Frontier Group Holdings, Inc. Q1 FY2024 Earnings Call

Good day and thank you for standing by. Welcome to the Frontier Group Holdings, Inc., Q1 2024 Earnings Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, David Erdman, Senior Director of Investor Relations. David, you have the floor.

Thank you, and good morning. Welcome, everyone, to our First Quarter 2024 earnings call. On the call with me this morning is Barry Biffle, Chief Executive Officer, Jimmy Dempsey, President, Mark Mitchell, Chief Financial Officer, and our new Chief Commercial Officer, Bobby Schroeder. Before yielding, I'll 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 nearest comparable GAAP measure in the appendix of this morning's earnings announcement. So, I'll give the floor to Barry to begin his prepared remarks. Barry?

Thanks, David, and good morning, everyone. First, I'd like to welcome Bobby Schroeder to the team and introduce him as our new Chief Commercial Officer. Bobby has extensive experience in the industry, with nearly 25 years at Spirit, U.S. Airways, and America West. He's in the process of relocating his family to Denver, and in his new role assumes responsibility for our commercial teams, reporting to Jimmy Dempsey. We're fortunate to have him on Team Frontier. Along with the recent additions of Alex Clerc, our Senior Vice President of Customers and Rajat Khanna, our Chief Information Officer, we now have the strongest senior leadership team we've ever had. Turning to the quarter, we reported an adjusted pretax loss margin of 2.8%, significantly better than our guidance on cost and revenue performance. The adjusted pretax loss margin was within 1-percentage point of the prior year quarter despite continuing to encounter far greater excess capacity in some of our key markets, as we've previously highlighted. While we're not insulated from inflation, we continue to focus on costs with the objective to maintain and widen our relative cost advantage to the industry. To that end, we exceeded our expectations in the first quarter and our cost advantage to the industry widened to 42% on a trailing 12-month basis. Cost divergence between Frontier and the industry is indeed real. We're on track to achieve our target of 80% out-and-back flying by June and the corresponding $200 million in annual run rate cost savings by year-end. With that, we're reaffirming our guidance of a 1% to 3% reduction in our adjusted CASM, excluding fuel, stage adjusted to 1,000 miles. Redeployment of our capacity from oversupplied markets is on track and progressing as planned. To this end, we opened our 10th crew base in Cleveland last month, while Cincinnati and Chicago will launch later this month and finally, San Juan, Puerto Rico in June. The addition of these crew bases supports our ability to achieve our target of out-and-back flying by June and drives further network efficiency. Our San Juan base will not only support demand growth from the U.S. Mainland to compete with significantly higher-cost carriers, but it will also serve as our gateway to other Caribbean destinations. In the second quarter, a significant portion of our flying will be in new markets; more than double what we would expect in a normal year. As these new markets mature over the next year, we expect a meaningful improvement in our system RASM. Further, we have a range of revenue initiatives including various distribution and merchandising enhancements as well as launching loyalty and premium products, all of which diversify our revenue sources. Jimmy will go into more detail on these products as part of the commercial update. Despite the immaturity of new markets, we expect to generate a 3% to 6% adjusted pretax margin in the second quarter. We're also reaffirming our full-year guide of 3% to 6% despite fuel prices, which are $0.10 per gallon higher than they were in early February when we gave our guidance for the year. As we move to 2025, we are confident in our 10% to 14% adjusted pretax margin due to our cost tailwinds, expected network maturity, and overall revenue diversity initiatives. Finally, I'd like to thank every member of Team Frontier. They deserve recognition for their significant effort to achieve the milestones I highlighted today and for their remaining cost discipline and staying focused on our top priority of delivering a safe and reliable experience to our customers. I'll now turn the call over to Jimmy for a commercial overview. Jimmy?

