Full Year 2024 Frontier Group Holdings Inc Earnings Call
Thank you.
Speaker Change: Good day and thank you for standing by. Welcome to the Frontier Group Holdings, Inc.
Speaker Change: Q4 and full year 2024 earnings call. At this time, all participants are in a listen-only mode. Please be advised that today's conference is being recorded. After the speaker's presentation, there will be a question and answer session. To ask a question, please press star 1 1 on your telephone and wait for your name to be announced.
Speaker Change: To withdraw your question, please press star 11 again. I would now like to hand the conference over to your speaker today, David Erdman, Senior Director, Investor Relations.
Speaker Change: Thank you and good morning. Welcome to our fourth quarter and full year 2024 earnings call.
Barry Biffle: On the call this morning are Barry Biffle, Chief Executive Officer, Jimmy Dempsey, President, Mark Mitchell, Chief Financial Officer, and Bobby Schroeter, Chief Commercial Officer.
Each will deliver brief prepared remarks, but before they do
Barry Biffle: Let me recite the customary safe harbor provisions. During the call, we will be making forward-looking statements which are subject to risks and uncertainties.
Barry Biffle: 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.
Barry Biffle: We will also discuss non-GAAP financial measures, actual results of which are reconciled to the nearest comparable GAAP measure in the appendix of this morning's earnings announcement. I'll now yield the floor to Barry to begin his prepared remarks. Barry? Thanks, David, and good morning, everyone.
Barry Biffle: Our fourth quarter results demonstrate the momentum of our commercial initiatives placing us on a trajectory for meaningful RASM growth and margin expansion this year, including our target of double-digit pre-tax margins in the summer.
Barry Biffle: Our fourth quarter adjusted pre-tax margin was 5.1%, significantly higher than the original guidance, resulting from the culmination of our revenue and network optimization initiatives and our long-standing commitment to cost discipline.
Barry Biffle: I'd like to thank Team Frontier for their contributions to achieving solid margins in the quarter and for our operational performance during the busy holiday travel season. While operating our busiest ever schedule in December, Frontier ranked second among U.S. carriers in completion factor.
Barry Biffle: We expect our industry-leading costs, combined with our continued progress on our commercial initiatives, will support significant margin expansion in 2025.
Barry Biffle: Our cost advantage is 48% in 2024 compared to 41% in 2023, and just 39% in 2019. And we will continue to leverage this advantage to stimulate demand and generate profitable growth.
Jimmy: I'll now turn the call over to Jimmy for a commercial review.
Jimmy: Thanks Barry and good morning everyone. Briefly recapping results, total operating revenue in the fourth quarter increased 12% versus the prior year quarter to a record $1 billion on 2% lower capacity.
Speaker Change: RASM was 10.23 cents, 15% higher, with stronger than expected demand in December. Departures increased 3% on an 8% shorter average stage.
Speaker Change: Total revenue per passenger was $117, up 6% versus the prior year quarter, due to a 26% increase in fare revenue partly offset by slightly lower ancillary revenue per passenger.
Speaker Change: We completed 2024 with a record 33 million passengers traveling with Frontier, 10% higher than 2023.
Speaker Change: We launched 22 new routes in December spanning coast-to-coast. Over two-thirds of these routes were launched from one of our 13 crew bases as we leverage our investments in these stations to build scale and reliability to our simplified network.
Speaker Change: The largest launch was from our Tampa base where we added service to Boston, Dulles, Chicago O'Hare, Portland and Burlington.
Speaker Change: And we added four routes from Chicago to Fort Myers, Tampa, Palm Beach, and Sarasota.
Speaker Change: We also continue to expand at LAX, adding service to Houston, Salt Lake City, Portland, and Seattle. Moreover, we launched new service to key leisure destinations Palm Springs and Vail Eagle, both accessible from our Denver crew base and other key stations including DFW and San Francisco.
Speaker Change: Looking ahead, our pivot to a more balanced capacity deployment is expected to enable Frontier to outperform domestic carriers on our RASM recovery.
Speaker Change: We invested heavily in adjusting our network throughout 2024 by initially reducing exposure to oversupplied markets, followed by managing our day-of-week capacity deployment to match demand patterns.
Speaker Change: This change, in addition to helping improve the margin performance of the business, has created a resilient network that enables speedy operational recovery from irregular operations.
Speaker Change: The setup of a more disciplined industry capacity deployment this year provides a positive backdrop for unit revenue improvements that meet our targets. Building on 2024, we have shaped our monthly capacity deployments to be at our highest in the peak travel periods.
Speaker Change: Capacity growth in the first quarter is expected to be up mid-single digits versus the prior year quarter. Average stage length this year will be marginally higher compared to 2024. As we finalize our schedules into the second half of the year, our expectation is that we will manage capacity to align with demand, and we'll provide more details as the year progresses.
Speaker Change: I want to congratulate our network and operations teams for all the great work that's been done establishing a 13-base network over the past 18 months.
Barry Biffle: We are seeing the benefit of our maturing base network, benefiting our revenue performance and, importantly, the operations performance of the airline. As Barry noted, we finished second in the industry in completion factor in December, inclusive of the busy holiday period.
Thanks, Jimmy, and good morning, everyone.
Barry Biffle: Beyond the operational improvements that Jimmy highlighted, we are also focused on enhancing additional parts of the customer experience in ways that drive demand, strengthen engagement, and create long-term financial value.
