Frontier Group Holdings, Inc. Q2 FY2025 Earnings Call

Thank you, and good morning, and welcome to our second quarter 2025 earnings call. On the call with me in speaking order are Barry Biffle, Chief Executive Officer; Jimmy Dempsey, President; Bobby Schroeter, Chief Commercial Officer; and Mark Mitchell, Chief Financial Officer. Each will deliver brief prepared remarks, but before they do, 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. During this call, we will be discussing non-GAAP financial measures, actual results of which are reconciled to the nearest comparable GAAP measure in the appendix of the earnings announcement. We'll also be referencing stage adjusted unit metrics, which are based on 1,000 miles. With that, I'll give the floor to Barry to begin his prepared remarks. Barry?

Thanks, David. Good morning, everyone. Our second quarter results were within our guidance range, overcoming significant weather and extensive air traffic control delays in late May and June, which we estimate to be 2 to 3 points on the quarter. Our third quarter guidance incorporates a similar impact for July. We're proud of Team Frontier for the contributions during the quarter as we navigated through this environment and for remaining focused on our top priority of delivering a safe and reliable experience to our customers. We're seeing an improvement to our forward bookings for August and beyond as the industry adjusts capacity. Encouragingly, in Frontier markets specifically, we're seeing a greater reduction in competitive capacity than the average in the industry by about 3 points, which, alongside our commercial initiatives, is expected to support mid- to high single-digit RASM growth in the third quarter on a stage-adjusted basis. I'm confident in our ability to generate incremental RASM benefit from our enhanced loyalty initiatives and our additional premium product offerings. For example, our cardholder spend is up nearly 20% year-over-year. These product and loyalty enhancements, combined with our industry-leading total cost advantage, are expected to provide a solid foundation for profitability in 2026. I'll now turn the call over to Jimmy for a commercial review. Jimmy?

Thanks, Barry, and good morning, everyone. Briefly recapping our revenue performance. Total revenue in the second quarter was $929 million, down 5% on 2% lower capacity versus the prior year quarter. RASM was $0.0901, while RASM stage length adjusted to 1,000 miles was $0.0874, slightly higher compared to the same period last year. As Barry mentioned earlier, our performance incorporates the revenue-related headwinds from air traffic control and weather-related operational challenges and the impact of weak consumer sentiment in the early part of the quarter. Total revenue per passenger was $109, flat to the prior year quarter on a 79% load factor, up 1.2 percentage points. We launched 35 new routes in the second quarter, primarily from existing crew bases, including our first-ever service to Seattle's Payne Field and Puerto Plata in the Dominican Republic. We also announced an expansion of service across the Eastern and Midwestern United States to include nonstop connections between Baltimore and Chicago O'Hare, Myrtle Beach and Trenton, and 9 new routes from Atlanta. These new routes are consistent with our strategy to penetrate large markets with limited or no ULCC service that expand our revenue pool and support growth. Looking ahead, we expect stage-adjusted RASM to be up mid- to high single digits in the third quarter year-over-year, supported by an improving industry capacity backdrop and tailwinds from normalizing exposure to immature markets. Based on our current selling schedule, which extends through January 5, immature market concentration is expected to trend toward low teens over the next 6 months, roughly half the level it was in the prior year. Capacity in the third quarter is expected to be down 4% to 5% year-over-year on an average stage of approximately 915 miles, while fourth quarter capacity is expected to be relatively flat year-over-year on an average stage of approximately 900 miles. I'll now hand it over to Bobby to provide an update on our enhanced product and loyalty offering.

Thanks, Jimmy. We're pleased to have achieved an increase of over 40% year-over-year in the second quarter in our co-brand loyalty revenue per passenger, driven by greater card acquisition and spending. Our current momentum, coupled with the introduction of first-class seating, mileage burn for ancillaries, and additional product features such as our companion pass, give us confidence in achieving our target of $6 per passenger by the end of 2026 and $10 by the end of 2028. We're also continuing to invest in the onboard experience. Our fleet-wide installation of first-class seating remains on track for completion by next spring, expanding on the strong response to our UpFront Plus product. And shortly, we're rolling out additional rows of UpFront Plus, enabling us to serve high premium routes more effectively while maintaining flexibility elsewhere. From a digital perspective, we're making major strides across all our distribution channels. We launched our new iOS and Android mobile apps featuring an improved interface and expanded self-service tools, and we'll launch our newly redesigned website later this year. Our NDC transition accelerated this quarter with key partnerships signed with Amadeus, Fareportal, and Hopper, with more to come. These agreements will allow us to revenue manage in real time, deliver more relevant personalized offers, and provide a seamless booking experience while also significantly reducing distribution costs. In short, we're modernizing every part of our commercial offering, from digital tools and distribution to loyalty and onboard experience with a focus on premiumization, which supports a better revenue outcome. With that, I'll turn it over to Mark for the financial update.