Thanks, Barry, and good morning, everyone. I want to echo Barry's comments and welcome Bobby to the team. Briefly recapping the quarter. Total operating revenue increased 2% to $865 million on capacity growth of 8%, both compared to the 2023 quarter, resulting in RASM of $0.92. Departures increased 14% on a 9% shorter average stage length and total revenue per passenger was $124, down 1% all compared to the 2023 quarter. During the quarter, our transition to out-and-back flying developed as planned. By March, we were operating at a 67% out-and-back network and achieved 75% in April. This progression is a key driver in our ability to reduce our cancellation rate by 10% and improve on-time arrivals by over five points from January through April year-over-year. A key milestone was the opening of our Cleveland crew base, which was successfully launched in mid-March and by summer we'll serve a total of 30 destinations from Cleveland. Our planned schedule is to achieve 80% out-and-back flying by June, supported by the planned opening of the Cincinnati and Chicago crew bases in May and San Juan, Puerto Rico in June, bringing our crew base footprint to 13 by the end of the second quarter. One of the most significant long-term investments is in our San Juan base, where we see a massive opportunity for flights to the mainland United States, given our cost advantage versus the competition. In addition, the geography of San Juan provides a logical gateway to the broader Caribbean region, where we believe our low-fare stimulation will have a dramatic effect on traffic flows within the region. We want to thank the government of Puerto Rico and their elected officials for helping make this investment possible. Today, we fly to more destinations from San Juan, Puerto Rico to the mainland United States than any other airline. And by this summer, we will serve Santiago, Punta Cana, and Santo Domingo in the Dominican Republic as well as Saint Thomas, Saint Croix, Saint Martin, Barbados, and Trinidad within the region. Overall, we remain focused on maximizing total revenue, as evidenced in the first quarter by our trade for yield over load factor, which resulted in total revenue exceeding our expectations. We believe that further revenue initiatives will not only diversify our revenue but improve overall demand and increase load factors as we move through the coming years. We launched our reimagined Frontier Miles loyalty program late last year and have seen the highest spend on record per cardholder because of these enhancements. It's very early in our journey to close the gap in our loyalty revenues, but we believe there are several dollars per passenger of opportunity over the next several years. Following our recent introduction of BizFare, we recently launched our UpFront Plus product for customers that value a premium product. UpFront Plus is a new upgraded seating option with extra space and comfort in the first two rows of the aircraft. Customers in UpFront Plus will enjoy a window or aisle seat with extra legroom and a guaranteed empty middle seat, providing additional personal space and comfort at an exceptional value. It's very similar to the intra-European business class product. The new offering, combined with our premium seating options, expands our ability to offer choice to our customers. Later this year, we will introduce NDC, a new website, and a mobile app that will include improved merchandising, day-of-travel, and post-travel experience for our customers. We believe the distribution and merchandising changes will increase our revenue per passenger and load factors over the next several years. That concludes my remarks, so I'll now yield to Mark to provide a financial update.

Thanks, Jimmy, and good morning, everyone. Total revenue was $865 million, 2% higher than the comparable 2023 quarter. Fuel expense was $263 million, 10% lower than the 2023 quarter at an average cost per gallon of $2.93. The year-over-year decline in fuel expenses was the result of 15% lower fuel prices and 2% greater fuel efficiency, enabling us to achieve an industry-leading 105 ASMs per gallon, partly offset by higher consumption from the 8% capacity growth during the quarter. Adjusted non-fuel operating expenses were $633 million or $0.071 per ASM due to better-than-expected cost performance. On a stage-adjusted basis to 1,000 miles, adjusted CASM excluding fuel was down 3% compared to the 2023 quarter due to three additional sale-leaseback transactions in the quarter, along with our aggressive cost management across the organization that helped mitigate year-over-year inflationary impacts. As Barry mentioned, our relative cost advantage to the industry widened to 42%, and we remain on track to achieve our annual run rate cost savings target of $200 million by the end of the year. Our first-quarter pretax loss margin of 2.8% was lower than anticipated due primarily to better cost and revenue performance than expected. We ended the quarter with $622 million of unrestricted cash and cash equivalents and $156 million of cash net of total debt at quarter end, slightly higher than our net cash position at year-end. We had 142 aircraft in our fleet at quarter end after taking delivery of six A321neo aircraft during the quarter. We expect to take delivery of another six A321neos in the second quarter and 11 A321neo aircraft in the second half of 2024, all of which are expected to be financed through sale-leaseback transactions. Turning to second-quarter guidance, capacity growth is anticipated to be in the range of 12% to 14% over the 2023 quarter on stage length, which is expected to approximate 900 miles. We expect fuel to remain elevated at $2.80 to $2.90 per gallon based on the blended fuel curve on May 1. Adjusted non-fuel operating expenses are expected to be between $705 million to $720 million, driving an expected sequential decrease in our adjusted CASM ex-fuel on a stage-adjusted basis to 1,000 miles. Adjusted pretax margin in the second quarter is expected to be in the range of 3% to 6%, including the impact of higher fuel prices and our network transition. As Barry mentioned, we are also reaffirming our full-year 2024 adjusted pretax margin range of 3% to 6% despite the expectation of higher fuel prices. Additionally, we are also reaffirming our guidance for CASM excluding fuel during 2024 on a stage-adjusted basis to 1,000 miles to be lower by 1% to 3% versus the prior year. With that, I'll turn the call back to Barry for closing remarks.

