with JMP.
Morgan Securities. Your line is open. Please go ahead.
Speaker 15: transcript
Hey, good morning, everybody.
Congrats to Jimmy and Matt.
And I'm, sorry, Jamie and Mark.
As well it's already been a long morning can you update us on Capex for the next couple of years, obviously, everybody who.
Jimmy Dempsey: Let me leave it there. Thank you, and one moment as we move on to our next question.
Looking for a better year next year, but just in the event.
Speaker 15: transcript
Is that 2024 ends up resembling.
Speaker 15: transcript
Helane Becker: Our next question is going to come from the line of Helane Becker with TD Cowan. Your line is open. Please go ahead. Thanks very much operator. Hi everybody, and thanks for the time here. Is there a way for you to quantify what the Barclay card spend is and whether it's up, down or the theme as it was six months or a year ago? We don't actually disclose that, but I can tell you we're very pleased with the performance of credit card partnership with Barclays.
2023, particularly after you reach a pilot deal I just want to make sure I understand your ability to raise incremental capital I know you cited the credit card program and IP. So im just guessing that liquidity is on your mind as well.
Speaker 4: transcript
Yes, Jamie as Jimmy here.
It's not that's not a secret that we have spent a lot of time over the years fostering relationships across the leasing community to fund the growth in the business.
Speaker 4: transcript
We have about 22 23 aircraft delivering next year.
We're really good pipeline certain leaseback on those aircraft all the way through to the end of next year with most of them most of our aircraft commitment really in the first seven or eight months of next year. So we feel really good about the material capital spend on aircraft assets.
Helane Becker: And we are investing significantly in the loyalty as we announced earlier this week or get it off for less promise, includes changes to how people earn on the program, our elite status levels, but also the fact that you can actually earn gold status by just spending $3,000 on the credit card, which unlocks free bags, free seats, no change fees, no cancel. So just a lot of value. And so what we believe is that there is no one in the space that if you travel a few times a year and spend at least $10,000 on our credit card, that you earn as much as you will on us in terms of free travel.
Speaker 4: transcript
Other capital spend that we have in the business is clearly engine shop visits.
And then just funding the growth and the business they tend to be much lesser in terms of Capex spent.
The aircrafts themselves, albeit the leap erk.
Speaker 4: transcript
Aircraft is coming in the next few years into its window, where youll see some more short engine shop visits developed for those aircrafts.
Helane Becker: And when you couple that, what we're doing on the modularity and where we're going to be concentrating our bases, we also believe that we're going to see much more market maturity as we continue to be much more relevant for customers in our bases. Okay, that's hugely helpful actually. The relevance is very helpful, but the question I have about the comment you made on underserved markets and kind of thinking about growing in those markets.
Speaker 4: transcript
And the other thing that we're watching quite closely although.
We are we were unclear right now is that the impact it will have on frontier is really what's happening with the GTS frontier delivered its first <unk> engine in September 2022.
Speaker 4: transcript
We're outside of the initial window, whereas.
Inspections on those.
<unk> are occurring at the moment, but we do anticipate we'd have to do some inspections towards the back end of 2024.
Helane Becker: I understand why you would want to do that, and it makes perfect sense. But do you need to have smaller aircraft to do that because those markets may not be as robust or as demand driven as some of the other markets that, you know, you are serving ready. No, I feel like I remember cancel. No, it's a good question, right? Well, it's a good question, Elaine, but no, you know, look, when you've got the 321 neo in our configuration, it provides the lowest seat cost in the industry and it enables you to fly more places, whether it's just a couple of times a week for small markets or several times a day, and, you know, amazing buildings that simulate demand.
We enter 2025 and beyond and so.
Albeit we think it's going to be a minimal impact on frontier.
In relation to how we understand it at the moment.
It's obviously a fluid situation, we're watching it quite closely.
Speaker 4: transcript
And so that will determine our spares ratio in various different things.
Engine engine capacity in the airline.
Speaker 15: transcript
Hey.
Sure.
So no definitive Capex guide, but we should be thinking about sale leaseback activity is as we model for that.
The summary.
Speaker 4: transcript
Yes.
That market has been really good to frontier on it continues to be so so I mean, obviously interest rates are higher and higher for everybody and we operate within the world but.
