Frontier Group Holdings, Inc., parent company of Frontier Airlines, Inc., reported its financial results for the second quarter of 2022 and issued guidance for the third quarter and full year 2022.
Total operating revenue for the second quarter of 2022 was $909 million, 43 percent higher than the corresponding pre-COVID quarter in 2019. Ancillary revenue per passenger during the quarter was a record $74.96, 33 percent higher than the corresponding quarter in 2019, contributing to a 29 percent increase in revenue per available seat mile (“RASM”). The strong revenue performance materially offset the impact of high fuel prices, which averaged $4.41 per gallon, lower planned utilization and stage, and other cost inflation. Net income for the quarter was $13 million and adjusted (non-GAAP) net income was $20 million. Earnings before taxes for the quarter were $8 million, while adjusted (non-GAAP) earnings before taxes were $25 million, reflecting an adjusted pre-tax margin of three percent.
Looking forward to the third quarter, the Company expects record revenue with RASM growth of over 20 percent compared to the third quarter of 2019. Third quarter capacity is anticipated to grow 8 to 10 percent versus the corresponding quarter in 2019, with full-year capacity expected to grow 12 to 15 percent versus 2019. Adjusted pre-tax margin is expected to be between 1 and 5 percent (on a non-GAAP basis before transaction and merger-related costs and other special items).
“Results this quarter reflected exceptionally strong demand for affordable airline travel as we realized record revenue growth compared to any pre-pandemic quarter and record high ancillary revenue of $75 per passenger, both of which contributed to Frontier’s first profitable quarter on an adjusted basis in over two years,” said Barry Biffle, Frontier’s president and CEO. “The demand environment is strong going into the third quarter, and we continue to focus on generating profitable growth in the business for the balance of 2022 and beyond. I’m also very proud of Team Frontier, which has achieved strong operational performance with a 99 percent completion factor for the month of June and over 99 percent for the Fourth of July holiday week.”
Frontier’s cost per available seat mile excluding fuel (“CASM-ex”) in the second quarter continued to be temporarily elevated due to lower planned utilization and average stage length, among other factors. CASM-ex is expected to trend down as the airline increases utilization and average stage length as the year progresses. In addition, the introduction of the A321neo aircraft in the second half of 2022 is expected to further advance Frontier’s structural fuel advantage and accelerate the trend to higher average seats per departure, driving additional cost efficiency versus other industry carriers.
The following is a summary of select financial results for the second quarter of 2022, 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, |
|
|
|
2022 |
|
|
|
2021 |
|
|
|
2019 |
|
|
|
As Reported (GAAP) |
|
Adjusted
(Non-GAAP) |
|
As Reported (GAAP) |
|
Adjusted
(Non-GAAP) |
|
As Reported (GAAP) |
|
Adjusted
(Non-GAAP) |
| Total operating revenues |
|
$ |
909 |
|
|
$ |
909 |
|
|
$ |
550 |
|
|
$ |
550 |
|
|
$ |
637 |
|
|
$ |
637 |
|
| Total operating expenses |
|
$ |
902 |
|
|
$ |
885 |
|
|
$ |
532 |
|
|
$ |
613 |
|
|
$ |
536 |
|
|
$ |
538 |
|
| Pre-tax income (loss) |
|
$ |
8 |
|
|
$ |
25 |
|
|
$ |
14 |
|
|
$ |
(65 |
) |
|
$ |
105 |
|
|
$ |
103 |
|
| Pre-tax income (loss) margin |
|
|
1 |
% |
|
|
3 |
% |
|
|
3 |
% |
|
|
(12 |
)% |
|
|
16 |
% |
|
|
16 |
% |
| Net income (loss) |
|
$ |
13 |
|
|
$ |
20 |
|
|
$ |
19 |
|
|
$ |
(50 |
) |
|
$ |
81 |
|
|
$ |
79 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Second Quarter 2022 Highlights:
- Achieved total operating revenues of $909 million, 43 percent higher than the corresponding quarter in 2019
- Generated a record $75 of ancillary revenue per passenger during the second quarter of 2022, 33 percent higher than the corresponding quarter in 2019
- Ended the second quarter of 2022 with $766 million of unrestricted cash and cash equivalents
- Increased PDP Financing Facility from $200 million to $280 million
- Three A320neo aircraft joined the fleet, bringing the total fleet size to 114 aircraft and increasing the proportion of the more fuel-efficient A320neo family aircraft to 68 percent of the fleet as of June 30, 2022
- Operated the most fuel-efficient fleet of all major U.S. carriers when measured by available seat miles (“ASMs”) per fuel gallon consumed, generating 100 ASMs per gallon during the second quarter of 2022, three percent higher than the corresponding pre-COVID quarter in 2019
- Expanded service in Las Vegas, Buffalo, Baltimore, Hartford, Houston, Kansas City, Tampa, Cancun, Montego Bay and San Juan
Cash and Liquidity
Frontier ended the second quarter of 2022 with $766 million of unrestricted cash and cash equivalents. Additionally, the Company is able to access substantial liquidity, if desired, through its co-brand credit card program and related brand assets based on similar debt financings by other airlines.