Barry Biffle: As part of the new Frontier, we are making targeted investments that improve how customers interact with Frontier at every stage of their journey.
Barry Biffle: Premium seating is a key focus, providing customers with more choice while driving revenue growth. Upfront Plus, introduced last year, has performed very well, attracting customers willing to pay for added comfort.
Barry Biffle: Building on this success, we will launch a two-by-two first-class product at an affordable price point in late 2025.
Barry Biffle: This will enhance the experience for customers seeking more space while attracting higher-yielding travelers who typically book premium products on other airlines.
Barry Biffle: We are also making significant upgrades to the digital experience. With more than 80% of customers using our app for check-in and airport services, we are launching a redesigned, more intuitive version to improve how customers interact with Frontier.
Barry Biffle: The Android app will launch very shortly, followed by iOS, with a redesigned website coming later this year.
Barry Biffle: This stronger focus on customer experience, coupled with our low fares, will naturally foster loyalty, and we are building on that foundation with strengthening frontier miles to drive greater engagement and long-term value.
Barry Biffle: Over the past year, we introduced free check bags for cardholders and simplified the path to elite status, making the program more competitive.
Barry Biffle: We recently announced plans to expand mileage redemption beyond airfare to include ancillary purchases.
Barry Biffle: We also introduced complimentary premium seat upgrades for elite members, and announced upcoming free unlimited companion travel for Platinum and Diamond members, both of which further enhance the appeal of elite status.
Barry Biffle: Since launching pre-checked bags in August and rolling out our latest program updates, we've seen strong early results.
Barry Biffle: Co-brand card acquisitions are up 35% and spend per cardholder increased 11% year-over-year in fourth quarter.
Loyalty remains a significant financial opportunity.
Barry Biffle: Today, our co-brand revenue per passenger is under $3 compared to over $30 at Legacy and other low-cost carriers.
Barry Biffle: Even capturing a fraction of the legacy in low-cost carrier levels represents a meaningful and achievable growth opportunity over the next few years.
Barry Biffle: All of these efforts, operational improvements, premium product expansion, digital enhancements, and a more rewarding frequent flyer program, work together to create a smoother, more enjoyable travel experience while diversifying revenue and strengthening Frontier's financial position.
Barry Biffle: By offering more choice, improving the travel experience, and increasing reliability, we are deepening customer engagement, strengthening our brand, and driving both near and long-term value for our customers and the company.
Mark: With that, I'll turn it over to Mark for the financial update.
Thanks, Bobby, and good morning, everyone.
Mark: Briefly recapping the quarter, total revenue was just over $1 billion, 12% higher than the 2023 quarter.
Mark: Fuel expense totaled $229 million, 24% lower than the 23 quarter, driven by a 22% decrease in the average fuel cost, which was $2.48 per gallon for the quarter.
Mark: We also generated a record 106 ESMs per gallon during the quarter, a 1% fuel efficiency improvement over the prior year.
Mark: Adjusted non-fuel operating expenses were $728 million. Within guidance were $0.0695 per ASM on a stage-adjusted basis to 1,000 miles.
Mark: The increase from the prior year quarter is mainly due to a 15% reduction in average daily aircraft utilization resulting from our disciplined capacity deployment that has proven to be margin accretive.
Mark: an increase in airport costs due in part to a larger proportion of high revenue pool stations in our mix, partly offset by our cost savings program launched in the third quarter of 2023.
Mark: The 2023 quarter also includes a $36 million reduction in fleet-related costs driven by the extension of four aircraft leases.
Mark: On a full year basis for 2024, adjusted chasm excluding fuel, stage adjusted to 1,000 miles, was down 1.2% versus the prior year, consistent with guidance.
Mark: Fourth quarter pre-tax income was $51 million, yielding a 5.1% margin, and net income was $54 million, or $0.23 per diluted share.
Mark: Net income includes a three million dollar income tax benefit resulting from the release of the valuation allowance related to our net operating loss deferred tax asset in Conjunction with the pre-tax earnings generated during the quarter along with the impact of share based compensation activity
Mark: We ended the year with $935 million of total liquidity comprised of unrestricted cash and cash equivalents of $730 million and $205 million of availability from our undrawn revolving line of credit.
Mark: Our total liquidity represents approximately 25% of trailing 12-month revenue, a significant increase compared to 21% at the end of September and 17% at the end of 2023.
Mark: The increase versus the prior quarter is driven by the 64 million of EBITDA generated in the fourth quarter, 40 million of proceeds received from the legal settlement we disclosed previously,
Mark: other working capital benefits and PDP related activity partly offset by approximately $30 million of capital expenditures.
Mark: We had 159 aircraft in our fleet at quarter end after taking delivery of six A321neo aircraft during the fourth quarter, all financed with sale-lease-backed transactions. We expect to take delivery of four A321neos in the first quarter, all of which have committed sale-lease-backed financing.
Mark: To recap our fleet plan for the remainder of the year, we expect to take delivery of another four A321neo aircraft in the second quarter and two in the third quarter, while the eleven deliveries expected in the fourth quarter will be split by type, three A321neos and eight A320neos.
These expected deliveries also have committed sale-leaseback financing.
Mark: Our first quarter and full year guidance was published in the earnings announcement we issued this morning. We made the decision this quarter to narrow our guidance metrics to EPS, CapEx, and PDP in order to more closely align expectations with our focus on delivering bottom line results.