Helane Becker: But I think what you should look at is just take the cities in the US, take all the airports and just go in and look at the fourth quarter capacity by city, look how many seats in each city, and compare that to the same quarter in 2019. And you'll see a dramatic, dramatic difference. You know, you're talking probably 30 to 40 points, swing between the top and the bottom. So if demand is similar, and you have a 30% swing and capacity, that can, that can be a 20 to 30 point jump in, in Rasm or it can be a 20 to 30 point drag on a relative basis.
The pipeline of operating leases that we have coming are pretty good. So we're okay.
Speaker 15: transcript
Got it and then second Barry you talked about lower ex fuel CASM next year, what's your confidence on getting there.
Speaker 15: transcript
You Mark your pilots to Mark and let's just assume you did that on January 1st for illustrative purposes, I'm not asking you to negotiate in public I'm, just asking you to speak to your confidence in achieving lower ex fuel CASM.
After a pilot hit of whats.
Helane Becker: So that's what we're talking about when we say uneven capacity deployment in the US. And I think you'll find something very interesting. If you do that analysis, you'll find that there's a large correlation between the airlines that are doing well and the ones that are struggling margin wise when you compare where their concentrations are. And that's why we're talking about when we say, you know, in history shows, that these things will normalize over the next six to 12 months.
Speaker 15: transcript
Sort of best case scenario, I'm guessing 50 million of annual incremental expense.
Guessing I'm analyzing but.
Probably a figure potentially north of that.
Well, we plan on as we outlined earlier, we plan on saving over $200 million on 2023 size with.
Speaker 3: transcript
With the simplification of the operation. So we believe we have adequate capacity to more than cover okay pilotless labor cost increase.
Helane Becker: Right. That makes sense. Yeah. Okay. That's really helpful. Barry, thanks for all of that. Thanks, Lily.
Okay perfect. Thank you very much.
Helane Becker: Thank you and one moment for our next question. Hi, next question comes from the line of Jamie Baker with JMP JP Morgan security. Your line is open. Please go ahead. Hey, good morning, everybody. And congrats to Jimmy and Matt and I'm sorry, Jimmy and Mark and Matt as well, sort of been a long morning. Can you update us on CapEx for the next couple of years? Obviously, you know, everybody hoping for a better year next year, but, you know, just in the event that 2024 ends up resembling 2023.
Speaker 1: transcript
Thank you and one moment as we move on to our next question.
Speaker 1: transcript
And our next question is going to come from the line of Andrew <unk> with Bank of America. Your line is open. Please go ahead.
Speaker 16: transcript
Hi, good morning, everyone.
Barry or Mark.
Two parter for you.
What are the buckets of the cost opportunities within that $200 million that you cited in your prepared remarks.
Speaker 16: transcript
And then Barry.
The road back to profitability or stopping the margin degradation kind of really just be accomplished on the cost side and utilization side, particularly with pilots coming or is it really just a revenue issue whereby you're just kind of have to.
Helane Becker: Particularly after you reach a pilot deal, I just want to make sure I understand your ability to raise incremental capital. I know you cited the credit card program and IP. So, you know, I'm just guessing that liquidity is on your mind as well. Yeah, Jamie is Jimmy here. Look, you know, we it's not it's not a secret that we've spent a lot of time over the years fostering relationships across the leasing community to fund the growth and the business.
We think your longer term capacity plans look.
In the high teens.
Just trying to dissect those those two parts.
Speaker 5: transcript
Yes. So this is mark so from the.
The $200 million that we highlighted so broad strokes.
We simplify.
The schedule and the operational design.
Helane Becker: And, you know, we have about 20 to 23 aircraft delivering next year. We've a really good pipeline on the lease backs on those aircraft, all the way through to the end of next year. But most of our aircraft committed really in the first seven or eight months of next year. So we feel really good about the material capital spend on aircraft assets. The other capital spend that we have in the business is clearly engine shop visits and then just funding the growth in the business.
Going to have a benefit of that lower crew travel a better ability to utilize reserves and just better predictability of people and parts.
To drive cost benefits through the organization and then with that you're also going to position the organization to drive higher utilization and so I think that's really the foundation of the $200 million.
Speaker 13: transcript
Yeah, and as far as the growth rate.
I don't see a challenge with that I think if you look at if you look under the Hood.