Thanks, Bobby, and good morning, everyone. Our adjusted non-fuel operating expenses in the second quarter were $774 million or $0.075 per available seat mile. The increase over the prior year quarter was largely as expected and was mainly due to a 13% reduction in average daily aircraft utilization related to our disciplined capacity deployment, fleet growth, and lower sale-leaseback gains from fewer inductions in the prior year quarter. Fuel expense totaled $230 million, 20% lower than the '24 quarter, driven by a 17% decrease in the average fuel cost, 2% lower capacity, and a 2% fuel efficiency improvement over the '24 quarter. Second quarter pre-tax loss and net loss were both $70 million, resulting in $0.31 of net loss per share, with the tax benefit generated from the pre-tax loss offset by a corresponding valuation allowance. We ended the quarter with $766 million of total liquidity, comprised of unrestricted cash and cash equivalents of $561 million and $205 million of availability from our undrawn revolving line of credit. We have committed financing, which is expected to boost liquidity by over $200 million by year-end. We took delivery of 3 A321neo aircraft during the quarter, all financed with sale-leaseback transactions, and returned 2 A320ceos, bringing our total aircraft fleet to 164 at quarter end. As previously disclosed, most of our planned inductions for this year are scheduled to occur in the second half of the year, with 13 aircraft deliveries expected in the next 6 months, including 2 A321neo aircraft in the third quarter and 11 in the fourth quarter, comprised of 7 A320neos and 4 A321neos. All remaining 2025 deliveries and all planned deliveries through the third quarter of 2026 have committed sale-leaseback financing. Turning to guidance. As provided in this morning's announcement, we expect the third quarter adjusted loss between $0.26 and $0.42 per share and fuel at an expected average all-in cost of $2.51 per gallon based on the jet fuel curve as of August 1, which is $0.15 higher than the second quarter. Third quarter non-fuel costs include some transition costs due to the timing of our capacity reductions and higher expected maintenance-related costs. Our capacity for the third quarter is expected to be down 4% to 5% to the corresponding prior year quarter, and we expect mid- to high single-digit RASM growth on a stage length adjusted basis in the third quarter. Lastly, we expect tax expense in the range of $2 million to $4 million due to the anticipated recognition of a non-cash valuation allowance. Thanks for joining us this morning.

So understanding that it is a pretty challenging environment out there, Barry, can you just help us with what does the path back to positive margins look like and then eventually to double digits over time? Like apart from just industry kind of tailwinds, what are some of the big moving blocks to get you there?

I believe one of the significant factors is that we are already experiencing it, and I sometimes wish we could report monthly instead of quarterly because trends aren't as visible. If we take a step back and discuss the fundamental aspects, we faced considerable challenges back in April, which everyone knows about. However, we stabilized and observed strong bookings, rising fares, and good demand. There were some obstacles, particularly with weather and air traffic control issues towards late May and early June. By mid-June, we noticed a setback and a slowdown, and it was difficult to determine if that was due to demand or oversupply during the summer. Consequently, we experienced a year-over-year decrease in sales despite flat to declining capacity. Recently, we've seen substantial increases, with our sales now running double digits ahead of last year, even though capacity has declined year-over-year. This trend suggests a positive trajectory for RASM for the remainder of the year, bringing us closer to breakeven based just on sales trends. As for the forward capacity, while the industry is improving domestically, Frontier's specific markets have shown about a 2 to 3 point improvement in September, which we expect to sustain. Certain competitors are exiting many of our routes, and we anticipate this to continue, positioning us uniquely. Moreover, with most domestic capacities currently unprofitable, we should expect ongoing reductions. While we are not depending on these changes, we anticipate several points in RASM from the competitive capacity leaving the market. Entering fall, we will also reduce new capacity significantly. Last year's fourth quarter saw over 20% new capacity, while this year it has dropped to 10%. This reduction alone translates to roughly 3 points, given that new flying typically incurs about a 30% discount. We also benefit from a slower overall growth rate, which contributes to an additional RASM increase. On the product and loyalty side, as mentioned earlier, we have experienced a 40% year-over-year increase, which, while from a small base, represents a significant improvement. Our credit card acquisitions and spending have risen notably as customers respond positively to the new Frontier. Additionally, we're introducing first-class seating later this year, fully rolled out by spring, along with expanding UpFront Plus based on its success. When all these elements are combined, we believe we are not only back to profitability but also on track to meet our targets.