As previously announced, on June 30, 2022, in connection with the financing of pre-delivery payments for certain aircraft the Company has on order, Frontier entered into an Amended and Restated Credit Agreement whereby, among other things, lender commitments under the facility increased from $200 million to $280 million.
Revenue Performance
Total GAAP operating revenue for the second quarter of 2022 was $909 million, 43 percent higher than the corresponding quarter in 2019, with total operating revenue per passenger of $139.40, 24 percent higher than the corresponding quarter in 2019. Ancillary revenue per passenger during the quarter was a record $74.96, 33 percent higher than the corresponding quarter in 2019, contributing to a 29 percent increase in RASM.
Capacity during the second quarter of 2022 was 7,594 million ASMs, which was 10 percent higher than the corresponding pre-COVID quarter in 2019. Average aircraft in service was 29 percent higher during the second quarter of 2022 compared to the corresponding quarter in 2019. Average daily aircraft utilization was 10.9 hours per day in the second quarter of 2022, below the corresponding quarter in 2019 due to impacts related to the pandemic recovery, severe weather disruptions and air traffic control limitations. The fleet operated at an 84.1 percent load factor during the second quarter, an improvement of 10 percentage points over the prior quarter.
Cost Performance
Total operating expenses for the second quarter of 2022 were $902 million, including $9 million of transaction and merger-related costs related to the Company’s proposed combination with Spirit Airlines, $1 million of costs related to a one-time contract ratification incentive for the Company’s aircraft technicians and a $7 million asset impairment. Excluding these items, adjusted total operating expense was $885 million, including $335 million of fuel expenses at an average cost of $4.41 per gallon. Adjusted total operating expenses (excluding fuel) were $550 million.
On a unit basis, the cost per available seat mile (“CASM”) was 11.87 cents in the second quarter compared to 7.80 cents in the second quarter of 2019, while Adjusted CASM, excluding fuel, was 7.24 cents compared to 5.47 cents in the second quarter of 2019. The increase in Adjusted CASM, excluding fuel, was driven by lower average daily aircraft utilization, lower average stage length, labor cost inflation and the timing of aircraft returns and deliveries. Adjusted CASM, excluding fuel, is expected to improve as the year progresses as utilization continues to normalize to pre-pandemic levels, stage length increases and cost management efforts further advance, including the introduction of the A321neo aircraft.
Fleet
As of June 30, 2022, Frontier had a fleet of 114 Airbus single-aisle aircraft, consisting of 78 A320neos, 15 A320ceos and 21 A321ceos. All aircraft in the fleet are financed with operating leases that expire between 2022 and 2034. Frontier’s fleet is the most fuel-efficient of all major U.S. carriers when measured by ASMs per fuel gallon consumed, generating 100 ASMs per gallon during the second quarter of 2022, three percent more than the corresponding pre-COVID quarter in 2019.
Frontier took delivery of three A320neo aircraft during the quarter and has four planned aircraft deliveries during the third quarter of 2022 and eight during the fourth quarter of 2022.
As of June 30, 2022, the Company had commitments to purchase an additional 229 aircraft to be delivered through 2029, including 71 A320neo aircraft and 158 A321neo aircraft. The introduction of the A321neo aircraft in the second half of 2022 is expected to advance Frontier’s structural fuel cost advantage and further the trend to higher average seats per departure, leading to improved cost efficiency versus industry carriers.
Frontier-Spirit Merger Agreement Termination
On July 27, 2022, Frontier and Spirit mutually terminated the Merger Agreement. Accordingly, Spirit is obligated to reimburse $25 million of Frontier’s incurred merger-related costs.
In the event Spirit enters into an acquisition agreement in the next twelve months with another acquiror and it subsequently consummates the transaction, Frontier will be owed an additional $69 million, as provided for in the Merger Agreement.
Frontier Airlines aircraft photo gallery:
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