Helane Becker: They tend to be much lesser in terms of CapEx spend than the aircraft themselves, albeit the leap aircraft is coming in the next few years into its window where you'll see some more shot engine shop visits developed for those aircraft. And the other thing that we're watching quite closely, although we are, you know, we we're unclear right now is that the impact it will have on frontier is really what's happening with the GTF.
We feel confident with the cost.
Speaker 3: transcript
Savings that we're going to have even net of the pilot cost like I said youre going to see the uneven deployment of capacity in the market saturation should start to normalize.
It's a huge benefit to us youre going to see the rebalanced youre going to see people come back and travel more domestic than they did on a relative basis to Europe, that's just going to happen and so those two together are massive.
Speaker 3: transcript
Speaker 3: transcript
Benefit and then you've got our own self help that we're going to grow in places that are also underserved ourselves. So.
Helane Becker: You know frontier delivered its first GTF engine in September 2022. We're outside of the initial window where inspections on those engines are occurring at the moment. But we do anticipate and we'll have to do some inspections towards the back end of 2024 and into 2025 and beyond. And so, you know, albeit we think it's going to be a minimal impact on frontier as in relation to how we understand it at the moment.
Couple that with the better reliability, what we're doing with our loyalty on the revenue side and we believe that we will get back to profitability and get back to great margins and therefore, we don't have a challenge with the broker.
Speaker 13: transcript
Got it and then Barry I am just curious if you have any updated thoughts I know there'd been continued articles out there in the press just with regards to the government in kind of the excise tax on ancillary revenues.
Helane Becker: It's obviously a fluid situation we're watching it quick, closely. And so that will determine our spares ratio and various different things, engine capacity in the year. Okay. So no definitive capex guide, but we should be thinking about sale weeks back, you know, activity as we model for that. That's the summary. Yeah, I mean, that market has been really good to Frontier and it continues to be so. So, I mean, obviously interest rates are higher and higher for everybody. And we operate within that world. But, you know, the pipeline of operating leases that we have coming are pretty good. Okay.
How do you think that plays out and at what point.
What would trigger kind of a change in terms of how you account for that thank you.
You can see the I apologize I didn't see the article that you're referencing.
Well.
What specifically.
Speaker 16: transcript
Sure.
Yes.
Excise tax on ancillary revenues, but the potential of putting tax.
On that.
Hello.
Speaker 3: transcript
<unk>.
Yes.
That actually has been out there for a long time.
Barry Biffle: Good. And then second, you know, Barry, you talk about lower exxual chasm next year. What's your confidence on getting there if you mark your pilots to market and let's just assume you did that on January 1st for illustrative purposes. I'm not asking you to negotiate in public. I'm just asking you to speak to your confidence in achieving lower exxual chasm after a pilot hit of what's, you know, sort of best case scenario.
There is really good.
I think kind of precedent on this it goes back I think to the 19 fifties actually.
Look.
It's optional and it's not part of the core service.
Think statute was very clear.
Okay. Thank you.
Thank you and one moment for our next question.
Barry Biffle: I'm guessing 50 million of annual incremental expense. Well, I'm not guessing I'm analyzing, but, you know, probably a figure potentially north of that. Well, we plan on as we outlined earlier, we plan on saving over $200 million on 2023 size with the simplification of the operation. So, we believe we have adequate capacity to more than cover any pilot labor cost increase. Okay. Perfect. Thank you very much. Thank you.
Speaker 1: transcript
And our next question is going to come from the line of Conor Cunningham with.
Melius Research. Your line is open. Please go ahead.
Speaker 8: transcript
Hi, everyone. Thank you a couple of questions on revenue.
A lot of discounting happening right now in the us domestic market.
As you run fare sales I'm just curious if the uptake rate has been any different than it has been in the past just trying to understand.
The difference between load factor and so on as you kind of go forward. Thank you.
Speaker 17: transcript
I'm going to let James <unk>, our vice President of revenue management.
Unknown Executive: And one moment as we move on to our next question. And our next question is going to come from the line of Andrew D. Dora with Bank of America. Your line is open. Please go ahead. Hi, good morning, everyone. I'm Barry or Mark, you know, maybe two quarter for you. What are the buckets of the cost opportunities within that $200 million that you cited in your prepared remarks? And then Barry, the road facts of profitability or stopping the margin degradation can it really just be accomplished on the cost side and utilization side, particularly with pilots coming.
Yes.