Helpful. And maybe as a quick follow-up there. Do you have an early view on your capacity plans for '26?

We haven't shared that yet. However, as we've mentioned before, we will likely be among the first to respond to any changes. We've already reduced our capacity, and we need to observe how the rest of the industry reacts. The current trends and the overall financial situation of most domestic markets indicate that there will be continued reductions in capacity throughout the industry. Until we have more clarity, it’s difficult to determine our plans for 2026.

I was curious about your capacity expectations for the fourth quarter, especially considering it remains down in the third quarter. What does this indicate for utilization trends? Additionally, are there any other year-over-year factors regarding CASM ex that we should take into account that might impact the situation?

I will discuss utilization first and then hand it over to Mark for a cost perspective. Savi, we've significantly reduced utilization on Tuesday, Wednesday, and Saturday, with a more pronounced decrease on Tuesday and Wednesday, especially during off-peak periods. This is contributing to a year-over-year flat capacity. It will take some time to adjust if we continue to maintain this lower utilization on off-peak days throughout the week. As Barry mentioned, our outlook depends on future market conditions. We anticipate remaining around flat, possibly slightly positive in some months and slightly negative in others, as we move through the first half of next year. This outlook informs our hiring plans and the productivity we expect from the business. I’ll now pass it over to Mark.

Yes, I think in addition to what Jimmy mentioned, the capacity adjustments will naturally incur some transition costs as we align our resources with the capacity we're implementing. There are some timing details to consider. Additionally, as we've discussed, our aircraft inductions are heavily concentrated in the fourth quarter. We have 11 aircraft scheduled for delivery during that period, so it's important to factor that into your expectations.

That's helpful. I want to follow up on the capacity aspect. I'm curious about how much flexibility you have to adjust capacity up or down. I'm assuming there’s a significant amount of flexibility regarding aircraft availability, but possibly less so with staffing levels. I'm interested in understanding how much you can adjust capacity based on the environment.

Yes. I mean we sit in a surplus pilot situation at the moment, given the adjustment to capacity earlier in the year. So we can move capacity in relatively quickly. I mean if you're talking about meaningful capacity increases from where we are today, you really have a 6- to 8-month lead time for that. So it will really depend on what happens in the industry as to whether we deploy that and activate a training program to support meaningful capacity increases.

Yes, I would like to add that I previously addressed the question regarding RASM and how we can return to a double-digit margin. On the cost side, we are experiencing several points of excess costs this quarter, which directly impacts our margins due to having too many pilots and flight attendants. We have more staff than necessary currently because we planned for a larger operation in the near term, and this significantly affects our CASM. To respond to your question about flexing capacity, while we can always reduce capacity, doing so close in, as we have done, results in carrying that additional cost. I assure you that we will not be hiring more staff to exacerbate this issue. We will be bringing in some aircraft, not increasing capacity on days two through six, but expanding during peak flying days, utilizing that excess over the next year. Eventually, we will have enough aircraft to add capacity. However, if we need to boost capacity, the lead time to do so once we are adequately staffed is likely between six to eight months. This is because while flight attendants can be brought in more quickly, the main delay in growth is related to pilots. The process involves hiring a first officer, training them, and integrating them into operations, which then opens a slot for upgrading an existing first officer to captain. This entire cycle can take about six to eight months from recruiting to decision-making. Therefore, any decision on increasing capacity may take about two quarters, depending on demand recovery. Nonetheless, we are not anticipating improved demand for our profitability; we are planning based on current conditions and similar utilization unless circumstances change.

So you talked about sales up double digits for future periods. I wonder if you could speak to book yields and if you're seeing an inflection or maybe that's not the right word, maybe acceleration in yield improvement and how you think about that in the months going forward?

We're experiencing increases in load factors, with peak booking days consistently reaching the high 80s and low 90s. While we've seen improvements in load factor, the main driver of our double-digit growth moving forward is yield. Recent reports indicate significant increases in revenue per passenger, which includes both fare and ancillary revenue.

To clarify, is that comment referring to September? How far ahead are you projecting that?

Yes. This started in mid-July and we were about three weeks into it at that time. This relates to all future sales for upcoming periods. By then, July had passed, which is why I expressed earlier that I wish we could report monthly. If we did, everyone would clearly see what we are experiencing now. As we approach fall and begin to realize the advantages of our capacity reductions, aligning demand with capacity is truly starting to yield positive results. So, this applies to all future periods. In our case, with our capacity reduced, seeing year-over-year sales growth is significant. Although it has been a tough year, we're cautiously optimistic given the encouraging figures we've observed in recent weeks.

