Frontier Group Holdings, Inc. (Nasdaq: ULCC), parent company of Frontier Airlines, Inc., today reported profitable results for the fourth quarter of 2022 on strong revenue performance, including record ancillary revenue per passenger, and an improvement in unit costs.
Fourth Quarter 2022 Highlights
- Achieved total operating revenues of $906 million, 38 percent higher than the 2019 quarter on 15 percent higher capacity resulting in a 21 percent increase in revenue per available seat mile (“RASM”) over the same period
- Generated record ancillary revenue of $82 per passenger, 41 percent higher than the 2019 quarter and five percent higher than the prior quarter
- Since exiting the pandemic, realized the lowest cost per available seat mile (“CASM”) of 9.93 cents, CASM (excluding fuel), a non-GAAP measure, of 6.43 cents, and adjusted (non-GAAP) CASM (excluding fuel) of 6.40 cents
- Realized a pre-tax margin of 5.5 percent and an adjusted (non-GAAP) pre-tax margin of 5.7 percent
- Ended the quarter in a strong liquidity position with $761 million of unrestricted cash and cash equivalents, or $332 million net of total debt
- Took delivery of two A320neo and three A321neo aircraft during the fourth quarter, increasing the proportion of the fleet comprised of the more fuel-efficient A320neo family aircraft to 72 percent as of December 31, 2022, among the highest of all major U.S. carriers
- Generated 103 available seat miles (“ASM”) per gallon, making Frontier the most fuel efficient of all major U.S. carriers and affirming its ongoing commitment to being “America's Greenest Airline”
- Expanded service in 16 domestic markets, including six new routes from Phoenix Sky Harbor International Airport to coincide with the November 2022 opening there of a crew base, and six international markets
- Announced new Dallas-Fort Worth crew base expected to open in May 2023 along with five new routes
- Launched GoWild All-You-Can-Fly Pass, providing passengers an opportunity for an unlimited number of flights to all Frontier domestic and international destinations
“Fourth quarter results were strong, underpinned by record ancillary revenue and meaningful improvements in CASM and utilization,” commented Barry Biffle, President and CEO. “Moving into 2023, we intend to bolster our competitive edge by driving further improvement in ancillary revenue per passenger and unit costs. Today, our total cost advantage over the industry average is wider than it was in 2019, and I expect it will widen further this year. With these contributing factors, I'm confident we're on track to return the airline to the pre-pandemic profit levels per plane on a run-rate basis in the second half of 2023.
“I'm extraordinarily proud of Team Frontier for their tireless contributions in 2022 as we encountered repeated, uncontrollable operational challenges, including the recent winter storm Elliott. Our team overcame treacherous weather conditions, worked extended shifts and managed customer disruptions to get them to their destinations safely. I couldn't be more confident in Team Frontier and our future together as America's ultra-low-cost carrier.”
Fourth Quarter and Full Year 2022 Select Financial Highlights
The following is a summary of fourth quarter and full year 2022 select financial results, including both GAAP and adjusted (non-GAAP) metrics. Refer to “Reconciliation of Non-GAAP Financial Information” in the appendix of this release.
| (unaudited, in millions, except for percentages) | ||||||||||||||||||||||||
| Three Months Ended December 31, | ||||||||||||||||||||||||
| 2022 | 2021 | 2019 | ||||||||||||||||||||||
| As Reported (GAAP) | Adjusted (Non-GAAP) | As Reported (GAAP) | Adjusted (Non-GAAP) | As Reported (GAAP) | Adjusted (Non-GAAP) | |||||||||||||||||||
| Total operating revenues | $ | 906 | $ | 906 | $ | 609 | $ | 609 | $ | 655 | $ | 655 | ||||||||||||
| Total operating expenses | $ | 861 | $ | 859 | $ | 695 | 695 | $ | 587 | $ | 565 | |||||||||||||
| Pre-tax income (loss) | $ | 50 | $ | 52 | $ | (86) | $ | (86) | $ | 72 | $ | 94 | ||||||||||||
| Pre-tax income (loss) margin | 5.5 | % | 5.7 | % | (14.1)% | (14.1)% | 11.0 | % | 14.4 | % | ||||||||||||||
| Net income (loss) | $ | 40 | $ | 39 | $ | (53) | $ | (52) | $ | 56 | $ | 73 |
| (unaudited, in millions, except for percentages) | ||||||||||||||||||||||||
