Q2 2024 Frontier Group Holdings Inc Earnings Call
Operator: Good day. Thank you for standing by.
Good day, Thank you for standing by Qualcomm, but a bunch of Golf Holdings, Inc. Second quarter 2024 earnings Conference call. At this time, all participants are in a listen only mode.
Operator: Welcome to the Frontier Group Holdings, Inc. second quarter 2024 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automatic message advising that your hand is raised. Please note that today's conference is being recorded. I will now hand the conference over to your speaker host, David Erdman, Senior Director of Investments. Please go ahead.
The speaker's presentation, there will be a question and answer session. Just a question. During this session you will need your Crestar one one on your telephone you will then hear an automatic messages.
Speaker Change: That's right.
Note that today's conference is being recorded I will now hand, the conference call, but your speaker host David Hartman Senior director of Investor Relations. Please go ahead.
David Erdman: Thank you. Good morning, everyone, and welcome to our second quarter 2024 earnings call. On the call with me this morning are Barry Biffle, Chief Executive Officer, Jimmy Dempsey, President, Mark Mitchell, Chief Financial Officer, and Bobby Schroeter, Chief Commercial Officer. Before yielding, I'd like to recite the customary safe harbor provisions. During this call, we will be making forward-looking statements that are subject to risks and uncertainty. The actual results may differ materially from those predicted in these forward-looking statements.
David Hartman: Thank you good morning, everyone and welcome to our second quarter 2024 earnings call.
Speaker Change: On the call with me with me. This morning are Barry default, Chief Executive Officer, Jimmy Dempsey, President, Mark Mitchell, Chief Financial Officer, and Bobby Schroeder, Chief Commercial officer.
David Erdman: Additional information concerning risk factors which could cause such differences is outlined in the announcement we released earlier, along with reports we file with the Securities and Exchange Commission. We will also discuss non-GAAP financial measures which are reconciled to the nearest comparable GAAP measure in the appendix of the earnings announcement. Now, I'll give the floor to Barry to begin his prepared remarks. Barry?
David Hartman: Before yielding I'd like to recite the customary safe Harbor provisions. During this call we will be making forward looking statements, which are subject to risks and uncertainties.
Actual results may differ materially from those predicted in these forward looking statements additional information concerning risk factors, which could cause such differences are outlined in the announcement, we released earlier along with reports we file with the Securities and Exchange Commission. We will also discuss non-GAAP financial measures, which are reconciled to the.
<unk> comparable GAAP measure in the appendix of the earnings announcements, so I'll give the floor to bear to begin his prepared remarks Barry.
Barry Biffle: Thanks, David, and good morning, everyone. Despite industry oversupply across the United States, we effectively navigated the quarter due in part to our network and revenue diversification, combined with our unique and improving cost of investment. While consumer travel demand has remained resilient, post-pandemic travel patterns have compelled us to concentrate our flying on peak days. Coupled with the maturity of the new revenue initiatives and our unique cost advantage, we believe we will drive margin improvement and be the clear low-cost winner in 2025 and beyond.
Barry: Thanks, David and good morning, everyone.
Barry: Despite industry oversupply across the United States, we effectively navigated the quarter due in part to our network and revenue diversification combined with our unique and improving cost advantaged, while consumer travel demand has remained resilient post pandemic travel patterns have compelled us to concentrate our flying on peak days.
Coupled with the maturity of the new revenue initiatives and our unique cost advantage. We believe we will drive margin improvement and be clear low cost winter in 2025 and beyond our cost advantage is bolstered by the program. We launched late last year, which has generated more than $100 million in annual run rate savings tied to network simplification and I'm confident that there's more to come.
Barry Biffle: Our cost advantage is bolstered by the program we launched late last year, which has generated more than $100 million in annual run rate savings tied to network simplification, and I'm confident there's more to come. To mitigate excess industry capacity headwinds, we quickly responded by adjusting our post-summer capacity to focus on peak days of the week, which we believe will drive RASM improvement and ultimately margin growth in our business. In addition, we're also adjusting our fleet plan to accommodate for moderating growth over the next several years.
Barry: To mitigate excess industry capacity headwinds, we quickly responded by adjusting our post summer capacity to focus on peak days, a week, which we believe will drive RASM improvement and ultimately margin growth in our business.
Barry: In addition, we're also adjusting our fleet plan to accommodate for moderating growth over the next several years. This morning, we announced a revised delivery schedule with Airbus, which the first 54 aircraft out of 2025 for 2028, reducing our planned growth to approximately 10% per year from the previously expected high teen growth.
Barry Biffle: This morning, we announced a revised delivery schedule with Airbus, which defers 54 aircraft out of 2025 through 2028, reducing our planned growth to approximately 10% per year from the previously expected high-growth rate. Moreover, we continue to optimize our suite of products and services to better align with customer demand. During the quarter, we launched the new Frontier, which provides clear upfront pricing and options, along with additional benefits. We'll also soon launch a new app in NDC, and a new website early next year, and all of this will improve the customer experience and ultimately drive higher revenue per passenger.
Moreover, we continue to optimize our suite of products and services to better align with customer demand.
Barry: During the quarter, we launched the new frontier, which provides clear upfront pricing and options along with additional benefits will also soon launch a new app and in D. C. A new website early next year and all of this will improve the customer experience and ultimately drive higher revenue per passenger.
Barry Biffle: Before yielding the call, I want to extend my gratitude to every member of Team Frontier for their resilience and determination in the face of this challenging landscape and for remaining focused on our top priority of delivering a safe and reliable experience for our customers, following our mission of Low Fares Done Right. And now, I'll turn the call over to Jimmy for a commercial overview. Jimmy?
Jimmy: Before yielding the call I want to extend my gratitude to every member of team frontier for their resilience and determination in the face of this challenging landscape and for remaining focused on our top priority of delivering a safe and reliable experience for customers. Following our mission of low fares done right I'll now turn the call over to Jimmy for commercial overview, Jimmy Thanks, Barry and good.
Jimmy Dempsey: Thanks, Barry, and good morning, everyone. Briefly recapping the quarter, total operating revenue increased by 1% to $973 million on capacity growth of 13%, both compared to the 2023 quarter. Resulting in an RASM of 921, departures increased 26% on a 13% shorter average stage. Total revenue per passenger was $109, down 14% versus the 2023 quarter, largely driven by the impact of domestic seat growth, which outpaced seasonal demand trends during a period in which we were transitioning our network and implementing several key product merchandising and distribution enhancements, including the new Frontier.
Jimmy: Good morning, everyone briefly recapping the quarter total operating revenue increased by 1% to $973 million on capacity growth of 13%, both compared to the 2023 quarter.
Jimmy: Resulting in RASM of $9 21.
Jimmy: The purchased increased 26% on a 13% shorter average stage total revenue per passenger was $109 down 14% versus the 2023 quarter largely driven by the impact of domestic seat growth, which has outpaced seasonal demand trends during a period in which we were transitioning our network and implementing several key product merchandising.
Speaker Change: Distribution enhancements, including the new frontier.
Jimmy: Our network simplification strategy has been to focus on high fare underserved markets. This year, we have launched our four new crew basis, and five new maintenance basis to support the network transition to over 80% add back flying during the quarter, We opened Cincinnati, Chicago and San Juan and addition to Cleveland in March oftentimes optimizing the total base footprint to <unk>.
Jimmy Dempsey: Our network simplification strategy has been to focus on high-fare, underserved markets. This year, we have launched 4 new crew bases and 5 new maintenance bases to support the network transition to over 80% out-and-back flying. During the quarter, we opened Cincinnati, Chicago, and San Juan, in addition to Cleveland in March, optimizing the total base footprint to 13.
Jimmy Dempsey: As part of the structural shift in the network, we launched 114 new routes from our 13 bases. Consistent with historical averages, we have seen encouraging results in two-thirds of these markets, and we have made adjustments to the markets that did not seem to be performing so well. As a result of our focus on peak day flying, capacity is expected to grow by 4-6% in the third quarter and 5-7% for the full year versus 2023. While consumer travel demand has remained resilient on peak days of the week, post-pandemic travel patterns compelled us to concentrate our flying on peak days to capture a relatively higher rasm.
Jimmy: <unk>.
Barry: As part of a structural shift in the network, we launched 114, new routes from our 13 basis consistent with historical averages we have seen encouraging results on two thirds of these markets and.
Barry: And we have made adjustments to the markets that did not stimulated.
Barry: As a result of our focus on peak day flying capacity is expected to grow by 4% to 6% in the third quarter and 5% to 7% for the full year versus 2023.
Barry: While consumer travel demand has remained resilient on peak days of the week post pandemic travel patterns compelled us to concentrate our flying on peak days to capture a relatively higher RASM accordingly, beginning in mid August through the end of the year, we've trimmed capacity on off peak days of the week to size the adjustments less than 30% of September seats for sale today are scheduled.
Jimmy Dempsey: Accordingly, beginning in mid-August through the end of the year, we trimmed capacity on off-peak days of the week. To size the adjustments, less than 30% of September seats for sale today are scheduled on off-peak days compared to approximately 40% in September 2020. In addition to our own capacity adjustments, the post-summer capacity cuts from other carriers should start to restore a balance in the domestic market. However, in the past month, we've observed fare increases and the elimination of the lowest promotional fares, exacerbated by our own self-health measures.
Barry: Off peak days as compared to approximately 40% in September 2023.
Barry: In addition to our own capacity adjustments the post summer capacity cuts from other carriers should start to restore a bounce in the domestic markets. In fact in the past month, we've observed fare increases and the elimination of the lowest promotional fares augmenting our own self help measures.
Jimmy Dempsey: In June, we reached targeted levels of out-and-back flying, and it helped drive an improvement across key operational metrics, including on-time arrivals and departures and controllable completion factors. Our swift recovery from last month's IT-related disruptions further validates it's working, while certain other impacted carriers struggle to reset their operations in a timely manner. Furthermore, it helped drive our cost performance in the quarter as we realized significant savings as a result of our network simplification. Bobby Schroeter, our new Chief Commercial Officer, will walk you through several key product merchandising and distribution enhancements, including the new Frontier.
Barry: In June we reached targeted levels of happened back flying and it helped drive an improvement across key operational metrics, including on time arrivals and departures and controllable completion factor our swift recovery from last month. It related disruptions further validates its working while certain other impact of carrier struggled to reset their operations in a timely manner.
Barry: Furthermore, it helped drive our cost performance in the quarter as we realized significant savings as a result of our network simplification.
Bobby Schroeder: Bobby Schroeder, our new Chief commercial officer, who will walk you through several key product merchandising and distribution enhancements, including new frontier.
Bobby Schroeter: Thanks Jimmy, and good morning everyone. Making sure our customers have the best possible value with a great experience is what drives us at Frontier Airlines. As part of this goal, this quarter, we launched the new Frontier. This initiative marks a major step in our commitment to delivering unparalleled value and a superior travel experience. With the new Frontier, customers now see clear and straightforward pricing of fare and bundle options immediately after their search, making it easier to understand the total cost of their trip from the start. The new Frontier has been very successful, initially launched on FlyFrontier.com only. It is now outperforming other channels.
Bobby Schroeder: Thanks, Jamie and good morning, everyone, making sure our customers have the best possible value with a great experience is what drives us at frontier Airlines as part of this goal. This quarter, we launched the new Frontier. This initiative marks a major step in our commitment to delivering unparalleled value and a superior travel experience.
Bobby Schroeder: With the new frontier customers now see clear and straightforward pricing a fair and bundle options immediately after their search making it easier to understand the total cost of their trip from the start.
Bobby Schroeder: The new frontier has been very successful initially launched on fly frontier Dot com only.
Bobby Schroeder: It is now outperforming other channels.
Bobby Schroeter: This success has led us to roll it out to our mobile app shortly and to third parties over time. Additionally, our Upfront Plus and BizFair products continue to perform exceptionally well. Upfront Plus offers our customers a seating experience with a block middle seat at the front of the aircraft that far surpasses other premium economy seating options in the marketplace at a great price.
Bobby Schroeder: This success has led us to roll it out or is leading us to roll it out to our mobile app shortly and to third parties overtime.
Barry: Additionally, our upfront plus and business fare products continued to perform exceptionally well.
Barry: Upfront plus offers our customers a feeding experience with a block middle seat at the front of the aircraft that far surpasses other premium economy seating options in the marketplace at a great price the positive reception of this premium product has far exceeded our expectations.
Bobby Schroeter: The positive reception of this premium product has far exceeded our expectations. BizFair, our bundled product upsell and third-party channels, has also been successful. We initially focused our launch on online travel agency channels, which are primarily leisure customers.
Barry: The base fare our bundled product upsell and third party channels has also been successful.
Barry: We initially focused our launch an online travel agency channels, which are primarily leisure customers. We are now leaning more heavily into travel management companies and corporate online booking tools with with best Fair, which are more focused on business travel in the distribution channel that we have been more limited in historically.
Bobby Schroeter: We are now leaning more heavily into travel management companies and corporate online booking tools with BizFair, which are more focused on business travel and a distribution channel that we have been more limited in historically. Looking ahead, we are thrilled to announce the upcoming launch of a new mobile app shortly and a new website early next year. These platforms are being designed with the user experience at the forefront, offering enhanced functionality and better booking processes.
Barry: Looking ahead, we are thrilled to announce the upcoming launch of our new mobile App shortly and a new website. Early next year. These platforms are being designed with the user experience at the forefront offering enhanced functionality and better looking better booking processes.
Bobby Schroeter: The new app and website will also allow us to bring new products and services to market more quickly and enable us to merchandise in more effective ways, significantly improving our customers' digital interactions with us. Moreover, we are in the final stages of integrating NDC, or new distribution capability, connectivity. This advancement will enable us to offer a richer, more dynamic shopping experience across various sales channels. With NDC, customers will benefit from greater choice and tailored offers, ensuring they receive the best value service.
Barry: The new App and website will also allow us to bring new products and services to market more quickly and enable us to merchandise and more effective ways significantly improving our customers' digital digital interactions with us.
Barry: Moreover, we are in the final stages of integrating MDC or new distribution capability connectivity.
Barry: This advancement will enable us to offer a richer more dynamic shopping experience across various sales channels with LDC customers will benefit from greater choice and tailored offers ensuring they receive the best value service.
Bobby Schroeter: Together, these developments underscore our ongoing dedication to innovation and excellence in every aspect of our business. We are confident that these initiatives will strengthen our market position, enhance the overall travel experience for our customers, and drive overall loyalty. That concludes my remarks, so I now yield time to the Chairman to provide a financial update.
Barry: Together these developments underscore our ongoing dedication to innovation and excellence in every aspect of our business. We are confident that these initiatives will strengthen our market position enhance the overall travel experience for our customers and drive overall loyalty.
Speaker Change: That concludes my remarks, I will now yield.
Mark Mitchell: At the time to Mark to provide a financial update.