And then if you look at relative performance within your network, are there any themes or maybe characteristics of markets that are working better than others?

Yes. I think it's been widely reported, but Las Vegas seems to have had some challenges, and it's probably the most pronounced on a leisure basis. I think conversely, we're seeing, obviously, your VFR markets and maybe their business markets, depending upon the airline, the big guys might call the business market. We're seeing a lot of VFR traffic being very strong. So kind of tough in Vegas, and I think everywhere else is actually really, really doing well.

Barry and Mark, if you could just speak to the guidance range. It just seems unusually wide. I mean July is in the bag. You probably have half of August already a good view. So we're talking about, call it, 45 days left in the quarter. And yet on a pre-tax basis, it's about 5 points of margin for the quarter. Are you just concerned that the price-sensitive traveler is not going to show up in the month of September? What's the rationale behind that wide range?

July has concluded, and we have early figures for August; however, there are still two weeks left in August and significant sales potential in September. Given the current trends, if they continue, we could reach the upper end of our guidance. That said, we've faced challenges in the domestic market over the past six months, so while we remain hopeful, it's essential to be cautious. We convened as a team, including Mark, Jimmy, and Bobby, to review the numbers, which show notable increases; August yields are up 5% and September yields are up 15%. If this trend persists, it would be excellent news. However, it is still too early to say with certainty, which is why we are presenting a broader range. I could have provided a narrower estimate of 5% to 7%, but observing fluctuations like the unexpected dip in June has made me more cautious. Consumer sentiment can change rapidly, as we noticed with the situation in Gaza and Israel impacting sales in June. Currently, consumer sentiment appears to be positive, and I'm optimistic not just about demand but also about the benefits of increased competition. For instance, after our initial expansion in Miami before COVID, several airlines began flying to the area during the pandemic. Now, we are witnessing the effects of those competitive dynamics, as things return to normal and we adjust capacity to match demand. We remain encouraged, but we are providing a wide range based on recent historical data.

Okay, great. That's good. And then just one other quick question. I know you mentioned this before, but was the comment about all domestic capacity losing money specific to Frontier, specific to low-fare carriers, or are you suggesting that perhaps everyone has been losing money domestically this summer?

We believe, looking at everyone's numbers and unpacking that, that everyone right now is losing money domestically. There are 2 carriers that are subsidizing it significantly with international. But I think as you have seen, the domestic marketplace without international or international codeshare or other benefits, they are not trending well. So history shows that this will not continue. And that's why we look at this and we say we've got one of the cleanest balance sheets in the industry. And so we see plenty of opportunity for the carrier like Frontier to come out the other side of this because there's going to be a huge opportunity for the lowest cost provider. And I think there's going to be a lot less low-cost capacity competing with us. And I think there's going to be a lot less even legacy capacity in the United States because there is domestically too many narrowbodies in the United States, period.

I want to start with a broad question, Barry. This year's capacity is expected to be flat or decrease slightly, which marks a significant change from your past. It also indicates a potentially unprofitable year. I understand the challenges we face, but do you believe there are factors at play that we might not yet see in the numbers? Or do you think the model truly requires growth to be successful?

The model requires growth to be effective, and it clearly performs better with growth. This has been evident throughout the airline industry's history. Before the crisis earlier this year, we saw a 20% increase. Our revenue per available seat mile was up 20% year-over-year in January. However, that figure dropped nearly to flat by March, declining year-over-year in both March and April, then seeing a slight positive uptick in May and June, followed by a more significant increase in August. Currently, we are looking at 15% yields for September in advanced sales. Once we move past the recent economic shock and excess capacity, we believe we will be well-positioned in the market. It’s important to note that domestic flying for the industry is not generating positive margins right now. Excluding international flights and codeshare partnerships, the domestic sector is unprofitable due to an oversupply of seats relative to demand. Yet, the industry has historically reacted to these situations, and unless we experience a substantial increase in demand, we can expect continued reductions in capacity.

And maybe it's a dumb question, maybe I'm missing something, but if we're seeing this big improvement in August and September, why do we not see that in the actual earnings guidance for Q3 versus Q2?

