Q4 2023 Spirit Airlines Inc Earnings Call

Earnings Conference call all lines have been placed on mute to prevent any background noise.

After the Speakers' remarks, there will be a question and answer session. If you would like to ask a question. During this time simply press star followed by the number one on your telephone keypad and if you'd like to withdraw your question just press star one again. Thank you.

I would now like to turn the call over to Deanne gable Senior director Investor Relations. Dan. Please go ahead. Thank.

Thank you, Greg and welcome everyone to Spirit Airlines fourth quarter 2023 earnings Conference call. This call is being reported and simultaneously webcast.

[music].

As soon as it is available we will archive replay of this call on our website for a minimum of 60 days.

Presenting on today's call are Ted Christie, Spirit's, Chief Executive Officer, Matt Klein, our Chief commercial Officer, and Scott Haralson, Our Chief Financial Officer.

Okay.

Also joining us are other members of our senior leadership team.

Greg: Thank you for standing by my name is Greg and I will be your conference operator today at this time I would like to welcome everyone to the Spirit Airlines fourth quarter 2023 earnings Conference call.

Following our prepared remarks, there will be a question and answer session for analysts.

Today's discussion contains forward looking statements that are based on the company's current expectations and are not a guarantee of future performance there could be significant risks and uncertainties that cause actual results to differ materially from those contained in our forward looking statements, including but not limited to various risks and uncertainties related to the acquisition of spirit.

Speaker Change: All lines have been placed on mute to prevent any background noise.

After the Speakers' remarks, there will be a question and answer session. If you would like to ask a question. During this time simply press star followed by the number one on your telephone keypad and if you'd like to withdraw your question just press star one again. Thank you.

By Jetblue and other risk factors discussed in our reports on file with the SEC.

I would now like to turn the call over to Deanne gable Senior director Investor Relations. Dan. Please go ahead. Thank.

We undertake no duty to update any forward looking statements and investors should not place undue reliance on these forward looking statements.

Deanne Gable: Thank you, Greg and welcome everyone to Spirit Airlines fourth quarter 2023 earnings Conference call. This call is being recorded and simultaneously webcast as soon as it is available we will archive replay of this call on our website for a minimum of 60 days.

In comparing results today, we will be adjusting all periods to exclude special items unless otherwise noted for an explanation and reconciliation of these non-GAAP measures to GAAP. Please refer to the reconciliation tables provided in our fourth quarter 2023 earnings release, a copy of which is available on our website under the Investor Relations section.

Speaker Change: Presenting on today's call are Ted Christie, Spirit's, Chief Executive Officer, Matt Klein, our Chief commercial Officer, and Scott Haralson, Our Chief Financial Officer.

Speaker Change: Also joining us are other members of our senior leadership team.

At IR spirit Dot com.

And now I will turn the call over to Ted Christie.

Speaker Change: Following our prepared remarks, there will be a question and answer session for analysts.

Thanks, Deanne and thanks to everyone for joining us on the call today.

Speaker Change: Today's discussion contains forward looking statements that are based on the Companys current expectations and are not a guarantee of future performance there could be significant risks and uncertainties that cause actual results to differ materially from those contained in our forward looking statements, including but not limited to various risks and uncertainties related to the acquisition of sphere.

As we look back on 2023, while our financial results for the full year were unsatisfactory I am proud of what our team accomplished and we are well on our way to make the necessary strategic shifts that will enable spirit to compete effectively in the current demand environment.

First of all I think all our spirit team members for their dedication and commitment and caring for our guests and each other while overcoming the operational and financial challenges we faced in 2023.

Speaker Change: By Jetblue and other risk factors discussed in our reports on file with the SEC.

Speaker Change: We undertake no duty to update any forward looking statements and investors should not place undue reliance on these forward looking statements.

And a special thank you to all who carry the extra burden of preparing for the court case and working on merger integration planning while attending to their regular full time duties the professionalism and enthusiasm of the spirit team is unmatched and I'm honored to work alongside such remarkable people as we deploy our plan to return to sustained profitability.

Speaker Change: In comparing results today, we will be adjusting all periods to exclude special items unless otherwise noted for an explanation and reconciliation of these non-GAAP measures to GAAP. Please refer to the reconciliation tables provided in our fourth quarter 2023 earnings release, a copy of which is available on our website under the Investor Relations section.

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Regarding the merger when Jetblue first may be offered to us in 2022, and we subsequently signed a merger agreement, which had overwhelming support from our stockholders our board of directors anticipated it would be a long litigious road to obtaining regulatory approval for.

Speaker Change: At IR Spirit Dot Com and now I will turn the call over to Ted Christie.

Scott: Thanks, Dan and thanks to everyone for joining us on the call today as.

Scott: As we look back on 2023, while our financial results for the full year were unsatisfactory I am proud of what our team accomplished and we are well on our way to make the necessary strategic shifts that will enable spirit to compete effectively in the current demand environment.

To compensate for that we negotiated meaningful protections for the company and our constituents against an adverse regulatory outcome.

Nonetheless, we believed and we continue to believe a merger between Jetblue and spirit is a compelling combination not only for our business, but also for the American consumers as such we strongly disagree with the court's ruling to grant an injunction against the merger together with Jetblue, We filed a notice of appeal and our request for an expedited.

Scott: First of all I think all our spirit team members for their dedication and commitment and caring for our guests and each other while overcoming the operational and financial challenges, we faced in 2023 and.

Scott: And a special thank you to all who carry the extra burden of preparing for the court case and working on merger integration planning while attending to their regular full time duties the professionalism and enthusiasm of the spirit team is unmatched and I'm honored to work alongside such remarkable people as we deploy our plan to return to sustained profitability.

Review has been granted we will not be commenting further or entertaining questions about the merger on today's call.

Moving on to a recap of 2023 at the beginning of the year. We made the decision to allocate resources and go full throttle on hiring the necessary number of pilots and building the infrastructure to support getting back to full fleet utilization by year end 'twenty three.

Scott: <unk>.

Scott: Regarding the merger when Jetblue first may be offered to us in 2022, and we subsequently signed a merger agreement, which had overwhelming support from our stockholders our board of directors anticipated it would be a long litigious road to obtaining regulatory approval to.

We also recognized that we needed to derisk the business and give ourselves the means to digest the high growth rate, we had coming out of the pandemic. However, due to contractual obligations. The first practical opportunity to slow our pace of forward deliveries was in 2024. Therefore in the summer of 2023, we negotiated a deferral of 11 aircraft.

Speaker Change: To compensate for that we negotiated meaningful protections for the company and our constituents against an adverse regulatory outcome.

Speaker Change: Nonetheless, we believed and we continue to believe a merger between Jetblue and spirit is a compelling combination not only for our business, but also for the American consumers as such we strongly disagree with the court's ruling to grant an injunction against the merger together with Jetblue, We filed a notice of appeal and our request for an expedited.

Originally slated for delivery in 2024, and Smoothes out the remaining deliveries between 2025 and 2029 to slow the pace of our growth over the next few years.

At the time together with achieving full fleet utilization. We believe this would be enough to set us up for a return to profitability in 2024 things.

Speaker Change: The review has been granted we will not be commenting further or entertaining questions about the merger on today's call.

<unk> of course changed as the year progressed, we did not foresee the number of parked neo aircrafts in 2024 and beyond due to GTS Neo engine availability further complicating and delaying our ability to achieve full fleet utilization.

Speaker Change: Moving on to a recap of 2023 at the beginning of the year. We made the decision to allocate resources and go full throttle on hiring the necessary number of pilots and building the infrastructure to support getting back to full fleet utilization by year end 'twenty three.

In addition shifts in the balance of supply and demand for domestic air travel and leisure markets. During last summer and fall had a very profound negative impact on revenue trends for the second half of 2023.

Speaker Change: We also recognized that we needed to derisk the business and give ourselves the means to digest the high growth rate, we had coming out of the pandemic. However, due to contractual obligations. The first practical opportunity to slow our pace of forward deliveries was in 2024. Therefore in the summer of 2023, we negotiated deferrals of 11 aircrafts.

In October we stated we were prepared to make the necessary strategic shifts to enable spirit to compete effectively and we began to do just that and are executing on a plan that we believe will provide us a platform for margin health.

Speaker Change: Originally slated for delivery in 2024, and smooth out the remaining deliveries between 2025 and 2029 to slow the pace of our growth over the next few years.

We are making changes to network construction peak versus off peak flying and geographic and market concentration and we will assess the success of various components and make some inevitable adjustments.

Speaker Change: At the time together with achieving full.

We're not prepared to share all the details of our plan with you today as we await some clarity on our appeal, However, Matt and Scott will share some of the actions in progress that are already having the desired impact.

Before I hand, it over to them to provide details on our fourth quarter financial performance and first quarter 2024 outlook I want to comment on the recent speculation about spirit's ability to make it as a standalone carrier should the merger not close.

This misguided narrative has been advanced by an assortment of pundits however back in the real World. We are focused on facts liquidity is always king and we have enhanced our levels to give us the necessary flexibility to successfully close with jetblue or to pursue our stand alone plans above all else margin rich.

<unk> is the key and we have been making network adjustments and cost decisions to recover our margin production.

First Matt over to you.

Ted.

I want to start by commending our team for delivering excellent operating results throughout the fourth quarter.

Speaker Change: Sure.

And during the busy peak holiday period, we achieved a near perfect completion factor.

Running a great operation is a key focus at all times.

However high load factors like we had over the peak holiday period and winter weather disruptions at extra complexity.

<unk> and running a reliable operation and our team did a fantastic job managing both.

Moving on to our fourth quarter revenue performance total revenue for the fourth quarter was $1 three $2 billion.

A decrease of 5% year over year, which was better than the high end of our initial guide.

Total RASM was 894.

A decrease of 17, 3% on a capacity increase of about 15%.

Load factor was 81% down around one point year over year.

On a per segment basis passenger revenue per segment decreased 25% year over year to $48 24.

Our non ticket results.

As strong as they were in the fourth quarter last year declining six 6% year over year to $66 60.

But I would call the non ticket trend from an exit rate perspective strong as we head into Q1.

I'll add some more color on this loan to non ticket topic further down on my prepared remarks.

It is not apparent by looking only at the quarterly averages, but leisure demand in the peak holiday periods was very strong.

However, with the return of corporate business traffic still lagging that of leisure.

Feels like there is still a bit too much capacity chasing leisure demand to gain yield traction and drive historical load factors during the off peak periods and.

In the immediate term primarily January through the first half of February we felt the best way to address this continuing issue was to reduce flights on off peak days to a greater degree than we typically do we.