Mark Mitchell: Thanks, Bobby, and good morning, everyone. Total revenue was $973 million, slightly higher than the comparable $23.25 million. Fuel expense was $288 million, 18% higher than the 23rd quarter, at an average cost per gallon of $2.84. The year-over-year increase in fuel expense was the result of 6% higher fuel prices and 13% higher consumption resulting from higher ASMs marginally offset by increased fuel efficiency compared to the second quarter. Adjusted non-fuel operating expenses were $660 million, $45 million below the low end of our guidance, due primarily to better-than-expected cost performance supported by our network simplification efforts and the cost benefit from the aircraft lease extensions we executed during the
Mark: Thanks, Bobby and good morning, everyone.
Mark: <unk> revenue was $973 million slightly higher than the comparable 23 quarter fuel expense was 288 million, 18% higher than the 23 quarter at an average cost per gallon of $2 84.
Mark: The year over year increase in fuel expense was the result of 6% higher fuel prices and 13% higher consumption, resulting from higher ASM marginally offset by increased fuel efficiency compared to the second quarter.
Speaker Change: Adjusted non fuel operating expenses were $600 million.
Speaker Change: $45 million below the low end of our guidance due primarily to better than expected cost performance supported by our network simplification efforts and the cost benefit from the aircraft lease extensions, we executed during the quarter.
Mark Mitchell: Adjusted CASM-X fuel was $0.624, 10% lower than the $0.23 quarter, or $0.592 on a stage-adjusted basis, 16% lower compared to the $0.23 quarter due to the cost benefit from having five additional aircraft and tail leaseback transactions in the quarter and the cost benefit of the aircraft lease extension, along with the aggressive cost management across the organization that helps mitigate year-over-year inflationary impacts supported by network simplification. Second quarter adjusted pre-tax margin was 3.3 percent, reflecting the impact of the excess domestic industry capacity as previously high. We ended the quarter with $658 million of unrestricted cash and cash equivalents and $206 million of cash net of total debt, an increase of $50 million versus the prior quarter.
Speaker Change: Adjusted CASM ex fuel was six <unk>.
Speaker Change: 10% lower than the 23 quarter were $5 19 on a stage adjusted basis, 16% lower compared to the 23 quarter due to the cost benefit from having five additional aircrafts leaseback transactions in the quarter and the cost benefit of the aircraft lease extensions.
Barry: Along with the aggressive cost management across the organization that help mitigate year over year inflationary impacts supported by network simplification.
Barry: Second quarter adjusted pre tax margin was three 3%, reflecting the impact of the excess domestic industry capacity as previously highlighted.
Barry: We ended the quarter with $658 million of unrestricted cash and cash equivalents and $206 million of cash net of total debt an increase of $50 million versus the prior quarter.
Mark Mitchell: We had 148 aircraft in our fleet at quarter end after taking delivery of six A321neo aircraft during the quarter, all financed with sale-leaseback transactions. We expect to take delivery of 11 A321NEOs in the second half of 2024, and we have financing arranged for our aircraft deliveries into early 2020. As Barry mentioned, we recently updated our delivery profile with Airbus, which deferred 54 aircraft deliveries from 2025 through 2028, as compared to our delivery profile as of the end of Q1.
Barry: We had 148 aircraft in our fleet at quarter end after taking delivery of six <unk> hundred 21 Neo aircraft during the quarter all financed with sale leaseback transactions, we expect to take delivery of 11, <unk> hundred 21 Neo in the second half of 2024, and we have financing a range for our aircraft deliveries into early two.
Barry: 26.
Barry: As Barry mentioned, we recently updated our delivery profile with Airbus, which the FERC 54 aircraft deliveries in 2025 through 2028 as compared to our delivery profile as of the end of Q1.
Mark Mitchell: The delivery profile for our remaining 187 aircraft for 2025 and onward has been extended from 2029 to 2031. These deferrals further support our efforts to moderate growth. They will also reduce our financing needs and lower pre-delivery payments in the coming year. Our third quarter and full year 2024 guidance was published in the earnings announcement we issued this morning. Recapping key highlights, full year adjusted CASMX fuel, stage adjusted, is expected to be down 1-2% versus the prior year, despite the significant capacity reduction since our last guidance update in May.
Speaker Change: The delivery profile for our remaining 187 aircraft for 2025 and onward is extended from 2029 to 2031.
Speaker Change: The deferrals further support our efforts to moderate growth. They also reduce our financing needs and lower pre delivery payments in the coming years.
Speaker Change: Our third quarter and full year 2024 guidance was published in the earnings announcement, we issued this morning recapping key highlights full year adjusted CASM ex fuel stage adjusted is expected to be down 1% to 2% versus the prior year. Despite the significant capacity reductions since our last guidance update in may.
Mark Mitchell: Our adjusted pre-tax margin in the third quarter is expected to range from a loss of three to six percent, which includes an estimated four percentage point impact from the Microsoft CrowdStrike outage in July and weather-related impacts, including Hurricane Debbie. Full year adjusted pre-tax margin is expected to be in the range of minus 1.5% to positive 1.5%. With that, I'll turn the call back to Barry for closing remarks.
Speaker Change: Our adjusted pre tax margin in the third quarter is expected to range from a loss of 3% to 6%, which includes an estimated four percentage point impact from the Microsoft crowd strike outage in July and weather related impacts, including Hurricane Debbie.
Speaker Change: Full year adjusted pre tax margin is expected to be in the range of minus one 5% to positive one 5% with that I'll turn the call back to Barry for closing remarks.
Barry Biffle: Thanks, Mark. While we're disappointed in the industry capacity imbalance relative to demand and its effect on our revenue and margins, we're encouraged by our cost and revenue tailwinds, which, coupled with our expectation of additional industry self-help measures in the months to come, ensures we will be the clear low-cost winner in 2025 and beyond. Thanks again for joining us this morning. We're ready to begin the Q&A portion of the call.
Barry: Thanks, Mark while we're disappointed the industry capacity imbalance relative to demand and its effect on our revenue and margins. We are encouraged by our cost and revenue tailwind, which coupled with our expectation of additional industry self help measures in the months to come ensures we will be the clear low cost winter in 2025 and beyond thanks again for joining us this morning.
Speaker Change: To begin the Q&A portion of the call.
Operator: Thank you. Ladies and gentlemen, to ask a question, you will need to press star 1 1 on your telephone and wait for your name to be announced. To withdraw your question, simply press star 1 1 again. Please stand by while we compile the Q&A list. Now, the first question comes from the line of Brandon Oglenski with Barclays. Your line is open.
Speaker Change: Thank you, ladies and gentlemen to ask a question you will need to press star one on your telephone and wait for your name to be announced to withdraw your question simply press Star One again, please standby, while we compile the Q&A roster.
Speaker Change: Now first question coming from the line of Brendan Glinski with Barclays. Your line is open.
John Dorsett: Hi, this is John Dorsett on for Brandon. Thanks for taking my question. In the release, you commented that RASM is supposed to inflect positively into the fourth quarter. How many bookies do you currently have today that will give you confidence that RASM will inflect positively?
Speaker Change: Hi, This is John Doerr sit on for Brandon. Thanks for taking my question.
Speaker Change: In the release you commented that our RASM I suppose.
Speaker Change: Slipped into the fourth quarter.
Speaker Change: How many bookings do you currently have today that will give you confidence that RASM will inflect positive.
Barry Biffle: Well, I think what we've got right now is that, and we said it just a moment ago, is that the September fair has actually inflected positive already year over year. And I think that is really before we see a lot of the balance of a lot of the cuts that have happened, and we expect to continue to happen in the fourth quarter. So we expect the RASM inflection to take place in September and beyond again just based on the current trends.
Speaker Change: Well I think what we've what we've got right now.
Speaker Change: And then we said in just a moment ago is that the September fair is actually inflected positive already year over year and I think that is really before we see a lot of the balance of a lot of the cuts.
Speaker Change: That have happened and we expect to continue happened in the fourth quarter. So we expect the RASM inflection that take place in September beyond just again, just based off the current trends.
unknown: Okay, thank you. And just one follow-up question.
Speaker Change: Okay. Thank you and just one follow up.
Speaker Change: Earlier in the year, you talked to new markets being RASM accretive how they've been performing this summer.
Unknown Executive: Good day. Thank you for standing by. Welcome to the Frontier Group Holdings Inc. 2nd quarter, 2024 earnings conference call. At this time, all participants are on a listen only mode. After this biggest presentation, there will be a question and answer session. Press a question during the session. You will need to press star 11 on your telephone. You will then hear an automatic message advising your hands raised. Please note that the day's conference is being recorded.
Jimmy Dempsey: Earlier in the year, you talked about new markets being RASM accretive. How have they been performing this summer? And is it taking a little longer than previously expected to mature in the new markets? Yeah.
Speaker Change: Is it taking a little longer than previously expected to mature in the new markets.
Jimmy Dempsey: Yeah, John. It's Jimmy here. Look, you know, anytime you launch new markets, and we've been in the business of doing this for quite some time, you have a maturity profile for the markets. You know, we launched quite a considerable amount of new routes in Q2, and we've seen those mature positively across the summer months and moving into the fall and winter seasons. What we've done is we've cut the ones that we don't see that are operating well, and what we said earlier is that we usually see about a two-thirds success rate in new routes, and it's consistent among the new route launches during the second quarter that two-thirds of them are working and operating quite positively.
Jimmy: Yes, Johnson Jimmy here.
Jimmy: Anytime you launched new markets and we've been in the business of doing this for quite some time you have a maturity profile on the markets.
David Erdman: I will now hand the conference over to you, speaker host, David Erdman, Senior Director of Investigation. Please go ahead. Thank you.
Jimmy: We've launched.
Jimmy: Considerable amount of new routes.
Jimmy: In Q2, and we've seen those mature positively across the summer months.
David Erdman: Good morning, everyone, and welcome to our 2nd quarter, 2024 earnings call. On the call with me this morning are Barry Biffle, Chief Executive Officer, Jimmy Dempsey, President, Mark Mitchell, Chief Financial Officer, and Bobby Schroeter, Chief Commercial Officer.
Jimmy: Moving into into the fall and winter season.
Jimmy: What we've done is we've cut the ones that we don't see that are operating well and what we said earlier.
Speaker Change: And is that.
Unknown Executive: Before yielding, I'd like to recite the customary Safe Harbor provisions. During this call, we will be making forward-looking statements, which are subject to risks and uncertainties. Actual results may differ materially from those predicted in these forward-looking states. Additional information concerning risk factors, which could cause such differences, or outlined in the announcement, we released earlier, along with reports, refile, with the Securities and Exchange Commission. We will also discuss non-GAAP financial measures, which are reconciled to the nearest comparable GAAP measure in the appendix of the earnings announcement.
Jimmy: We usually see about a two thirds success rate in Europe, and it's consistent among.
Jimmy: Route launches during the second quarter, that's two thirds of them are working and operating quite positively.
unknown: Great. Thank you. I appreciate the time.
Speaker Change: Great. Thank you appreciate the time.
Operator: Thank you. Now the next question coming from the line-up is Michael Linenberg with Deutsche Bank. Your line is open.
Speaker Change: Thank you and our next question coming from the line of Michael Lindenberg with Deutsche Bank. Your line is open.
Michael Linenberg: Oh, yeah. Hey, good morning.
Michael Lindenberg: Oh, Hey, Hey, good morning.
Michael Lindenberg: I wanted to take a closer look just on the cost side. I mean, you did come in a lot better I don't know $50 million plus.
Barry Biffle: So, I'll give the floor to Barry to begin his prepared remarks. Barry? Thanks, David, and good morning, everyone. Despite industry oversupply across the United States, we effectively now have advocated the quarter-do-in-part to our network and revenue diversification combined with our unique and improved cost advantage. While consumer travel demands remain resilient, post-pandemic travel patterns have compelled us to concentrate our flying on peak days. Coupled with the maturity of the new revenue initiatives and our unique cost advantage, we believe we will drive margin improvement and be the clear-low cost winner in 2025 and beyond.
Speaker Change: When I go to the line items a lot of them were actually up in line with capacity like if you had to look at like two or three drivers of better cost.
Barry Biffle: Our cost advantage is bolstered by the program we launched late last year, which is generated more than 100 million in annual run-run on-site savings tied to the network simplification, and I'm confident there's more to come. To mitigate excess industry capacity headwinds, we quickly responded by adjusting our post-summer capacity to focus on peak days of the week, which we believe will drive rasmum improvement and ultimately margin growth in our business. In addition, we're also adjusting our fleet plan to accommodate for moderating growth over the next several years.
Mark Mitchell: I want to take a closer look just on the cost side. I mean, you did come in a lot better. I don't know, $50 million plus. But when I went through the line items, a lot of them were actually up in line with capacity. Like, if you had to look at the two or three drivers of that better cost, what were they? Which sort of line items drove that? Thanks. And then I have a follow-up question.
Speaker Change: Hi.
Speaker Change: Which sort of line items drove that thanks, and then I have a follow up.
Mark Mitchell: Yeah, no worries. This is Mark. So, you know, when you look at the outperformance versus the guidance that we put forward, you know, we had, you know, stronger than expected cost savings from the cost savings plan that we put forward, you know, where we highlighted in the release that, you know, we've gotten over 100 million of annual run rate savings, you know, so that certainly was a contributor.
Speaker Change: Yeah No worries. So this is mark so when you look at the outperformance versus the guidance that we put forward.
Mark: So we had stronger than expected cost savings from the cost savings plan that we put forward.
Mark: We highlighted in the release that we've gotten over $100 million of annual run rate savings. So that certainly was a contributor in addition during the quarter we extended.
Mark Mitchell: In addition, during the quarter, you know, we extended some leases. There was a lease return benefit tied to that, you know, that was another, you know, component. So those, those I would say were the two primary drivers.
Mark: Some leases there is a lease return benefit tied to that.
Mark: Another component to those those I'd say were the two primary drivers, but the big driver in the one that's sustainable as we are delivering on what we laid out last year to simplify the network simplify the schedule in the operation and we're seeing huge dividends from that and that's going to continue to accelerate because it was a little bit.
Barry Biffle: But the big driver, and the one that's sustainable, is we are delivering on what we laid out last year to simplify the network, simplify the schedule, and simplify the operation. And we're seeing huge dividends from that, and that's going to continue to accelerate because it was a little bit sooner than we had planned, but we'll definitely see the benefits of that as we round out the balance of the year.
Barry Biffle: This morning, we announced a revised delivery schedule with Airbus, which to first 54 aircraft out of 2025 through 2028, reducing our planned growth to approximately 10% per year from the previously expected high-team growth. Moreover, we continue to optimize our suite of products and services to better line with customer demand. During the quarter, we launched the new frontier, which provides clear-up pricing and options along with additional benefits. We'll also soon launch a new app and NDC, a new website early next year, and all of this will improve the customer experience and ultimately drive higher revenue per passenger.
Mark: Sooner than we had planned but we will definitely see the benefits of that as we as we round out the balance of the year alright.
Michael Linenberg: Barry, can I maybe push back on that? I mean, in the quarter, you definitely had a better completion factor from a year ago. The whole industry did pretty well in the June quarter. You came in last versus the competition on cancelled flights, and I just assumed that that was the ramping up of the out-and-back, opening up some of these new stations. You do see your station operations numbers up. However, the expense line is up a lot more than your capacity growth.