Because July was not. Sales fell off in June for June and July, but it hit July the most. In fact, the first week or so of July, our sales were down year-over-year. July was kind of the month that didn't happen this year. Now again, unfortunately, there were plenty of things. There was a war breakout in the Middle East and all kinds of other things, and consumer sentiment fell in June. It was probably the worst time ever. But this is why I said a moment ago, I'd love to report monthly instead of quarterly, but also you're looking at revenue, not sales. And I think oftentimes, I think there's not a great understanding of revenue versus sales. Revenue is what you sold maybe 6 to 12 weeks ago and what you're flying now. Sales are a predictor of the future. And so as long as the sales trends hold up as the whole industry has reported over the last several weeks, we have seen the same thing. And I said, I guess we're one of the last ones to report so we can kind of put a punctuation on it. Yes, starting in mid-July now for several weeks, sales are up materially year-over-year. If that trend were to continue, you're going to see a meaningful jump in RASM year-over-year. As I said just a moment ago, our yields for September on a forward basis are up 15%. But we haven't booked that much September yet. There's still a lot of September to go. But if these trends hold up, we're going to have a great remainder of the year.

Okay. If I can just ask one more. In my freight world, we've got the biggest rail merger announcement ever, and I think there's a chance we could go from 4 rails in the U.S. to 2. And that's at least how maybe the rails are thinking about maybe what's going on with the change in administration. What does this mean? Is it the time to be revisiting airline M&A? Does the administration more supportive? What are your thoughts?

I don’t have specific insights on M&A across industries, but I believe that compared to the previous administration, there seems to be a greater acceptance now. Focusing on our industry, history shows that there are already reductions in capacity and this trend will likely continue. One effective way to facilitate that is through consolidation.

Barry, last quarter, you talked about a profitable back half. That's not something you reiterated today. So I assume that's no longer an expectation. A, could you confirm that? And B, if that's no longer an expectation, why is that the case? Like what has changed versus 3 months back that's driving this lower expectation? Because on the outside, it would appear that the demand is probably in a better place today than where it was 3 months ago.

It is absolutely relevant. I'll reiterate what I mentioned earlier. Looking at our sales and revenue trends throughout the year, we had a strong start. There was a dip in the spring, but we recovered from late April through early June. However, from around June 10 to July 10, we experienced a significant sales decline, which impacted July. That month accounted for approximately 36% or 37% of our quarterly sales, and in terms of capacity, it was closer to half. This led to a substantial decrease in sales during one of our best months. While I am not ruling out profitability in the second half of the year, the sales improvements we are witnessing are substantial. For instance, our yields improved by 15% in September, which is impressive. If this trend continues into the fourth quarter, profitability in the second half is likely. However, we are being cautiously optimistic. We provided a range of four points because this year's volatility makes that a more accurate estimation. If I were to project for the remainder of the year, the range would be even broader due to the fluctuations. Nonetheless, I agree that based on current trends, assuming there are no unexpected major events or economic slowdowns that we have not already encountered, and with a favorable capacity backdrop, profitability remains a possibility. However, we are not providing guidance for the fourth quarter at this time.

Yes. The stage, as we highlighted in the remarks for the third quarter, I believe, was $0.0915.

I kind of want to go back to your load factor. I mean, second quarter obviously continued to trend higher here. Just curious, if you look at that monthly, did you see steady progression throughout the quarter? Or was it more like back half weighted? Just curious, especially given after a big competitor changed its bag fee policy. I'm just curious what you saw around that.

Yes, it continued to improve throughout the entire quarter. In fact, one day in early June, I observed one of my directors in revenue management who was really excited. It was the Sunday after Memorial Day, and even though it wasn't a peak period, we achieved a 94% booking rate, which we haven't seen during a non-holiday time in quite a while. We're experiencing strong momentum and traction for our product. Excluding the downturn in July, we are seeing favorable results. As we mentioned earlier, one of the largest carriers in the United States is now implementing bag fees for checked luggage on its primary product. This shift allows us to offer a basic product, an economy product, and several premium options, putting us on a level playing field, and customers are recognizing this. As a result, we're seeing increased demand for our product as our offering and pricing provide the best value in the industry.

As you approach the fourth quarter and the peak holiday season, I notice you are shifting from a mid-single-digit decrease in capacity to flat in your guidance. Your schedules seem to be a bit higher. I'm interested to know, Barry, what your expectations for demand are during this time given this change in capacity.

Yes. So I think one of the things that we have is a tailwind for us, I mean, that shape of capacity, even flat capacity is actually better seats. So what you have to remember, we're using lower utilization with more flying on the peak days. So what that enables us to do is to command a lot better load and a lot better yield. And so that's why I think we will be an outlier on a performance basis because of what we've done and the actions we've taken to get rid of our own excess capacity.