Mark: per share in the comparable prior year quarter driven by the continued strength expected from our revenue and network initiatives.
Mark: We expect full year 2025 adjusted diluted EPS to be at least one dollar per share based on the blended jet fuel curve on February 4th, 2025.
Mark: We expect to maintain a cost advantage of over 40% this year based on peer consensus and our internal forecast.
Barry Biffle: Capital spending, including capitalized heavy maintenance, is expected to be $175 to $235 million, and pre-delivery payments, net of refunds, is expected to be $10 to $45 million. With that, I'll turn the call back to Barry for closing remarks.
Barry Biffle: Thanks, Mark. The transformational changes we've implemented during 2024 creating a strong foundation for margin expansion in 2025 with double-digit pre-tax margins expected this summer.
Barry Biffle: And I'm proud of Team Frontier for their contributions to this improved outlook, and I'm excited to be working alongside them as we deliver an exceptional customer experience and the best overall value in air travel.
Barry Biffle: Before we turn to Q&A, I wanted to make a brief statement to address our proposal for buying with Spirit that we disclosed last week.
Our proposal offers more value than Spirit Standalone's plan.
Barry Biffle: This includes substantial value for equity holders who will otherwise receive nothing through Spirit's plan with the Bankruptcy Court.
Barry Biffle: As a combined airline, we would be positioned to provide more options and deeper savings, as well as enhanced travel experience and service for consumers. We would also be able to provide better career opportunities for team members.
Barry Biffle: We stand ready to engage with Spirit regarding our proposal and note their disclosure yesterday to extend the tender deadline for their equity rights offering by a week. We obviously know Spirit very well and are prepared to move quickly to engage to make this compelling opportunity happen.
Barry Biffle: With that said, today we're here to discuss our 2024 financial results and go-forward guidance. We ask that you please keep your questions focused on these topics.
Barry Biffle: Thanks again for joining us this morning. Operator, we're ready to begin the Q&A segment.
Speaker Change: Thank you. As a reminder, to ask a question, please press star 1 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 1 again. One moment for questions.
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Speaker Change: Our first question comes from Brandon Oglenski with Barclays, you may proceed.
Brandon Oglenski: Hey, good morning, everyone, and thanks for taking the question, and Barry, good to see the stock up today.
Speaker Change: You know, your guidance didn't provide a lot of details on the metrics, and I guess in some sense that's actually refreshing, but can you give us, you know, a sense of where you're seeing some of your unit trends on revenue and cost and how you think that's going to play out in 2025 within the context of the guidance range?
Speaker Change: Well, look, I mean, you can see very clearly that our revenue trends are really performing well, you know, on the heels of...
what we've done in the network.
Speaker Change: which was mainly, you know, started last year kind of in the May-June time frame. So we'll kind of annualize that by the time we get there. So there's still a lot kind of in the tank, if you will, just from the network initiatives. And we're really just getting started kind of on the new frontier. So we made the merchandising changes, but all of the premium focus that Bobby mentioned with the seating, the first class doesn't even begin until the end of this year, and the loyalty, there's just a lot of tailwinds still to come on the revenue side.
Speaker Change: On the cost side, as Mark mentioned, we're planning to continue to maintain over a 40% cost advantage, which will be up versus 2019, so we have pretty much ensured that our place
Speaker Change: even including potential labor contracts in the future will ensure that we continue to main our cost advantage versus our peers.
Brandon Oglenski: Appreciate that Barry and then maybe can you elaborate a little bit more because you've had so many changes on the commercial side like
Speaker Change: What initiatives are gaining traction right now, because I know first class isn't going to be for another year, right? But are you seeing traction with some of the premium options you've already put in the market and the bundled fares that you launched last year?
Speaker Change: Yeah, Brandon, it's Jimmy here. Look, we've spent the last about 18 months
Speaker Change: and trying to adjust our network to meet the demand patterns that exist in today's environment. You know, as you move beyond the COVID recovery period.
Speaker Change: and into normalized kind of growth in the industry and also reflecting on overcapacity that we saw in certain markets that we flew to kind of at the back end of 2023 and into 2024. And so what we've done is really shaped the week
Speaker Change: in a better way where we focus a lot of our flying on peak days and it goes to the expense of off-peak days of the week and so we're obviously seeing an improved unit revenue performance as a result of that network shaping.
Speaker Change: But we've also launched over that period quite a dramatic change in the way we operate our business with an out-and-back network from 13 bases across the United States.
Speaker Change: And we suffered from immaturity throughout last year as we established that network. One of the things that you're seeing from a revenue perspective...
Speaker Change: is some maturity coming into that business and where bases that were launched in March, April, May last year are, even though they're still in the first year of operation, they're starting to mature and mature relatively quickly.
Speaker Change: And we saw that in the peak period in December, where we outperformed our own expectations in terms of revenue performance. And we're seeing really strong demand patterns across that network, particularly focused on that peak days of the week.
Speaker Change: I'll hand it over to Bobby to talk about some of the diversity products that we're launching and progressing through this year to build a stronger, more diversified revenue base, which will be foundational for the business for the next three or four years.
have near and long-term revenue benefits.
Speaker Change: Of course, we've talked before about the premium seating that we've put in place. We're seeing revenue benefit right now from what we implemented last year with Upfront Plus.
Speaker Change: You know, very good load factors within that, still some upside opportunity that exists there and upside opportunity that exists when we think about how do we make that more flexible within the cabin as well when we introduce what's coming later in the year with the 2x2 first class product.