Speaker Change: Sorry can I can I may be pushed back on that I mean in the quarter. I mean, you definitely had a better completion factor from a year ago, the whole industry did pretty well in the June quarter.
Speaker Change: You came in last versus the competition on canceled flights and I just assume that that was the ramping up of the back.
Speaker Change: Opening up in some of these new stations UGC. Your station operations numbers up the expense line is up a lot more than than your capacity growth.
Barry Biffle: Before yielding the call, I want to extend my gratitude to every member of Team Frontier for their resilience and determination in the face of this challenging landscape, and for remaining focused on our top priority of delivering a safe and reliable experience for customers following our mission of low fairs done right.
Michael Linenberg: So I actually thought that maybe you were struggling during the quarter, but it sounds like maybe it's just the industry did better on a completion factor basis, and you just happened to come in at the tail end.
Speaker Change: She thought that maybe you're struggling during the quarter, but it sounds like maybe maybe just what the industry did better on our completion factor basis, you just happened to come in at the tail end.
Barry Biffle: Well, a couple of things. One, yeah, so we did have some teething challenges with opening the new bases. But what really caused it is we had a preponderance of weather that just really hit us, hit us in Texas, hit us in Colorado, hit us in Florida. And I think, you know, we just kind of had the bad end of being indexed, I guess, to weather.
Jimmy Dempsey: I'll turn the call over to Jimmy for a commercial overview. Thanks, Barry, and good morning, everyone. Briefly recapping the quarter, total operating revenue increased by 1% to 973 million on capacity growth of 13%. Both compared to the 2023 quarter. Cooper, resulting in rasm of 9.21 cents. Departures increased 26% on a 13% shorter average stage. Total revenue per passenger was $109, down 14% versus a 2023 quarter, largely driven by the impact of domestic seat growth, which has evpaced seasonal demand trends during a period in which we were transitioning our network and implementing several key product merchandising and distribution enhancements, including the new Frontier.
Speaker Change: Why do you think one yeah. So we did have some teething challenges with opening the new basis. Those have been those are behind us, but what really caused it is we had a preponderance of whether that just really hit us hit us in Texas hit Us in Colorado, Edison, Florida, and I think we just kind of had the bad end of being indexed I guess to weather.
Speaker Change: But I think when you look to July.
Barry Biffle: But I think when you look at July, you can see the bases are mature, the weather was even across the U.S. And if you look at that, you know, we moved up in the mid-pack, and we've got significant jumps now in on-time year over year. And in fact, I think our completion for July was relatively flat even with that tech, that huge technology outage.
Mark: You can see the bases are mature.
Mark: The weather was even across the U S and if you look at that we moved up in the mid Pac and we've got significant jumps on now in on time year over year and in fact, I think our completion for July was relatively flat even with the huge technology outage. So so yes, I think from a reliability perspective, we're really seeing it.
Jimmy Dempsey: Our network simplification strategy has been to focus on high fair underserved markets. This year we have launched our four new crew bases and five new maintenance bases to support the network transition to over 80% up and back flying. During the quarter we opened Cincinnati, Chicago and San Juan, in addition to Cleveland and March, optimizing the total base footprint to 13. As part of the structural shift in the network, we launched 114 new routes from our 13 bases.
Barry Biffle: So yeah, I think from a reliability perspective, we're really seeing it, and that's benefiting our customers. But on the cost side, we're really seeing a huge, huge benefit from the simplification.
Mark: And thats benefiting our customers.
Mark: But on the cost side, we're really seeing a huge huge benefit.
Michael Linenberg: And just one other thing to add on the station front, I mean, you've got to take into consideration stage. So you were looking at the capacity movement, but departures are up, you know, a lot more. And just one other thing I'd add, Michael, you and I have talked about this offline, but I think if you look, and the technology outage shows it again, especially with the out and back, we're the only major airline, the only one, that has actually not had a multi-day event caused by weather or some kind of outage. We bounce back every time, and that resilience is because of the schedule and what we've done to construct And we expect that we'll continue to get dividends as those stocks mature over the next couple months.
Mark: From the simplification, yes, and then just one other thing to add on the stations front I mean, you got to take into consideration stage that you were looking at the capacity movement, but departures are up a lot more and so certainly that is going to drive stations to move more than you would otherwise expect just looking at capacity by itself and just one other thing I would add Michael one other thing I'll add Michael you and I have talked about this off.
Jimmy Dempsey: Consistent with historical averages, we have seen encouraging results on two-thirds of these markets, and we have made adjustments to the markets that did not stimulate. As a result of our focus on peak day flying, capacity is expected to grow by 4% to 6% in the third quarter and 5% to 7% for the full year versus 2023. While consumer travel demand has remained resilient on peak days of the week, post-pandemic travel patterns compelled us to concentrate our flying on peak days to capture a relatively higher rasm.
Michael Lindenberg: But I think if you if you look and technology outage shows that again, especially with the Aten back we are the only major airlines. The only one that has actually not had a multi day event caused by a weather or some kind of outage, we bounce back every time and that resilience.
Michael Lindenberg: Because of the schedule and what we've done to construct constructive business and make it much more reliable and we can we expect it will continue to get dividends as that as those basis mature over the next couple of months.
Jimmy Dempsey: Accordingly, beginning in mid-August through the end of the year, we trimmed capacity on off-peak days of the week. To size the adjustments, less than 30% of September seats for sale today are scheduled on off-peak days compared to approximately 40% in September 2023. In addition to our own capacity adjustments, the post-summer capacity cuts from other carriers should start to restore balance in domestic markets. In fact, in the past months, we've observed fair increases in the elimination of the lowest promotional fairs augmenting our own self-help measures.
Catherine: Yeah, no, no, you saw that in the data on July 20th, where everybody was cancelling a lot. I know you cancelled the night before. I think you only cancelled five flights, so you could definitely see it in that data. Thanks for taking my questions.
Operator: Yeah, no, no, you.
Speaker Change: Yes, and I know you you saw that as a data like July 20th where everybody was canceling a line I know you cancel the night before I think the only canceled five flight. So you could definitely see it.
Speaker Change: And that data thanks for taking my question.
Mark: Sure.
Mike: Thanks, Mike.
Bobby Schroeter: Thank you. Our next question comes from the line of Ravi Shanker with Morgan Stanley. Your line is open.
Speaker Change: And our next question coming from the line of Ravi Shanker with Morgan Stanley. Your line is open.
Jimmy Dempsey: In June, we reached targeted levels of add-and-backed flying and it helped drive an improvement across key operational metrics, including on-time arrivals and departures and controllable completion factor. Our swift recovery from last month's IT-related disruptions further validates its working, while certain other impacted carriers struggle to reset their operations in a timely manner. Furthermore, it helped drive our cost performance in the quarter as we realized significant savings as a result of our network's gentrification.
Catherine: Hi, this is Catherine on behalf of Ravi. Thanks for taking my question. I just wanted to ask about the bundled fares, just kind of what your rationale was there, what are the benefits that you might be seeing? And maybe, you know, what has changed in the market that it's now kind of the right time to do this?
Mark: Hi, This is Katherine on for Robbie Thanks for taking my question I just wanted to ask about the bundled fares just kind of what your rationale is there what are the benefits that you might be seeing.
Speaker Change: And maybe what has changed with the market that now kind of a right time to do that.
Jimmy Dempsey: Yeah, so this is Bobby Kessin. We launched the new Frontier in May, and a big part of that was actually trying to bring forward and make sure that our customers were able to make decisions up front with the fare itself and the bundles right there in front of them. It's been very successful. We launched out of the gate with a higher ancillary attachment rate than other channels, and that has persisted.
Mark: Yes. So this is by Catherine.
Speaker Change: We launched a new frontier in May and a big part of that was actually trying to bring forward and make sure that our customers were able to make decisions upfront with.
Bobby Schroeter: Bobby Schroder, our new chief commercial officer, will walk you through several key product merchandising and distribution enhancements, including the new frontier. Thanks, Jimmy, and good morning, everyone. Making sure our customers have the best possible value with a great experience is what drives us at Frontier Airlines.
Speaker Change: The fair itself and the bundles right there in front of them.
Mark: It's been very successful so we launched out of the gate with.
Bobby Schroeter: As part of this goal, this quarter, we launch the new frontier. This initiative marks a major step in our commitment to delivering unparalleled value and a superior travel experience. With the new Frontier customers now see clear and straightforward pricing of fair and bundle options immediately after their search, making it easier to understand the total cost of their trip from the start. The new Frontier has been very successful. Initially launched on flyfrontier.com only, it is now outperforming other channels.
Mark: Higher ancillary attachment rate than in other channels that has persisted.
Bobby Schroeter: This success has led us to roll it out or is into third parties over time. Additionally, our Upfront Plus and Biz Fair products continue to perform exceptionally well. Upfront Plus offers our customers a seating experience with a block middle seat at the front of the aircraft that far surpasses other premium economy seating options in the marketplace at a great price. The positive reception of this premium product has far exceeded our expectations.
Mark: Through time, we've done some a lot of profit price optimization.
Jimmy Dempsey: Through time, we've done a lot of price optimization that has helped from a revenue perspective there as well. And we see a lot of opportunity in the future as we look at more price optimization and merchandising opportunities as well. Look, this is something that when you're in this environment, the value that we're creating and bringing forward is for our customers and people shopping to be able to see that total price up front.
Mark: That has helped.
Mark: Revenue perspective, there as well and we see a lot of opportunity in the future as we.
Mark: We'll get more price optimization and merchandising opportunities as well look. This is this is something that when you are in this environment the value that we're creating and bringing forward as for our customers and people shopping to be able to see that.
Jimmy Dempsey: And that's something that was, you know, further down the path when they were doing a search. And so we're losing eyeballs in terms of people being able to see that. And we've gained that quite a bit. So it's been very successful. We see that as a creative and, frankly, as we get into future months and as the environment is changing, we see this as a big benefit for us going forward.
Mark: Total price upfront and Thats something that was.
Mark: Further down the path when they were doing a search and so we are losing eyeballs in terms of people being able to see that and we gain that quite a bit. So it's been very successful, we see that as accretive and frankly as we get into future months and as the environment is changing we see this as a big benefit for us going forward.
Operator: And if I could just sneak in one more, just curious if there's a risk of the industry growing too much capacity on peak days and whether or not you're confident that current travel patterns are kind of stabilized as like the new normal with peak first trough, etc. Well, I think so.
Speaker Change: Thank you and if I could just sneak in one more just curious if theres a risk of the industry growing too much capacity on peak days.
Bobby Schroeter: Bissfare, our bundled product upsell and third party channels has also been successful. We initially focused our launch in online travel agency channels, which are primarily leisure customers. We are now leaning more heavily into travel management companies and corporate online booking tools with Bissfare, which are more focused on business travel and a distribution channel that we have been more limited and historically.
Speaker Change: And whether or not you're confident that current travel patterns are kind of stabilize as like a new normal with peak for strong et cetera.
Scott Group: Well, in our case, you know, we looked at where we make money and where we've been losing money here recently with the oversupply, and the midweek has been losing money on balance, on average. And so for us, it makes sense to reduce that oversupply.
Speaker Change: Well I think so so in our case we.
Speaker Change: We looked at where we make money and where we were we've been losing money here recently with the oversupply in the mid week has been losing money on balance on average and so for us that makes sense to reduce that that oversupply. We've made those we've made those changes and that'll be a run rate going forward.
Bobby Schroeter: Looking ahead, we are thrilled to announce the upcoming launch of a new mobile app shortly and a new website early next year. These platforms are being designed with the user experience at the forefront, offering enhanced functionality and better looking, better booking processes. The new app and website will also allow us to bring new product and services to market more quickly and enable us to merchandise in more effective ways, significantly improving our customers' digital interactions with us.
Barry Biffle: We've made those changes, and that'll be a run rate going forward. I can't speak for the industry overall, but I think there's probably not just midweek.
Speaker Change: I can't speak for the industry overall, I think theres, probably not just mid week I think theres probably routes.
Speaker Change: And overall capacity that needs to come out we see.
Barry Biffle: I think there's probably routes and overall capacity that needs to come out. You know, we see several hundred routes for the high-cost carriers that are up at least 50% or more in capacity versus 2019, and I think there are over 150 of them where the capacity has more than doubled just for the high-cost carrier capacity. So, you know, we look forward. There's a lot more capacity to come out. That's the way to stop losing money and stop doing things that lose money, and I suspect that the industry is going to respond to that.
Speaker Change: Several hundred routes for the high cost carriers that are up at least 50% or more capacity versus 2019, and I think there's over 150 of them that the capacity is more than doubled.
Bobby Schroeter: Moreover, we are in the final stages of integrating NDC or new distribution capability connectivity. This advancement will enable us to offer a richer and more dynamic shopping experience across various sales channels. With NDC, customers will benefit from greater choice and tailored offers, ensuring they receive the best value service. Together, these developments underscore our ongoing dedication to innovation and excellence in every aspect of our business. We're confident that these initiatives will strengthen our market position, enhance the overall travel experience for our customers and drive overall loyalty.
Speaker Change: The high cost carrier capacity. So we look forward, there's a lot more capacity to come out.
Speaker Change: Stop losing money and stop doing things that lose money and I suspect that the industry is going to respond to that.
Speaker Change: Thank you.
Speaker Change: Thank you.
Scott Group: Our next question comes from the line of Scott Group with MOVE Research. Your line is open.
Speaker Change: And our next question coming from the line of Scott Group with Wolfe Research. Your line is open.
Scott Group: Hey, thanks, guys. So I think the guidance now implies fourth-quarter capacity flat to maybe even down a little bit year over year. How should we think about capacity in twenty five? And in a world where you guys are now deferring some aircraft, any color on how to think about Daily Spa Games going forward?
Scott Group: Hey, Thanks, guys. So I think the guidance now implies fourth quarter capacity flat to maybe even down a little bit year over year.
Mark Mitchell: That concludes my remarks, so now yield time to mark to provide a financial update. Thanks, Bobby, and good morning, everyone. Total revenue was 973 million, slightly higher than the comparable 23-quarter. Fuel expense was 288 million, 18 percent higher than 23-quarter, at an average cost per gallon of $2.84. The year-over-year increase in fuel expense was the result of 6 percent higher fuel prices and 13 percent higher consumption resulting from higher ASMs marginally offset by increased fuel efficiency compared to the second quarter.
Scott Group: How should we think about capacity in 'twenty five.
Speaker Change: And in a world where you guys are now deferring some aircrafts any color on how to think about.
Speaker Change: Sale leaseback gains going forward.
Barry Biffle: Yeah, look, so as far as 25, we haven't finalized 25 yet. But we expect that to be single digits, maybe upper single digits, but mid to upper single digits on capacity.
Speaker Change: Yes look so as far as 25, we haven't finalized 25, yet, but we expect that to be.
Scott Group: Single digits, maybe upper single digits, but mid to upper single digits on capacity, but as far as sale leaseback gains.
Scott Group: We announced today.
Scott Group: Was already kind of in the works I mean, this has been kind of what we've been operating under if you will for over a year now effectively.