Yes.
As we look at the results.
We saw a bit of a slowdown.
The second half of August and September, but we've been pleased with the results as we've.
We continue to run promotional activity.
Through the last six to.
Speaker 17: transcript
Eight weeks and are optimistic as we.
I see a trend, particularly for the peak periods as Barry mentioned, our more resilient here in the fourth quarter.
We believe low fare stimulation is fundamental to Iran, and the OCC and remain focused on that.
Okay and then.
Speaker 8: transcript
On these new markets that are underserved.
Unknown Executive: Or is it really just a revenue issue whereby you just kind of have to rethink your longer term capacity plans of in the high teams, you know, just trying to dissect those, you know, those two parts. Thanks. Yeah. So, this is Mark. So, from, you know, that the $200 million that we highlighted. So, you know, broad strokes, you know, as we simplify, you know, the schedule and the operational design. You're going to have, you know, the benefit of that, you know, lower crew travel, a better ability to utilize reserves and just, you know, better predictability of people in parts.
When I think about that.
Think that they are underserved for a reason so as you guys look to enter those markets or is your expectation that the spooling period is going to be a lot quicker than it probably has been in the past just trying to understand if theres going to be a drag on RASM as we start to add these new markets and so on because new market development tends to be at.
Speaker 18: transcript
At the margin dilutive just trying to understand that thank you.
Speaker 13: transcript
So I've read some things about this I think there is some misunderstanding in the marketplace. In this so when you are always growing right you always have a percentage of your airlines, it's immature and that is kind of a permanent if you will kind of degradation to your RASM that you take on and this is why.
Unknown Executive: You know, they're going to drive, you know, cost benefits through the organization. And then with that, you're also going to position the organization to drive higher utilization. You know, and so I think that's really the foundation of the $200 million. Yeah. And as far as the growth rate, I don't see a challenge with that. I think if you look at, if you look under the hood. You know, we feel confident with the cost savings that we're going to have is even net of the pilot cost.
Speaker 3: transcript
Some airlines you see there's one in particular you can go look at that stopped their growth this year and people.
Slowed down or even contracted and they popped the RASM.
With that is it's temporary because once they go back to growing.
Speaker 3: transcript
Take the drag on RASM now in our case, what we're seeing is that yes, new growth in the over saturated Martin will continue to use Las Vegas as an example, the new growth is actually not performing at levels that were accustomed to but we're also seeing our mature markets.
Unknown Executive: Like I said, you know, you're going to see the uneven deployment of capacity and the market saturation start to normalize. That's a huge benefit to us. You're going to see the rebalance. You're going to see people come back and travel more domestic than they did on a relative basis to Europe. That's just going to happen. And so those two together are massive benefit. And then you've got our own self-help that we're going to grow.
Speaker 3: transcript
Seeing significant incursion.
The reduction in RASM on mature markets. So.
I think there is confusion about it that it's the growth that's the problem, it's not our growth. That's the problem. It's the uneven deployment of capacity into a lot of our core markets in Las Vegas, and certain Florida markets. As an example that has caused the degradation.
Unknown Executive: In places that are also underserved ourselves. So I think you couple back with the better reliability. What we're doing with our loyalty on the revenue side. And we believe that we will get back to profitability and get back to great margins. And therefore, we don't have a challenge with this. Barry, I'm just curious if you have any updated thoughts. I know there's been continued, you know, articles out there in the press just with regards to the government and kind of the excise tax on ancillary revenues.
Okay. Thank you.
Thank you and one moment for our next question.
Unknown Executive: You know, how do you think that plays out? And at what point, you know, what would trigger kind of a change in terms of how you you account for that. Thank you. I didn't see the I pause. I didn't see the article that he's referencing. But what specifically what? Just the excise tax on ancillary revenues, the potential of putting tax on that. Yeah, so that that actually has been out there for a long time.
Speaker 1: transcript
Our next our last question comes from the line of Christopher Stefan <unk> with Susquehanna Financial Group. Your line is open. Please go ahead.
Speaker 8: transcript
Hi, Good morning, Thanks for taking my question. So buried in your prepared remarks.
Speaker 8: transcript
You spoke about your.
You believe that industry capacity is going to rationalize next year in.
There are fewer carriers today in the U S and there were.
Speaker 8: transcript
10 to 15 years to go so perhaps less of an opportunity here for some.