Speaker Change: So, quite a bit of opportunity there just in terms of direct sales.
Speaker Change: Some of the things that we've started tying these experiences into and really what's a big focus on us in the near term in terms of transforming but
Speaker Change: Something that we think is a very large level of value, but will take some time to achieve that value is the loyalty program.
Speaker Change: And so, you know, we made a variety of changes within the loyalty program over the past year and more recently, you know, some of the big things that we introduced there are tying into some of these premium products. So we think about this as this ecosystem that we can play into and utilize to provide a better experience.
Speaker Change: create more appeal around the elite side and frankly with that better experience overall that'll create more loyalty that'll want people to engage more more on the loyalty program itself. So we saw on recent benefits I already talked about that in the initial comments.
Speaker Change: But we anticipate that growing as we move through and people start to understand and see those benefits.
Speaker Change: You know, other carriers, one of the things that they have are a tremendous amount of folks who have status but aren't able to actually capture value within that status.
Speaker Change: We're going to be able to provide value to folks like that. So we're excited about what that is. Like I said, we're under $3, frankly, per passenger. Other carriers are $30 and over. We're not sitting there saying that we're going to absolutely get to that level, but even a fraction of that is a massive opportunity for us.
Speaker Change: that we're moving towards very quickly. And we anticipate, again, seeing some near-term value, but the biggest amount of value is gonna come over the course of a few years within that.
Thank you.
Appreciate the detailed response. Thank you.
Thank you.
Thank you.
Speaker Change: Our next question comes from Michael Lindenberg with Deutsche Bank. You may proceed.
Thank you.
Michael Lindenberg: Good morning everybody. Can you talk about the month of December looked exceptionally strong from a RASM perspective and I get the sense that that's going to carry through into the first quarter but then how much of an Easter effect is going to impact you if anything?
Yeah, Michael, I can start. Look, I think.
Michael Lindenberg: December was very strong. We finally got a lot of our changes in, kind of the day of week changes, as well as we're starting to see a little bit of the maturity.
Michael Lindenberg: start to come into the markets as Jimmy mentioned. The Easter effect is going to be a drag on on on Q1. It's it's always difficult to tell and I don't think we've had it quite this late kind of post-pandemic in this full recovery but it's it's at least one to two points.
Michael Lindenberg: on the quarter, and we see pretty strong march as a result. Generally speaking, and we've talked about this a lot and looked back, it's generally good for the front half.
Michael Lindenberg: Even though it's a drag on on q1 right so so even if you get it up to two point hit your overall for for the first half will actually be better because q2 is going to be that much stronger.
Speaker Change: Yeah, and I would just add, I mean, on the spring break periods, which obviously go in that, seeing good demand there, some of the big bases we have actually for spring break have those.
the spring break in the March time period.
Speaker Change: And our network planning team, of course, considers that when we're thinking about capacity planning. So there is a drag in that regard. There's also, you know, from a spring break period perspective, some of that actually cuts into March itself. Yeah, and just to add to what the guys have said, you know, Michael, you look at this closely, right, in terms of the capacity deployment.
for March and April.
Speaker Change: You'll see that there's significantly more capacity deployed in the peak travel weeks of March and the peak weeks that we see.
Speaker Change: in April and so that's one of the things that we're doing that's a little bit different than what we previously did when we deployed capacity.
We're trying to match as best we can.
Speaker Change: You know, the assets that we have in the business, like pilots and obviously aircraft.
to outperform in peak weeks of the year.
Speaker Change: and then manage the business through the off-peak periods. And I think that's one big change that's happened in the business in the last 12 months.
Speaker Change: And you can see has been quite positive in terms of the performance in the fourth quarter, which really was the first quarter, full quarter, that we deployed this network.
of managing off-peak days and peak days.
two-thirds of the week and the week ending.
Schroeter.
in a better fashion.
Thank you.
Great. Thanks. And just my follow-up, I guess, to Mark.
You know, when we think about...
where you're headed from a profitability perspective.
Speaker Change: You know, we're going to start seeing, you know, taxes, you know, feature more prominently and yet we could see that in this quarter, you know, you're getting benefits.
Speaker Change: How should we think about your NOL position, which I think is actually pretty sizable and what that, you know, from...
Speaker Change: a cash taxpayer perspective, are we not going to see you paying any cash taxes until maybe late this decade? How should we think about it as we're modeling your cash flows out over the next few years? Thanks for taking my question.
Speaker Change: Yeah, no problem, Michael. Yeah, so from a high level, when you look at, you know, number one from a rate perspective
Speaker Change: The valuation allowance that is remaining, as that valuation allowance is released, as we generate earnings, it will impact our rate. There's roughly $19 million of that allowance remaining as you look into this year.
And then when you think about the...
Speaker Change: The Cash Tax Opportunity, so beyond, you know, the shield that is tied to that, you know, valuation allowance, there's another, you know, roughly
Speaker Change: 30 million or so, you know, cash opportunity. And so, you know, based upon the earnings we expect to generate this year, you know, we certainly think we'll be able to, you know, take advantage, you know, of that NOL benefit, but this isn't going to be a multi, a multi-year, multi-year item.
Okay, thanks for the clarifying.
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Thank you.
Speaker Change: Our next question comes from Duane Pennyworth with Evercore ISI. You may proceed.