Mark Mitchell: Adjusted non-fuel operating expenses were $660 million, 45 million below the low end of our guidance, due primarily to better than expected cost performance supported by our network simplification efforts and the cost benefit from the aircraft leaf extensions we executed during the quarter. Adjusted chasm exfuel was 6.24 cents, 10 percent lower than the 23-quarter, were 5.92 cents on a stage adjusted basis, 16 percent lower compared to the 23-quarter, due to the cost benefit from having five additional aircraft daily spec transactions in the quarter, and the cost benefit of the aircraft leaf extensions along with the aggressive cost management across the organization that helped mitigate year-over-year inflationary impacts supported by network simplification.
Speaker Change: What happened was when Airbus had all these delays over the last couple of years, they kept deferring aircraft and unfortunately, it made in future years.
Barry Biffle: But as far as serial leaseback gains are concerned, what we announced today was already kind of in the works. I mean, this has been kind of what we've been operating under, if you will, for over a year now, effectively. What happened was when Airbus had all these delays over the last couple of years, they kept deferring aircraft. And unfortunately, it made, you know, in future years, the capacity stream got very lumpy.
Speaker Change: Capacity stream got very lumpy.
Speaker Change: And so this enabled us to smooth that out and also control the capacity to be at that 10% or in next year's case slightly lower so, but we don't we don't see a major impact as it from our expectation sale leaseback gains I mean, we'll have roughly the same amount of aircraft next year as we have this year as an example.
Speaker Change: Okay.
Speaker Change: I wanted to if you are talking a lot more about more peak and less off peak.
Speaker Change: Your model has been so much about utilization and that was it.
Mark Mitchell: Second quarter adjusted pre-tax margin was 3.3 percent reflecting the impact of the excess domestic industry capacity as previously highlighted. We ended the quarter with $658 million of unrestricted cash and cash equivalence and 206 million of cash net of total debt and increase of $50 million versus the prior quarter. We had 148 aircraft in our fleet at quarter end after taking delivery of 6 A321 no aircraft during the quarter.
Speaker Change: Over the last year, Doug we need to get our utilization back to where it was like how much of a headwind to utilization is this new.
Speaker Change: Approach.
Doug: Yes in rough math, we're looking at about an hour.
Speaker Change: And you can do the math you can go look at our rent line and what that does to the cost it's somewhere around $60 million range of aircraft for it but we think that that headwind is more than overcome and so a slight slight impact too to CASM, but several points in RASM and that goes straight to the <unk>.
Mark Mitchell: All finance with sale lease back transactions.
Mark Mitchell: Actions. We expect to take delivery of 11 A321 Nios in the second half of 2024, and we have financing a range for our aircraft deliveries into early 2026. As Barry mentioned, we recently updated our delivery profile with Airbus, which deferred 54 aircraft deliveries in 2025 through 2028 as compared to our delivery profile as of the end of Q1. The delivery profile for our remaining 187 aircraft for 2025 and onward is extended from 2029 to 2031.
Speaker Change: Bottom line. So we think this is worth several points in margin, which is is where you look at our kind of our implied RASM guide for the balance of the year. We see this as very accretive and again I'll reiterate what we said while ago. We're now seeing fares up for September year over year, and we expect that trend to continue.
Speaker Change: And if I can just ask one more so you are in.
Speaker Change: Others now it's sort of leaning into premium is there any data you have that says hey here are new customers to frontier that had like people that were reluctant to fly you in the past that are now flying with you for the first time in a premium.
Mark Mitchell: The deferrals further support our efforts to moderate growth. They also reduce our financing needs and lower pre-delivery payments in the coming years. Our third quarter in full year, 2024 guidance was published in the earnings announcement we issued this morning, recapping key highlights, full-year adjusted CASIMX fuel, stage adjusted, is expected to be down 1 to 2 percent versus the prior year, despite the significant capacity reduction since our last guidance update in May.
Speaker Change: Part of the plane.
Speaker Change: I don't know if you understand what I'm trying to ask but again any data around that yes.
Speaker Change: Yes, I understand what Youre, saying look I think it's very new and these products are very new.
Speaker Change: It's been accretive to us and we've been really pleased whether it be the bus fare that we've launched whether it be our upfront plus and all of the premium stuff that we've put out there we're really pleased with it.
Mark Mitchell: Our adjusted pre-tax margin in the third quarter is expected to range from a loss of 3 to 6 percent, which includes an estimated 4 percentage point impact from the Microsoft CrowdStrike outage in July and weather-related impacts, including Hurricane Debbie. Full-year adjusted pre-tax margin is expected to be in the range of minus 1.5 percent to positive 1.5 percent.
Speaker Change: But it's been mainly upsells to our existing customers on our website.
Speaker Change: Although the bus fare is enabling us to kind of reach into those those third party channels and introducing new people to the frontier brand.
Speaker Change: It's been a pretty good success. So we're just now getting those things dialed in and there'll be a lot of maturity over the next 12 to 36 months on all these products. So I think over time people will find us out when their corporation Hasnt book on Us because of the travel management companies that we've been making ourselves available in those channels, but it's slow to mature and I would just.
Barry Biffle: With that, I'll turn the call back to Barry for closing remarks. Thanks, Mark. While we're disappointed the industry could pass the imbalance relative to demand and its effect on our revenue and margins, we're encouraged by our cost and revenue tailwinds, which coupled with our expectation of additional industry self-help measures in the months to come, ensures we will be the clear low-cost winner in 2025 and beyond.
Speaker Change: Add on the seed side.
Speaker Change: One thing that we have on that the pre versus post. So we made a transformation with upfront plus premium and preferred and the take rate of the.
Unknown Executive: Thanks again for joining us this morning. We're ready to begin the Q&A portion of the call. Thank you. Please, I'm gentlemen, to ask a question, you will need to press star 11 on your telephone and wait for your name to be announced. To withdraw your question, simply press star 11 again. Please stand by while we compile the Q&A roster.
Speaker Change: The sort of time period after has increased along with the yield. So it tells you that people are engaging with that product at a much higher rate on the premium seating products that they did before.
Speaker Change: And that's just in its maturity phase so we anticipate actually.
Speaker Change: Being able to yield up on that even more in the future with some of the merchandising and pricing tools that we're going to be using.
John Dorsett: Now, first question coming from Delano. Brandon Oglinsky with Barclays-Gillian is open. Hi, this is John Dorsen on for Brandon. Thanks for taking my question. In the release, you come into that resin that's supposed to inflect into the fourth quarter. How many bookings do you currently have today that will give you confidence that resin will inflect positive? Well, I think what we've got right now, and we said at this moment, is that September fair has actually inflected positive already year over year, and I think that is really before we see a lot of the balance of a lot of the cuts that have happened and we expect to continue happening in the fourth quarter. So we expect the resin inflection to take place in September and beyond just again just based off the current trends.
Speaker Change: Yes.
Speaker Change: Thank you guys.
Speaker Change: Thank you our next question coming from the line of.
Savi <unk>: Savi <unk> with Raymond James Your line is open.
Savi: Hey, good morning.
Speaker Change: If I just follow up Mike.
Speaker Change: Mike's question earlier on that the non <unk> opex.
Speaker Change: Is the step up from Q2, sorry, Q, even though capacity is not necessarily stepping up a function of you just don't have that lease extension benefits or im just kind of curious what's happening there and then as you slow your growth next year I know, it's still early days, but any kind of color on how we should.
Speaker Change: Think about unit cost trajectory.
Speaker Change: Yes, I mean specific savvy to Q2 to Q3. So when you think about that moved certainly a portion of it is the least benefit that we had.
Jimmy Dempsey: Okay, thank you. I just want to follow earlier in the year, you talked to new markets being resin accretive. How have they been performing this summer, and is it taking a little longer than previously expected to mature in the new markets? Yeah, John, Jimmy here. Look, you know, anytime you launch new markets and we've been in the business of doing this for quite some time, you have a maturity profile on the markets.
Speaker Change: In Q2 tied to the lease extensions there is also a little bit.
Savi: Maintenance timing and as Youre going through the the adjustment in capacity right. I mean, there is a little bit of stickiness in some costs as you go through that transition.
Savi: But at the end of the day I mean, I think those are the main drivers when you look at the guide versus the 660.
Jimmy Dempsey: You know, we've launched quite considerable amount of new routes in Q2, and we've seen those mature positively across the summer months and moving into the fall and winter season. What we've done is we've cut the ones that we don't see that are operating well, and what we said earlier is that we usually see about a two-thirds success rate in new routes, and it's second quarter, that's two-thirds of them are working in an operating clay puzzle. Thank you, thank you, appreciate the time. Thank you.
Speaker Change: That's helpful any color on like how we should think about.
Speaker Change: As you slow your growth too I think.
Speaker Change: Hi team two to now maybe 10% I think on a longer term, but maybe even kind of high single digits next year.
Speaker Change: Yes, I mean so.
Speaker Change: As Barry mentioned right to the utilization components. So I mean, if you put it in terms of the cost savings plan that we had put forward. When we are targeting 200 million a portion of that plan tied to the utilization that's being traded for.
Michael Linenberg: Now, next question, coming from the line-up, Michael Linenberg, with Doge of Ankyl and his open. Oh, yeah, hey, good morning. I want to take a closer look just on the cross side. I mean, you did come in a lot better. I don't know, 50 million plus. When I go to the line items, a lot of them were actually up in line with capacity. Like, if you had to look at like the two or three fibers of that better cost, what were they?
Barry Default: The RASM.
Speaker Change: <unk> the remainder of that is on track.
Savi <unk>: $150 million hit that annual run rate by the end of the year and then keep in mind as well Savi. When you look at where we sit at Q2, our cost advantage is widened to 45% and as we look into next year on the back of the cost savings plan and other initiatives that we have I mean, we expect to be able to sustain.
Savi <unk>: And leverage that cost advantage.
Michael Linenberg: Which sort of line items drove that thanks? And then I have a follow-up. Yeah, no worries, this is Mark. So, when you look at the outperformance versus the guidance that we put forward, so we had stronger than expected cost savings, from the cost savings plan that we put forward, where we highlighted in the release that we've gotten over 100 million of annual run rate savings. So, that certainly was a contributor. In addition, during the quarter, we extended some leases.
Savi <unk>: Nick Johnson can I clarify on the crowd.
Nick Johnson: The four point impact from weather and crowd strike how much was crowd strike.
Michael Linenberg: There was a lease return benefit tied to that. That was another component. So, those I would say were the two primary drivers. But the big driver, and the one that's sustainable, is we are delivering on what we laid out last year to simplify the network, simplify the schedule in the operation. And we're seeing huge dividends from that. And that's going to continue to accelerate because it was a little bit sooner than we had planned, but we'll definitely see the benefits of that as we round out the balance of the year.
Speaker Change: So we haven't.
Speaker Change: Finalized everything to be clear, we got hit by the Microsoft outage, which was the day before.
Speaker Change: Accrual coincidence, unfortunately, but the afternoon before crowd strike I'm, sorry, Microsoft actually had to Azure outage, which impacted our sales and operations for from pretty much four pm onward.
Speaker Change: And so we had several hundred cancellations from Matt we adjust recovered.
Speaker Change: From that around midnight, or so Denver time and that is when the crowd strike.
Speaker Change: It took place so.
Speaker Change: We're still sorting out, which which parks went to crowd strike, which part goes to Microsoft, but it's in the $20 million plus range and roughly two points.
Speaker Change: In margin degradation.
Speaker Change: All very helpful. Thank you.
Michael Linenberg: Barry, can I maybe push back on that? I mean, in the quarter, I mean, you definitely had a better completion factor from a year ago. The whole industry did pretty well in the June quarter. You came in last versus the competition on canceled flights. I just assumed that that was the ramping up of the out and back, opening up some of these new stations. Did you see your station operations numbers? The expense fund is up a lot more than your capacity growth.
Speaker Change: Thank you.
Speaker Change: Next question coming from the line of.
Duane <unk>: Duane <unk> with Evercore ISI. Your line is now open.
Duane <unk>: Hey, Thanks, maybe just to pick it up right there.
Duane <unk>: So that $20 million is that something youre going to look to recover.
Speaker Change: We don't discuss.
Speaker Change: So those types of things yet.
Speaker Change: You would expect we will look to cover recover every bidding.
Michael Linenberg: So, I actually thought that maybe you were struggling during the quarter, but it sounds like maybe, maybe it's just the industry did better on a completion factor basis. And you just happened to come in at the tail end. I don't know. Well, what do you reckon? One, yes. So, we did have some teething challenges with opening the new bases. Those have been, you know, those are behind us. But what really caused it is we had a preponderance of weather that just really hit us in Texas, hit us in Colorado, hit us in Florida.
Speaker Change: And then I guess, just given all the changes you're making on how you price your product.
Speaker Change: How are you thinking about the evolution of base fares versus ancillary.
Speaker Change: Is there a new target for ancillary and I guess what is the risk.
Speaker Change: That we're now selling bundled total fares at the same base fare level you were previously selling unbundled fares.
Speaker Change: Look I think we're moving to a total revenue per passenger and looking to get to a RASM that gets us back to double digit margin, that's our target right and so.
Michael Linenberg: And I think, you know, we just kind of had the bad end of being indexed, I guess, to weather. But I think when you look to July, you can see the bases are mature. The weather was even across the U.S. And if you look at that, you know, we moved up in the mid-pack and we've got significant jumps now in on time year over year. And in fact, I think our completion for July was relatively flat, even with that huge technology outage.
Speaker Change: Whether it comes from fair or comes from ancillary we think we went too far with the fair side.
Speaker Change: And we think the thousands back in it is it is obviously a risk right.
Speaker Change: We give up too much and thats what dialing it in is all about but I can tell you that we believe with the trends we've seen we've seen significant improvements in the last six weeks, we've got some more technology updates to make to give us more merchandising control over the next several weeks, but we see that this is going to be accretive, especially.
Michael Linenberg: So, fitting our customers, but on the cost side, we're really seeing a huge, huge benefit from the simplification. Yeah. And just one other thing to add on the stations front. I mean, you got to take into consideration stage. So, you were looking at the capacity movement, but the partures are up, you know, a lot more. And so, certainly that is going to drive stations to move more than you would otherwise expect, you know, just looking at capacity.
Speaker Change: Actually as we move kind of out of this more low fare environment. We mentioned the fares going up we've seen we've seen a fair increase recently and we've seen structurally a lot of the promotional fares across the industry or kind of being removed out of the marketplace. So is that kind of environment.
Michael Linenberg: Eddie Byant, so. And just one other thing that I'd add Michael, one other thing I'd add Michael, you know I've talked about this offline but I think if you look and technology outage shows it again, especially with the out and back, we're the only major airline, the only one that has actually not had a multi-day event caused by a weather or some kind of outage, we bounce back every time and that resilience is because of the schedule and what we've done to construct the business and make it much better.
Speaker Change: Environment improves I think people look at the value of frontier and I think when you couple that with the overall, new frontier and I think you can compare it to.