Thanks, Mark. I'm proud of the significant progress we're making in revenue and cost performance. The hard work and dedication of the Team Frontier are showing that low costs have always mattered, and they will continue to matter. Thanks again for joining us this morning. We're ready to take the Q&A portion of the call.

Thank you. At this time, we will conduct a question-and-answer session. Please stand by while I compile the Q&A roster. Our first question comes from Brandon Oglenski with Barclays.

Barry or Jimmy, can you guys talk to some of the network changes that you've made and the results that you're seeing in forward bookings, especially in the second quarter given the improvement in the margin guide on top of a lot of capacity growth?

Yes, sure. I'll go and take it. I think if you look at the changes we've made so far, they really just started in April in terms of the additions and kind of continue to roll through the summer. But I'll tell you, we're really excited. We've got a lot of new routes that we just started in the last few weeks that are running at 90% load factors. So, I think that our network planning team has picked well on many of these. So, we’re really excited about how it’s shaping up, but it’s very early, right? I mean we — as I said a while ago, with over double the amount of new flying that we would normally have because of this repositioning, it’s significant. We estimate a 5 to 10-point drag on RASM with this investment, but it’s the right thing to do to get the network optimized.

And Barry, I guess going ahead from here, do you expect to be profitable every quarter going ahead, especially with reiterating a much higher margin target for 2025?

Yes.

Okay. Appreciate that. And then on the $200 million of cost reduction, can you give us some idea of where that's going to impact the cost line as you get to more out-and-back flying in the network?

Brandon, this is Mark. So, on the $200 million cost savings plan, we are on track, as we indicated in the prepared remarks. And where you're going to see that, I mean, you're going to see real benefits across the operations. So, you're going to see, as we've talked about previously, lower travel-related costs, crew efficiency benefits, benefits on the station operations front. You're also going to see a higher capture rate from a maintenance standpoint at our crew bases, which is going to drive some improved favorability on the maintenance front. And then with the initiatives that we have to simplify the network, you're going to see an increase in utilization that is going to provide benefit across the P&L.

Our next question comes from Duane Pfennigwerth with Evercore ISI.

This is Jake on for Duane. So, I appreciate the capacity guidance. But based on what we're seeing in the schedules, we would expect it to be higher in 2Q than you're guiding. Is there just a level of conservatism there around completion, or are you still refining the schedule?

Yes. I mean, look, we always put in something that there's going to be air traffic control and weather issues. So, we continue to put in what we believe is going to be realistic capacity.

Okay. And then just you have this load factor and yield dynamic. How would you think about that evolving over the course of the year? Like would you expect yields to be positive again in 2Q? And then I guess, what impact is that lower load having on ancillary performance?

Actually, I’ll just answer the second part of the question first. Actually, the lower load factor actually had a positive impact on non-ticket performance in the quarter. You saw some recovery in the non-ticket through January, February, and March. Look, we obviously focus on the total revenue output that's coming from the business. We are seeking to optimize that total revenue output. And in the quarter, we saw an opportunity to trade some load factor for yield; particularly in the off-peak months. So, it actually worked out very well for us and we exceeded our expectations in terms of revenue output. But like going forward, we'll always optimize it. So, it will depend on the situation and the environment that we're in. And certainly, in peak periods, we'll be pushing for very high load factors.

Our next question is coming from Ravi Shanker with Morgan Stanley.

This is Katherine on for Ravi. As you guys had mentioned in your opening remarks, you recently introduced the UpFront Plus seating option and premium has obviously been a large focus. So, how has that kind of been trending since introducing it? And what do you guys think the non-corporate premium domestic opportunity for Frontier is like? And do you think that gets more competitive amongst peers?

