Frontier Group Holdings, Inc. (Nasdaq: ULCC), parent company of Frontier Airlines, Inc., today reported financial results for the second quarter of 2023 and issued guidance for the third quarter and full year 2023.
Second Quarter 2023 Summary:
- Achieved total operating revenues of $967 million, six percent higher than the 2022 quarter
- Cost per available seat mile (“CASM”) improved 20 percent over the 2022 quarter
- Adjusted CASM (excluding fuel), a non-GAAP measure, improved five percent over the 2022 quarter
- Realized a pre-tax margin of 9.1 percent, a post-pandemic record
- Generated ancillary revenue of $80 per passenger, $5 higher per passenger than the 2022 quarter
- Utilization averaged 11.5 hours per day
- Ended the quarter with $780 million of unrestricted cash and cash equivalents
- Took delivery of three A321neo aircraft during the second quarter, increasing the proportion of the fleet comprised of the more fuel-efficient A320neo family aircraft to 75 percent as of June 30, 2023, the highest of all major U.S. carriers
- Generated 103 available seat miles (“ASM”) per gallon, reaffirming Frontier's position as the most fuel-efficient of all major U.S. carriers and its ongoing commitment to being “America's Greenest Airline” as measured by ASMs per fuel gallon consumed
- Executed an agreement with CleanJoule to purchase up to 30 million gallons of sustainable aviation fuel, further demonstrating the Company's commitment to reduce carbon emissions in air transportation
- Launched 26 new routes during the quarter, including new routes from Atlanta, Baltimore, Chicago Midway, Cleveland, Detroit, Houston, Orlando, San Juan, St. Thomas and Tampa, giving customers greater access to Frontier's Low Fares Done Right
“Results this quarter reflect strong execution by Team Frontier. Our earnings before tax delivered our highest post-pandemic, pre-tax margin on 36 percent capacity growth and 35 additional aircraft compared to the 2019 quarter, and we delivered a five percent improvement in non-fuel adjusted unit costs over the prior year quarter,” commented Barry Biffle, President and CEO. “I'm proud of the strong work ethic of Team Frontier employees as we managed through the challenging conditions presented by June weather. We are focused on delivering Low Fares Done Right, including sustaining our cost advantage over the industry as we grow the airline.”
Second Quarter 2023 Select Financial Highlights
The following is a summary of second quarter select financial results, including both GAAP and adjusted (non-GAAP) metrics. Refer to “Reconciliations of Non-GAAP Financial Information” in the appendix of this release.
| (unaudited, in millions, except for percentages) | ||||||||||||||||
| Three Months Ended June 30, | ||||||||||||||||
| 2023 | 2022 | |||||||||||||||
| As Reported (GAAP) | Adjusted (Non-GAAP) | As Reported (GAAP) | Adjusted (Non-GAAP) | |||||||||||||
| Total operating revenues | $ | 967 | $ | 967 | $ | 909 | $ | 909 | ||||||||
| Total operating expenses | $ | 888 | $ | 888 | $ | 902 | $ | 885 | ||||||||
| Pre-tax income | $ | 88 | $ | 88 | $ | 8 | $ | 25 | ||||||||
| Pre-tax income margin | 9.1 | % | 9.1 | % | 0.9 | % | 2.8 | % | ||||||||
| Net income | $ | 71 | $ | 71 | $ | 13 | $ | 20 | ||||||||
| Diluted earnings (loss) per share | $ | 0.31 | $ | 0.31 | $ | 0.06 | $ | 0.09 | ||||||||
Revenue Performance
Total operating revenue for the second quarter of 2023 was $967 million, reflecting a revenue per available seat mile (“RASM”) of 10.4 cents, on capacity growth of 23 percent as compared to the 2022 quarter. The RASM decrease from 12.0 cents in 2022 was driven by a nine percent decrease in revenue per passenger to $127 and stage length, which was eight percent higher, partially offset by a one percentage-point increase in load factor to 85.3 percent, all compared to the 2022 quarter.