We also made other network changes, including suspending a few of our recently launched markets and slowing our overall pace of introducing new markets to our network.

We are also continuing to make other adjustments to the network to better align our capacity towards markets, where the supply demand trends are more in balance.

We started to get more aggressive in this process in Q4, and we will continue to refine the network throughout the balance of the first half of the year.

For the first quarter.

We estimate our capacity will be up approximately one 5% year over year.

Which is about five five percentage points lower than we projected back in October.

About half of this variance is related to the reduction of scheduled flights on off peak days that I just spoke about.

The other half is a combination of having the poll neo aircraft from service to position them for engine removals due to the powdered metal disc inspections, and some impacts still remains related to ongoing ATC issues.

In February we felt the best way to address this continuing issue was to reduce flights on off peak days to a greater degree than we typically do.

We also made other network changes, including suspending a few of our recently launched markets and slowing our overall pace of introducing new markets to our network.

ATC issues are improving they just have not improved to the degree we thought they would.

We are also continuing to make other adjustments to the network to better align our capacity towards markets, where the supply demand trends are more in balance.

Therefore to help support operational reliability, we have not yet been able to reduce scheduled block times as much as we had originally anticipated.

We started to get more aggressive in this process in Q4, and we will continue to refine the network throughout the balance of the first half of the year.

We will get there, but it's taking longer than any of us would like.

For the remainder of the year based on our current assumptions regarding engine removals, we anticipate year over year capacity for Q2 to be up low single digits.

For the first quarter, we estimate our capacity will be up approximately one 5% year over year, which is about five five percentage points lower than we projected back in October.

Q3 up high single digits Q4 expected to be about flat.

About half of this variance is related to the reduction of scheduled flights on off peak days that I just spoke about.

Which leads to full year 2024 capacity ranging between flat to up mid single digits versus full year 2023.

The other half is a combination of having the poll neo aircraft from service to position them for engine removals due to the powdered metal disc inspections, and some impacts still remains related to ongoing ATC issues.

The timing of engine removals and aircraft being pulled from services fluid. So this is just our baseline estimate for now.

Please note that our published schedules for the second quarter and beyond do not yet reflect the estimates I just provided.

ATC issues are improving they just have not improved to the degree we thought they would.

I'll now turn to how we're thinking about the demand environment and what we think the trajectory will be headed into the summer.

Therefore to help support operational reliability, we have not yet been able to reduce scheduled block times as much as we had originally anticipated.

There is a material amount of industry capacity coming online and some of the markets. We serve however, we have also seen some cuts and projected industry capacity growth rates for 2024, which should be constructive for yield production as we move through the year.

We will get there, but it's taking longer than any of us would like.

For the remainder of the year based on our current assumptions regarding engine removals, we anticipate year over year capacity for Q2 to be up low single digits Q3 up high single digits Q4 expected to be about flat.

Domestic demand over the peak holiday period and early trends, we are seeing for spring break give us confidence that we will see more normalized demand trends for domestic travel this summer.

Which leads to full year 2024 capacity ranging between flat to up mid single digits versus full year 2023.

In regard to non ticket trends throughout Q4, we saw core ancillary products improve in each month.

The timing of engine removals and aircraft being pulled from services fluid. So this is just our baseline estimate for now.

And each month on a year over year basis.

This trend is continuing into Q1 as well.

Some networks shifts as well as some adjustments to our revenue management strategies has non ticket back on track.

Greg: Please note that our published schedules for the second quarter and beyond do not yet reflect the estimates I just provided.

Additionally, some new merchandising techniques are going into production. This month, which we anticipate will continue to push non ticket higher as we exit the off peak and head into spring break in Q2.

Speaker Change: I'll now turn to how we're thinking about the demand environment and what we think the trajectory will be headed into the summer.

Speaker Change: There is a material amount of industry capacity coming online and some of the markets. We serve however, we have also seen some cuts and projected industry capacity growth rates for 2024, which should be constructive for yield production as we move through the year.

As a reminder, we are lapping what was a very strong first quarter last year.

Every year basis, we are estimating first quarter 2024, PRASM will be down compared to the first quarter last year. However.

However, our network and schedule changes together with non ticket revenue trends should provide a nice tailwind to our sequential unit revenue performance from Q4 into Q1 and that sets us up well to continue this positive trend into Q2.

Deanne Gable: Domestic demand over the peak holiday period and early trends, we are seeing for spring break give us confidence that we will see more normalized demand trends for domestic travel this summer.

Deanne Gable: In regard to non ticket trends throughout Q4, we saw core ancillary products improve in each month.

We estimate the first quarter of 2024 total revenue will range between one five and $1 two 8 billion.

Speaker Change: And each month on a year over year basis.

Speaker Change: This trend is continuing into Q1 as well.

Speaker Change: Some networks shifts as well as some adjustments to our revenue management strategies has non ticket back on track.

And with that I will now turn it over to Scott.

Thanks, Matt 2023 was a year of many distractions and Unpredicted events, our team did a great job preparing for and reacting to all the issues, we faced with professionalism and a positive attitude for that I want to give thanks to everyone on the spirit team.

Speaker Change: Additionally, some new merchandising techniques are going into production. This month, which we anticipate will continue to push non ticket higher as we exit the off peak and head into spring break in Q2.

Speaker Change: As a reminder, we are lapping what was a very strong first quarter last year.

Turning to our fourth quarter results.

Our fourth quarter operating costs were $1 $49 billion in.

Speaker Change: Every year basis, we are estimating first quarter 2024 tries them will be down compared to the first quarter last year. However.

An increase of 11, 3% compared to the fourth quarter of 2022.

Speaker Change: However, our network and schedule changes together with non ticket revenue trends should provide a nice tailwind to our sequential unit revenue performance from Q4 into Q1 and that sets us up well to continue this positive trend into Q2.

On a capacity increase of 14, 8%.

Non fuel operating expenses were $998 million much better than our initial expectations driven largely by lower airport rents lower cost, resulting from reliable operational performance and various cost savings initiatives.

Speaker Change: We estimate the first quarter of 2024 total revenue will range between one five and $1 two 8 billion.

Also better fuel efficiency drove lower than expected fuel expense, despite fuel price per gallon coming in higher.

Together with the better than expected revenue results.

Ted Christie: And with that I will now turn it over to Scott.

With Susquehanna operating margin for the fourth quarter of 2023 was negative 12, 4% about two five points better than the high end of our initial guidance.

Scott H. Group: So Matt 2023 was a year of many distractions and Unpredicted events, our team did a great job preparing for and reacting to all the issues, we faced with professionalism and a positive attitude for that I want to give thanks to everyone on the spirit team.

While I applaud our team for beating expectations. These are clearly unsustainable results overall, and we remain determined to return to profitability and have been adjusting our strategy accordingly.

Scott: Turning to our fourth quarter results.

Scott: Our fourth quarter operating costs were $1 $49 billion.

There is considerable economic power and the spirit business model, but we do understand some of the limitations and issues with it as well we believe we have some things in the works that will address these issues, while maintaining the power of the model.

Scott: An increase of 11, 3% compared to the fourth quarter of 2022 on a capacity increase of 14, 8%.

Scott: Non fuel operating expenses were $998 million much better than our initial expectations driven largely by lower airport rents lower cost, resulting from reliable operational performance and various cost savings initiatives.

We look forward to discussing these enhancements as the year unfolds.

Total non operating expense came in about $5 million higher than our initial guidance in part due to lower interest income higher interest expense and mark to market valuation of the derivative liability associated with the 2026 convertible notes.

Scott: Also better fuel efficiency drove lower than expected fuel expense, despite fuel price per gallon coming in higher.

Scott: Together with the better than expected revenue results.

We ended 2023 was $1 3 billion of liquidity, which includes unrestricted cash and cash equivalents short term investments and the $300 million of available capacity under our revolving credit facility.

Scott: With Susquehanna operating margin for the fourth quarter of 2023 was negative 12, 4% about two five points better than the high end of our initial guidance.

Speaker Change: While I applaud our team for beating expectations. These are clearly unsustainable results overall, and we remain determined to return to profitability and have been adjusting our strategy accordingly.

During the fourth quarter of 2023, we modified our credit facility extending the final maturity to September 30 of 2025.

Speaker Change: There is considerable economic power and the spirit business model, but we do understand some of the limitations and issues with it as well we believe we have some things in the works that will address these issues, while maintaining the power of the model.

We recently completed sale leaseback transactions for aircraft. We previously owned and operated we completed 20 of these transactions in December and five more in early January in total these transactions resulted in net cash proceeds of approximately $420 million.

Speaker Change: We look forward to discussing these enhancements as the year unfolds.

We retired 100 <unk> hundred 19 aircraft and took delivery of two new <unk> hundred 20, <unk> and two new <unk> hundred 21 news during the fourth quarter ending the year with 205 aircrafts in our fleet.

Speaker Change: Total non operating expense came in about $5 million higher than our initial guidance in part due to lower interest income higher interest expense and mark to market valuation of the derivative liability associated with the 2026 convertible notes.

Before I move on to the first quarter outlook and plans for 2024, just a quick update on our GTS engine availability issues.

Speaker Change: We ended 2023 was $1 $3 billion of liquidity, which includes unrestricted cash and cash equivalents short term investments and the $300 million of available capacity under our revolving credit facility.

In January we averaged 13 grounded neo aircraft.

We continue to estimate this number will climb steadily to an average of about 40 and December averaging about 25 <unk> for the full year 2024.

Speaker Change: During the fourth quarter of 2023, we modified our credit facility extending the final maturity to September 30 of 2025.

The situation remains very fluid. So we will keep you updated as things develop.

While we are working closely with Brent and Whitney to predictably manage the engine removals and finalize a compensation arrangement that will partially cover the cost of the afg's, we won't be able to achieve what we would consider an optimized cost structure until we get past the engine availability issues.

Speaker Change: We recently completed the sale leaseback transactions for aircraft. We previously owned and operated we completed 20 of these transactions in December and five more in early January in total these transactions resulted in net cash proceeds of approximately $420 million.

Speaker Change: We retired 100 <unk> hundred 19 aircraft and took delivery of two new <unk> hundred 20, <unk> and two new <unk> hundred 21, neo during the fourth quarter ending the year with 205 aircrafts in our fleet.

Net of expected reimbursements, we expect this current EOG issued a cost us a few margin points in 2024.

Looking ahead to the first quarter and full year of 24, we continue to face cost pressures from carrying costs related to the neo engine availability availability issues inflationary pressures on wages and we will also see increases in aircraft rent due to the higher mix of leased versus debt financed aircraft.