| Year Ended December 31, | ||||||||||||||||||||||||
| 2022 | 2021 | 2019 | ||||||||||||||||||||||
| As Reported (GAAP) | Adjusted (Non-GAAP) | As Reported (GAAP) | Adjusted (Non-GAAP) | As Reported (GAAP) | Adjusted (Non-GAAP) | |||||||||||||||||||
| Total operating revenues | $ | 3,326 | $ | 3,326 | $ | 2,060 | $ | 2,060 | $ | 2,508 | $ | 2,508 | ||||||||||||
| Total operating expenses | $ | 3,371 | $ | 3,352 | $ | 2,177 | $ | 2,461 | $ | 2,199 | $ | 2,167 | ||||||||||||
| Pre-tax income (loss) | $ | (45) | $ | (19) | $ | (144) | $ | (406) | $ | 325 | $ | 357 | ||||||||||||
| Pre-tax income (loss) margin | (1.4)% | (0.6)% | (7.0)% | (19.7)% | 13.0 | % | 14.2 | % | ||||||||||||||||
| Net income (loss) | $ | (37) | $ | (17) | $ | (102) | $ | (299) | $ | 251 | $ | 276 | ||||||||||||
Revenue Performance
Total operating revenue for the fourth quarter of 2022 was $906 million, 38 percent higher than the 2019 quarter, with total operating revenue per passenger of $133, 24 percent higher than the 2019 quarter. Ancillary revenue per passenger was a record $82, 41 percent higher than the 2019 quarter. RASM was 10.45 cents, 21 percent higher compared to the 2019 quarter, alongside capacity growth of 15 percent over the same period.
Average daily aircraft utilization in the fourth quarter increased four percent from the prior quarter to 11.5 hours per day, with further improvement expected to over 12 hours per day, on average, in 2023 as the trend toward normalized operations continues.
Cost Performance
Total operating expenses for the fourth quarter of 2022 were $861 million, including $2 million in employee retention costs associated with the Company's terminated combination with Spirit Airlines, Inc. (“Spirit”). Excluding this item, adjusted (non-GAAP) total operating expenses were $859 million, including $304 million of fuel expenses at an average cost of $3.60 per gallon. Adjusted (non-GAAP) total operating expenses (excluding fuel) were $555 million.
CASM was 9.93 cents in the fourth quarter, while adjusted (non-GAAP) CASM was 9.91 cents. CASM (excluding fuel), a non-GAAP measure, was 6.43 cents, while adjusted (non-GAAP) CASM (excluding fuel) was 6.40 cents, seven percent lower than the prior quarter and two percent lower than the 2021 quarter.
Earnings
Earnings before taxes for the fourth quarter of 2022 were $50 million, or $52 million on an adjusted (non-GAAP) basis excluding special items, reflecting a pre-tax margin of 5.5 percent and an adjusted (non-GAAP) pre-tax margin of 5.7 percent. Winter storm Elliott is estimated to have negatively impacted pre-tax income by approximately $16 million, or 175 basis points on pre-tax margin.
Net income for the fourth quarter of 2022 was $40 million, or $39 million on an adjusted (non-GAAP) basis excluding special items.
Cash and Liquidity
Unrestricted cash and cash equivalents as of December 31, 2022 totaled $761 million, or $332 million net of total debt. The Company repaid its $150 million U.S. Treasury loan (the “Treasury Loan”) in February 2022 and is able to access substantial liquidity, if desired, through its co-branded credit card program and related brand assets, based on similar debt financings by other airlines.
Fleet
As of December 31, 2022, Frontier had a fleet of 120 Airbus single-aisle aircraft, per the schedule below, all financed with operating leases that expire between 2023 and 2034.
| Equipment | Quantity | Seats |
| A320neo | 82 | 186 |
| A320ceo | 13 | 180 – 186 |
| A321ceo | 21 | 230 |
| A321neo | 4 | 240 |
| Total fleet | 120 |
Frontier is America's Greenest Airline measured by ASMs per fuel gallon consumed. During the fourth quarter of 2022, Frontier generated 103 ASMs per gallon, four percent higher than the 2019 quarter. To learn more about Frontier's sustainability initiatives, visit www.flygreener.com.
Frontier took delivery of two A320neo and three A321neo aircraft during the fourth quarter of 2022, increasing the proportion of the fleet comprised of the more fuel-efficient A320neo family aircraft to 72 percent as of December 31, 2022, among the highest of all major U.S. carriers. The A321neo is expected to unlock meaningful scale efficiencies by way of fuel savings and higher average seats per departure. As of December 31, 2022, over 70 percent of future committed aircraft deliveries, including direct leases, are for A321neo aircraft.