Look, we introduced UpFront Plus just recently. It's been in place for a few weeks now. We're actually quite encouraged by its performance. It's really exceeding our expectations. It's giving our customers an opportunity to buy effectively more space at the front of the aircraft. We think that's really, really helpful to our customer base. And so, we're quite excited about it. That plus the business fare option that we gave to customers earlier in the year we think is a nice complement to the business that we have today. Clearly, we're still focused very much on unit costs and delivering very, very strong unit costs. But these options, we think will be helpful to giving choice to our customers.

And just as a quick follow-up. With domestic yields down in the first quarter and some harder comps coming up, what are you guys seeing in the domestic space as we move into 2Q and maybe in the back half of the year as well?

Look, I think you see overall capacity going up. I think Frontier is probably leading the charge and probably bucking the system because we pivoted away. We're six to eight months now into this pivoting away from the oversupply in Florida. So, for us, we see a really good landscape setting up for the markets we're in. We see the fares in the markets that we're going into, higher than the existing system. And so, we see a lot more ripe opportunities for market stimulation where we're headed. I can't really speak for the rest of the industry, but we see good demand for summer, and we're excited about the network changes and what that can do as these things mature for our revenue over the next year.

Our next question comes from Savi Syth with Raymond James.

You mentioned the ability with San Jose to kind of expand into connecting into some of those Caribbean markets. I was curious if you could talk about what you're seeing in that short-haul leisure given that some of your competitors have talked about a lot of kind of overcapacity in that market and kind of why you find this kind of an attractive place to add capacity?

We see a really attractive opportunity in Puerto Rico. Our cost structure provides a significant chance to enhance that market, which has experienced high fares for a prolonged period. Therefore, we believe there is substantial potential there. It's still in the initial stages regarding our investment in Puerto Rico. The base opens next month, and the early results, as Barry mentioned, from the new network changes appear promising for our business given our cost structure. We're quite excited about launching operations in Puerto Rico.

So, is the international segment then beyond just maybe Puerto Rico? Is the international segment doing fairly well despite some of the comments by the industry?

We've performed quite well on our intra-San Juan operations up to this point primarily because it is relatively small. I’m unsure about the commentary being made; we aren’t experiencing those issues. It may take months, and it could involve other destinations in the region, but it doesn’t necessarily pertain to the areas where we are starting our service.

That's helpful. Barry, you mentioned that the new markets are performing at double the usual levels. I'm surprised to see that it's causing a 5 to 10-point impact on RASM, as I would assume the motivation for entering these markets is because they offer better opportunities. Could you provide more details on the percentage and your expectations for how this will evolve?

Yes, sure. So, here's the thing. We are chasing higher-yield opportunities, right? So, if we fast forward to a year from now, we're going to love these markets because once they are mature, they are likely, in many cases, to produce a higher RASM than our existing system. However, when they're brand new, literally like some of them still starting in the next week or two, I'm doing an inaugural in another week, like they're brand new. And so, they're likely to produce a third or even half the revenue that a mature market will when they're brand new. And so, all we're saying is that when you have double the amount you would normally have in brand-new markets, that is a bigger drag than normal. And we have calculated this; we believe this to be in the high single digits of a drag on the company's RASM and it flows straight through to margin because of this much new capacity. But it will mature as we move through the year, especially when we get towards the fourth quarter and into the first quarter, we expect significant improvement. And you should see a natural kind of 7, 8-point improvement in our RASM over the next year as these markets mature.

That's clear. That's very helpful. And just to clarify, Barry, what's the percentage of markets on the development in 2Q?

Well, we believe it's over 20% is in new markets.

Our next question comes from Michael Lindberg of Deutsche Bank.

This is actually Shannon Doherty on for Mike. For my first question, Barry, how many aircraft are you planning to take this year? Presumably you may be getting impacted just like every other carrier by delivery delays even Airbus, right? So, I'm just trying to understand the capacity growth in the back half of the year and corresponding CASM ex trends.