And Barry, I ask this with the most respect. But I guess it's been 2 or 3 years now where we've seen a clear divergence in profitability between those that maybe have transatlantic routes and those that don't. But there's a narrative that there's a structural shift happening. I guess what's going to change looking forward? Because you guys have a huge order book, you're taking deliveries, but yet shrinking capacity. So how do we reconcile the outlook here versus an order book and an industry that needs to shrink? And I guess, where do you fit into that? And how do we hit that ever elusive double-digit pre-tax margin? And I mean that with respect, Barry, I know you guys are working hard.

Yes. Look, listen, I don't take offense. I mean, I didn't buy wide-bodies 10 years ago, and maybe I'd love to have them, but I think history shows that there's periods of time where international is really good. If I go back to the late '90s, the legacies were minting money on international, it really helped. Their corporate was really good and low cost actually underperformed. You flipped a few years later, and well, those fortunes change. I think what's become clear, and we actually think the model is now vindicated, this is not a model issue. If you go look under the hood, this is a domestic oversupply issue, period. And what we now see is that these larger carriers and small, in some cases, competitors will be reducing capacity in the United States, full stop. And we then, with the lowest costs and one of the cleanest balance sheets, will be a huge beneficiary of that. So I think it's always darkest before the dawn. It's been a very difficult year, but it's starting to become clear that Frontier will be the winner when we move into 2026. And there's no one in the ultra-low-cost space that is going to be our size, scale, our cost structure, and our relative cost advantage; there's going to be no one that can win domestically like us. And I'm just telling you, history shows you will not see this oversupply for a long time, and we'll want every one of those airplanes when it starts to become our turn.

Barry, I appreciate that answer. I mean, do you think the market is still stimulative though? Or have we reached more maturity of travel demand in the U.S. is that a possibility? And I guess, looking forward, are there any strategic actions that you think you can make to help drive outcomes in this direction?

Yes, I think I answered what you're hinting at on the last one a moment ago. But look, I think there are strategic things that others may do. I think there's been moves by some others, the kind of precursor for some potential consolidation opportunities. But ultimately, I think this is a situation where supply is going to come out. Are we fully stimulated? It's funny. I mean we went through all the places we're not flying, and we're kind of filtering through today places we're not flying. We're not chasing places that have ultra-low-cost carriers in them, where we can stimulate. And yes, there is a significant part of the United States and near international that is still kind of untapped, if you will. And so there's more than enough, we believe, for our growth. And we don't think that anyone else in our space is going to be growing to fill that void. And I think it's going to be, again, against a backdrop where fares are going to go up across the industry because everyone is going to be chasing margins, and that is going to give us more room to move our fares up as well.

So Barry, one of the notable themes from the aircraft leasing conference calls this earnings season is that the sale-leaseback market is quite competitive. There aren't many transactions happening, but there is a lot of capital pursuing this area. Consequently, the terms of sale leasebacks are currently more favorable for airlines. I'm curious if you agree with that perspective. More importantly, some lessors suggest that as production rates gradually increase and there are potentially more transactions, this could actually lead to better economics for lessors. It may seem counterintuitive, but I’m interested in how this might relate to Frontier.

Thank you for the question. There are several airlines, including one in Dallas, one in Atlanta, and ourselves, that likely purchase aircraft, making us some of the best in the United States. We generally pay less than what others might for planes, engines, and components, which contributes to our sale leaseback gains. Other airlines may have lower ownership costs, but we've demonstrated that whether we engage in sale leasebacks or debt financing, we have an advantage because we purchase at a lower benchmark. I don't think we've seen the ability to increase that lately since market prices haven't risen significantly, so I would disagree with that assertion. However, we are mindful of future developments, which is why Mark emphasized our proactive approach in committed sale-leaseback transactions, planning 12 to 24 months ahead. We have strong commitments and don't foresee challenges in that area. Honestly, there might be banks, possibly yours Jamie, that we could turn to for financing if necessary. If that occurs, we could pivot accordingly. We are set to have the lowest aircraft ownership costs per seat in the industry, and we will reach that through any financing available to us, while also ensuring we are well-prepared with committed transactions well in advance.

And Jamie, this is Jimmy here. One of the things that leasing companies monitor in their markets is the cross currency to the dollar and the interest rate environment. As the yen strengthens against the dollar, it negatively impacts them. Over time, we've noticed varying financing capabilities in different regions based on exchange rates and the core dollar interest rate. We are quite calm about the current state of the leasing industry. We have successfully financed our fleet for an extended period. Additionally, there has been a strong appetite for exposure to Frontier assets through sale and leasebacks, which continues to be robust. Therefore, we are not concerned about it at all.