Speaker Change: Carrier that just announced a big change in seat assignment as an example, this is exciting because this is really leveling the playing field. This is going to make it very simple for you to compare our product versus them and the only difference will be bags and you can quickly go compare the difference and in fact, you get a lot more with frontier because you can go to.
Michael Linenberg: That's more reliable and we expect that we'll continue to get dividends as those bases mature over the next couple of months. Yeah, no, no, you saw that in the data on July 20th where everybody was canceling a lot, I know you canceled the night before, I think you only canceled five flights so you could definitely see it in that data. Thanks for taking my questions.
Speaker Change: The new frontier and see the four options that we offer and Theres far superior seating options that you can get on other carriers.
Unknown Executive: Thank you.
Speaker Change: Our price point.
Speaker Change: Okay.
Speaker Change: Thanks, Thanks for that Barry and then maybe just lastly can you speak to the market.
Jimmy Dempsey: Your Jimmy to speak the market for sale leasebacks in the way that you structure them.
Catherine: Now next question coming from the line of Robbie Shankar with Morgan Stanley, you're on a solvent. Hi, this is Catherine on for Robbie, thanks for taking my question. I just wanted to ask about the bundled fairs, just kind of what your rationale was there, what are the benefits that you might be seeing. And maybe, you know, what has changed with the market that's now kind of a great time to do this.
Speaker Change: Is that marketplace stable getting looser getting tighter and any thoughts and I guess did that relate at all to the to the decision to defer.
Jimmy Dempsey: Yes, so Duane this is mark.
Mark Mitchell: As we mentioned on the prepared remarks, I mean, we have financing arranged into 'twenty six and.
Speaker Change: When you step back and we're not going to get into the details of those terms, but I mean, the market continues to remain to be healthy for us as we look forward. So we don't see any issues on that front and I would just add to doing.
Catherine: Yeah, so this is Bobbie, Catherine, we launched the new frontier in May and a big part in that was actually trying to bring forward and make sure that our customers were able to make decisions upfront with the fair itself and the bundles right there in front of them. It's been very successful, so we launched out of the gate with a high-rancillary attachment rate and other channels that has persisted through time we've done a lot of price optimization that has helped from a revenue perspective there as well.
Barry Biffle: And so this enabled us to smooth that out and also control the capacity to be at that 10% or, in next year's case, slightly lower. So but we don't we don't see a major impact as it relates to our expectations for leaseback gains. I mean, we'll have roughly the same number of aircraft next year as we have this year, as an example.
Scott Group: I want to just say you're talking a lot more about more peak and less off-peak. You know, your model has been so much about utilization, and that was for the last year. So we need to get our utilization back to where it was. How much of a headwind to utilization is this new thing?
Barry Biffle: Yeah, in rough math, we're looking at about an hour. And, you know, you can do the math; you can go look at our rent line. And what that does to the cost, it's somewhere in the $60 million range for aircraft rental.
Barry Biffle: But we think that that headwind is more than overcome. And so a slight, slight impact on CASM, but several points in RASM, and that goes straight to the bottom line. So we think this is worth several points in margin, which is, when you look at our implied RASM and guide for the balance of the year, we see this as very creative. And again, I'll reiterate what we said a while ago, we're now seeing fares up for September, year over year, and we expect that trend to continue.
Speaker Change: This was not had didn't have any new financing it had to do with Airbus as challenges.
Speaker Change: They're kind.
Speaker Change: There are delays in that kind of created kind of lumpy and when they sort of delay in aircrafts.
Speaker Change: All of them up in certain spots and this enabled us to smooth those out but I would just say about the leasing community I have gone around the world. This year and met with a lot of leasing companies and personally been talking a lot of them and I can tell you theres a lot of.
Catherine: And we see a lot of opportunity in the future as we look at more price optimization and merchandising opportunities as well. Look, this is something that when you're in this environment, the value that we're creating and bringing forward is for our customers and people shopping to be able to see that total price upfront. And that's something that was further down the path when they were doing a search. And so we're losing eyeballs in terms of people being able to see that and we've gained that quite a bit. So it's been very successful.
Bobby Schroeter: And if I can just ask one more, so, you know, you and others are now sort of leaning into premium, is there any data you have that says, hey, here are new customers to Frontier that have, like, people that were reluctant to fly with you in the past that are now flying with you for the first time on a premium part of the plane that, you know, I don't know if you understand what I'm trying to Yeah, I understand what you're saying.
Speaker Change: Interest and frontier.
Bobby Schroeter: Look, look, I think it's it's very new. And these these products are very new. It's been acquisitive to us, and we've been really pleased, whether it be the biz fair that we've launched, whether it be our upfront plus and all of the premium stuff that we've put out there. We're really pleased with it. It's been mainly upsells to our existing customers on our website, although the Biz Fair is enabling us to kind of reach into those third-party channels and introduce new people to the Frontier brand.
Bobby Schroeter: It's been a pretty good success, so we're just now getting those things dialed in, and there will be a lot of maturity over the next 12 to 36 months on all these products. So, I think over time, people will find us out when their corporations have them book on us because of the travel management companies that we've been making ourselves available in those channels. But, you know, it's slow to mature.
Speaker Change: I know investors in these people look very very short term, but a few leaves us an airplane you are committing to 812 years with us.
Bobby Schroeter: Yeah, and I would just add on the seat side, you know, one thing that we have on that, the Preverse post. So, we made a transformation with Upfront Plus Premium and Preferred, and the take rate of the sort of time period after has increased along with the yield. So, it tells you that people are engaging with that product at a much higher rate on the premium seating products that they did before, and that's just in its maturity phase. So, we anticipate actually being able to build on that even more in the future with some of the merchandising and pricing tools that we're going to be using.
Speaker Change: And what they see and what Theyre excited about is there was this whole story last year and it's continued to be repeated about cost convergence and what we have actually shown is that we are not converting and costs our cost advantage is widening.
Bobby Schroeter: We see that as a creative and frankly as we get into future months and as the environment is changing, we see this as a big benefit for us going forward. Thank you. And if I could just sneak in one more. Just curious that there's a risk of the industry growing too much capacity on peak days. And whether or not you're confident that current travel patterns are kind of stabilizes like the new normal with peak for a straw, etc.
Speaker Change: Getting bigger and if you look at the structural things we've done to schedule, we've got more to come in that regard. So we see that cost advantage being being real there is an oversupply in the United States.
Speaker Change: But what leasing companies do is they understand what the long term is and they know that that oversupply will be addressed and that low cost will win and low costs will again matter and thats why they are betting on frontier and we haven't seen one change at all if anything I would say theres more people interested in us than there was before because they see us as kind of last man.
Bobby Schroeter: Well, I think so. So in our case, you know, we we looked at where we make money and where we where we've been losing money here recently with the oversupply and the midweek is is been losing money on balance on average. And so for us, that makes sense to reduce that that oversupply. We've made those we've made those changes and that'll be a run rate going forward. I can't speak for the industry overall.
Speaker Change: Standing in the U S marketplace as we move forward.
Speaker Change: Okay I appreciate the thoughts.
Speaker Change: Thank you and our next question coming from the line of Stephen Trent with Citi. Your line is open.
Operator: Thank you. Our next question is coming from the lineup. Service SIT with Raymond James. The line is open.
Service SIT: Hey, good morning. If I might just follow up on Mike's question earlier about the non-fuel optics. Is the step up from 2Q to 3Q, even though capacity is not necessarily stepping up, a function of you just don't have that lease extension benefit? Or is it just me who was kind of curious what's happening there? And then as you slow your growth next year, I know it's still early days, but any kind of color on how we should think about the unit cost trajectory? Yes.
Stephen Trent: Hi, Yes, good afternoon, gentlemen, and thanks very much for taking my question.
Mark Mitchell: Yes, I mean, specific SAVI to, you know, Q2 to Q3. So when you think about that move, certainly a portion of it is the lease benefit that we had in Q2 tied to the lease extensions. There's also a little bit, you know, of maintenance timing. And as you're going through the, you know, the adjustment in capacity, right, I mean, there is a little bit of stickiness and some costs as you go through that, you know, transition. You know, but at the end of the day, I mean, I think those are, you know, the main drivers when you look at, you know, the guide versus the 6-6.
Bobby Schroeter: I think there's probably not just midweek. I think there's probably routes and and overall capacity that needs to come out. You know, we see several hundred routes for the high cost carriers that are up at least 50% or more capacity versus 2019. And I think there's over 150 of them that the capacity is more than doubled just of the high cost carrier capacity. So, you know, we look forward. There's a lot more capacity to come out. That's why they stop losing money and stop doing things that lose money. And I suspect that the industry is going to respond to that. Thank you.
Service SIT: That's helpful, Anikola, on how we should think about..., as you slow your growth to, I think, again, high teen to now maybe, you know, 10%, I think on a longer term, but maybe even kind of high single digits next year.
Mark Mitchell: Yeah, I mean, as Barry mentioned, right, so the utilization, you know, components, I mean, if you put it in terms of the cost saving plan that we had put forward, we're targeting, you know, 200 million, a portion of that plan, you know, tied to the utilization that's being traded for the RASM benefit, the remainder of that is on track, you know, the 150 million to hit that annual run rate by the And then keep in mind as well, Savi, when you look at where we sit in Q2, our cost advantage is widened to, you know, 45%.
Stephen Trent: I was intrigued by what you said about.
Stephen Trent: New route launches I think you said 140, new routes from the 13 crew basis, but then you.
Stephen Trent: End up pulling some of them back when they don't perform.
Speaker Change: Any high level view on what sort of time tolerance you have for these routes to start performing before.
Stephen Trent: Before you decide to pull them and how that.
Speaker Change: Might possibly differ from what you see from your competitors. Thank you.
Scott Group: Now, next question, coming from the line of Scott Group with more research on this open. Hey, thanks guys. So, I think the guidance now implies fourth quarter capacity flat to maybe even down a little bit.
Steven: Steven look we see Theres two time periods that you see with new route launches, obviously, the bookings coming into the launch of the actual flight and you can see performance into that and then beyond that into the period. After we've seen on two thirds of the routes like we did launch over 113 routes I think it was.
Barry Biffle: You're a rear. How should we think about capacity in 25 and in a world where you guys are now deferring some aircraft? Any color on how to think about the least back games going forward? Yeah, look, so as far as 25, we haven't finalized 25 yet, but we expect that to be single digits, maybe upper single digits, but mid upper single digits on capacity. But as far as several least back gains, you know, what we announced today was already kind of in the works.
Stephen Trent: And the last couple of months, we've seen some of them not performed and what we do as we address them.
Stephen Trent: Promptly, particularly as you move out of the seasonal peak part of the year into seasonal off peak periods. Some of those routes may come back next year, but we see we see those being removed going into into the fall and winter and winter months.
Speaker Change: And then we obviously work the ones that we are keeping and we see two thirds of those routes performing.
Speaker Change: Turning to mature and it will take up to about 12 months for those for those for those to mature back to system level.
Barry Biffle: I mean, this has been kind of what we've been operating under, if you will, for over a year now, effectively. What happened was when Airbus had all these delays over the last couple of years, they kept deferring aircraft and unfortunately it made, you know, in future years, the capacity stream got very lumpy. And so this enabled us to smooth that out and also control the capacity to be at that 10% or in next year's case, slightly lower.
Speaker Change: <unk> and so we're investing in those routes and ensuring that they get the system level performance over the next 12 months.
Mark Mitchell: And as we look into next year, on the back of the cost savings plan and other initiatives that we have, I mean, we expect to be able to sustain and leverage that cost advantage. Thank you.
Speaker Change: Okay I appreciate that Jimmy Thank you.
Barry Biffle: Makes sense, and can I clarify on the four point impact from weather and crowd strike? How much was the crowd strike? So, we have it.
Barry Biffle: You know, finalized everything. To be clear, we got hit by the Microsoft outage the day before. A cruel coincidence, unfortunately, but the afternoon before CrowdStrike, I'm sorry, Microsoft actually had an Azure outage which impacted our sales and operations for from pretty much 4pm onward. And so we had several hundred cancellations from that. We had just recovered from that, around midnight or so, Denver time, and that is when the CrowdStrike hit took place. So we're still sorting out which parts went to CrowdStrike and which part went to Microsoft, but it's in the 20 million plus range and roughly two points in in margin degradation.
Jimmy Dempsey: As my follow up I know there has been.
Speaker Change: Noise out there about the department of transportation wanting the industry to be more transparent about X y and Z in.
Speaker Change: All of these disclosures on fees and what have you.
Barry Biffle: So, but we don't, we don't see a major impact as it. From our expectations, say, at least back games, I mean, we have roughly same amount of aircraft next year as we have this year as an example.
Speaker Change: What's the latest on what you guys are seeing and.
Speaker Change: To the extent that some of these.
Operator: Thank you. Our next question comes from the line of... Duane Pfennigwerth with Evercore SI. Helane is open.
Speaker Change: Jay.
Barry Biffle: Okay. I want to just you're talking a lot more about more peak and less off peak, you know, your model's been so much about utilization. And that was for over the last year. So we need to get our utilization back to where it was. Like, how much of a headwind utilization is this new approach. Yeah. And in rough math, we're looking at about an hour. And, you know, you can do the math.
Speaker Change: Decrees are concerning.
Duane Pfennigwerth: Hey, thanks. Maybe just to pick it up right there. So that $20 million, is that something you're going to look to recover?
Barry Biffle: We don't discuss those types of things yet, but you would expect we will look to recover every penny.
Speaker Change: Yes.
Speaker Change: I can't speak.
Speaker Change: So all the things going on with the government and what they are digging into but.
Duane Pfennigwerth: And then, I guess, just given all the changes you're making to how you price your product, how are you thinking about the evolution of base fares versus ancillary? Is there a new target for ancillary? And, I guess, what is the risk that we're now selling bundled total fares at the same base fare level we were previously selling unbundled fares?
Barry Biffle: Well, I think we're moving to total revenue per passenger and looking to get to a RASM that gets us back to double-digit margins. That's our target, right?
Barry Biffle: And so whether it comes from fare or comes from ancillary, we think we went too far with the fare side, and we think this dials us back in. It is obviously a risk, right, that we give up too much. And that's what dialing it in is all about.
Duane Pfennigwerth: But I can tell you that we believe, with the trends we've seen, we've seen significant improvements in the last six weeks, and we've got some more technology updates to make to give us more merchandising control over the next several weeks. But we see that this is going to be a creative, especially as we move kind of out of this more low-fare environment there. We mentioned that the fares are going up. We've seen, we've seen a fair increase, we've recently and we've seen, structurally, you know, a lot of the promotional fares across the industry are kind of being removed from the marketplace.
Duane Pfennigwerth: So as that kind of, you know, environment improves, I think people will look at the value of Frontier. And I think when you couple that with the overall new Frontier, and I think you compare it to, you know, a carrier that just announced a big change in seat assignment, as an example, this is exciting, because this is really leveling the playing field. This is going to make it very simple for you to compare our product versus them.
Speaker Change: We believe with the new frontier Youre able to see.
Speaker Change: What you want upfront and you can make a decision very clearly we are worried however that there are third parties that we partner with that.