Yes. So, real fast, I'm going to let Mark answer the actual numbers. But are the aircraft delayed from our original order? Yes. However, are the delays known and have they been known now for over six months? The answer is yes. So, we're not seeing the disruption that we were seeing before. So yes, they're late, but that was really just a problem, call it, a year ago when everything got moved to the right. We're now at a point where yes, we have airplanes that are delayed that were maybe just supposed to be delivered now, but I'm now catching a delivery that was delayed that was supposed to be here three or four months ago, if that makes sense. So, it's not as impactful to the business anymore. We've seen this really smooth out. And Mark?

Yes. Yes, from a number standpoint, I mean, we're still at 23 deliveries for this year, all A321neo expected in the second quarter, 11 in the back half of the year.

Very helpful. And then my second question, what drove the 6% decline in aircraft utilization? Are you still pursuing to get to 12-plus hours with the network changes, we’re getting to the 80% out-and-back flying, it sounds like you got to 75 already. I thought that we would have had much better aircraft utilization by now, but maybe to your earlier point because the markets are still ramping. Any color here would be helpful.

Yes. Shannon, we're still managing the oversupply that we saw in the back six months of last year, particularly in the January and February period. And so, in managing that, we took utilization down like we've done previously in the January and February off-peak periods, but we're expecting utilization to be up in the high 11s, 12s for the rest of the year.

Stand by for our next question. Our next question comes from Helane Becker with TD Cowen.

Two questions. One, at one point your flight attendants were objecting to the new schedule because they would earn less. Was that issue ever resolved?

Yes. Thanks, Helane. So, we actually negotiated on this very issue. They had wanted a guarantee of a minimum number of multi-day trips in past negotiations, and we did not agree to that. So, it's not really a dispute; it's been settled. We do know that there are flight attendants that prefer multi-day trips and that prefer to get the per diem and stay in hotels. This is a challenge for some of them. However, when you look at our growth, as we grow, if you think about it, every day, even though it's only 20% of multi-day trips versus 40% to 45% maybe six months ago, we cut that in half, but every day we grow, the percentage of the total grows. Within a year or so, we'll likely be close to the number of people that want multi-day trips that will be able to have them. And when you look at the fact that what we've done in our hiring for the last six months, we have targeted specifically into bases, especially as the out-and-back, but Cleveland is a great example. Almost everyone in Cleveland, we hired locally, and they are doing out-and-back from that city. So, I know it's a challenge for a small minority that still want the out-and-back. But as we continue to grow, we expect those that want it within a year will be able to get it. So, we don't see it as being a major challenge.

Okay. That's really helpful; thanks for explaining that. And then my other question is, you guys talk a lot about your cost advantage relative to the PR Group. And I'm just wondering how much does that advantage matter anymore, given everybody's changes in the way they're operating their route networks.

I believe it is very significant. We have clearly demonstrated that while there is a perception that network carriers are in a different position and that low-cost carriers are facing challenges, the reality is different. The deployment of capacity and the oversupply issues affecting network carriers have had a more pronounced effect on low-cost carriers. More importantly, many who identify as low-cost carriers are experiencing annual cost increases of 5% to 10%, which erodes their profit margins. Our determination to be number one and to continuously expand our cost advantage is enabling us to outperform. This is reflected in our guidance for a 3% to 6% increase for Q2, despite a 5% to 10% impact from new markets. We are also confident in the cost benefits we will gain from completing the out-and-back initiative, which involves the $200 million that Mark and I have frequently discussed. It is this cost advantage that will help us achieve our goal of reaching 10% to 14% margins next year. Costs are crucial, and they will always remain important.

Okay. Yes, that's really fair. I appreciate it. Just one quick one for Mark. How do we model the sale-leasebacks for the rest of the year?

Yes. So, from an overall perspective, I mean, I think if you just follow the fleet profile that we've outlined, so 23 deliveries this year, all sale-leaseback financed. Six expected in the second quarter, 11 in the back half of the year. So, I think that's the way to look at it.

Our next question comes from Jamie Baker of JPMorgan.

So, a follow-up on that. It looks like you had $71 million of sale-leaseback proceeds in the first quarter that you used to offset CASM. I mean, it feels like the business model is becoming increasingly dependent on aircraft financing decisions as opposed to the RASM and CASM stuff that we're all kind of accustomed to. So, I guess my first question is, when sale-leaseback proceeds begin to fade, have you given any thoughts on how you might manage the business differently?