Speaker Change: Before I move on to the first quarter outlook and plans for 2024, just a quick update on our GTS engine availability issues.

Speaker Change: In January we averaged 13 grounded neo aircraft.

Speaker Change: We continue to estimate this number will climb steadily to an average of about 40 and December averaging about 25 <unk> for the full year 2024.

On the positive side, we continue to improve fuel efficiency driven by the increase in the number of neo aircraft in our fleet, particularly the 8% to <unk> hundred 20, <unk> added in 2023.

Speaker Change: The situation remains very fluid. So we will keep you updated as things develop.

In 2024, we are scheduled to take 20 more <unk> hundred 21, Nicos, which will drive further fuel efficiency.

Speaker Change: While we are working closely with Pratt <unk> Whitney to predictably manage the engine removals and finalize a compensation arrangement that will partially cover the cost of the afg's, we won't be able to achieve what we would consider an optimized cost structure until we get past the engine availability issues.

We are also making progress in improving utilization of our non ALG aircrafts, which we define as total fleet minus any aircraft on the ground due to engine availability engine availability issues and this is a better comparable metric to historical fleet utilization numbers.

Speaker Change: Net of expected reimbursements, we expect this current EOG issued a cost us a few margin points in 2024.

We expect the benefits from better fuel efficiency improved utilization of our non ALG fleet and the right sizing of our labor costs to be the platform for our ongoing unit cost repair.

Speaker Change: Looking ahead to the first quarter and full year of 24, we continue to face cost pressures from carrying costs related to the neo engine availability availability issues inflationary pressures on wages and we will also see increases in aircraft rent due to the higher mix of leased versus debt financed aircraft.

Regarding liquidity, we believe our $1 $3 billion of total liquidity at the end of 2023 should be more than adequate to sustain us until the business is back to generating cash.

Speaker Change: On the positive side, we continue to improve fuel efficiency driven by the increase in the number of neo aircraft in our fleet, particularly the 8% to <unk> hundred 21 Neo is added in 2023.

This is a milestone we think we will cross as we entered March of this year and then begin building cash in the second quarter and beyond.

While we have confidence in our ability to return to positive cash generation. We will continue to look at other opportunities to further short liquidity as we progress through the year.

Speaker Change: In 2024, we are scheduled to take 20 more <unk> hundred 21, Nicos, which will drive further fuel efficiency.

Speaker Change: We are also making progress in improving utilization of our non ALG aircrafts, which we define as total fleet minus any aircraft on the ground due to engine availability engine availability issues and this is a better comparable metric to historical fleet utilization numbers.

Also while spirit remains focused on consummating the merger with Jetblue and is looking forward to prosecuting the expedited appeal of the U S District Court order. The company is aware of its 2025% in 2026 debt maturities and as assessing options to address those maturities when the time is appropriate.

Speaker Change: We expect the benefits from better fuel efficiency improved utilization of our non <unk> fleet and the right sizing of our labor costs to be the platform for our ongoing unit cost repair.

We anticipate capital expenditures, including net pre delivery deposits for the full year of 2024 to be about $235 million.

For the first quarter of 2024, we estimate our operating margin will range between negative 15% to negative 12% with the fuel cost per gallon, averaging $2 90.

Speaker Change: Regarding liquidity, we believe our $1 $3 billion of total liquidity at the end of 2023 should be more than adequate to sustain us until the business is back to generating cash.

So now I'll turn it back to Todd for closing remarks, Thanks Scott.

Speaker Change: This is a milestone we think we will cross as we entered March of this year and then begin building cash in the second quarter and beyond.

As we enter 2024, we are beginning to see the benefits from the tactical and strategic changes, we implemented in 2023, including day, a week schedule adjustments, eliminating a number of underperforming cities refocusing our network on areas of obvious strength like Fort Lauderdale, and directing more discretionary airplanes to markets with better <unk>.

Speaker Change: While we have confidence in our ability to return to positive cash generation. We will continue to look at other opportunities to further short liquidity as we progress through the year.

Speaker Change: Also while spirit remains focused on consummating the merger with Jetblue and is looking forward to prosecuting the expedited appeal of the U S District Court order. The company is aware of its 2025% in 2026 debt maturities and as assessing options to address those maturities when the time is appropriate.

<unk> demand characteristics. In addition, current booking trends support our view that domestic environment is beginning to rebound together with the changes. We have made we estimate. This will result in an unprecedented sequential improvement in RASM from fourth quarter, 2023% to first quarter 2024, which supports our view.

Speaker Change: We anticipate capital expenditures, including net pre delivery deposits for the full year of 2024 to be about $235 million.

Of a domestic recovery in 2024.

After 20 plus years of working for lower cost carriers. It has become ever more clear to me that we exist in an uneven playing field.

Speaker Change: For the first quarter of 2024, we estimate our operating margin will range between negative 15% to negative 12% with the fuel cost per gallon, averaging $2 90.

Judge William Young and his decision to enjoin the merger between spirit and Jetblue quote the airline industry is an oligopoly that has become more concentrated due to a series of mergers in the first decades of the 20 <unk> century with a small group of firms in control of the vast majority of the market and quote.

Speaker Change: So now I'll turn it back to Todd for closing remarks, Thanks Scott.

Todd: As we enter 2024, we are beginning to see the benefits from the tactical and strategic changes, we implemented in 2023, including day, a week schedule adjustments, eliminating a number of underperforming cities refocusing our network on areas of obvious strength like Fort Lauderdale, and directing more discretionary airplanes to markets with better <unk>.

No truer words were stated in the entire opinion <unk>.

Despite that explicit acknowledgement the government continues to do nothing to address the anti competitive structure of our industry.

Todd: <unk> demand characteristics. In addition, current booking trends support our view that domestic environment is beginning to rebound together with the changes. We have made we estimate. This will result in an unprecedented sequential improvement in RASM from fourth quarter, 2023% to first quarter 2024, which supports our view.

Instead, they have just engaged in an expensive and long litigation process to block the merger of the sixth and seventh largest airlines that when combined would still be half the size of the force.

This case should never have been brought.

Beyond absurd for the government to claim a victory for the American consumer and in fact, it's ridiculous.

Speaker Change: Of a domestic recovery in 2024.

Speaker Change: After 20 plus years of working for lower cost carriers. It has become ever more clear to me that we exist in an uneven playing field.

As kind as I can be on the matter would be to confirm that the law of unintended consequences is in full effect.

Either through direct government intervention or lack thereof.

Speaker Change: Judge William Young and his decision to enjoin the merger between spirit and Jetblue quote the airline industry is an oligopoly that has become more concentrated due to a series of mergers in the first decades of the 20 <unk> century with a small group of firms in control of the vast majority of the market and quote.

The end result has been to perpetuate a small group of paths that control the market at the expense of the have nots and the American consumer.

Nonetheless, you can rest assured that the spirit team is 100% clear and focused on the adjustments. We are currently deploying and will continue to make throughout 2024 to drive us back to cash flow generation and profitability and now back to Deanne.

Speaker Change: No truer words were stated in the entire opinion <unk>.

Speaker Change: Despite that explicit acknowledgement the government continues to do nothing to address the anti competitive structure of our industry.

Thank you Ted Dot map.

And I also want to apologize for the background noise you may have heard I'm not sure where it was coming from but it does seem to have resolved itself and with that Greg. We are now ready to take questions from the analysts we do ask that you limit yourself to one question and one related follow up.

Speaker Change: Instead, they have just engaged in an expensive and long litigation process to block the merger of the sixth and seventh largest airlines that when combined would still be half the size of the force.

Speaker Change: This case should never have been brought.

Great. Thanks, so much and at this time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad once again star and the number one on your Touchtone phone.

Speaker Change: Beyond absurd for the government to claim a victory for the American consumer and in fact, it's ridiculous.

Speaker Change: As kind as I can be on the matter would be to confirm that the law of unintended consequences is in full effect.

And we will pause just a moment to compile the Q&A roster.

Speaker Change: Either through direct government intervention or lack thereof.

Okay.

Alright, it looks like our first question is from the line of Christopher <unk> with Susquehanna Christopher Please go ahead.

Speaker Change: The end result has been to perpetuate a small group of paths that control the market at the expense of the have nots and the American consumer.

Good morning, Thanks for taking my question.

Speaker Change: Nonetheless, you can rest assured that the spirit team is 100% clear and focused on the adjustments. We are currently deploying and will continue to make throughout 2024 to drive us back to cash flow generation and profitability and now back to Deanne.

So with regards to network optimization.

Could you talk a little bit.

Perhaps some more detail around the changes.

With your criticized tooling placement and then also how you are thinking about.

Deanne Gable: Thank you Ted Dot map.

Deanne Gable: And I also want to apologize for the background noise you may have heard I'm not sure where it was coming from but it does seem to have resolved itself and with that Greg. We are now ready to take questions from the analysts we do ask that you limit yourself to one question and one related follow up.

Your seat distribution by.

By market it sounds like.

Perhaps something similar to what we heard from frontier this week, but any additional color here as we think about the composition or distribution of your capacity as well as some of the tactical changes you've made around scheduling and the crew.

Greg: Great. Thanks, so much and at this time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad once again star and the number one on your Touchtone phone.

We look at 2024, thank you.

Sure well, let me make a couple of comments specifically on how we've designed.

Greg: And we will pause just a moment to compile the Q&A roster.

How the how the airplane network interfaces with the crew and I'll, let Matt also opine on how he feels like seats and capacity are being deployed into markets. So over the last two and a half years, we've made a number of structural improvements too.

Greg: Okay.

Greg: Alright, it looks like our first question is from the line of Christopher <unk> with Susquehanna Christopher Please go ahead.

Christopher: Good morning, Thanks for taking my question.

To the core network and how it enhances our reliability and one of the biggest changes we made at the early part of.

Christopher: So with regards to network optimization.

Christopher: Could you talk a little bit.

Christopher: Perhaps some more detail around the changes.

The later part of 2021 and into early 'twenty two was restructuring.

Christopher: With your criticized tooling placement and then also how you are thinking about.

How many crews originate and come back to their base.

And what percentage of the flying origination comes back to that space and how long those crews are away from their base.

Christopher: Your seat distribution by.

Christopher: By market it sounds like.

Christopher: Perhaps something similar to what we heard from frontier this week, but any additional color here as we think about the composition or distribution of your capacity as well as some of the tactical changes you've made around scheduling and the crew.

Those changes were made back then and if you follow our reliability. Since then while on time performance ebbs and flows depending on how our utilization is doing throughout the year and of course, depending on air traffic control and weather completion factor has been excellent.

Christopher: We look at 2024, thank you.