Speaker Change: But don't have the capabilities to make sure that everything is communicated upfront. So so I think the way that.
Barry Biffle: You can go look at our rent line and what that does to the cost. It's somewhere in $60 million range of aircraft rent. But we think that that headwind is more than overcome. And so a slight, slight impact to to chasm, but several points in rasm and that goes straight to the bottom line. So we think this is worth several points in margin, which is is where you look at our kind of our implied rasm and guide for the balance of the year. We see this is very creative. And again, I'll reiterate what we said, well, ago, we're now seeing fares up for September, year over year. And we expect that trend to continue.
Speaker Change: The way that some of these rules have been constructed I think theyre not easily complied with but we believe that we are more than complying with the spirit of it.
Duane Pfennigwerth: And the only difference will be bags, and you can quickly compare the difference. And, in fact, you get a lot more with Frontier because you can go to the new Frontier and see the four options that we offer. And there are far superior seating options that you can get on other carriers at kind of our price point.
Speaker Change: What they're looking for with the new frontier and we think this is.
Speaker Change: Not much there I think honestly I do I do hope that the dose follows up on what Dave said, though that they want to look at competition.
Speaker Change: We continue to see challenges with common use gates in this country.
Speaker Change: We continue to see challenges with <unk>.
Speaker Change: Fortress carriers working with there.
Bobby Schroeter: And if I can just ask one more. So, you know, you and others now sort of leaning into premium. Is there any data you have that says, hey, here are new customers to frontier that have like people that were reluctant to fly you in the past that are now flying with you for the first time in a premium part of the plane that, you know, I don't know if you understand where I'm trying to ask, but again, any data around that.
Speaker Change: Relevant local airports to create environments that are not conducive to growth airlines operating safely and reliably nor do they allow us to grow.
Speaker Change: And a good way so we look forward to seeing the.
Speaker Change: Following through with its commitment to digging into this and getting a thorough investigation into the practices that are taking place because we feel it's beyond anti competitive.
Bobby Schroeter: Yeah, I was just saying, look, look, I think it's, it's very new. And these, these products are very new. It's been a creative dust. And we've been really pleased whether it be the biz fair that we've launched, whether it be our upfront plus and all of the premium stuff that we've put out there. We're really pleased with it. But it's been mainly upsells to our existing customers on our website. Although the biz fair is enabling us to kind of reach into those those third party channels and introducing new people to the frontier brand.
Duane Pfennigwerth: Thanks. Thanks for that, Barry.
Speaker Change: Okay I appreciate that Barry thanks for the time.
Bobby Schroeter: And it's been a pretty good success. So, we're just now getting those things dialed in and there'll be a lot of maturity over the next, you know, 12 to 36 months on all these products. So, I think over time, people will find us out that when their corporation has a book on us because the travel management companies that we've been making ourselves available on those channels. But, you know, it's slow to mature.
Mark Mitchell: And then maybe just lastly, can you speak to the market? You or Jimmy, the market for sale leasebacks in the way that you structure them, is that marketplace stable, getting looser, getting tighter? Any thoughts? And, I guess, did that relate at all to the decision to defer?
Speaker Change: Thank you our next question coming from the line.
Barry Biffle: Yeah, so Duane, this is Mark. As we mentioned in the prepared remarks, I mean, we have financing arranged into 26. And, you know, when, you know, when you step back, and we're not going to get into the details of those terms, but I mean, the market continues to remain healthy for us, as we look forward. So, you know, we don't see any issues on that front. And I would just add, Duane,
Mark Mitchell: And I would just add, Duane, this was not, didn't have anything to do with financing; it had to do with Airbus's challenges and their, you know, kind of delays. And they kind of created kind of a lumpy. And when they started delaying aircraft, they piled them up in certain spots, and this enabled us to smooth those out.
Barry Biffle: But I would just say about the leasing community, and, you know, I've gone around the world this year and met with a lot of leasing companies and, personally, been talking to a lot of them. And I gotta tell you, there's a lot of interest in Frontier. I mean, I know investors and these people look, you know, very, very short term. But if you lease us an airplane, you are committing to eight, 12 years with us.
Speaker Change: Conor Cunningham with Melius research your line is open.
Conor Cunningham: Hi, everyone. Thank you just on the load factor decline in the second quarter seven points first came down quite a bit I would have thought that lower fares would've stimulated demand a little bit understand that there is oversupply, but is it really just a function of where our PK is relative to peak.
Speaker Change: Thank you.
Speaker Change: Yeah look I mean, we've gotten to the point, where I think we have truly found all the demand. There is I mean, we have consistently sold payers at a penny to a $1 plus taxes and fees on a Tuesday, Wednesday, and not gotten full which tells you that there's just not that much demand in.
Bobby Schroeter: Yeah. And I would just add on the the seat side, you know, one thing that we have on that, the preverse post. So, we made a transformation with upfront plus premium preferred and the take rate of the sort of time period after has increased along with the yield. So, it tells you that people are engaging with that product at a much higher rate on the premium seating products that they did before. And that's just in its maturity phase. So, we anticipate actually being able to yield up on that even more in the future with some of the merchandising and pricing tools that we're going to be doing.
Speaker Change: And we called this out and I think we got a lot of grief for it year and a half ago that we call. This travel pattern out.
Unknown Executive: Thank you for using.
Speaker Change: There was some I think some hope that that.
Speaker Change: Last labor day, but there was a lot of return to office was going to help mitigate this and change it but we're now several years into this and so the travel patterns have become clear to us and we're going to stop pushing on a string with this because it is clear to us that with.
Speaker Change: With the flexible work or kind of work from home on a couple of days a week. The two most common days that they are in the offices in Tuesday, Wednesday, and it has caused an environment, where there's just not the demand and it's not just US you can go to if you look at your TSA numbers.
Unknown Executive: Thank you guys.
Unknown Executive: Thank you.
Unknown Executive: Our next question coming from the line-up.
Ravi Shanker: Ravi, sit with Raymond James, Elon is open. Hey, good morning.
Speaker Change: You can go look at.
Speaker Change: Strolled through your favorite airport and Youll just see it I mean, there is just not the traffic in the airport and this is a function of.
Mark Mitchell: If I could just follow up on Mike's question earlier on the non-fuel optics, is the step up from 2Q to 3Q, even though capacity is not necessarily stepping up a function of you just don't have that leaf extension benefit, or I was kind of curious what's happening there, and then as you slow your growth next year, I know it's still early days, but any kind of color on how we should think about unit cost trajectory? Yes, I mean, specific savvy to Q2 to Q3, so when you think about that move, certainly a portion of it is the leaf benefit that we had in Q2 tied to the leaf extensions.
Speaker Change: The travel patterns for the leisure people, but also the fact that that business is still down 20%, 25% and so we see this to be a semi permanent change and so we're going to start organizing our business around it.
Speaker Change: We recognize we have too many pilots we have too many flight attendants and everything in the near term and we're carrying those costs in the third and a little bit of a fourth quarter until we can kind of grow into it until this reset takes place but the reality is we think that this is kind of the new norm.
Speaker Change: No.
Speaker Change: The problem is if they don't have those days off it's hard from travel even if the fares near free.
Speaker Change: Okay. That's helpful and then in <unk>.
Mark Mitchell: There's also a little bit of maintenance timing, and as you're going through the adjustment and capacity, there is a little bit of stickiness and some cost, as you go through that transition. But at the end of the day, I think those are the main drivers when you look at the guide versus the 660. That's helpful.
Speaker Change: February you laid out a plan to get to I think it was 10% to 14% pre tax margins in 2025, obviously a lot has changed since then.
Speaker Change: Are you continuing to expect that target just given the fact that you are.
Speaker Change: On the product changes youre, making the cost savings I'm, just curious on how youre thinking about about that target that you laid out not too long ago. Thank you.
Speaker Change: I think if anything we're getting more confidence in that target I think it's moved a little bit to the right because of the oversupply.
Mark Mitchell: Any color on how we should think about as you slow your growth to, I think, again, high teams to now maybe 10 percent, I think, on a longer term, but maybe even kind of high So, as Barry mentioned, so the utilization component, so if you put it in terms of the cost saving plan that we had put forward, we're targeting 200 million, a portion of that plan tied to the utilization that's being traded for, the RASM benefit. The remainder of that is on track, the 150 million to hit that annual run rate by the end of the year, and then keep in mind, as well, Savvy, when you look at where we sit at Q2, our cost advantage is widened to 45 percent, and as we look into next year, on the back of the cost savings plan and other initiatives that we have, I mean, we expect to be able to sustain and leverage that cost advantage.
Speaker Change: But this is temporary as a one or two quarter thing and.
Speaker Change: The most encouraging thing that I've seen is that pretty much universally the industry is responding to this capacity imbalance with.
Speaker Change: With demand and history shows you that once people start cutting theyre not going to stop until they get to their target margins. So we see a lot of we still see a lot of excess capacity.
Speaker Change: With several carriers out there and we think that theres going to be a lot more coming so yes. It may take us a quarter or two further then we get we had but no we feel better about the target than ever and it's become clear to I mean, we said this back in February.
Barry Biffle: And what they see and what they're excited about is there was this whole story last year, and it's continued to be repeated about cost convergence. And what we have actually shown is that we are not converging on cost. Our cost advantage is gone. It's getting bigger.
Speaker Change: At the time and we've debunked this cost.
Speaker Change: Convergence things several times, but it has now become clear that our cost advantage is real it's durable it's sustainable and when we look into 2025, we see that continuing to expand and so that's why we think that we will more than get there with all the industry capacity cuts that we expect over the fall into the winter.
Barry Biffle: And if you look at the structural things we've done to schedule, we've got more to come in that regard. So we see that cost advantage as real. There's an oversupply in the United States, but what leasing companies do is they understand what the long term is. And they know that the oversupply will be addressed and that low cost will win, and low cost will again matter. And that's why they're betting on Frontier.
Barry Biffle: We haven't seen one change at all. If anything, I'd say there are more people interested in us than there were before because they see us as kind of the last man standing in the U.S. marketplace as we move forward.
Mark Mitchell: Makes sense, and can I clarify on the forepoint impact from weather and crowd strike? How much was crowd strike? So, we haven't, you know, finalized everything to be clear. We got hit by the Microsoft outage, which was the day before. A cruel coincidence, unfortunately, but the afternoon before crowd strike, I'm sorry, Microsoft actually had an Azure outage, which impacted our sales and operations for pretty much 4pm onward, and so we had several hundred cancellations from that.
Speaker Change: I appreciate it thank you.
Operator: Okay, I appreciate the thoughts.
Speaker Change: Thank you. Our next question coming from the line of Tom Fitzgerald with TD Colin Your line is open.
Stephen Trent: Thank you. Our next question comes from the line of Stephen Trent with City, Helene.
Tom Fitzgerald: Hi, everyone. Thanks, very much for the time.
Tom Fitzgerald: I'm just kind of curious your view on with the stage length going down how large the premium opportunity. It could really be just it seems like the shorter stage length bolus appetite there.
Mark Mitchell: We had just recovered from that around midnight or so Denver time, and that is when the crowd strike hit took place. So, we're still sorting out which parts went to crowd strike, which part goes to Microsoft, but it's in the 20 million plus range, and roughly two points in margin degradation. All very helpful. Thank you.
Speaker Change: Hey at the cabin, but there could be thinking about that the wrong way.
Jimmy Dempsey: I guess, good afternoon, gentlemen, and thanks very much for taking my question. I was intrigued by what you said about new route launches. I think you said 114 new routes from the 13 crew bases, but then you end up pulling some of them back when they don't perform. You know, any high-level view on what sort of time tolerance you have for these routes to start performing? Before you decide to pull them, and how that might possibly differ from what you see from your competitors. Thank you.
Speaker Change: Well first thanks, thanks, congratulations on the new role there so.
Barry Default: Thank you Barry.
Jimmy Dempsey: Yeah, Stephen, like, look, we see, there's two time periods that you see with new route launches. Obviously, the bookings coming into the launch of the actual flight, and you can see performance into that.
Jimmy Dempsey: And then beyond that, into the period after, we've seen, on two-thirds of the routes, like we did launch over 113 routes, I think it was, in the last couple of months. We've seen some of them not perform, and what we do is we address them pretty promptly, particularly as you move out of the seasonal peak part of the year into seasonal off-peak periods. Some of those routes may come back next year, but we see those being removed going into the fall and winter months.
Speaker Change: Yes look so at the end of the day, whether you're sitting on a plane for an hour or four hours people like a slightly better seat.
Jimmy Dempsey: And then we obviously work the ones that we're keeping, and we see two-thirds of those routes performing and continuing to mature, and it will take up to about 12 months for those to mature back to system-level performance. And so we're investing in those routes and ensuring that they get to system-level performance over the next 12 months.
Speaker Change: Whether you are in that plane for an hour or four hours some people like the window and some people want an out because they want to be near the bathroom.
Duane Pfennigwerth: Our next question coming from the line-up, when Fennigwerth would ever parry a side, a line is open. Hey, thanks. Maybe just to pick it up right there.
Speaker Change: It doesn't change that so well, while there is a propensity for them to value. It more it doesn't mean, they don't value it and so from our perspective, what we've just seen with the oversupply.
Barry Biffle: So that 20 million is that something you're going to look to recover? We don't discuss those types of things yet, but we would expect we will look to recover every penny. And then I guess just given all the changes you're making on how you price your product, how are you thinking about the evolution of base fares versus ancillary? Is there a new target for ancillary? And I guess what is the risk that we're now selling bundled total fares at the same base fare level you were previously selling unbundled fares?
Speaker Change: It's been more acute in some of the longer hauls, but yes, we're seeing good take rate I mean, I don't know that we're going to actually ever know what it could have been on the longer stage, because we may not have that stage ever again, but.
Speaker Change: We're seeing good take rates on them.
Stephen Trent: I appreciate that, Jimmy. Thank you. And as my follow-up, I know there's been, you know, noise out there about the Department of Transportation wanting the industry to be more transparent about X, Y, and Z and have all these disclosures on fees, and what have you, you know? What's the latest on what you guys are seeing? And, you know, to the extent that some of these DOJ decrees are concerning.
Speaker Change: Okay. Thanks, that's really helpful and then I guess just.
Speaker Change: Okay.
Speaker Change: Whether it's the macro or other issues, but if things if the downside scenario to play out do you have any further flexibility with Airbus.
Speaker Change: Furthermore, orders or cancel because sometimes it just seems like the best solution is less points of more. Thanks again, thanks again for the time everyone.
Barry Biffle: Look, I think we're moving to a total revenue per passenger and looking to get to a rasm that gets us back to double-digit margins. That's our target, right? And so whether it comes from fare or comes from ancillary, we think we went too far with the fares side and we think that dials us back in. It is obviously a risk that we give up too much and that's what dialing ends all about.
Barry Biffle: Yeah, look, you know, I can't speak to all the things going on with the government and what they're digging into, but you know, we believe with the new Frontier, you're able to see what you want up front, and you can make a decision very clearly. We are worried, however, that there are third parties that we partner with that don't have the capabilities to make sure that everything is communicated up front. So I think the way that some of these rules have been constructed, I think they're not easily complied with, but we believe that we are more than complying with the spirit of it, of what they're looking for with the new Frontier, and we think this is, you know, there's not much there.