As of December 31, 2022, the Company had commitments for an additional 231 aircraft to be delivered through 2029, including purchase commitments for 67 A320neo aircraft and 154 A321neo aircraft and another 10 A321neo aircraft through direct leases.
In December 2022, Airbus notified the Company of its intent to shift aircraft deliveries by a range of one to five months for aircraft initially scheduled in 2023, causing nine A321neo aircraft to shift into 2024 from 2023 and reducing available capacity growth in 2023 by approximately five percent.
Forward Guidance
The first quarter 2023 and full-year 2023 guidance provided below is based on the Company's current estimates and is not a guarantee of future performance. This guidance is subject to significant risks and uncertainties that could cause actual results to differ materially, including the risk factors discussed in the Company's reports on file with the SEC. Frontier undertakes no duty to update any forward-looking statements or estimates, except as required by applicable law. Further, this guidance excludes special items and the reconciliation of non-GAAP measures to the comparable GAAP measures because such amounts cannot be determined at this time.
Capacity is anticipated to grow 17 to 19 percent in the first quarter of 2023 compared to the 2022 quarter, while full-year capacity is expected to grow 23 to 28 percent over 2022 after accounting for the aforementioned delays in A321neo aircraft deliveries. Given the unit cost efficiencies expected from the A321neo aircraft, the Company now expects adjusted (non-GAAP) CASM (excluding fuel) to be below six cents during the second half of 2023 and modestly above six cents for the full year, a level which the Company expects will be materially below the industry average.
Fuel costs in the first quarter are expected to be $3.50 to $3.55 per gallon and $3.05 to $3.15 per gallon for full-year 2023 based on the blended fuel curve on January 30, 2023. Adjusted (non-GAAP) total operating expenses (excluding fuel) for the first quarter are anticipated to be $570 to $595 million and $2,425 to $2,525 million for full-year 2023. The effective tax rate for both the first quarter and full-year 2023 is estimated to be approximately 24 percent. Elevated fuel prices and the seasonal effect of leisure travel flows are anticipated to result in an adjusted (non-GAAP) pre-tax loss in the first quarter, reflecting an expected margin between (2) and (6) percent (excluding special items). Pre-delivery deposits, net of refunds, are expected to be in the range of approximately $120 – $200 million and other capital expenditures are expected to be $145 to $165 million, each for full-year 2023.
The current forward guidance estimates are presented in the following table:
| First Quarter | |
| 2023(a) | |
| Capacity growth (versus 1Q 2022)(b) | 17% to 19% |
| Adjusted (non-GAAP) total operating expenses (excluding fuel) ($ millions)(c) | $570 to $595 |
| Average fuel cost per gallon(d) | $3.50 to $3.55 |
| Effective tax rate | ~24% |
| Adjusted (non-GAAP) pre-tax margin | (2)% to (6)% |
| Full Year | |
| 2023(a) | |
| Capacity growth (versus 2022)(b) | 23% to 28% |
| Adjusted (non-GAAP) total operating expenses (excluding fuel) ($ millions)(c) | $2,425 to $2,525 |
| Average fuel cost per gallon(d) | $3.05 to $3.15 |
| Effective tax rate | ~24% |
| Pre-delivery deposits, net of refunds ($ millions) | $120 – $200 |
| Other capital expenditures ($ millions)(e) | $145 to $165 |
_________________
| (a) | Includes guidance on certain non-GAAP measures, including adjusted total operating expenses (excluding fuel) and adjusted pre-tax margin, and which excludes, among other things, special items. The Company is unable to reconcile these forward-looking projections to GAAP as the nature or amount of such special items cannot be determined at this time. |
| (b) | The Company's guidance is based on its expectation that customer demand and the airline's operations will continue to recover to more normalized levels; the Company will monitor and adjust capacity levels as appropriate. Given the dynamic nature of the current demand environment, actual capacity adjustments made by the Company may be materially different than what is currently expected. |
| (c) | Amount estimated excludes fuel expense and special items, the latter of which are not estimable at this time. The amount takes into consideration the additional expected capacity and the Company's continued investment in the post-pandemic recovery. Estimated fuel cost per gallon is based upon the blended jet fuel curve on January 30, 2023 and is inclusive of estimated fuel taxes and into-plane fuel costs. |
| (d) | Other capital expenditures estimate includes capitalized heavy maintenance. |