And Thats really whats key to us is to see that signal first then we can start tweaking further in ways that we think can drive.

Speaker Change: Sure well, let me make a couple of comments specifically on how we've designed.

Christopher: How the how the airplane network interfaces with the crew and I'll, let Matt also opine on how he feels like seats and capacity are being deployed into markets. So over the last two and a half years, we've made a number of structural improvements too.

Even better on time performance and if you look at.

The peak part of the <unk>.

Holiday periods at the end of last year, we were in the top three and for the month of January we are in the top three and in the top two in completion factor. So I think as far as structural enhancements go we're getting wiser and wiser about how we can enhance further reliability. If we think about how the networks are being deployed from a seat perspective, maybe Matt you want to give.

Matt Klein: To the core network and how it enhances our reliability and one of the biggest changes we made at the early part of.

Matt Klein: The later part of 2021 and into early 'twenty two with restructuring.

To give some perspective on that yes.

Matt Klein: How many crews originate and come back to their base.

Yeah sure so Chris.

When you look at first quarter.

Matt Klein: And what percentage of the flying origination comes back to its space and how long those crews are away from their base.

This year versus sort of the last 12 months rolling into the quarter. We have added on a year over year basis, 55, new routes and we suspended or exited 37 routes.

Matt Klein: Those changes were made back then and if you follow our reliability since that and while on time performance ebbs and flows depending on how our utilization is doing throughout the year and of course, depending on air traffic control and weather completion factor has been excellent.

And part of those suspensions includes nine sit.

City exits or suspension, where we think we'll be back into those cities. So.

Matt Klein: And Thats really whats key to us is to see that signal first then we can start tweaking further in ways that we think can drive.

Those are those aren't material material moves for us.

I think Ted mentioned in his prepared prepared remarks, the shift in the <unk>. Some of it has gone to Fort Lauderdale, where we continue to see very good strength.

Matt Klein: Even better on time performance and if you look at.

Matt Klein: The peak part of the <unk>.

Matt Klein: Holiday periods at the end of last year, we were in the top three and for the month of January we are in the top three and in the top two in completion factor. So I think as far as structural enhancements go we're getting wiser and wiser about how we can enhance further reliability. If we think about how the networks are being deployed from a seat perspective, maybe Matt you want to give.

And we've also seen a good bit of growth for spirit, and the New York Metro area as well.

Again, great great source of strength for us and what we're seeing is a shift away from some other leisure destinations Orlando is a little smaller.

Matt Klein: To give some perspective on that yes.

For US Vegas is also smaller for us so.

Matt Klein: Yeah sure so Chris.

Matt Klein: When you look at first quarter.

Really just surveying the landscape, which we do all the time.

Matt Klein: This year versus sort of the last 12 months rolling into the quarter. We have added on a year over year basis, 55, new routes and we suspended or exited 37 routes.

Those are the actions that we've been taking.

And.

I think for now we're really happy with what we're seeing is early returns on that and we'll just continue to accentuate our strengths and look for opportunities, where we think the supply demand balance favors us a little bit more.

Matt Klein: And part of those suspensions includes nine sit.

Matt Klein: City exits or suspension, where we think we'll be back into those cities. So.

Okay. Thank you and as my follow up Matt or Scott, maybe if you could walk us through the cadence.

Matt Klein: Those are those aren't material material moves for us.

Matt Klein: I think Ted mentioned in his prepared prepared remarks, the shift in the <unk>. Some of it has gone to Fort Lauderdale, where we continue to see very good strength.

How we should think about the GTS aircraft down Groundlings excuse me.

You did give.

Your capacity guidance by quarter here for 2024, so thank you.

Matt Klein: And we've also seen a good bit of growth for spirit, and the New York Metro area as well.

We start to.

Sure.

Rework if you will our bottoms up models for next year any detail you could give us so cars the cadence of Gtx groundings through 2020 forward, how we should think about.

Matt Klein: Again, great great source of strength for us and what we're seeing is some shift away from some other leisure destinations Orlando is a little smaller.

Matt Klein: For US Vegas is also smaller for us so.

Thank you.

Yeah, Hey, Chris This is Scott I'll start.

Matt Klein: Really just surveying the landscape, which we do all the time.

For 2024, I think I mentioned, a little bit in the prepared remarks, we will.

Matt Klein: Those are the actions that we've been taking.

Matt Klein: And.

Have an <unk> number in the first quarter and in the high teens and that will steadily climb through the year.

Matt Klein: I think for now we're really happy with what we're seeing is early returns on that and we'll just continue to accentuate our strengths and look for opportunities, where we think the supply demand balance favors us a little bit more.

And probably end up in the fourth quarter, averaging about 40 <unk>.

<unk>.

And that would translate to an annual number for 'twenty forward about $25 <unk> for the year.

Speaker Change: Okay. Thank you and as my follow up Matt or Scott, maybe if you could walk us through the cadence.

For 2025, it's going to be difficult to estimate today, I mean and in actuality really looking out into the third and fourth quarter has some a bit of volatility. So looking into 2025 is going to be tough to estimate.

Speaker Change: How we should think about the GTS aircraft down Groundlings excuse me.

Speaker Change: You did give.

Speaker Change: Your capacity guidance by quarter here for 2024, so thank you.

Speaker Change: We start to.

It was a lot of things that we're doing in Pratt is doing too to help manage the number. So we really only have a good bit of visibility inventory forward at this point and I would just this is Matt I would just add to that but to Scott's point. There is still some volatility in the number and we'll just continue to adjust the fleet and the network.

Speaker Change: Sure.

Speaker Change: Rework if you will our bottoms up models for next year any detail you could give us so cars the cadence.

Speaker Change: TFS groundings through 2024, and how we should think about.

Speaker Change: 25, thank you.

Speaker Change: Yeah, Hey, Chris This is Scott I'll start.

Scott H. Group: For 2024, I think I mentioned, a little bit in the prepared remarks, we will.

We'll move around some of that we feel pretty good that we have a better number now than we had even a few months ago. So that's good but we will just continue to move as necessary.

Scott H. Group: Have an EOG number in the first quarter and in the high teens and that will steadily climb through the year.

Okay. Thank you.

Scott H. Group: And probably end up in the fourth quarter, averaging about 40 <unk>.

Great. Thanks, Christopher and our next question comes from the line of Mike Lindenberg with Deutsche Bank. Please go ahead.

Scott Haralson: Yes.

Speaker Change: And that would translate to an annual number for 'twenty forward about $25 <unk> for the year.

Yeah, Hey, good morning, I apologize if I missed this scott, but when we think about the airplanes coming in for the year I think what is it 26 or 27, new Airbus is.

Scott Haralson: For 2025, it's going to be difficult to estimate today, I mean and in actuality really looking out into the third and fourth quarter has some a bit of volatility. So looking into 2025 is going to be tough to estimate.

Or how are they being financed and as each airplane comes in should we think of that as a as a cash accretive.

Scott Haralson: It was a lot of things that we're doing in Pratt is doing too to help manage the number. So we really only have a good bit of visibility into 24 at this point and I would just this is Matt I would just add to that but to Scott's point. There is still some volatility in the number and we'll just continue to adjust the fleet and the network.

Transaction as you bring in each airplane with all the puts and takes.

Yeah, Hey, Mike. Thanks for the question, yes, the number of deliveries for.

For 2024, B 27 aircraft and they are all fully financed.

With either the ones coming from Airbus or sale leaseback transactions and we also have deliveries that are coming from lessors as direct operating leases. So those are all fully financed and in fact, we are fully financed through the second quarter of 2025 minus minus one second quarter, a 25 airplanes.

Scott Haralson: It will move around some of that we feel pretty good that we have a better number now than we had even a few months ago. So that's good but we will just continue to move as necessary.

Speaker Change: Okay. Thank you.

That's the delivery stream and in regards to the financing.

Scott Haralson: Great. Thanks, Christopher and our next question comes from the line of Mike Lindenberg with Deutsche Bank. Please go ahead.

We typically will finance the cost of the airplanes. So we're usually.

Mike Linenberg: Yeah, Hey, good morning, I apologize if I missed this scott, but when we think about the airplanes coming in for the year I think what is it 26 or 27, new Airbus is.

Or minus the cost of the airplane, we don't typically over finance.

And also maybe it's a good time to point out maybe some some clarification to on how that stuff works.

Mike Linenberg: Or how are they being financed and as each airplane comes in should we think of that as a.

Because we've had some questions from analysts around what do we do with with gains and losses. So.

Scott Haralson: Cash accretive transaction as you bring in each airplane with all the puts and takes.

They've asked whether or not we include the gains or losses in our operating expense and to be clear.

Scott H. Group: Yeah, Hey, Mike. Thanks for the question, yes, the number of deliveries for.

Scott H. Group: For 2024, B 27 aircraft and they are all fully financed.

We do not.

We actually calculate.

The gains or loss and account for them as a nonoperating expense.

Speaker Change: With either the ones coming from Airbus or sale leaseback transactions and we also have deliveries that are coming from lessors. This direct operating leases. So those are all fully financed and in fact, we are fully financed through the second quarter of 2025.

And they are excluded from our non-GAAP metrics. So we know some airlines do account for gains and losses those credits to operating expense, where we don't do that.

Yes, I would say actually the airlines that most of the airlines that.

Scott H. Group: Minus minus one second quarter of 'twenty five airplanes. So.

With respect to sale leaseback gains actually follow what you do southwest excludes Venezuela, when they take them. So I think that.

Scott H. Group: That's the delivery stream and in regards to the financing.

That's sort of what it's been historically.

Scott H. Group: We typically will finance the cost of the airplanes. So we're usually.

My second question is just related on cash.

Scott H. Group: Or minus the cost of the airplane, we don't typically over finance.

You mentioned that.

Speaker Change: And also maybe it's a good time to point out maybe some some clarification to on how that stuff works.

We anticipate getting into positive operating cash.

In March and then beyond June quarter, and beyond clearly there is a seasonal tailwind that will that will start kicking in and probably if it's not now it's within the next week or tailwind. So we know that that carries us through part of the year, but as we think through the full year are you implicitly telling us that the operating performance or I should say the final.

Speaker Change: Because we've had some questions from analysts around what do we do with with gains and losses. So.

Speaker Change: They've asked whether or not we include the gains or losses in our operating expense and to be clear.

Speaker Change: We do not.

Speaker Change: We actually calculate.

Performance of the airline is expected to get a lot better in the back half of the year and or will that be supplemented by other things like whether it's deferred maintenance.

Speaker Change: The gains or loss and account for them as a nonoperating expense.