Speaker Change: Hey, good morning. This is Jake Gunning on for Duane. Just given all the network changes that you had in 2024, I know you're keeping it high level. Can you just maybe speak to the network priorities for 2025?
Thank you very much. Thank you.
Speaker Change: As the airline grows in the next 2-3 years, you'd expect to see us advance from 13 bases to more bases. I'm not going to pre-announce where they are, but as we see a benefit both from a revenue and commercial perspective, but importantly also from an operational perspective.
basis for our airports performing well for the business.
Speaker Change: We'll move to have more than 13 bases as we deliver the aircraft from Airbus and grow the airline. We like the shape of the 13 bases across this year. We may seed some bases going into 2026 and 2027.
Speaker Change: that advances the network. But it'll be similar to what we've done in the last year and a half, just maybe not as aggressively as we changed through 2024. So more modest immaturity in the business.
Speaker Change: and getting the benefit then of maturity coming into the business from stabilization in these in these in these base net airports and also the airports that we we fly to from those from those locations.
Speaker Change: Look, our maturity profile in our business is far, far stronger.
particularly in Q2 and Q3 this year.
Speaker Change: than it was in Q2 and Q3 last year, where we tried to push the airline back to a full utilization basis and grow seat capacity quite aggressively. That led to quite an immature network that is lapping now, which is a good thing. And you're starting to see that in the results of the business.
Okay, and then...
Speaker Change: Just to clarify on the cost advantage spread to competitors, is that total chasm plus net interest?
Speaker Change: You're targeting 40% on that, but are there any quarters in the year where you would expect that to expand or contract, just given any lumpiness in your costs?
Speaker Change: Yeah, so first of all, yeah, that is the total chasm plus net interest. So, I mean, as we think about costs, it's important to us that we're looking at, you know, costs overall. So anytime we've given that metric, we're looking at it, you know, in total. And we've got a footnote in the release that speaks to, you know, the specific calculation.
Speaker Change: But then beyond that, you know, I don't, you know, we're not getting into specifics for the quarter. I mean, we have worked very hard to remain, you know, cost-disciplined, obviously have increased.
Speaker Change: That advantage, and as we progress through this year, what we think is important is that we remain committed to being cost-disciplined, and we remain committed to having that advantage be over 40%.
Thank you.
Speaker Change: Our next question comes from Savvy Sith with Raven James. You may proceed.
Speaker Change: If I look at your, kind of taking a step back, if I look at one fresh quarter, it looks like you're seeing, you know, three to five points of year improvement in margin.
Speaker Change: And to get to kind of double digits by the summer, that kind of requires 7 to 10 points. So maybe you're halfway there. I am guessing most of that kind of comes from the revenue side. I was wondering if you can talk a little bit about, you know,
Speaker Change: How much of that comes from maybe your market maturity, you know, being higher than it is today, or maybe the premium products doing better than today? Just trying to understand what drives that kind of incremental, you know, three to five points of margin improvement.
versus what you're already seeing in the first quarter.
Speaker Change: Yeah, oh you go. Yeah, thanks Danny. So, so I think first remember
Danny: That 3-5 points is kind of including Easter, so it's really more like 5-7, I think.
then the bridge, then just seasonality alone.
Danny: pretty much what should get you to your ten points by summer. But in addition to that, you've got the market maturity that we've talked about coming in as well as the other revenue initiatives, so you just look at those.
Danny: kind of trajectory, it's becoming pretty clear to us. And I think the other thing you can do is you can just look historically, kind of relationships.
Danny: Just look at the sequential, you know, 4Q to 1Q minus Easter. Seasonality, I think you just get there, but yeah, on top of just seasonality, you've got plenty coming in from from network maturity and from revenue initiatives.
Danny: And I know you mentioned just, you know, giving further color on capacity.
Speaker Change: later on. I'm wondering if you could kind of help guardrail that for us and to kind of add a final point to the maturity comment, like where are you in terms of, and I'm guessing that that applies to like percentage of new markets, like how do you see that progressing over the next few quarters and like where is it today and how do you see it progressing?
Well, we have flexibility in our capacity and so...
Speaker Change: As you can see, I mean, we just closed the near term, but...
Speaker Change: You know, we don't see a whole lot of growth in the first half for sure. We're looking at the second half and we're monitoring it, but we're not going to commit to a capacity growth number until we see where things are at. We have flexibility with utilization and other things we can do, and we're committed to an earnings number.
Speaker Change: And so if we see the RASM not coming in, we're going to dial back capacity. If we see getting significantly ahead, we have the opportunity to play with several points there in capacity. So we're not going to commit to that yet until we see how the summer starts to shape up, and we'll know that probably in the next few months.
Speaker Change: And on the maturity side, I'm sorry, just how many, like what's the percentage of new markets today versus like where it will be in the next couple of quarters?
Speaker Change: It will continue to go down as a result of the maturity.
Speaker Change: Yeah, we get closer to more historical norms. I mean, it's been high, of course, as you've seen over the past really six months plus, so that'll shrink, as Barry said, as we progress through.
Speaker Change: I mean, to put numbers on it, Savvy, we had immature markets of well over 20% last year.
haven't actually performed for more than a year yet.
Speaker Change: But they are maturing and maturing relatively quickly and so I think the the network team
has deployed the aircraft in a way
that allows us to manage the business this year.
Speaker Change: without carrying a significant portion of immaturity. And so having less than half the immature network that we had last year is really helpful to us.