Irrational behavior, but the marginal cost per seat is such where.
Speaker 8: transcript
Well capitalized carriers can continue to add inventory into the market here. So just.
Unknown Executive: And I think there's there's there's really good. I think kind of precedent on this that goes back to the 1950s actually. So, you know, look, if it's optional and it's not part of the core service, I think statute is very clear. Thank you.
Help us or if you could kind of explain your.
Speaker 18: transcript
Your view there, particularly when we look at.
Southwest this morning, it looks like there their order book is growing and of course, you have a full order book. So just kind of wanted to better understand the comments around it I appreciate the.
History of analogy I think to Europe, but.
Barry Biffle: And one moment for our next question. And our next question is going to come from the line of Connor Cunningham with Millius research. Your line is open. Please go ahead. Everyone, thank you. A couple questions on revenue. You know, there's been a lot of discounting happening right now in the U.S, domestic market. You know, as you run fair sales, I'm just curious of the uptake rate has been any different than it has been in the past.
Here in the U S. Here is perhaps a little bit of a dip.
That dynamic thanks.
Speaker 3: transcript
One less convinced of the overall capacity in what will let we'll let those bigger airlines decide what they think is the right amount of deployment on what we're seeing.
Week after week in the schedule change adjustments and some of the most recent commentary is expectation for their capacity deployment is coming down down down and we're seeing it for example, we've seen.
Attrition in pilot rates slowing down as a result, because they are slowing down their hiring a pilot so so.
Barry Biffle: Just trying to understand, you know, the difference between load factor and so on as you kind of go forward. Thank you. I'm going to let James thinner our vice president. As we look at the results, you know, certainly we saw a bit of a slow down in the second half of August and the September, but we've, you know, been pleased with the results as we've been able to run from actual activity through the last six, eight weeks and are optimistic as we see a trend, particularly for the peak periods.
Speaker 13: transcript
There is evidence that the big airlines are actually slowing down their capacity what I was really more referencing was not the total capacity, however, and I was talking about the unevenness of the capacity deployment and ultimately if everyone showed their cards I think you would find that some of the over saturated Las Vegas and over saturated Florida.
Speaker 13: transcript
<unk> it doesn't matter, who you are.
The root P&L is on those routes regardless of airlines are probably a little bit under pressure.
And so we see that capacity being redeployed.
Barry Biffle: It's very much more resilient here in the fourth quarter. You know, we believe low fair stimulation is fundamental to run the ULCC and remain focused on that. Okay. And then I'm these new markets that are underserved, you know, when I think about that, I kind of think that they're underserved for reasons. So as you guys look into those markets. Bill Gates, is your expectation that the spooling period is going to be a lot quicker than it probably has been in the past?
At a minimum.
And possibly in some cases just eliminated so at <unk>.
<unk>.
Speaker 3: transcript
Maybe retire the aircraft, but at worst it's just gets redeployed so that unevenness, we will get itself sorted out and Thats really what I was referencing not total capacity.
Okay. Thank you and then on the.
Speaker 11: transcript
Comments for next year and thinking about capacity allocation to be clear you are not arguing with Brian.
Speaker 16: transcript
Barry Biffle: Is trying to understand if there's going to be a drag on Rasmus, we start to add these new markets and so on, because new market development tends to be at the margin, just trying to understand that. Thank you. Well, so yeah, I've read some things about this. I think there's some misunderstandings in the marketplace in this. So when you're always growing, right, you always have a percentage of your airlines that's in immature.
A wholesale change here to some of your core markets and Youre looking at some of these underserved markets, which to the earlier question comes with its own set of challenges, but if we take a step back and think about your net route growth next year, so with no wholesale change to markets like Vegas alike.
And these new underserved markets just if there is a number or kind of directionally. How we should think about your net routes for 2024. Thank you.
Barry Biffle: And that is kind of a permanent, if you will, kind of degradation to your Rasmus that you take on. And this is why some airlines you see, you know, there's one in particular you can go look at, that stopped their growth this year and people have slowed it down or even contracted and they've popped the Rasmus. The challenge with that is it's temporary because once they go back to growing, they take the drag on Rasmus.
Speaker 13: transcript
Yes.
<unk>.
The overall routes.
Speaker 3: transcript
Is going to change that much and I think when you look at the percentage of our of our capacity in mature markets, it's hovering around 10%.