Speaker Change: Yes look I mean, we're at we believe.
Barry Biffle: I think, honestly, I do hope that the DOT follows up on what they've said, though, that they want to look at competition. We continue to see challenges with common-use gates in this country. We continue to see challenges with, you know, kind of fortress carriers working with their relevant local airports to create environments that are not conducive to growth airlines operating safely and reliably, nor do they allow us to grow in a good way. So we look forward to seeing the DOT following through with its commitment to digging into this and getting a thorough investigation into the practices that are taking place, because we feel they're beyond anti-competitive.
Speaker Change: We can be profitable on the peak day. So it's not it's not a shell count issue. It's more of a a day a week issue and probably more season issue. So I think I think the I think the flexibility that you.
Speaker Change: <unk>.
Speaker Change: Need in that scenario, we've already demonstrated we have we can we can adjust.
Speaker Change: That capacity, but I think that from.
Speaker Change: From a shell count we don't we don't see a need for that in our business.
Barry Biffle: But I can tell you that we believe with the trends we've seen, we've seen significant improvements in the last six weeks. We've got some more technology updates to make to give us more merchandising control over the next several weeks, but we see that this is going to be a creative especially as we move kind of out of this more low-fair environment. You know, we mentioned that the fares going up, we've seen a fair increase recently and we've seen, you know, structurally, you know, a lot of the promotional fares across the industry are kind of being removed out of the marketplace.
Speaker Change: And then I would also remind everyone. We're the lowest cost provider and that cost advantage is widening and in any kind of recessionary environment, we're going to revert back to the mean and that is Walmart Costco and the low cost carriers win in recessions.
Speaker Change: Thank you and our next question coming from the line of Andrew.
Andrew: Andrew <unk> with Bank of America. Your line is open.
Stephen Trent: Oh, okay. I appreciate that, Barry. Thanks for the time.
Andrew: Hey, good afternoon, everyone I guess Barry.
Barry Biffle: So as that kind of, you know, environment improves, I think people look at the value of frontier and I think when you couple with that with the overall new frontier and I think you compare it to a carrier that just announced a big change in seed assignment as an example, this is exciting because this is really leveling the playing field. This is going to make it very simple for you to compare our product versus them and the only difference will be bags and you can quickly go compare the difference.
Andrew: On the load factor point.
Andrew: If you feel like you've tapped kind of all the demand there why is 10% growth. The next few years the rate level and why not maybe pushing out deliveries and cut capacity over the next few years.
Speaker Change: Well the issue is that it was primarily the off peak days, so it's not a.
Speaker Change: It's not a overall situation its more off peak we also so.
Barry Biffle: And in fact, you get a lot more with frontier because you can go to the new frontier and see the four options that we offer and there's far superior seating options that you can get on other carriers in kind of our price point.
Speaker Change: We were also hit in the fourth quarter, we still had a lot of the.
Speaker Change: Kind of oversupply stuff, we were in the middle of launching the new route so that a lot of new routes and you also had still kind of many of the oversupplied route. So as we continue to grow the demand pool.
Barry Biffle: Thanks for that, Barry.
Mark Mitchell: And then maybe just lastly, can you speak to the market, you were Jimmy, the market for sale leasebacks in the way that you structure them. Is that marketplace stable, getting looser, getting tighter, any thoughts? And I guess did that relate at all to the decision to defer? Yeah, so, yeah, so Dwayne, this is Mark, you know, so, you know, as we mentioned on the prepared remarks, I mean, we have financing arranged into 26 and, you know, when you step back and we're not going to get into the details of those terms, but I mean, the market continues to remain to be healthy for us, you know, as we look forward. So, yeah, we don't see any issues.
Speaker Change: 50% by the time, we get to the fourth quarter.
Speaker Change: Total revenue pool is up 50% year over year. When you look at the overall all the <unk> and these were in so.
Speaker Change: So we just don't see.
Speaker Change: That being a challenge we're already seeing the load factors recover and we're seeing the fares recover as I mentioned, a while ago.
Speaker Change: September fare is up and we see it going up from there on.
Speaker Change: Moving forward.
Speaker Change: Okay understood and then Greg two quick modeling questions Mark maybe.
Greg: One what stage length are you using or are you factoring in this year just so we can get.
Greg: Get to an actual CASM number from the adjusted.
Barry Biffle: And I would just add, too, Duane, this was not, it didn't have anything to do with financing, it had to do with Airbus' challenges, and they're kind of delays, and they kind of created kind of lumpy, and when they started delaying aircraft, they piled them up in certain spots, and this was enabled us to smooth those out. But I would just say about the leasing community, and I've gone around the world this year and met with a lot of leasing companies, and personally been talking a lot of them.
Greg: Stage length adjusted CASM Guide that you gave and then.
Speaker Change: Just in terms of the order book change when we think about the 'twenty one plans coming in next year, just from a sale leaseback gain perspective anything changing anything changed there should we continue to model and the recent rate of say $12 million to $13 million per plane or or will that come down. Thank you.
Speaker Change: Yes, so two things so from a stage perspective, roughly $8 50 would be the stage to target and then when you look at the <unk>.
Barry Biffle: And I got to say, there's a lot of interest in Frontier. I mean, I know investors and these people look in a very short term, but if you lease us an airplane, you are committing to eight, 12 years with us. And what they see, and what they're excited about, is there was this whole story last year, and it's continued to be repeated about cost convergence. And what we have actually shown, is that we are not converging in cost.
Speaker Change: 21.
Speaker Change: Aircraft next year, the only nuance when you look.
Speaker Change: This year to next year is that we do have about roughly a third of those deliveries next year, we're going to be $3 <unk> versus this year. They were all 320 ones.
Speaker Change: So.
Speaker Change: A lower rate per plan, yes, yes, yes, the 320 <unk> coming in at a bit of a lower rate than the 321. So you just have that mix nuance outside of that I think that's the only thing to factor in.
Barry Biffle: Our cost advantage is whitening. It's getting bigger. And if you look at this, it's getting bigger. The structural things we've done to schedule, we've got more to come in that regard. So we see that cost advantage being real. There's an oversupply in the United States, but what leasing companies do is they understand what the long term is, and they know that that oversupply will be addressed, and that low cost will win, and low cost will again matter.
Speaker Change: Got it thank you.
Speaker Change: Thank you.
Operator: Thank you. Our next question comes from the line of Conor Cunningham with Millie's Research. Your line is open.
Speaker Change: Our next question coming from the line of Jamie Baker with Jpmorgan Securities. Your line is now open.
Conor Cunningham: Everyone, thank you. Just on the load factor decline in the second quarter, you know, seven points, you know, fares came down quite a bit. I would have thought that lower fares would have stimulated demand a little bit. I understand that there's oversupply, but is it really just a function of where off peak is relative to peak today?
Speaker Change: Hey, Thanks for the questions. This is James on for Jamie most of questions have been asked just thinking about the capacity that's been taken out of the system in the second half of the year.
Barry Biffle: And that's why they're betting on Frontier, and we haven't seen one change at all. If anything, I say there's more people interested in us than there was before, because they see us as kind of a last man standing in the U.S, marketplaces, we move forward. Okay, I appreciate the thoughts.
Barry Biffle: Thank you.
Unknown Executive: Thank you.
Speaker Change: You talked about peak versus off peak is there any geographic way you can break that down.
Speaker Change: There has been.
Speaker Change: Latin America pressures in prior quarters.
Stephen Trent: Our next question coming from the line-up. Stephen Trentwood City, you're on a self-in. I guess, good afternoon, gentlemen, and thanks very much for taking my question. I was intrigued by what you said about new route launches. I think you said 114 new routes from the 13 crew bases, but then you end up pulling some of them back when they don't perform any high level view on what sort of time tolerance you have for these routes. So, I think it's a great opportunity to start performing before you decide to pull them, and how that might possibly differ from what you see from your competitors. Thank you.
Speaker Change: The driver of that or are there other markets out there.
Speaker Change: It's a market that youre pulling from.
Conor Cunningham: Yeah, look, I mean, we've gotten to the point where I think we have truly found all the demand there is. I mean, we have consistently sold fares at a penny to a dollar plus taxes and fees on Tuesdays and Wednesdays and not gotten full, which tells you that there's just not that much demand.
Speaker Change: Look I think the only the only market or city that I think we're really disappointed in was actually New Orleans.
Speaker Change: When we look at the rest of the network.
Speaker Change: Things kind of hit the averages and but I think new Orleans did drag it down.
Speaker Change: We don't completely understand what happened there, but it just universally did not stimulate.
Speaker Change: Okay, That's fair and then.
Speaker Change: The new rules that mandate.
Speaker Change: A refund for a three hour plus domestic delay.
Speaker Change: Just high level thoughts are you are you seeing passengers that take that.
Jimmy Dempsey: Stephen, look, we see there's two time periods that you see with new route launches. Obviously, the bookings coming into the launch of the actual flies, and you can see performance into that. And then beyond that into the period after, we've seen on two thirds of the routes. Like we did launch over 113 routes, I think it was, in the last couple of months. We've seen some of them not perform, and what we do is we address them pretty promptly, particularly as you move out of the seasonal peak part of the year into seasonal, off peak periods.
Speaker Change: Is that are seeking that compensation or do you think they could they stick around for a rebooking.
Speaker Change: We haven't seen a big change on that.
Speaker Change: Reality is that it's more troublesome three hour delay is uncomfortable and disappointing.
Speaker Change: But.
Speaker Change: Oftentimes when we have that everyone else has the same delays so bright.
Speaker Change: They are generally weather related.
Speaker Change: It's not even measurable im looking around the room.
Speaker Change: We haven't noticed anything measurable on that.
Jimmy Dempsey: Some of those routes may come back next year, but we see those being removed going into the fall and winter months. And then we obviously work the ones that we're keeping, and we see two thirds of those routes performing and continuing to mature. And it will take up to about 12 months for those to mature back to system level performance. And so we're investing in those routes and ensuring that they get to system level performance over next 12 months. I appreciate that, Jimmy. Thank you.
Speaker Change: Got it alright appreciate the questions.
Speaker Change: Thank you.
Speaker Change: Yes.
Speaker Change: And with that I will turn the call back over to Barry for any closing.
Barry Biffle: And, and, and, you know, we called this out. And I think we got a lot of grief for it a year and a half ago when we called this travel pattern out. And there was, I think, some hope that, you know, last Labor Day, that there was a lot of return to office was going to help mitigate this and change it. But we're now several years into this.
Barry Default: I want to thank everybody for joining us today.
Barry Biffle: And so the travel patterns have become clear to us. And we're going to stop pushing on this because it is clear to us that with the flexible work or, you know, kind of work from home on a couple of days a week, the two most common days that they're in the office are Tuesday and Wednesday. And it has caused an environment where there's just not enough demand. And it's not just us; you can go to go look at your TSA numbers.
Barry Biffle: The Travel Patterns for Leisure People, but also the fact that business is still down 20 to 25%. And so we see this to be a semi-permanent change, and so we're going to stop, you know, organizing our business around it. We recognize we have too many pilots, we have too many flight attendants and everything in the near term, and we're carrying those costs in the third and a little bit of the fourth quarter until we can kind of grow into them, until this reset takes place.
Speaker Change: Again, I want to reiterate we're disappointed in the environment, but the good news is we're seeing green shoots with that and it looks like the bottom is in I think youre going to see further capacity rationalization as we move through the coming months and into the winter and we're really excited about the kind of self help that we've taken and all of the tailwind that we've got on the revenue revenue side as well as the cost.
Barry Biffle: But the reality is, we think that this is kind of the new norm. You know, their problem is if they don't have those days off, it's hard for them to travel, even if the fare is nearly free.
Conor Cunningham: Okay, that's helpful. And then in February, you laid out a plan to get to, I think it was 10 to 14% pre-tax margins in 2025. You know, obviously, a lot has changed since then.
Barry Biffle: One, are you continuing to expect that target, just given the fact that, you know, all the product changes you're making, the cost savings? I'm just curious about how you're thinking about that target that you laid out not too long ago. Thank you.
James: Got it. Alright. I appreciate the questions.
Barry Biffle: I think, if anything, we're getting more confidence in that target. I think it's moved a little bit to the right because of the oversupply.
Jimmy Dempsey: And as my follow up, I know there's been, you know, noise out there about the Department of Transportation wanting the industry to be more transparent about X, Y and Z and have all these disclosures on fees and what have you, you know, what's the latest on what you guys are seeing and, you know, to the extent that some of these DOJ really decrease our concerning. Yeah, look, I can't speak to, to all the, everything going on with the government and what they're digging into, but, you know, we, we believe with the new Frontier, you're able to see what you want upfront and you can make a decision very clearly. We are worried, however, that there are third parties that we partner with that don't have the capabilities to make sure that everything is communicated upfront.
Barry Biffle: And with that, I will turn the call back over to Barry Biffle for any closing.
Barry Biffle: But, you know, this is a one to two-quarter thing. And I think the most encouraging thing that I've seen is that, pretty much universally, the industry is responding to this capacity imbalance with demand. And history shows you that once people start cutting, they're not going to stop until they get to their target margins.
Barry Biffle: So we see a lot of we still see a lot of excess capacity with several carriers out there, and we think that there's going to be a lot more coming. So yeah, it may may take us a quarter or two further than we get we had. But no, we feel better about the target than ever. And it's become clear to me, I mean, we said this back in February at the time, and we've debunked this cost convergence thing several times, but it is now clear that our cost advantage is real, it's durable, and it's sustainable.
Operator: Hey, I want to thank everybody for joining us today. Again, I wanted to reiterate, we're disappointed in the environment. But the good news is we're seeing green shoots with that, and it looks like the bottom is in. I think you're going to see further capacity rationalization as we move through the coming months and into winter. And we're really excited about the kind of self-help that we've taken and all of the tailwinds that we've got on the revenue side, as well as the cost side. So we look forward to talking to you next quarter and updating you on our success with that.
Barry Biffle: And when we look into 2025, we see that continuing to expand, and so that's why we think that we will more than get there with all the industry capacity cuts that we expect over the fall and through the winter.
Operator: Thank you. Our next question coming from the lineup is Thomas Fitzgerald with TD Colony. The line is open.
Thomas Fitzgerald: Hi everyone. Thanks very much for your time. I'm just kind of curious about your view on how large the premium opportunity could really be. It seems like the shorter the stage length, the less appetite there is to pay off the cabin, but it could be thinking about that the wrong way.
Barry Biffle: Well, hey, first, thanks, thanks. Congratulations on the new role there. It's so good to have you.
Speaker Change: So we look forward to.
Thomas Fitzgerald: Yeah, look, so at the end of the day, whether you're sitting on a plane for an hour or four hours, people like a slightly better seat. Whether you're on that plane for an hour or four hours, some people like the window, and some people want an aisle because they want to be near the bathroom. It doesn't change that. So while there's a propensity for them to value it more, it doesn't mean they don't value it.