Ancillary revenue per passenger for the second quarter was $80, six percent higher than the 2022 quarter.
Cost Performance
Total operating expenses for the second quarter of 2023 were $888 million, including $244 million of fuel expenses at an average cost of $2.69 per gallon. Adjusted (non-GAAP) total operating expenses (excluding fuel) were $644 million.
CASM was 9.51 cents in the second quarter of 2023, 20 percent lower than the 2022 quarter. CASM (excluding fuel), a non-GAAP measure, was 6.90 cents, eight percent lower than the 2022 quarter.
Earnings
Pre-tax income for the second quarter of 2023 was $88 million, reflecting a margin of 9.1 percent.
Net income for the second quarter of 2023 was $71 million.
Cash and Liquidity
Unrestricted cash and cash equivalents as of June 30, 2023 was $780 million.
Fleet
As of June 30, 2023, Frontier had a fleet of 126 Airbus single-aisle aircraft, as scheduled below, all financed through operating leases that expire between 2023 and 2035.
| Equipment | Quantity | Seats | |
| A320neo | 82 | 186 | |
| A320ceo | 10 | 180 – 186 | |
| A321ceo | 21 | 230 | |
| A321neo | 13 | 240 | |
| Total fleet | 126 | ||
Frontier is “America's Greenest Airline” measured by ASMs per fuel gallon consumed. During the second quarter of 2023, Frontier generated 103 ASMs per gallon.
Frontier took delivery of three A321neo aircraft during the second quarter of 2023, increasing the proportion of the fleet comprised of the more fuel-efficient A320neo family aircraft to 75 percent as of June 30, 2023, 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 June 30, 2023, approximately 70 percent of future committed aircraft deliveries, including direct leases, are for A321neo aircraft. As of June 30, 2023, the Company had commitments for an additional 222 aircraft to be delivered through 2029, including purchase commitments for 67 A320neo aircraft and 150 A321neo aircraft as well as commitments for another 5 A321neo aircraft through direct leases.
Forward Guidance
The 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 Securities and Exchange Commission (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.
Looking forward, the Company expects third-quarter capacity to grow by 21 to 23 percent over the comparable 2022 quarter and full-year capacity to grow 19 to 21 percent over the prior year. Third quarter adjusted (non-GAAP) pre-tax margin (excluding special items) is expected to be 4 to 7 percent, and the full year 2023 adjusted (non-GAAP) pre-tax margin (excluding special items) is expected to be 4 to 6 percent. These ranges reflect the impact of weather-related cancellations in the third quarter, slightly higher fuel cost per gallon than previous guidance, and a moderation in average fares caused primarily by a shift in demand to competing long-haul international destinations.
The current forward guidance estimates for the third quarter 2023 and full-year 2023 are presented in the following table:
| Third Quarter | |
| 2023(a) | |
| Capacity growth (versus 3Q 2022)(b) | 21% to 23% |
| Adjusted (non-GAAP) total operating expenses (excluding fuel) ($ millions)(c) | $650 to $665 |
| Average fuel cost per gallon(d) | $2.80 to $2.90 |
| Effective tax rate | 22% |
| Adjusted (non-GAAP) pre-tax margin | 4% to 7% |
| Full Year | |
| 2023(a) | |
| Capacity growth (versus 2022)(b) | 19% to 21% |
| Adjusted (non-GAAP) total operating expenses (excluding fuel) ($ millions)(c) | $2,535 to $2,585 |
| Average fuel cost per gallon(d) | $2.90 to $3.00 |
| Effective tax rate | 22% |
| Adjusted (non-GAAP) pre-tax margin | 4% to 6% |
| Pre-delivery deposits, net of refunds ($ millions) | $100 to $160 |
| Other capital expenditures ($ millions)(e) | $135 to $155 |
| _________________ (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) 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. (d) Estimated fuel cost per gallon is based upon the blended jet fuel curve on July 24, 2023 and is inclusive of estimated fuel taxes and into-plane fuel costs. (e) Other capital expenditures estimate includes capitalized heavy maintenance. | |