Speaker Change: And they are excluded from our non-GAAP metrics. So we know some airlines do account for gains and losses those credits to operating expense, but we don't do that.

Or are there levers that you can pull to generate.

Speaker Change: Yes, I would say actually the airlines that most of the airlines that.

Additional cash on the operating side. Thanks for taking my question.

Speaker Change: With respect to sale leaseback gains actually follow what you do southwest excludes Venezuela, when they take them. So I think that.

Yeah, Hey, Mike I'll start and I'm sure Ted and Matt.

I'll jump in here too.

Speaker Change: That's sort of what it's been historically.

Just start at the high level sort of sort of financial forecast for the business and yes, we will.

Speaker Change: My second question is just related on cash.

We'll likely.

Burns from operating cash in the beginning of the first quarter, which you talked about January and February, but because things will make a turn as we head into spring break.

Speaker Change: You mentioned that you anticipate getting into positive operating cash.

Speaker Change: In March and then beyond June quarter, and beyond clearly there is a seasonal tailwind that will that will start kicking in and probably if it's not now within the next week or tailwind. So we know that that carries us through part of the year, but as we think through the full year are you implicitly telling us that the operating performance or I should say the final.

And the second third and fourth quarters, we do expect to.

To generate some some operating cash for the business in those quarters, we would expect margin to be.

Positive for those periods.

And it's really.

Premised on the domestic return.

Our ability to manage some of the costs of the business.

Speaker Change: <unk> performance of the airline is expected to get a lot better in the back half of the year and or will that be supplemented by other things like whether it's deferred maintenance.

We're already seeing returns on.

So that's really what the premise of the cash generation is but I'll, let Matt talk about some of the market.

Yes, I mean, I think I'd only add Mike that.

Speaker Change: Or are there levers that you can pull to generate.

When we hit and I think I made a comment when we hit the late summer of last year. There was there were some notable shift in domestic demand and we're obviously heavily skewed domestic.

Speaker Change: Additional cash on the operating side. Thanks for taking my question.

Speaker Change: Yeah, Hey, Mike I'll start and I'm sure, Ted and Matt will jump in here too.

Speaker Change: I'll just start at the high level sort of sort of financial forecast for the business and yes, we will.

Today.

And that coupled with.

<unk>.

Pratt and Whitney not moving in our direction by any mean and getting considerably worse burdened the business with both kind of like a bad set up on the top line and a lot of burden on the and the cost structure and that was not a good start.

Speaker Change: We'll likely.

Speaker Change: Barring some operating cash in the beginning of the first quarter, which you talked about January and February, but but things will make a turn as we head into spring break.

Speaker Change: And the second third and fourth quarters, we do expect to.

But we're starting to make the adjustments we need to make moving as rapidly as we can it looks like the market should stabilize.

Speaker Change: To generate some some operating cash for the business in those quarters, we would expect margin to be.

Speaker Change: Positive for those periods.

Just based on what we saw in the peak of the fourth quarter and what we're already seeing for spring break.

Speaker Change: And it's really.

Speaker Change: Premised on the domestic return.

We'll make some.

Speaker Change: Our ability to manage some of the costs in the business.

As Scott alluded to some adjustments to right sizing the business as well and all of that combined while not fully done and we still have a lot of work to do to get back to where we want to be it's progress in the right direction and that gives us some confidence that we can start.

Speaker Change: We're already seeing returns on.

Speaker Change: So that's really what the premise of the cash generation is but I'll, let Matt talk about some of the markets though.

Matt Klein: Yes, I mean, I think I'd only add Mike that.

Matt Klein: When we hit and I think I made a comment when we hit the late summer of last year. There was there were some notable shift in domestic demand and we're obviously heavily skewed domestic.

Moving to cash needle in the right way.

Very good.

Thanks.

Alright, Thank you Mike and our next question comes from Duane <unk> with Evercore ISI Duane. Please go ahead.

Matt Klein: Today.

Matt Klein: And that coupled with.

Matt Klein: <unk>.

Matt Klein: Pratt and Whitney not moving in our direction by any mean and getting considerably worse burdened the business with both kind of like a bad set up on the top line and a lot of burden on the and the cost structure and that was not a good start.

Hey, Good morning, this is Jake on for Duane.

In your prepared remarks, you mentioned right sizing the labor cost if thats, if thats coming from head count can you quantify how over staffed you are in and what particular groups and then just relating to commentary on the last call you seen the same as the rest of the industry regarding improving pilot staffing.

Matt Klein: But we're starting to make the adjustments we need to make moving as rapidly as we can it looks like the market should stabilize.

Matt Klein: Just based on what we saw in the peak of the fourth quarter and what we're already seeing for spring break.

Okay.

Thanks for the question. This is Ted I'll start and maybe Scott you want to jump in so as I as I stated, we move full bore into hiring two to hit what we thought was going to be a full utilization airline on a much bigger fleet.

Matt Klein: We'll make some.

Matt Klein: As Scott alluded to some adjustments to right sizing the business as well and all of that combined while not fully done and we still have a lot of work to do to get back to where we want to be it's progress in the right direction and that gives us some confidence that we can start.

As we were moving through the second half of 2023 and that did not materialize, we're going to be as Scott said down on average 25 airplanes from where we thought we would be by the time, we hit the end of the year. It's 40.

Matt Klein: Moving to cash needle in the right way.

Speaker Change: Very good.

Matt Klein: Thanks.

And so.

Matt Klein: Alright, Thank you Mike and our next question comes from Duane <unk> with Evercore ISI Duane. Please go ahead.

That's a lot.

Staffing and Thats across the board, it's everything from from our frontline people are pilots or flight attendants.

Speaker Change: Hey, Good morning, this is Jake on for Duane.

The folks at the at the airports quite frankly, even the general and administrative workforce has some.

Jake: In your prepared remarks, you mentioned right sizing the labor cost if thats, if thats coming from head count can you quantify how over staffed you are in and what particular groups and then just relating to commentary on the last call you seen the same as the rest of the industry regarding improving pilot staffing.

More direct related to expense associated with it when you get bigger.

No.

We're working with with all those various constituents to come up with solutions. We may already have some progress on that.

I hesitate to give you a number right now but last year, we alluded to the fact that we're pursuing $100 million in structural cost enhancements and it's sort of tied to that so at least gives you some guidance on the bucket.

Matt Klein: Okay.

Matt Klein: Thanks for the question. This is Ted I'll start and maybe Scott you want to jump in so as I as I stated, we move full bore into hiring two to hit what we thought was going to be a full utilization airline on a much bigger fleet.

And then as to your question on pilot staffing, we saw the warm start to turn a little bit.

Matt Klein: As we were moving through the second half of 2023, and we did not.

In the middle part of last year.

And attrition really started to go down for us.

Ted Christie: Materialize, we're going to be as Scott said down on average 25 airplanes from where we thought we would be by the time, we hit the end of the year. It's 40.

And I've heard similar comments from other airlines as well so it sounds like all the work that the industry is doing collectively to create more opportunities for pilots to get training to move through the process.

Speaker Change: And so that's a lot.

Speaker Change: Staffing and Thats across the board, it's everything from from our frontline people are pilots or flight attendants.

Is bearing some fruit and we're starting to see once again, the principles of supply and demand working the way it's supposed to wages have gone up for pilots theres more opportunity for prospective pilots to find options to get trained and to become a professional pilot and that's beginning to bear fruit.

Speaker Change: The folks at at the airports quite frankly, even the general and administrative workforce has some.

Speaker Change: More direct related to expense associated with it when you get bigger so.

Speaker Change: We're working with with all those various constituents to come up with solutions. We may already have some progress on that hasnt.

Fruit. So I think we are starting to get closer and closer and balance you want to add anything more I think you hit on set I think that's the point is when we when we think about hiring crew.

Speaker Change: Hesitate to give you a number right now but last year, we alluded to the fact that we're pursuing $100 million in structural cost enhancements and it's sort of tied to that so at least gives you some guidance on the on the bucket.

It's well in advance of taking deliveries of airplanes and so when the.

<unk>.

Afg's issues started to materialize in the back half of last year, we had to react and in the number of resources that we had internally was already embedded into the business. So.

Matt Klein: And then as to your question on pilot staffing, we saw the warm start to turn a little bit.

Matt Klein: The middle part of last year.

This is really all about right sizing.

Matt Klein: And attrition really started to go down for us.

Our cost and a lot of that is labor as Ted mentioned.

Matt Klein: And I've heard similar comments from other airlines as well so it sounds like all the work that the industry is doing collectively to create more opportunities for pilots to get training to move through the process.

Two to the size of the business and that will be muted in 2024, and 2025 and maybe even beyond that so part of what we're going to do is figure out the right staffing levels in all components of the business to to.

Matt Klein: Is bearing some fruit and we're starting to see once again, the principles of supply and demand working the way it's supposed to wages have gone up for pilots theres more opportunity for prospective pilots to find options to get trained and to become a professional pilot and that's beginning to bear.

To make sure there are fit for where we are.

Okay. Thanks, and then just a follow up you talked about the timing of a O G. But do you have any.

Or can you provide any detail from the timeline of GTS engine compensation.

Matt Klein: Fruit. So I think we are starting to get closer and closer and balance you want to add anything more I think you hit on set I think that that's the point is when we when we think about hiring crew.

Yes, I mean from a timing perspective, let me just give you a little history.

Been in discussions with Pratt and Whitney for the better part of a <unk>.

Speaker Change: It's well in advance of taking deliveries of airplanes and so when the.

Few months.

Figuring out how to best negotiated structure to compensate us for the EOG aircraft and and while I think we are in the later innings, we don't have an agreement yet so it's difficult to say.

Speaker Change: The afg's issues started to materialize in the back half of last year, we had to react and in the number of resources that we had internally was already embedded into the business. So.

Matt Klein: It is really all about right sizing our cost and a lot of that is labor as Ted mentioned.

Where were we think that will hit and when.

But we do have some amount of compensation embedded in our guidance.

Matt Klein: Due to the size of the business and that will be muted in 2024, and 2025 and maybe even beyond that so part of what we're going to do is figure out the right staffing levels in all components of the business too.

Just just to be clear I, just can't give you details on what that is.

That is a commercial agreement with <unk> that we will we will not be able to disclose the details, but I will tell you that it's in the guidance.

Matt Klein: To make sure there are fit for where we are.

Sure.

Okay. Thank you.

Speaker Change: Okay. Thanks, and then just a follow up you talked about the timing of.

Alright. Thank you for your question.

And our next question comes from the line of Conor Cunningham with Melius Research. Please go ahead.

Speaker Change: Oh, Gee, but do you have any.