All very helpful, Collette. Thank you.
Thank you.
Speaker Change: Our next question comes from Ravi Shankar with Morgan Stanley. You may proceed.
Ravi Shankar: Great, thanks. So great to see the the improvement kind of as you had
Ravi Shankar: said last year are going to actually coming through with a double-edged sword, etc.
Speaker Change: So, over $1 earnings in 2025, how do you think about that in terms of a normalized EPS and the out years, where's the ultimate destination here? Obviously, I'm not asking you for 2026 guidance, but what do you think you can achieve when this is fully normalized?
Speaker Change: Look, I think if we get to 10% margins, you can kind of do the math. I mean, you know, we're trending to, you know, call it $5 billion airline by next year, we've actually got some filings out there, you could go look where we think this is headed, so.
Speaker Change: Got it. And just in terms of the premium traction here, kind of...
Speaker Change: I think there's some debate as to ultra-low-cost carriers putting in premium products on their plane and what the reception is going to be. So have you guys commissioned the customer surveys? What's the initial reaction of the customer feedback to the potential for you guys putting in a first-class product and a co-brand and trying to launch somewhat of a more premium product here?
Speaker Change: Well, I'm glad you asked that. So the feedback was good. We surveyed, but we got something better than that. We actually launched our Upfront Plus product, which is just a blocked middle seat European style business class, and we achieved over 70% sold load factors in the fourth quarter.
and that's within six months of launching it.
So, we're pretty jazzed about our customers.
Speaker Change: looking for a premium experience. And we're not attracting, we're not stealing share or anything. This is just customers that were already on board willing to pay for a better experience. So they're telling us, yes, that they want first class, but we're focused on the data. And the data says that the consumers have changed and they're willing to pay for a premium.
and David Brock.
Speaker Change: and we're excited to deliver it to them. Yeah, and I just add, I mean, look, we can deliver this at a lower cost.
Speaker Change: So when you talk about the affordability of these products, that to us, combined with the survey and the data we have from UpFirm Plus, says that this is a really good product force that should be accretive.
Thank you.
Thank you.
Speaker Change: Our next question comes from Scott Group with Wolf Research. You may proceed.
Speaker Change: Hey, good morning. This is Ryan Capozzi on for Scott. So, last year on about 5% capacity growth, load factors were down 4.5 points, but yields were up double digits.
Speaker Change: Just curious how you see this load-factor-yield dynamic playing out this year, given another year of roughly mid-single-digit growth.
Speaker Change: One thing I would point out is that we report flown.
Speaker Change: not booked. So, you know, we tend to trend between seven to nine percent.
Speaker Change: no-show, which is up significantly since pre-COVID. So I think you need to add a few points to kind of normalize. But the biggest issue has been, you know, we continue to see it. Tuesday, Wednesday, Saturdays are just not...
Speaker Change: in demand like they were pre-COVID, and that's why we've reshaped the capacity to that demand.
Speaker Change: And so, I think you're going to see load factors improve because of that shaping as we get through the year. Now, if you work from home, go back and...
Speaker Change: and kind of shift and people go back to more normal patterns than I think Tuesday, Wednesday might improve again. But right now, we're not making that change.
Speaker Change: to increase utilization on Tuesday and Wednesday until we see it. I know there's a lot of discussion now recently.
Speaker Change: about how much more people going back to the office will start to improve the Tuesday-Wednesday for the industry. But I think that's going to be something that ourselves and I would suspect the whole industry will watch this year, and I think it's probably a benefit to 26 and beyond, but not yet.
Speaker Change: Got it. Helpful color. And then just within revenue last year, you know, average fares were up modestly, but ancillary revenue per pastor was down high single digits. Just curious how you see these two segments sort of unfolding this year and maybe even into into next year.
Yeah, don't underestimate the
Speaker Change: the impact that stage has on unit revenue performance or unit per passenger performance.
Speaker Change: I mean, we shrunk the stage quite dramatically last year as we deployed the new network.
And so it drives more sectors per day per aircraft.
Speaker Change: more passengers but slightly less revenue on a unit basis from an ancillary perspective in the business. We like the shape of the network you can see the results that are coming and so got a balance.
Speaker Change: the way we've shortened the stage a little bit with you know the unit performance of ancillary products.
Speaker Change: I mean, we're really focused, if you can listen to what everybody is saying on this call, we're very focused on the bottom line and performance to hit the bottom line, and we feel a shorter stage with more departures per aircraft per day is a good place for the airline to be in today's environment.
Speaker Change: And that drives the metric like you're seeing in terms of non-ticket being slightly down.
Great. Thanks, guys.
Thank you.
Speaker Change: Our next question comes from Chris Stathalopoulos with Susquehanna International Group. You may proceed.
Morning, thanks for seeing my question.
Speaker Change: A detail given on capacity or how we should think about it, different data points here. So your selling schedule as I see it now is 5% in one cube.
Speaker Change: 3% in 2Q, I guess that's still maturing. You said you don't see a lot of growth in the first half.
New markets are lower.
If you just want to, if you could...
Speaker Change: I want to better understand the composition here of capacity for the year, right, because not all capacity is created equal, etc. But maybe if you could speak to how you're thinking about frequencies, peak versus off-peak.
Speaker Change: Stage Gauge, and then markets where we would expect to see meaningful growth versus deceleration. Just want to kind of tie up all the points here you've given us on capacity for this year. Thanks.