Yes. Regarding the aircraft, we've observed in the past that during these situations, one of your competitors occasionally presents a chart demonstrating the value of a 17-year-old aircraft. This is where the market appears to be overheated, particularly concerning the values of end-of-life aircraft, which have risen significantly. I believe we will see many of these aircraft being parked, parted out, or removed from operation. If there's likely to be a shift in residual value or financing options, I think it will primarily affect the older aircraft rather than the newer ones. Typically, when companies are scaling back, they tend to prefer the most fuel-efficient models, and that's what people are looking for if they have access to the latest next-generation aircraft.

Yes. All right. And just a quick follow-up. You mentioned, I think, 3 or 4 times that you wish you could report by month. Is there anything to preclude you from disclosing monthly RASM? I mean it used to be a thing.

Yes, it did. It could lead to other volatile situations. However, we've considered it. This year, as we've discussed, we want to avoid overreacting in either direction. I will emphasize again that we are cautiously optimistic. Jamie, regarding the numbers, we've provided the facts for your interpretation. We are looking at substantial double-digit yields over the next month or so, which suggests a potential change. Additionally, the industry seems to have realized that $79 is the new $49 and $99 is the new $79. There's really no necessity for such low fares. We've seen the data; in fact, when we held a sale about a month or six weeks ago, dropping our fares didn't result in increased total revenue. Yes, we attracted more passengers, but the fares got so low. This has been the trend over the past few years. Though I won’t mention names, the fare levels have become unrealistic. A $29 fare ends up translating to just $15 for the airline after deductions for fees and taxes. You can't compensate with volume on $49 fares. Consequently, when major airlines hold $49 sales weekly, they've likely realized like us that those efforts are not beneficial. You cannot make up for it in volume, which explains why fares have increased year-over-year, particularly for those monitoring trends. It illustrates that increasing fares is working to the industry's advantage. When capacity is optimized, pricing follows suit, which is the way this operates.

Barry, I appreciate your insights on the U.S. domestic market regarding profitability, especially excluding code share and international benefits, which is certainly a topic of discussion. My first question has three parts related to capacity. You mentioned in your prepared remarks that in certain markets there is a three-point reduction in competitive capacity. Could you provide more details on that? Additionally, how are you approaching peak versus off-peak capacity for the second half of the year? Regarding next year, I understand you’re not ready to provide specific guidance, but with your order book available, could you assist us in thinking about the stage engagement for next year? I know you are keeping the departures aspect flexible as you look to respond to demand.

Yes. Regarding the three points mentioned, I want to clarify that this applies to all of our markets, not just certain ones. If you analyze the industry capacity in Frontier markets, you'll see it's either flat or slightly declining. However, our markets have seen a decline of nearly 3 points as we head into fall, and we anticipate this will increase as we move into winter based on trends we've observed from competitors making similar adjustments. Concerning capacity, we are lowering our operations on Tuesdays and Wednesdays this fall, limiting our flights to about 3 or 4 hours on those days. While this won't bring us down to Allegiant's level, we've determined that the best way to end our losses is to stop engaging in unprofitable activities, which unfortunately includes flying on those days without covering our variable costs. This has been a persistent issue, but we feel we have finally reached a turning point. Today, on a Tuesday, our bookings are at 88%. Did we possibly cut back too much? It's hard to say. A year ago, we were flying for 7 or 8 hours on those days. In terms of forecasting, we know it’s likely to be imperfect. Three or four hours might be too low; perhaps the right number is closer to 5 or 6. I've mentioned before that once we can reliably fill our planes on Tuesdays, we will consider adding more flights. If our bookings on those days stay in the mid to upper 80s, we may increase capacity. My commitment remains to align capacity with demand to return to profitability, which currently means maximizing flights on peak days and reducing them on off-peak days. We need to fine-tune this, as going too low could negatively affect our cost structure. If we can cover our variable costs on Tuesdays and Wednesdays, we should do so. It may take us a couple of quarters to determine the optimal numbers, but I expect them to be higher than current levels yet lower than 7 or 8 hours. I anticipate the ideal range will likely fall between 5 to 7 hours. As for next year, it's still too early to make any projections.

Sorry, Chris. I think it's reason to assume that given the fleet order that we will grow, but the growth will be on peak days of the week or peak periods of the year as opposed to the off-peak days of the week. And we'll manage that capacity, as Barry mentioned, on the off-peak days of the week to ensure that it's cash positive for the business.