Thanks, Jamie. We've discussed this topic in depth before. The main point is this: if you purchase aircraft and can deliver them at likely below market rates, you will realize a gain. We've demonstrated that whether this is done through a sale-leaseback or debt financing, the economics and net income remain unchanged. The gains we're mentioning are largely due to accounting rule changes from a few years back. If we're being fair, similar gains should also be considered for American, United, and Southwest, and those should be factored out. Regarding when these gains may diminish, that’s not expected to happen anytime soon. We have 200 aircraft on order and a clear strategy moving forward. This should no longer be viewed negatively, but rather as a positive asset for the business. You should focus on the guaranteed cash flows expected over the next decade. This situation will persist, and we have no plans to alter it unless the financing market shifts. It's a fundamental aspect of our business. The cash is tangible, the earnings are legitimate, and it's equivalent to if we had opted for debt financing.

Well, I guess the question though, if you were debt financed, wouldn't that be more similar to amortizing the gain over the life of the lease? So, I guess put differently, if you would amortize the gain over whatever leases you struck in the first quarter, it wouldn't be a $71 million benefit. Do you know what the approximate benefit would have been because, I mean, it's obviously going to be a much smaller number?

Those aircraft would be a much smaller number, but then you would have been bringing in the gains from all the other aircraft that you've delivered over the last 10 years. This is why we keep saying it, and there's a really good presentation we put out on this.

No, no, I remember.

Okay. Well, that’s why we did it. If you go back and look, we showed you whether you did this over the old accounting, whether you did it through debt finance or whether you do it the way it's being done now, which we're following proper accounting, the economic answer, the net income answer is the same.

Jamie, just to add to what Barry said. The market value for aircraft, particularly the A321neo, is really, really strong. The issues that have been happening with the manufacturers in terms of delays in aircraft, the market price for selling an aircraft into the leasing community is higher than it's ever been. It isn't diminishing. Sure, the financing costs associated with that are going up with higher interest rates, but that market price of the aircraft is very, very strong. And we happen to buy aircraft at a material discount to the market. And so that’s why we're getting the benefit. There's a real asset value intrinsic in our aircraft order, and you see that every quarter.

I think let's get back to focusing on what's important. I mean what we're excited about is we gave you a guide for Q1 that included it. Nothing changed with that. And we had really great performance and that is leading us to where we are now with what we believe is a solid guide for Q2 in the year even despite a high single-digit RASM hit and margin hit, which gives you the confidence to get back to the 10 to 14 points that we labeled as our target next year. That's what we need to focus on.

Yes. And I don't disagree as to the strength of the aircraft market, and we're not looking for that to reverse any time soon. I mean on that point, we are in full agreement. So, thank you.

The next question comes from Conor Cunningham of Melius Research.

On the 13 crew bases that you currently have and the few that you're introducing, I’m trying to grasp the cost mismatch that seems to be occurring in 2024. For instance, as you launch Cleveland and transition to this out-and-back network, are you facing a situation where you are incurring too many costs this year before it starts to stabilize next year? I want to understand the cost dynamics as you open new bases.

Yeah. I don't think there is a cost mismatch. I mean, I think the $200 million cost savings target that we have, that run rate that we expect to get to by the end of the year, it is underpinned by this network simplification and the shift to over 80% out-and-back. That simplifies the operation and provides efficiency across the operation. So, we think it goes hand in hand, and we don't think that there is a mismatch.

And just to add to what Mark, the actual cost of opening the base, there are dollars involved, but they're relatively small in the context of moving really valuable assets around the network and putting them in places where actually they're making real money. And so, the upfront investment in a base opening is relatively small from a cost perspective. So, there isn’t a material cost drag from the opening event itself. There’s actually cost savings that come quite quickly after you open the base.

Okay, perfect. Regarding your pilots, the market has changed significantly. Some airlines are now reducing their pilot numbers. Can you discuss your current status in negotiations? Are there any new developments? I understand you can't share specific details publicly, but I'm interested in what's happening and when we might expect a resolution.