Speaker Change: Or can you provide any detail from the timeline of GTS engine compensation.

Hi, everyone. Thank you.

Speaker Change: Yes, I mean from a timing perspective, let me just give you a little history.

We talk about this margin recover opportunity some of the other domestic airlines have talked about that as well, but as we sit here today do the <unk>.

Speaker Change: <unk> been in discussions with Pratt and Whitney for the better part of a.

Lance that you. Currently you are currently laying out gets you back to breakeven by year end.

Speaker Change: A few months.

Speaker Change: Figuring out how to best negotiated structure to compensate us for the EOG aircraft and and while I think we are in the later innings, we don't have an agreement yet so it's difficult to say.

It seems very unit revenue driven right now I'm just trying to understand the building blocks of how we get there overall.

Thanks, Conor it's Ted yes, so look.

It has to be at least.

Speaker Change: Where were we think that will hit and when but we do have some amount of compensation embedded in our guidance.

If not a portion a significant portion driven around the recovery that we're seeing.

And I think that speaks.

A little bit to how bad it was in the latter part of summer and the fall of last year.

Speaker Change: Just to be clear I, just can't give you details on what that is.

Speaker Change: The commercial agreement with <unk> that we will we will not be able to disclose the details, but I will tell you that it's in the guidance.

That didn't feel right to anybody and feels like it was a little bit of a demand shift and maybe some some macro concern about where the economy was heading.

Speaker Change: Okay. Thank you.

Speaker Change: Alright. Thank you for your question.

And I think those two things are starting to stabilize so.

Speaker Change: And our next question comes from the line of Conor Cunningham with Melius Research. Please go ahead.

And if we werent seeing some some confidence in that and the way people were booking and in both the peaks and off peaks right. Now we would we would tell you. They are it does appear to be moving in the right direction. So yes. It does imply that we start to continue to see that momentum coupled with the.

Conor Cunningham: Hi, everyone. Thank you.

Conor Cunningham: As we talk about this margin recover opportunity some of the other domestic airlines have talked about that as well, but as we sit here today.

Conor Cunningham: Plans that you. Currently you are currently laying out gets you back to breakeven by year end.

The efforts that we're making on the cost structure and the utilization that we're not right in the second half of last year either so.

Conor Cunningham: Just seems very unit revenue driven right now I'm just trying to understand the building blocks of how we get there overall.

Conor Cunningham: Thanks, Conor it's Ted yes, so look.

It's definitely both items, but it does does require the demand environment to behave the way we are starting to see it behave.

Ted Christie: It has to be at least.

Ted Christie: If not a portion a significant portion driven around the recovery that we're seeing.

Hey, Tom.

Ted Christie: And I think that speaks a little bit to how bad it was in the latter part of summer and the fall of last year.

Make one other comment and Matt will probably want to chime in too but.

Just mathematically as we think about the year over year move.

We talked about our growth rate being in the low single digits.

Ted Christie: That didn't feel right to anybody and feels like it was a little bit of a demand shift and maybe some some macro concern about where the economy was heading.

Flat to up mid single digits range.

That alone will provide.

A tailwind to unit revenue sort of this no growth scenario versus our historical double digit growth rate.

Ted Christie: And I think those two things are starting to stabilize so.

Ted Christie: And if we werent seeing some some confidence in that and the way people were booking and in both the peaks and off peaks right. Now we would we would tell you what they are it does appear to be moving in the right direction. So yes. It does imply that we start to continue to see that momentum coupled with the.

So we think that the move in unit revenue for us and really the domestic landscape doesn't have to be.

Fantastic for us to get to the unit revenue number that we're expecting for the year I don't think we're being aggressive because we do have some puts and takes on.

The network changes and the sort of no growth benefits to unit revenues. So I think the assumption around the domestic recovery.

Ted Christie: The efforts that we're making on the cost structure and the utilization that we're not right in the second half of last year either so.

Ted Christie: It's definitely both items, but it does does require the the demand environment to behave the way we are starting to see it behave.

Zinc is not aggressive for us at this point.

Kevin.

This is Matt I can add a little bit of color in terms of the trends.

Speaker Change: Hey, Tom.

Speaker Change: Make one other comment and Matt will probably want to chime in too but.

That we've been seeing especially as we moved out of the fourth quarter and into January we are definitely starting to see.

Speaker Change: Just mathematically as we think about the year over year move.

Speaker Change: We talked about our growth rate being in the low single digits.

You think about the sort of the year over year unit revenue production.

Speaker Change: Flat to up mid single digits range.

It was very obviously not up to where we wanted it to be in Q4, what we're seeing now as we head into January it's still January but the.

Speaker Change: That alone will provide.

Speaker Change: A tailwind to unit revenue sort of this no growth scenario versus our historical double digit growth rate.

Year over year unit revenue change, but.

Speaker Change: So we think that the move in unit revenue for us and really the domestic landscape doesn't have to be.

What we saw in Q4, as we head into January and into the first quarter.

We're seeing significant.

Revenue improvement on a year over year basis still down in Q1, but significantly less down if that makes sense.

Speaker Change: Fantastic for us to get to the unit revenue number that we're expecting for the year I don't think we're being aggressive because we do have some puts and takes on.

Speaker Change: The network changes and the sort of no growth benefit to unit revenues. So I think the assumption around the domestic recovery.

But what we expect in Q1 relative to what we saw in Q4 and a domestic is leading that charge back which is what we were expecting to see and it's good to see.

Speaker Change: Zinc is not aggressive for us at this point.

Starting to come through that way one other piece I think it's worth noting.

Speaker Change: Kevin.

Speaker Change: This is Matt I can add a little bit of color in terms of the trends.

Geographically and everybody has some amount of geographic diversity. It just so happens right now we talked in the past I think it was like last summer into the fall how Ken Kun really took a turn in the wrong way as we headed into the summer and exited the summer we're still seeing some issues there.

Matt Klein: That we've been seeing especially as we moved out of the fourth quarter and into January we are definitely starting to see.

Matt Klein: You think about the sort of the year over year unit revenue production.

Matt Klein: It was very obviously not up to where we wanted it to be in Q4, what we're seeing now as we head into January it's still January but the.

So <unk> and some of our Caribbean leisure routes think of that as like once you go Bay from Takata, we're still seeing a material unit revenue declines there.

Matt Klein: Year over year unit revenue change, but.

Matt Klein: What we saw in Q4, as we head into January and into the first quarter.

Matt Klein: We're seeing significant.

So some of our numbers here are including of course, including that part of the network, which which might be worth at least a couple of margin points right. They're just for some geographic issues, we're having we expect that to come back.

Matt Klein: Revenue improvement on a year over year basis still down in Q1, but significantly less down if that makes sense.

Matt Klein: But what we expect in Q1 relative to what we saw in Q4 and a domestic is leading that charge back which is what we were expecting to see and it's good to see.

But the timing is taking longer than what we had what we would have liked so that's still out there affecting our numbers and domestic is definitely starting to lead this charge back for us.

Matt Klein: Starting to come through that way one other piece I think it's worth noting.

Okay. That's very helpful and then.

I know you talked about you feel comfortable with the liquidity situation, but can you just talk about where the unencumbered asset base sits today I feel like you've got a lot of equity in your order book.

Matt Klein: Geographically and everybody has some amount of geographic diversity. It just so happens right now we talked in the past I think it was like last summer into the fall how Ken Kun really took a turn in the wrong way as we headed into the summer and exited the summer we're still seeing some issues there.

Anything that you have on your currently and then maybe if you could just talk about the.

Your current discussions with the refinancing of the royalty bond in 2025. Thank you.

Yes, I'll mentioned the unencumbered assets.

Matt Klein: So <unk> and some of our Caribbean leisure routes think of that as like once you go Bay from Tucana, We're still seeing a material unit revenue declines there.

And really the the Financeable base. So it gets us on what youre getting to so today unearned.

Unencumbered assets, excluding the 319 switch which are already contracted for sale.

Matt Klein: So some of our numbers here are including of course, including that part of the network, which which might be worth at least a couple of margin points right. They're just for some geographic issues, we're having we expect that to come back.

Hard assets sit in the sort of $350 million range.

We also have $425 million of PDP with Airbus.

And a roughly $500 million of equity sitting in airplanes.

Matt Klein: But the timing is taking longer than what we had what we would have liked so that's still out there affecting our numbers and domestic is definitely starting to lead this charge back for us.

So that's sort of a $1 $2 billion of Financeable assets.

Sort of what we start with Ltvs are unknown at this point, but it also doesn't assess the value of the order book, which is a different a different concept, but just sort of a financeable basis over $1 billion.

Speaker Change: Okay. That's very helpful and then.

Speaker Change: I know you talked about you feel comfortable with our liquidity situation, but can you just talk about where the unencumbered asset base sits today I feel like you've got a lot of equity in your order book.

And then.

The the other discussions around the loyalty bonds arent as arent at a point at which we can we can discuss today. We're in the early innings of thinking about how we address those but but we are aware.

Speaker Change: Anything that you have on your currently and then maybe if you could just talk about the.

Speaker Change: Your current discussions with the refinancing of the royalty pharma in 2025. Thank you.

Speaker Change: Yes, I'll mentioned the unencumbered assets.

That's about all I can say about those today.

Matt Klein: And really the the Financeable base. So it gets us on what youre getting to so today unearned.

Okay. Thank you.

Great. Thank you Connor and our next question comes from the line of Scott Group with Wolfe Research Scott. Please go ahead.

Matt Klein: Unencumbered assets, excluding the 319 switch which are already contracted for sale.

Matt Klein: Hard assets sit in the sort of $350 million range.

Hey, Thanks, Good morning, So just before I get to questions. Just one thing I wanted to clarify you made a comment that the GTS recovery is.

Matt Klein: We also have $425 million of PDP with Airbus.

<unk> in your guidance, what do you mean, when you say that.

Matt Klein: And a roughly $500 million of equity sitting in airplanes.

Yes, the comment was around the compensation agreement with Pratt and Whitney.

Matt Klein: So that's sort of a $1 $2 billion of Financeable assets.

For the <unk>, while we don't have an agreement in place today, we do have an estimate for that compensation that will show up as a credit to non operating expenses that is in our guidance an assumption for that.

Matt Klein: Sort of what we start with Ltvs are unknown at this point, but and it also doesn't assess the value of the order book, which is a different a different concept, but just sort of the financeable basis over $1 billion.

Matt Klein: And then.

And Thats, what Youre, saying in the Q1 guide reflects some assumption for the.

Matt Klein: The the other discussions around the loyalty bonds arent as arent at a point at which we can we can discuss today. We're in the early innings of thinking about how we address those but but we are aware.