Thomas Fitzgerald: And so from our perspective, what we've just seen with the oversupply, you know, it's been more acute in some of the longer hauls. But yeah, we're seeing good take rates. I don't know that we're ever going to actually ever know what it could have been on the longer stage because we may not have that stage ever again, but we're seeing good take rates on it.
Speaker Change: Talking to you next quarter and updating you on our success with that.
Barry Biffle: Okay, thanks. That's really helpful. And then, I guess, whether it's the macro or other issues, but if the downside scenario starts to play out, do you have any further flexibility with Airbus to either defer more orders or cancel? Because sometimes it just seems like the best solution is less planes and more. Thanks again for the time, everyone.
Barry Biffle: Yeah, look, I mean, where we're at, we believe, you know, that we can be profitable on the peak day. So it's not, it's not a shell count issue. It's more of a day a week issue and probably more of a seasonal issue.
Thomas Fitzgerald: So I think I think the flexibility that you think we might need in that scenario. We've already demonstrated that we have. We can adjust that capacity. But I think that, from a shell count, we don't see a need for that in our business.
Barry Biffle: And I would also remind everyone that we're the lowest cost provider, and that cost advantage is widening. And in any kind of recessionary environment, we're going to revert back to the mean. And that is, Walmart, Costco, and the low-cost carriers win in recessions.
Speaker Change: Thanks for joining.
Operator: Thank you. Now, the next question coming from the line-up. Andrew Dior from Bank of America, your line is open.
Ladies and gentlemen, that does conclude our conference for today. Thank you for your participation. You may now disconnect.
Andrew Didora: Hey, good afternoon, everyone. Hi, it's Barry. On the load factor point, if you feel like you've tapped kind of all the demand there, why is 10% growth over the next few years the right level? And why not, you know, keep maybe pushing out deliveries and cut capacity over the next few years?
Barry Biffle: Well, the issue is that it was primarily an off-peak day. So it's not a good idea
Speaker Change: Ladies and gentlemen that does conclude our conference for today. Thank you for your participation you may now disconnect.
Andrew Didora: It's not an overall situation; it's more off-peak. We also, so... We were also hit in the fourth quarter. We still had a lot of the kind of oversupply stuff, and we were in the middle of launching the new route. So you had a lot of new routes, and you also still had kind of many of the oversupplied routes. So as we continue to grow the demand pool, you know, we're up 50%. By the time we get to the fourth quarter, our total revenue pool is up 50% year over year when you look at the overall, you know, all the ONDs we're in.
Andrew Didora: So we just don't see that being a challenge. We're already seeing the load factors recover, and we're seeing the fares recover. As I mentioned a while ago, the September fare is up, and we see it going up from there on moving forward.
Mark Mitchell: Okay, understood. And then two quick modeling questions, you know, Mark, maybe one, you know, what stage length are you using? Or are you factoring in this year, just so we can, you know, get to an actual chasm number from the adjusted stage length adjusted chasm guide that you gave? And then, just in terms of the order book change, when we think about the 21 planes coming in next year, just from a sale leaseback gain perspective, does anything change, anything change there? Should we continue to model in the recent rate of, say, 12 to $13 million per plane? Or, or will that come down? Thank you. Yeah, so two things.
Mark Mitchell: Yeah, so two things. So from a stage perspective, roughly 850 would be the, you know, the stage to target. And then when you look at the, you know, the 21, you know, aircraft next year, the only nuance when you look, you know, this year to next year is that we do have about, you know, roughly a third of those deliveries next year. We're going to be 320, you know, versus this year, they were all 321. So
Mark Mitchell: So a lower rate per plane? Yeah, yeah. So yeah, the 320 coming in a bit of a lower rate.
Mark Mitchell: Yeah, yeah, so yeah, the 320 is coming in at a bit of a lower rate than the 321. So you just have that mixed nuance. Outside of that, I think that's the only thing to factor in.
Operator: Our next question comes from the line of Jamie Baker with J.P. Morgan Securities. Your line is open.
Jamie Baker: Hey, thanks for the questions. This is James, on behalf of Jamie.
James: Most of the questions have been asked. Just thinking about the capacity that's been taken out of the system in the second half of the year, you talked about peak versus off-peak. Is there any geographic way you can break that down? You know, there were... Latin America pressures in prior quarters. Is that the driver of that? Or are there other markets out there, or types of markets that you're pulling from?
Barry Biffle: Look, I think the only market or city that we're really disappointed in was actually New Orleans. You know, when we look at the rest of the network, things kind of hit the averages, but I think New Orleans did drag it down. We don't completely understand what happened there, but it just did not stimulate.
James: Okay, that's fair. And then there are the new rules that mandate a refund for a three-hour plus domestic delay. Just high-level thoughts. Are you seeing pastors that are seeking that compensation, or do you think they stick around for a rebooking?
Barry Biffle: We haven't seen a big change in that. The reality is that it's more troublesome. I mean, a three-hour delay is uncomfortable and disappointing. You know, oftentimes when we have that delay, everyone else has the same delay. So, right.
James: Is it generally weather related? It's, it's not even measurable. I'm looking around the room. There's no We haven't noticed anything measurable about that. Got it. I appreciate the questions.
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Jimmy Dempsey: So I think the way that the way that some of these rules have been constructed, I think they're not easily complied with, but we believe that we are more than complying with the spirit of it, of what they're looking for with the new Frontier. And we think this is, you know, there's not much there. I think, honestly, I do, I do hope that the DOT follows up on what they've said, though, that they want to look at competition.
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Speaker Change: Yes.
Speaker Change: [music].
Jimmy Dempsey: We continue to see challenges with common use gates in this country. We continue to see challenges with, you know, kind of fortress carriers working with their relevant local airports to create environments that are not conducive to growth airlines. Operating safely and reliably, nor do they allow us to grow in a good way.
Unknown Executive: So we look forward to seeing the DOT following through with its commitment to digging into this and getting a thorough investigation into the practices that are taking place, because we please feel it's beyond anti-competitive. Oh, okay, I appreciate that barrier. Thanks for the time. Thank you.
Connor Cunningham: Now, next question coming from the line up. Connor canningham with melis research. You want us open.
Barry Biffle: Everyone, thank you. Just on the load factor decline in the second quarter, you know, seven points. You know, Ferris came down quite a bit. I would have thought that lower Ferris would have stimulated demand a little bit. Understand that there's over supply. But is it really just a function of where off PK is relative to peak today? Thank you. Yeah, look, I mean, we've gotten to the point where I think we have truly found all the demand there is.
Barry Biffle: I mean, we have consistently sold fairs and a penny to a dollar plus taxes and fees on a Tuesday, Wednesday and not gotten full, which tells you that there's just not that much demand. And we called this out. And I think we got a lot of grief for it year and a half ago that we called this travel pattern out. And there was I think some hope that that last Labor Day, that there was a lot of return to office was going to help mitigate this and change it.
Barry Biffle: But we're now several years into this. And so the travel patterns have become clear to us. And we're going to stop pushing on a string with this because it is clear to us that with the flexible work or you know, kind of work from home on a couple days a week, the two most common days that they're in the office is in Tuesday, Wednesday. And it is caused an environment where there's just not the demand.
Barry Biffle: And it's not just us. You can go to go look at your TSA numbers. You can go look at, you can go stroll through your favorite airport, and you'll just see it. I mean, there's just not the traffic in the airport. And this is a function of the travel patterns for the leisure people, but also the fact that the business is still down 20 to 25%. And so we see this to be a semi-permanent change, and so we're going to stop organizing our business around it.
Barry Biffle: We recognize we have too many pilots, we have too many flight attendants and everything in the near term, and we're carrying those costs. In the third and a little bit of the fourth quarter until we can kind of grow into it, until this reset takes place. But the reality is we think that this is kind of the new norm, you know, they, you know, the problem is, if they don't have those days off, it's hard for them to travel, even if the fares near free.
Barry Biffle: Okay, that's awful. And then in February, you laid out a plan to get to think it was 10 to 14% pretext margins in 2025, you know, obviously a lot has changed since then. One, are you continuing to expect that target just given the fact that, you know, you're all the prior changes you're making, making the cost savings and just curious on how you're thinking about that target that you laid out not too long ago.
Barry Biffle: Thank you. Oh, I think if anything, we're getting more confidence in that target. I think it's moved a little bit to the right because of the oversupply, but, you know, this is a tip for us as I wanted to quarter thing. And I think the most encouraging thing that I've seen is that, you know, pretty much universally the industry is responding to this capacity imbalance with with with demand. And history shows you that once people start cutting, they're not going to stop until they get to their target margins.
Barry Biffle: So we see a lot of, we still see a lot of excess capacity with several carriers out there. And we think that there's going to be a lot more coming. So yeah, it may, may take us a quarter or two further than we get we had, but no, we feel better about the target than ever. And it's become clear to, I mean, we said this back in February at the time, and we've debunked this cost convergence thing several times, but it has now become clear that our cost advantage is real.
Barry Biffle: It's durable. It's sustainable. And when we look into 2025, we see that continuing to expand. And so that's why we think that we will more than get there with all the industry capacity cuts that we expect over the fall and through the winter. Appreciate it.
Unknown Executive: Thank you.
Unknown Executive: Our next question coming from the line up. Thomas Gerald's with TD colony on his open. Hi, everyone. Thanks very much for the time. I'm just kind of curious your view on what the stage length going down, how large the premium opportunity could really be. It seems like the short of the stage length of appetite there is to pay up the cabin, but it could be thinking about that the wrong way.
Bobby Schroeter: Well, hey, first thanks, thanks. Congratulations on the new role there. So good to have you. Yeah, look, so at the end of the day, whether you're sitting on a plane for an hour or four hours, people like a slightly better seat, whether you're in that plane for an hour or four hours. Some people like the window and some people want an hour because they want to be near the bathroom. It doesn't change that.
Bobby Schroeter: So while there's a propensity for them to value it more, it doesn't mean they don't value it. And so from our perspective, what we've just seen with with the oversupply, you know, it's been more acute in some of the longer halls. But yeah, we're seeing good take rate. I don't know that we're going to actually ever know what it could have been on the longer stage because we may not have that stage ever again.
Barry Biffle: But we're seeing good take rates on it. Okay, thanks. That's really helpful. And then I guess just, you know, whether it's the macro or other issues, but if the downside scenario starts to play out, do you have any further flexibility with Airbus, your deferral orders or cancel? Because sometimes it just seems like the resolution is less playing some more. Thanks again, thanks again for the time everyone.
Barry Biffle: Yeah, look, I mean, where we're at, we believe, you know, that we can be profitable on the peak day. So it's not, it's not a shell count issue. It's more of a day a week issue and probably more season issue. So I think, I think the, I think the flexibility that you that we might need in that scenario, we've already demonstrated we have, we can, we can adjust that capacity. But I think that from a shell count, we don't, we don't see a need for that in our business.
Barry Biffle: And, and I would also remind everyone we're the lowest cost provider and that cost advantage is widening. And in any kind of recessionary environment, we're going to revert back to the mean. And that is Walmart, Costco, and the low cost carriers win in recessions.
Unknown Executive: Thank you.
Andrew Didora: And our next question coming from the line up, Andrew Dior with Bank of America. You let us open. Hey, good afternoon, everyone. Hi, it's Barry on the on the load factor point.
Barry Biffle: If you feel like you've tapped kind of all the demand there, why is 10% growth the next few years, the right level and why not, you know, keep maybe pushing out deliveries and cut capacity over the next few years. Well, the issue is that, that it was primarily the off peak days. So it's, it's not a, it's not an overall situation. It's, it's more off peak. We also, so, so we were also hitting the fourth quarter.
Barry Biffle: We still had a lot of the kind of oversupply stuff. We were in the middle of launching the new routes. So, had a lot of new routes. And you also had still kind of the many of the oversupplied routes. So as we continue to grow the demand pool. You know, we're up 50%. By the time we get to the fourth quarter, our total revenue pool is up 50% year over year. You know, when you look at the overall, you know, all the O and Ds were in.
Barry Biffle: So we just don't see that being a challenge. We're already seeing the load factors recover. And we're seeing the fairs recover. As I mentioned while ago, the September fair is up and we see it going up from there on moving forward.
Mark Mitchell: Okay, understood.
Mark Mitchell: And then big two quick modeling questions. You know, Mark, maybe one, you know, what stage length are you using? Are you factoring in this year just so we can, you know, get to an actual chasm number from the adjusted stage length adjusted chasm guide that you gave. And then just in terms of the order book change, you know, when we think about the 21 planes coming in next year, just from a sell these back gain perspective, anything change anything changed there?
Mark Mitchell: Should we continue to model in the recent rate of say 12 to $13 million per plane or will that come down? Thank you. Yeah, so two things. So from a stage perspective, you know, roughly 850, you know, would be the stage to target. And then when you look at the 21 aircraft next year, you know, the only nuance when you look, you know, this year to next year is that we do have about, you know, roughly a third of, you know, those deliveries next year. And we're going to be 320, you know, versus this year they were all. 321. So I'll lower rate per plane. Yeah, the 320 coming in a bit of a lower rate than the 321.
Mark Mitchell: So you just have that mix nuance outside of that, I think that's the only thing to factor in. Got it.
Unknown Executive: Thank you.
Unknown Executive: Our next question coming from Delina, Jamie Baker with JP Morgan Securities, Helena Salpin. Hey, I think so the questions. This is James on for Jamie. Most of the questions have been asked just thinking about the capacity that's been taking out the system in the second half of the year. You know, you talked about peak first off peak. Is there any geographic way you can break that down? You know, there's been Latin America pressures in prior quarters.
Unknown Executive: Is that the driver of that or are there other markets out there? Work types of markets that you're pulling from? Look, I think the only market or city that we I think we're really disappointed in was actually New Orleans. You know, when we look at the rest of the network, things kind of hit the averages and but I think New Orleans did drag it down. You know, we don't completely understand what happened there, but it just universally did not stimulate. Okay. That's there.
Unknown Executive: And then the new rules that mandate a refund for a three hour plus domestic delay, just high level thoughts. Are you are you seeing pastors that take that that are seeking that conversation or do you think they could they stick around for a rebooking? We we haven't seen a big change on that. I mean, the reality is that it's more troublesome. I mean, a three hour delay is uncomfortable and disappointing. But, you know, oftentimes when we have that delay, everyone else has the same delay. So is there generally weather related? It's not even measurable. I'm looking around the room or so. We haven't noticed anything measurable on that. Got it. I appreciate the questions.
Unknown Executive: Thank you.
Barry Biffle: And with that, I will turn the call back over to very before finding clothing. Hey, I want to thank everybody for joining us today. Again, I wanted to read our we're disappointed in the environment, but the good news is we're seeing green shoots with that and it looks like the bottom is in. I think you're going to see further past irrationalization as we as we move through the coming months into the winter.
Barry Biffle: And we're really excited about the kind of self-help that we've taken and all of the tailwinds that we've got on the revenue revenue side as well as the cost side. So we look forward to talking to you next quarter and updating you on the success with that.
Thanks for joining. Thank you, Saint John. That doesn't got confidence for today. Thank you for your participation. You may not disconnect.