The landscape has completely changed, right? I mean airlines have canceled classes, attrition rates have completely dried up. And if you want the canary in the coal mine — you actually saw this a while back. The fact that the regional airlines have been able to get staffed and hiring again tells you everything you need to know. There's not the shortage. So yes, there's not the pressure that was building. As far as our negotiations, it is very early. It is — I mean we just started. And so — and we're in mediation. And the history of these things are one to two years. Most of them are kind of centered around the two-year timeframe. So, I wouldn't expect us anytime soon to be able to get through that process. It's just a process. Once you sign up for mediation, you're kind of locked into it. So, it's going to take a while.

The next question comes from Stephen Trent with Citi.

Two quick ones for you. One, as you look at these new products that you mentioned with the UpFront Plus, I think you said it was called, and you look at this new route network, what sort of competitive response are you seeing from the network airlines or others as you launch on these new ramps?

Yes. Thanks, Stephen. So, look, I think we're seeing what you normally see. I mean one person's great opportunity for high revenue opportunities with underserved or high-priced markets is another airline's definition of incursion. So, we see normal reactions out there. But I think the truth is that the industry is focused on margins. And so, I think any irrational things that you see, I think generally, over time, I think most rational carriers will respond with different pricing and capacity as a result. But yes, we're not seeing anything out of the normal.

Great. Appreciate that, Barry. Just one other question from a regulatory standpoint. And I haven't even 100% seen all the details around this myself, but I guess the DOT made some rule changes about airlines having to compensate customers for delayed flights and lost bags and this kind of thing. Do you sort of have any color on what's the latest on that? And to what extent the industry might push back on that?

Yes. Look, I know there's some pushback on it and a lot of it has to do with — I think there's concern about the technology that's available, especially with third-party to be compliant with the transparency. On the refund side, I would say that, look, we refunded over $300 million last year, all in these same categories. We believe we are largely compliant with what they're looking for. We don't see any financial impact from this. And I'll just add that we have some big changes this year. We've got a new website coming out. We've got a new app coming out, and we've also got some kind of improved merchandising that we think will not only be good for us from a revenue perspective, but I think it will really address much of these transparency issues and make it very clean and upfront. So, I think we can hit the spirit of what they're looking for. But I think the way they've written it in, I think, the reason why some of the industry is having a challenge is because I think there's not the technology in place today to do exactly what they're looking for. But hopefully, we can all get there. But again, we see no financial impact from this.

For our next question. The next question comes from Christopher Stathoulopoulos with Sequoia Financial Group.

Barry, I want to go back to your comments or your prepared comments around the supply dynamic. If you could put a finer point on that as it relates to key pieces of your network. A lot has changed here. You've been very clear about how you're thinking about optimizing the network going forward. But also looking at the last, I don't know, a few weeks of sales promos here, coincidentally or not, they seem to be overlapping with a larger network peer and should kind of reinterpret that you're having confidence here with your product, particularly as it relates to these revenue initiatives, business, rework, loyalty, and things like that.

So, look, I said a while ago, low cost has always mattered, and the cost divergence is real. And at the end of the day, this enables us to sell to customers that can’t afford possibly a network carrier. We're in a different business in that regard. And we think that we peacefully coexist in many places with the big airlines because they offer a different product, and they cater to a different clientele. Yes, we have some new products that I think probably appeal to your more affluent travelers and those that want a little more comfort with the UpFront Plus or the premium product. But the truth is that we don’t have a frequent flyer program that gets you to Dubai. We don't have eight frequencies a day in routes. So, we're not really for the corporates that they chase. But yes, I think we serve a different market. And I think most of the more sophisticated legacy carriers have actually figured that out. Just a quick follow-up. You brought up a good point earlier that your 1Q cost performance was quite commendable and kind of better than expected. Just curious why your full-year outlook hasn't changed? And any thoughts on what drove the 1Q performance that can maybe continue.

Yes, as we review our cost performance in the first quarter compared to our expectations, we remain focused on our $200 million cost savings plan, which is on track. We began to see some early benefits in the first quarter across the business. Looking at the full year, we are still maintaining our guidance of 1% to 3% based on the strategy we have outlined. This guidance remains unchanged.

I'm showing no further questions. I'd like to turn it back over to Barry Biffle for closing remarks.

Hey, I'd like to thank everybody for joining us today. We're really excited about our trajectory on costs as well as revenue and how we're improving in operations. I want to thank all the Team Frontier, and we look forward to hosting you on our next call. Talk to you soon.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.