And it could go a little closer to 12% with some of the new markets, but when they are in underserved markets.
Barry Biffle: Now, in our case, what we're seeing is that, yes, new growth in the over saturated markets continue to use Las Vegas as an example, the new growth is actually not performing at levels that we were accustomed to. But we're also seeing our mature markets, seeing significant incursion and reduction in Rasmus on mature markets. So, you know, I think there's this confusion about it that it's the growth that's the problem. It's not our growth that's the problem. It's the uneven deployment of capacity into a lot of our core markets in Las Vegas and certain Florida markets. As an example, that is caused the degradation. Okay, thank you.
We think that that's going to do really really well.
But.
It probably wants to be a little more when we look at kind of the underserved places.
Okay. Thank you.
Thank you and this concludes our question and answer session for today's conference and I would like to hand, the conference back over to Barry before for any closing remarks.
Speaker 1: transcript
Speaker 3: transcript
Well, thanks, everybody for joining and we look forward to updating you at the next quarterly call. Thanks, everyone.
Speaker 1: transcript
This concludes today's conference call. Thank you for participating you may now disconnect.
Conor Cunningham: Thank you and one moment for our next question. Our next, our last question comes from the line of Christopher Stephalus with Seth Gujana Financial Group. Your line is open. Please go ahead. Hi, good morning. Thanks for taking my question. So, Barry, we prepared remarks. You spoke about your belief that industry capacity is going to rationalize next year. And, you know, there are fewer carriers today in the US than there were 10, 15 years to go.
Conor Cunningham: So perhaps less of an opportunity here for some irrational behavior. But, you know, the marginal cost per seat is such where well capitalized carriers can continue to add inventory into the market here. So, just, you know, help us work. You could kind of explain your view there, particularly when we look at, you know, Southwest this morning, looks like they're there, they're there. Their order book is growing and of course, you have a full order book.
Conor Cunningham: So, just kind of want to better understand the comments around it. I appreciate the history and analogy. I think to Europe. But here in the US here is perhaps a little bit of a different dynamic. Thanks. We're less convinced of the overall capacity and we'll let those figure airlines decide what they think is the right amount of deployment. What we're seeing week after week in the schedule change adjustments and some of the most recent commentary is expectation for their capacity deployment is coming down, down, down.
Conor Cunningham: And we're seeing it, for example, we've seen, you know, attrition in pilot rates slowing down as a result because they're slowing down their hiring of pilots. So, so there's evidence that the big airlines are actually slowing down their capacity. What I was really more referencing was not the total capacity, however. And I was talking about the unevenness of the capacity. Employment. And ultimately, if everyone showed their cards, I think you would find that, you know, some of the oversaturated Las Vegas and oversaturated Florida markets, it doesn't matter who you are, the root PNLs on those routes, regardless of airline, are probably a little bit under pressure.
Conor Cunningham: And so we see that capacity being redeployed at a minimum and possibly in some cases just eliminated. So at best, it may be retired of the aircraft, but it works, it just could redeploy it. So that unevenness will get itself sorted out. And that's really what I was referencing, not total capacity. Okay, thank you. And then the comments for next year and thinking about capacity allocation to be clear, you're not arguing around a wholesale change here to some of your core markets and you're looking at some of these underserved markets, which to the earlier question comes with its own set of challenges.
Conor Cunningham: But if we take a step back and think about your net route growth next year. So with no wholesale change to markets like Vegas and alike, and these new underserved markets, just if there's a number or kind of directly how we should think about your net routes for 2024. Thank you. Yeah, I don't think that the overall routes is going to change that much. And I think when you look at, you know, the percentage of our capacity that's in immature markets, you know, it's hovering around 10% and it could go a little closer to 12% with some of the new markets.
Conor Cunningham: But when they're in underserved markets, we think that that's going to do really, really well. But it probably wants to be a little more when we look at, you know, kind of the underserved places. Okay, thank you.
Conor Cunningham: Thank you. And let's conclude our question and answer session for today's conference.
Barry Biffle: And I would like to hand the conference back over to Barry Biffle for any closing remarks. Yes, I want to thank everybody for joining and we look forward to updating you at the next quarterly call. Thanks, everyone.
Unknown Executive: This concludes today's conference call. Thank you for participating. You may now disconnect.