Recovery.

That is what I'm, saying, yes.

Okay and then just.

Are you is.

Matt Klein: That's about all I can say about those today.

Are you assuming that spread over the course of the year, you're taking like the full recovery assumption in Q1, just to understand like what the real starting point for for Q1.

Speaker Change: Okay. Thank you.

Matt Klein: Alright, Thank you Connor and our next question comes from the line of Scott Group with Wolfe Research Scott. Please go ahead.

Costs are sure fair enough, yes, the way the the estimate will work in our guide is that we assume that we get compensated on a per ALG amounts over the year. So the number of <unk> that happened in the first quarter, we will have a corresponding amount as a credit to that expense.

Scott H. Group: Hey, Thanks, Good morning, So just before I get to questions. Just one thing I wanted to clarify you made a comment that the GTS recovery is reflected in your guidance what do you mean, when you say that.

Scott H. Group: Yes, the comment was around the compensation agreement with Pratt and Whitney.

In the period, so that will it will be spread over the year in other words.

Scott H. Group: For the <unk>, while we don't have an agreement in place today, we do have an estimate for that compensation that will show up as a credit to non operating expenses that is in our guidance an assumption for that.

Okay. Okay. That's helpful. And then just maybe along those lines.

Just how are you thinking about the trajectory of <unk>.

CASM over the course over the course of the year.

Scott H. Group: And Thats, what Youre, saying in the Q1 guide reflects some assumption for the.

Well I think a lot of it will be in part to what Matt mentioned around capacity.

But we're not going to give guidance for for CASM for the year.

Scott H. Group: Recovery.

Speaker Change: That is what I'm, saying, yes, okay.

Speaker Change: Okay and then just.

Speaker Change: Are you is.

There is a number of moving pieces around that at this point, but we do expect to be sort of year over year, we've talked about it being up.

Scott H. Group: Are you assuming that spread over the course of the year, you're taking like the full recovery assumption in Q1, just to understand what the real starting point for for Q1.

Probably mid single digits year over year.

Scott H. Group: <unk> costs are.

Speaker Change: Sure Fair enough, yes, the way the the estimate will work in our guide is that we assume that we get compensated on a per <unk> amounts over the year. So the number of Eog's that happened in the first quarter, we will have a corresponding amount as a credit to that expense in the period so that.

And thats, primarily due to the capacity constraints in some of the lingering.

Sort of right sizing components that will address through the year.

Okay and then just lastly is there I know you said $230 million of Capex is there a cash capex number to think about and then have you guys publicly talked about any sort of minimum liquidity targets. Thank.

Speaker Change: It will be spread over the year in other words.

Thank you.

Speaker Change: Okay. Okay. That's helpful. And then just maybe along those lines.

The 235 of Capex is cash.

Thats the cash number for Capex in and we we've been asked around minimum liquidity and I'll say a couple of things one is that there is no.

Speaker Change: Just how are you thinking about the trajectory of <unk>.

Speaker Change: CASM over the course over.

Scott H. Group: The course of the year.

Scott H. Group: Well I think a lot of it will be in part to what Matt mentioned around capacity.

Specific operating minimum for us, but we do have some contractual minimums we've talked about.

Scott H. Group: We're not going to give guidance for for CASM for the year.

The $400 million minimum and our royalty bond our revolver has a similar number.

Scott H. Group: There is a number of moving pieces around that at this point, but we do expect to be sort of year over year, we've talked about it being up.

And people often ask about hold back of which we can't give details on but just as a marker our <unk> balances just under $400 million for the end of 2023 so.

Scott H. Group: Mid single digits year over year.

Scott H. Group: And that's primarily due to capacity constraints in some of the lingering sort of right sizing components that will address through the year.

The whole back is usually some some factor of that which we can't give specifics, but those are sort of markers but.

Speaker Change: Okay and then just lastly is there I know you said $230 million or so of Capex is there a cash capex number to think about and then have you guys publicly talked about any sort of minimum liquidity targets.

Other than that I can't give you a specific number.

Very helpful. Thank you guys.

Thank you Scott.

And our next question comes from the line of Andrew <unk> with Bank of America. Andrew. Please go ahead.

Speaker Change: Thank you.

Scott H. Group: The 235 of Capex is cash.

Scott H. Group: That's the cash number for Capex in and we we've been asked around minimum liquidity.

Hey, good morning, everyone.

My questions have already been addressed.

Hey, Scott just yet.

Speaker Change: I'll say a couple of things one is that there is no.

With regards to your answer.

The answer to the last question here, the $235 million of cash Capex in 2024.

Speaker Change: Specific operating minimum for us, but we do have some contractual minimums we've talked about.

That is before any financing correct.

Scott H. Group: The $400 million minimum and our royalty bond our revolver has a similar number.

That is correct that is not sort of the gross fleet Capex number.

Scott H. Group: And people often ask about hold back of which we can't give details on but just as a marker our <unk> balances just under $400 million for the end of 2023 so.

Really includes.

<unk>.

Our our sort of aircraft related capex call. It net of PDP and engines and those things plus other capex like we have some remaining spend left on the headquarters.

Scott H. Group: The whole back is usually some some factor of that which we can't give specifics, but those are sort of markers but.

Some other ratable spend apart spend and other it projects sort of your normal run rate Capex.

Scott H. Group: Other than that I can't give you a specific number.

Yes got it Okay, and then just going back to the GTS issues.

Speaker Change: Very helpful. Thank you guys.

Speaker Change: Thank you Scott.

Speaker Change: And our next question comes from the line of Andrew <unk> with Bank of America. Andrew. Please go ahead.

By the time you reach the end of 2024, how much of your fleet will already be kind of through the process and just trying to get a sense for what's next.

Andrew: Hey, good morning, everyone.

Andrew: My questions have already been addressed.

Come in 2025, thank you.

Andrew: Hey, Scott just yet.

Well this is a tough one we're sort of looking at each other as the best way to answer it. It's an excellent question, but unfortunately, we don't have clarity on that.

Andrew: With regards to your answer.

Speaker Change: The answer to the last question here, the $235 million of cash Capex in 2024.

The number.

Speaker Change: That is before any financing correct.

That would trigger the right answer there would be some stability in what we call. The wing to wing turn time of the engine. So after it comes off how long does it take for it to come back once its through the shop, and historically and Im really reaching back into my early days.

Speaker Change: That is correct that is not sort of the gross fleet Capex number.

Speaker Change: Really includes.

Speaker Change: <unk>.

Speaker Change: Our our sort of aircraft related capex call. It net of PDP and engines and those things plus other capex like we have some remaining spend left on the headquarters.

In the business, we used to see the engine manufacturers get wing to wing turn times somewhere in the 90% to 120 day range.

Speaker Change: Some other ratable spend apart spend and other it projects sort of your normal run rate Capex.

Unfortunately, we're seeing Pratt numbers that are in the 300 plus range.

And we're not sure whether or not that is stable.

Speaker Change: Yes got it Okay, and then just going back to the GTS issues.

Whether or not it will continue to increase or decrease and so until we get a feel for that it's hard to say, how many quote unquote engines will be through the process. The reason that they will be removed over the course of the year is because they will have reached their threshold to be removed. So.

Speaker Change: By the time you reach the end of 2024, how much of your fleet will already be kind of through the process and just trying to get a sense for.

Speaker Change: What's to come in 2025, thank you.

Speaker Change: Well this is a tough one we're sort of looking at each other as the best way to answer it. It's an excellent question, but unfortunately, we don't have clarity on that.

This is obviously the way that the process would work.

And we'll just have to see how quickly they can either.

Speaker Change: The number.

To move that turn time.

Speaker Change: That would trigger the right answer there would be some stability in what we call. The wing to wing turn time of the engine. So after it comes off how long does it take for it to come back once its through the shop, and historically and Im really reaching back into my early days.

And get us back engines and or produce more spares available for the worldwide fleet to start offsetting some of the pressure.

And I think Scott said earlier that it's hard to guess on whats going to happen in 2025, right now and that's one of the primary reasons is we don't we don't yet have clarity from them on how they are going to how quickly they'll be able to move through this process.

Speaker Change: In the business, we used to see the engine manufacturers get wing to wing turn times somewhere in the 90% to 120 day range.

Got it understood. Thanks, Ed.

Speaker Change: Unfortunately, we're seeing Pratt numbers that are in the 300 plus range.

Alright, Thank you Andrew and our next question comes from the line of Jamie Baker with Jpmorgan Jamie. Please go ahead.

Speaker Change: And we're not sure whether or not that is stable.

Hey, Good morning, guys. This is James on for Jamie.

Speaker Change: Whether or not it will continue to increase or decrease and so until we get a feel for that it's hard to say, how many quote unquote engines will be through the process. The reason that they will be removed over the course of the year is because they will have reached their threshold to be removed. So.

Just a couple quick follow up on liquidity.

Pre delivery payments.

My understanding is that the OEM has been breach for those returned is that correct or is there some negotiation that spirit can have three claim them.

Speaker Change: This is obviously the way that the process would work.

We're not in discussions around the return of PDP payments at this point I think if you're commenting on my previous.

Speaker Change: And we'll just have to see how quickly they can either.

Speaker Change: To move that turn time.

Speaker Change: And get us back engines and or produce more spares available for the worldwide fleet to start offsetting some of the pressure.

Words, it was around the PDP financing none.

Not a return of PDP.

Speaker Change: And I think Scott said earlier that it's hard to guess on whats going to happen in 2025, right now and that's one of the primary reasons is we don't we don't yet have clarity from them on how they are going to how quickly they'll be able to move through this process.

Okay got you and then just a quick one the new HQ is unencumbered and if if it is or can you give a value there.

It is unencumbered, we built that with cash at this point and then we'll probably look to use it as a.

Speaker Change: Got it understood. Thanks, Ed.

As collateral for some some sort of financing in the future.

Speaker Change: Alright, Thank you Andrew and our next question comes from the line of Jamie Baker with Jpmorgan Jamie. Please go ahead.

Of the $350 million hurt us at numbers that are unencumbered.

<unk>.

A significant portion of that in the $250 million to $300 million range.

Speaker Change: Hey, Good morning, guys. This is James on for Jamie.

James: Just a couple quick follow ups on liquidity.

Okay. Thanks for the questions.

Jamie Baker: Pre delivery payments.

Alright, Thank you James and.

Speaker Change: My understanding is that the OEM has been breach for those returned is that correct or is there some negotiation that spirit can have three claim them.

And our next question comes from the line of Dan Mckenzie with Seaport Global Dan. Please go ahead, hey, good.