Yes, yes, on the fleet. I mean when you look at our remaining order book, right, I mean most of what's coming are 321s. And so as you look at that mix playing forward, and so you're going to see just a continued steady increase as you progress year-to-year in the gauge.

We are slightly adjusting our approach because we will be receiving a higher number of 320s in the near future. In the fourth quarter, we are set to take delivery of 11 aircraft, with 7 being 320s and the rest being 321s. Overall, there will be more 321s delivered than 320s in the long run. In the short term, this will positively affect load factors as we ease off slightly while continuing to increase loads with our other commercial initiatives. However, in the longer term, there will be a greater emphasis on 321s.

That was actually a good segue into my second question. So I just wanted to understand, there was a question earlier around, I guess, the dynamic between load factors and yields. You mentioned the double-digit bookings. I'm guessing in April, May and perhaps part of June, you were more load factor focused here. For the second half here, given with what you're seeing with respect to demand and the oversupply here, is it fair to assume that you're emphasizing yields over load factors? Are there any markets where that dynamic is in flipped? And I think you also mentioned that there's a certain carrier. I think we can all figure out who that is, who's continuing to retreat from certain markets you serve. So I just want to understand that dynamic in the second half.

Yes, if you have higher costs than us and operate under a similar business model, that’s not a good strategy, similar to how Kmart struggled opening stores next to Walmart. I believe we will continue to see improvement. Regarding revenue management, it’s clear that to drive yields, you need to be filled to capacity. There are cases where markets can perform well even at a 60% to 70% load with high yields, but that's a small fraction of our operations, less than 5%. Generally, we manage to stimulate demand enough to fill up, and then we focus on yields. The issue we faced in April was that we had some of the lowest load factors since COVID, which took a few months to rectify. By early June, we had improved significantly, reaching some of the highest load factors we've seen in years. That allowed us to translate that into yield. Although we did experience a slight dip in sales from mid-June to mid-July, it has since rebounded to even higher levels than before. Currently, the RASM benefit we are observing gives us guidance up to the high single digits, attributed to load and primarily to yield. As I mentioned earlier, August yields are up 5% year-over-year, and yields looking forward into September are up 15%. I expect this trend to carry into the fourth quarter, where we will see the full effects because we haven't made significant changes to capacity until next week. The second half of this quarter is finally reaping those rewards, and the fourth quarter will reflect all of that benefit.

Quick question about other revenue. Is $31 million a good run rate to use for the rest of the year, or do you anticipate another increase with the growth in the loyalty program?

When we discuss other revenue, there are numerous initiatives that we believe will enhance our progress in this area. In terms of loyalty, we've already achieved a 40% year-over-year increase and expect to see continued growth at a similar rate next year. On the product side, particularly regarding seating, we see significant opportunities for incremental revenue, including the introduction of first-class seats early next year, which we will start selling prior to the schedule release. Additionally, we are introducing more flexibility in our flight options, allowing for increased upfront and additional rows compared to our current offerings, which will contribute to revenue growth. There are also PRM initiatives and opportunities within the MDC as we fully transition to that system, including the connections we've established with various OTAs. In the coming months, we anticipate a substantial increase in capacity and sales through our NDC as we onboard more OTA partners, which further supports revenue growth. There are numerous avenues for growth within our commercial initiatives, some tied to other revenue and others to fare, all of which align with the opportunities and capacity adjustments that Barry mentioned earlier, as we continue to see positive results and expect incremental revenue gains this year and into next.

That's very informative. I understand the confidence regarding 2026 and the competitive landscape. However, if things take longer to develop than expected and we find ourselves in a similar situation next spring with another excess of domestic leisure capacity, how do you plan to navigate that? What are your thoughts on the risk of experiencing another year with substantial cash burn from operations?

We are always cautious and constantly evaluating potential downsides. It’s important to view the situation as a series of possibilities. If one thing occurs, we consider the implications of the next. What excites us is the potential for significant changes. Just think about how much domestic capacity could be reduced. I want to emphasize once again that we maintain one of the strongest balance sheets in the industry. We will be the last remaining competitor in the low-cost sector by next year. No one will be able to match our cost structure or our financial standing, and we expect that capacity will eventually decrease. While it may not happen by spring, history indicates it likely will. I find it hard to believe that the rest of the industry will continue to operate at a loss for another entire year.

And this concludes our Q&A session. I will turn the call back to Barry Biffle for closing remarks.

Thanks, everyone, for joining. We appreciate you being on, and we look forward to talking to you next quarter. Thanks, everyone. Have a great day.

Thank you. And this concludes our conference. Thank you for participating, and you may now disconnect.