Speaker Change: And that's going to mean that we continue to focus on peak periods, as Jim and Jimmy mentioned earlier, but most importantly, peak days of week.
Speaker Change: And so we are looking to run maximum utilization on your kind of Thursday, Friday, Sunday, Monday. And do more maintenance and get the fleet back ready on those other days.
Speaker Change: And so I think that's where you're going to see us concentrate. We're going to fly on the days and periods people want to go, and we're not going to chase utilization.
Speaker Change: What we've seen, looking across the industry, and I think this is globally, you know, the aircraft rent is important, but the variable costs are real, and you've seen some of your largest variable increases, as a percentage term, on the airport side.
Speaker Change: and as well as fuel is considerably higher versus say 2018-2019.
Thank you.
Speaker Change: So, you have to be very conscious of kind of that last seat. It may impact your chasm negatively, but as you've seen, we're doing lower utilization, higher chasm, higher margin.
Speaker Change: as a result. And as I always joke, the best way to stop losing money is to stop doing things that lose money. And last year, flying on Tuesdays and Wednesdays, was losing money.
Speaker Change: the future kind of second half. We will continue to focus on kind of the you'll see a lot more of the first half if things don't change if they were improved a little bit if we saw a little bit Tuesday Wednesday there's the ability to add some more but we're not planning on it at this moment.
Okay, that's it for me. Thank you.
Thank you.
Thank you.
Speaker Change: Our next question comes from Jamie Baker with J.P. Morgan. You may proceed.
Speaker Change: Hey, good morning. This is James, on for Jamie. I appreciate the fleek comments in the pair of remarks. Is there any reason to think that the level of sale of these spec premiums realized in 2025 will deviate materially from the ones realized in 2024?
Speaker Change: I mean, from a sale-leaseback perspective, you know, so the key change year over year is just, you know, tied to the number of inductions. So, you know, we had 23 and 24. We'll have 21, as we highlighted, you know, for 25. And not only the numbers it's down to, but then the mix. It was all 321s and 24, and you'll have 8 of the 21 and 25 that are 320s. So, you know, relative to the premium tied to each of those, you know, there's no issue.
Speaker Change: but that, you know, there will be a difference, you know, tied to the number and the mix.
Speaker Change: Got it, that's helpful. And for my second question, there's been a lot of calls for air traffic control reform in the recent days, and I think you guys have been vocal on that in previous quarters. Have you ever done internal modeling in terms of how much incremental capacity successful ATC reform could generate for you guys holding pilots and aircraft consistent?
Speaker Change: Yeah, so, yes, I've been vocal and I know I guess it was repeated again some of the things I've said last year here recently. Look,
Speaker Change: First, our hearts go out to those folks that were impacted. That was a horrible incident, and hopefully we can stop any of that kind of thing happening in the future. But the truth is that we are understaffed.
And there's, you know, some pretty long...
Speaker Change: lead times to training someone new. I was excited to hear last night the Secretary of Transportation talking about some things that we've talked about for a while, which is potentially extending the age from 56
Speaker Change: As I understand it, there's a significant amount of trained, capable folks, very seasoned that I think could be added quickly so you could increase the supply and get us back staffed pretty quickly by increasing the age.
Speaker Change: I mean, quite honestly, we allow you to fly as a pilot to 65, but we cap you at 56 for an air traffic controller. Which one of these numbers is wrong?
And I would argue that
Speaker Change: in a kind of an ATC environment, there's likely someone down the...
Speaker Change: you know, down the chain, you know, if you're worried about a health issue, there's probably someone could step in a lot quicker than if you're at 36,000 feet.
Speaker Change: So, I think that is a practical approach that's really exciting to me to hear them talking about that, and I'm really excited for them to be focused on safety and getting the numbers there. The second part of your question, though, with regard to modernization.
Speaker Change: I've seen a lot of different studies on this. We don't necessarily have the capacity ourselves to model this, but I've seen multiple studies. And it ranges somewhere between 18 and 22 minutes, I've seen, in terms of savings per flight in the United States. And that would come from kind of two...
Two areas. One is just more efficient flight planning.
Speaker Change: solutions, but also what happens on IROC days, all the different holds and so forth. So that's a significant amount of savings in terms of applying fuel and so forth. But I think it's two part.
The pre-planned flight part
Speaker Change: could add incremental utilization and actually, you know, save consumers more money because there could be more flights, etc.
Speaker Change: The second piece is that it would improve the overall experience, because you simply would be able to get rid of inefficiencies related to IROP events. So I think you'd get a little bit of efficiency, but you would also get better experience for consumers. And quite honestly, above all, getting back to the original.
Speaker Change: component, which is safety, I think you'd have a much safer system. So I'm really excited about them getting the staffing fixed and and secondly working on the modernization of air traffic control. It's been far too long and I'm glad that this is now finally a focus.
Got it. Thanks for the call Barry
Thank you.
Speaker Change: Our next question comes from Thomas Wadewitz with UBS. You may proceed.
Speaker Change: Good morning, this is Atul Maheswari on from Tom Warovic. Thanks a lot for taking our questions.
Speaker Change: So, just circling back on the new market maturity topic, can you provide some perspective on how much are RASMs?
Speaker Change: or profit margins in those immature markets below that of the mature ones. Just any color there that can help us to eventualize what's possible as those those those markets mature.