Good morning, Thanks, guys.

Putting a finer point I guess on the network questions Big picture what percent of the network needs to get reconfigured to get back to profitability.

Speaker Change: We're not in discussions around the return of PDP payments at this point I think if you're commenting on my previous.

Speaker Change: Words, it was around the PDP financing none.

And I guess, how far along are you today I mean are we halfway there three quarters of the way there and just sort of the timeframe for completion and I'm just trying to get a sense of how easier how hard it is from where you sit.

Speaker Change: Not a return of PDP.

Speaker Change: Okay got you and then just a quick one the new HQ is unencumbered and if if it is or can you give a value there.

Yeah, Dan Thanks, that's a great question.

I'd tell you.

Speaker Change: It is unencumbered, we built that with cash at this point in the World, We will probably look to use it as a.

Thats the moves we're making now and the moves that we had planned to me throughout the rest of the first half of this year is what we need to do to get us back on track to head towards profitability.

Speaker Change: As collateral for some some sort of financing in the future.

Speaker Change: Of the $350 million hurt us at numbers that are unencumbered.

What is the numbers for you there earlier in terms of.

Speaker Change:

Speaker Change: A significant portion of that in the $250 million to $300 million range.

City exits and new routes and suspensions all of that is us moving methodically towards getting the network to a place where we can take advantage of our strengths and look for where the supply demand balance is more appropriate. So I don't have an exact percentage that I'm going to give to you.

Speaker Change: Okay. Thanks for the questions.

Speaker Change: Alright, Thank you James and.

Speaker Change: And our next question comes from the line of Dan Mckenzie with Seaport Global Dan. Please go ahead, hey, good.

Daniel J. McKenzie: Good morning, Thanks, guys.

Daniel J. McKenzie: Putting a finer point I guess on the network questions Big picture what percent of the network needs to get reconfigured to get back to profitability.

That question, that's a great question, but the moves that we're making throughout the first half of this year should set us up for that and of course. Once we then hit after summer and into the fall and winter. We may have some additional moves that are just seasonal in nature, but the vast majority of what we should be doing should should be in place by the first half by the end of the first half.

Daniel J. McKenzie: And I guess, how far along are you today I mean are we halfway there three quarters of the way there and just sort of the timeframe for completion and I'm just trying to get a sense of how easier how hard it is from where you sit.

Speaker Change: Yes, Dan Thanks, that's a great question.

For this year.

Yes, Okay very good and then Scott in response to an earlier question, you mentioned generating operating cash and margins being positive and I think that was for the second and third quarter does that positive margin reference reflect the compensation from from Pratt.

Speaker Change: I'd tell you.

Speaker Change: Thats the moves we're making now and the moves that we had planned to me throughout the rest of the first half of this year is what we need to do to get us back on track to head towards profitability.

Speaker Change: What is the numbers for you there earlier in terms of.

Does the current outlook contemplate profitability in any of the quarters this year.

Speaker Change: City exits and new routes and suspensions all of that is us moving methodically towards getting the network to a place where we can take advantage of our strengths and look for where the supply demand balance is more appropriate. So I don't have an exact percentage that I'm going to give to you.

Yes, It does I mean, as I mentioned earlier the the.

The guidance that we issued does include compensation from Pratt now and I mentioned in my prepared remarks, as well that the the compensation doesn't fully cover what the impact of the Afg's are for the business as well as partially offsets.

Speaker Change: That question, that's a great question, but the moves that we're making throughout the first half of this year should set us up for that and of course. Once we then hit after summer and into the fall and winter. We may have some additional moves that are just seasonal in nature, but the vast majority of what we should be doing should should be in place by the first half by the end of the first half.

In both the direct cost ended opportunity costs, our unit costs would be lower but for the <unk>, our margins would be higher but for the AIG. So.

Just to be clear that is the case, but notwithstanding we do still think that that we will be.

Speaker Change: This year, yes, okay very good and then Scott in response to an earlier question, you mentioned generating operating cash and margins being positive and I think that was for the second and third quarter does that positive margin reference reflect the compensation from from Pratt.

Be in a situation to have positive margins for the second third and probably the fourth quarter as well.

It's all part of the discussion we had earlier around.

Market recovery and our own unit cost management.

Thanks for the time you guys.

Okay. Thank you Dan.

Speaker Change: Does the current outlook contemplate profitability in any of the quarters this year.

And our next question comes from the line of Savi <unk> with Raymond James Savi. Please go ahead.

Scott: Yes, It does I mean, as I mentioned earlier the the.

Hi, This is <unk> on for Savi said our question today is that there seems to be investor concern around credit card holdback, which seems pretty mature what type of discussions that you're having with your administrator on this topic and what are the thresholds that you're looking at.

Speaker Change: The guidance that we issued does include compensation from Pratt now and I mentioned in my prepared remarks, as well that the the compensation doesn't fully cover what the impact of the Afg's are for the business as well as partially offsets.

Yeah as I mentioned earlier, we can't disclose.

Speaker Change: In both the direct cost ended opportunity costs, our unit costs would be lower but for the <unk>, our margins would be higher but for the AIG. So.

The credit card holdback number and that is a competitive commercial arrangement.

But I mentioned that the ATL balance today is just under $400 million in credit card Holdback is usually some factor of that number.

Speaker Change: Just to be clear that is the case, but notwithstanding we do still think that that we will.

Speaker Change: Be in a situation to have positive margins for the second third and probably the fourth quarter as well.

And we had.

An agreement renegotiated with them a couple of years ago.

That lowered the actual hold back that we were required to have.

Speaker Change: It's all part of the discussion we had earlier around.

Speaker Change: Market recovery and our own unit cost management.

Or are those I should say lowered the minimum cash balance that we were required to have so we feel like we're in a pretty good spot there.

Speaker Change: Thanks for the time you guys.

Speaker Change: Okay. Thank you Dan.

Yeah.

Speaker Change: And our next question comes from the line of Savi <unk> with Raymond James Savi. Please go ahead.

Hey, Greg got you and then.

Oh, sorry go ahead go ahead Sir.

Speaker Change: Hi, This is <unk> on for Savi said our question today is that there seems to be investor concern around credit card holdback, which seems pretty mature what type of discussions that you're having with your administrator on this topic and what are the thresholds that you're looking at.

No worries.

And then one more although you guys touched on this earlier if you could talk about any additional cost headwinds and tailwind in 2024 that would be great. Thank you.

Yes, sure I mean, I think it's a similar story.

Speaker Change: Yeah as I mentioned earlier, we can't disclose.

As we've talked about the big movers are labor costs.

Speaker Change: The credit card holdback number and that is a competitive commercial arrangements.

Aircraft rent due to more leased aircrafts and owned.

Speaker Change: But I mentioned that the ATL balance today is just under $400 million in credit card Holdback and there is usually some factor of that number.

And.

As we look through the year, it's going to be those things that will have to address airport costs are also part of that.

And.

The good guys, though I mean, we saw in the fourth quarter was running a good operation that was critical for US we saw that throughout the P&L, including fuel burn as I mentioned running a good operation has.

Speaker Change: And we had.

Speaker Change: Agreement renegotiated with them a couple of years ago.

Speaker Change: That lowered the actual hold back that we were required to have.

Speaker Change: Or are those I should say lowered the minimum cash balance that we were required to have so we feel like we're in a pretty good spot there.

Obviously direct expenses with labor and interrupted trip expense, but we benefit in fuel burn and not having to fly so fast in and really thinking about.

Speaker Change: Hey, Greg got you and then.

Greg: Oh, sorry go ahead go ahead Sir.

The network team allocates deals to market appropriate places.

Speaker Change: No worries.

Speaker Change: And then one more although you guys touched on this earlier if you could talk about any additional costs headwinds and tailwind in 2024 that would be great. Thank you.

We'll see real benefit in fuel burn and 24.

Alright, Thank you Tom.

Speaker Change: Yes, sure I mean, I think it's a similar story.

Hey, Greg we have time for one more question.

Speaker Change: As we've talked about the big movers are labor costs.

Onto that someplace okay.

No problem at all and our final question comes from Helane Becker with TD Cowen Helane. Please go ahead.

Speaker Change: Aircraft rent due to more leased aircrafts and then owned.

Thanks, very much operator, Matt can you say what percentage of the forecast revenue for 2024th first quarter is already booked.

Speaker Change: And as.

Speaker Change: As we look through the year, it's going to be those things that we will have to address airport costs are also part of that.

Speaker Change: And the good guys, though I mean, we saw in the fourth quarter was running a good operation that was critical for US we saw that throughout the P&L, including fuel burn.

Yes, so we usually don't comment specifically on that Helane I would tell you though that.

For the spring break period, we like to set up very well.

Speaker Change: As I mentioned running a good operation has.

We think our revenue management.

Speaker Change: <unk> direct expenses with labor and interrupted trip expense, but we benefit in fuel burn and not having to fly so fast in and really thinking about.

Plans, there are going to bear fruit for us and we're looking forward to getting closer and closer to March because we do believe that the.

The setup is really good.

Speaker Change: The network team allocates deals to market appropriate places.

For spring break and we're looking forward to getting there.

Speaker Change: We'll see real benefit in fuel burn and 24.

Okay. Thanks that was my only question.

Great well, thanks, everyone for joining us today, and we will catch you next quarter.

Speaker Change: Alright, Thank you Tom.

Yes.

Speaker Change: Hey, Greg we have time for one more question move onto that can play okay.

All right, ladies and gentlemen that does conclude today's call again. Thank you all for joining and you may now disconnect have a great day everyone.

Speaker Change: No problem at all and our final question comes from Helane Becker with TD Cowen Helane. Please go ahead.

Helane Becker: Thanks, very much operator, Matt can you say what percentage of the forecast revenue for 2024th first quarter is already booked.

Matt Klein: Yes, so we usually don't comment specifically on that Helane I would tell you though that.

Helane Becker: For the spring break period, we like to set up very well.

Speaker Change: We think our revenue management.

Speaker Change: Plans, there are going to bear fruit for us and we're looking forward to getting closer and closer to March because we do believe that.

Speaker Change: The setup is really good.

Speaker Change: For spring break and we're looking forward to getting there.

Speaker Change: Okay. Thanks that was my only question.

Speaker Change: Great well, thanks, everyone for joining us today, and we will catch you next quarter.

Speaker Change: Okay.

Speaker Change: Yes.

Speaker Change: All right, ladies and gentlemen that does conclude today's call again. Thank you all for joining and you may now disconnect have a great day everyone.

Speaker Change: Yeah.

Speaker Change: Yeah.

Speaker Change: Hum.

Speaker Change: Yeah.