Speaker Change: Yeah, look, so when you put in new capacity, you're going to take a...
you know, 30 to 35 percent hit on RASM.
Speaker Change: versus the average in the first year. And so, you know, if you just do the math, right, if you had 20% incremental growth...
Speaker Change: versus kind of your baseline from before, 20% times 30, 35%, that's 6 to 7%.
on the system. And so it's just mechanical.
the maturity that takes place.
Speaker Change: once you get to year over year. That's why when you say where we're at now, you just take Q4 and kind of roll that forward both seasonally as well as just market maturity. You solidly get into the double-digit margins by summer.
Speaker Change: And just to add to what Barry said, you know, we're pretty aggressive in how we manage a network. You've seen that over the last few years.
Speaker Change: If we're not seeing a root mature and move beyond like a 70% of what the rasm should be on that root and start to creep up to to a hundred percent over time, we will cut it. And so part of our immaturity in our business
Speaker Change: is replacing immature routes that are not performing with new routes, in addition to immature activity that comes from aircraft deliveries and growth in the business.
Speaker Change: And so we are very, very focused on that in here, and we watch the performance of the immature markets.
Speaker Change: and are not shy to remove them if they're not performing. We don't hold on to things for very long. So you can take comfort in the fact that the stuff that we're holding on year over year is performing and is heading on a trajectory to get to either a network average or above the network average.
Speaker Change: And then the stuff that's taken out may not have worked for us for a variety of different reasons and we're not going to hang on to it. That's a good component of how we manage the network here.
Speaker Change: And you saw that, actually, quite aggressively throughout last year as we redeployed assets. And now you're starting to see that redeployment work and some maturity develop as a result of that.
Speaker Change: Just for this year, it would seem like there are some cost pressures in the business, either from, you know, maybe lower sale leaseback gains, higher rent, or other cost pressures. But will next year, that is 2026,
Speaker Change: Will that be a cleaner cost here or does a potential pilot deal mean 2026 is going to be an inflationary year as well?
Speaker Change: Yes, I mean, as we've continued to prove, I mean, we are very focused on cost, remain cost-disciplined. We've grown our cost advantage, and so, you know, that will continue to be a focus as you look at...
Speaker Change: 25, as we've mentioned, you've got a number of commercial initiatives that are going to drive some movement in the chasm, but any of those decisions are tied to disciplined capacity deployment driving the maximum margin. And then beyond that, we touched on the fleet impact, but you also have the full year benefit of the cost savings program we talked about.
Speaker Change: are a number of pieces and parts, but at the end of the day, we're focused on driving the lowest cost number possible. And as you look to 26.
Speaker Change: and think about, you know, a potential, you know, labor deal, you know, what we highlighted is being over 40 percent, that's inclusive of, you know, a deal. So, I mean, we're very focused on, you know, keeping that above 40 percent cost advantage.
Great. Thank you very much.
Thank you.
Speaker Change: Our next question comes from Tom Fitzgerald with TD Cowen. You may proceed.
Tom Fitzgerald: Hi, thanks so much for the time. Jimmy, just on your last answer, how many months of data do you need to see before determining if a route is working or if you need to cut it? Is that like a six-month thing, a little bit less, a little bit longer?
Tom Fitzgerald: I mean typically six to twelve months but like I mean we can we can all we also watch how it's performing in the run-in to operating the route so between announcing it and actually
Tom Fitzgerald: the first departure and we can see the trends that are coming and obviously we have a significant history of growth and managing immaturity in our business.
Tom Fitzgerald: You know, you're very confident that it's maturing in a very strong fashion.
Tom Fitzgerald: But it can happen at any point after you've put it on sale.
Tom Fitzgerald: where you actually see the activity that's happening in the business. And so we have cut roots relatively shortly after launching them.
Tom Fitzgerald: because the market isn't there that we thought maybe was there, or you see a competitive dynamic that crops up that we want to deploy the capacity somewhere else.
Tom Fitzgerald: and an opportunity exists somewhere else and we move it because of an underperforming immature market.
So it's very fluid.
It's the best way to put it.
Speaker Change: Yeah, that's very helpful. And then just as a follow-up, would you mind just providing an update on your customer demographics, just given all the changes in the business and all the product changes you're announcing, both within the cabin and on the loyalty side. I'd just love to hear what you're seeing by age cohort and then income cohort. Thanks again for the time.
Yeah, so some of the changes that we've
have created benefit in terms of what we're seeing.
on the demographic side. We've seen...
Speaker Change: An increase, actually, on the business side, in terms of the travelers there, incomes have gone up. Specifically, you know, I talked earlier about credit card applications and the things that we're seeing as it pertains to the frequent flyer program.
Speaker Change: those in terms of in terms of incomes and FICO scores have gone up.
Speaker Change: fairly dramatically. So, the things that we're doing, we're excited about the, you know, folks that we're providing premium products to. These are, you know, the demographics are moving in the right direction that'll be able to purchase that and engage with that. So, overall, good movement we've seen there.
Speaker Change: Thank you. I would now like to turn the call back over to Barry Biffle for any closing remarks.
Barry Biffle: I just want to thank everybody for joining. We're really excited about 2025 and what we have in store. All the hard work our team has done in 2024 is really paying off and we're excited about the future. Thanks again for joining and we'll talk to you next quarter.
Speaker Change: Thank you. This concludes the conference. Thank you for your participation. You may now disconnect.