Frontier Group Holdings, Inc. Q2 FY2026 Earnings Call

Hello, everyone. Thank you for joining us and welcome to the Frontier Group Holdings second quarter 2026 earnings conference call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. I will now hand the conference over to David Erdman, Senior Director of Investor Relations. David, please go ahead.

Thanks, and good morning, everyone. Welcome to our second quarter 2026 earnings call. Joining me this morning in speaking order are Jimmy Dempsey, President and Chief Executive Officer, Bobby Schroeder, Chief Commercial Officer, and Mark Mitchell, Chief Financial Officer. Each will deliver brief prepared remarks, and then we'll open the call for questions. Before we begin, however, I'll remind you that today's discussion will include forward-looking statements subject to risks and uncertainties, and we will refer to certain non-GAAP financial measures. Reconciliations can be found in the earnings release issued earlier today and on our Investor Relations website. We also will be referencing stage-adjusted unit metrics, which are based on a conversion to 1,000 miles. So I'll turn the call over to Jimmy to begin his prepared remarks.

Jimmy? Thanks, David, and good morning, everyone. Our second quarter performance was well ahead of our earlier expectations and marks a meaningful step forward in Frontier's transformation. The progress we delivered this quarter validates the actions we have taken to strengthen the airline and position the business for sustained profitability. I'm incredibly proud of the focus, urgency and execution across Team Frontier as we continue advancing the plan we announced in February. Adjusted loss per share narrowed to 10 cents compared to our original guidance range of a loss of 45 to 60 cents per share with top line performance the primary factor. We delivered an all-time company record for quarterly revenue of $1.3 billion, up 38% year-over-year, with RASM up 28%, augmented by strong travel demand, the continued progression of our revenue management initiatives, and a more favourable competitive capacity backdrop. We ended the quarter with liquidity of $1.16 billion, further strengthening our balance sheet and giving us added flexibility as we execute against our transformation priorities. Across the business, the team has been executing with discipline and momentum against the four priorities we set out in February. Right sizing our fleet, strengthening cost discipline, improving operational reliability and deepening customer loyalty. Beginning with fleet right sizing, this work is now largely complete and is creating a more efficient, more productive platform for the future. In the second quarter, we returned all 24 aircraft under the AirCAP agreement. Moreover, we are in advanced discussions to early terminate leases associated with 13 A320neo aircraft in the coming months and substantially replaced that capacity with direct leases for up to 10 newer, more cost-efficient A321neo aircraft by the first quarter of 2027, facilitating slower capacity growth in Q4 of approximately 7%. On cost discipline, we are seeing clear benefits from the actions we have taken to bring productivity back into the airline and remain on track to deliver $200 million of targeted annual run rate cost savings by 2027. Operational reliability also continued to improve, supported by a system-wide maintenance strategy that is contributing to stronger completion factor and on-time performance. For the first half of the year, Frontier ranked fourth among domestic carriers in completion factor and delivered a controllable completion factor of 99.3%. As demonstrated by today's results, customer loyalty and revenue management are gaining momentum. In late June, we extended and improved our Barclays co-brand credit card partnership. In addition, I'm pleased we recently announced the fleet-wide rollout of Starlink high-speed Wi-Fi. We expect it to launch in early 2027. The introduction of Wi-Fi in conjunction with first-class seating significantly enhances our onboard experience and it reinforces our overarching commitment to delivering meaningful value to customers while maintaining industry-leading fares. In conclusion, we are focused on strengthening the fundamentals of of our business and segmenting our revenue base to meet customer expectations. We have real momentum and I'm confident in the path ahead for Frontier. As noted in our guidance update, we anticipate returning the airline to profitability in the second half of the year. With that, I'll turn the call over to Bobby to walk through the commercial updates.

Thanks, Jimmy. RASM came in at 11.52 cents, 28% higher year over year. The vast majority of the increase is a reflection of more disciplined revenue management alongside an improved overall supply-demand backdrop, which is further enhanced by CES exit from overlapping markets. These factors are allowing us to substantially mitigate higher fuel prices. Total revenue for passenger rose 20% to approximately $131 on a flown load factor of 80.3%, up a point on capacity that was 8% higher. Loyalty continues to be one of our fast-growing highest margin revenue streams, and the second quarter reinforced the strength of that platform. For example, the revenue contribution from the Barclays co-brand card increased nearly 30% year-over-year, supported by record co-brand card acquisition activity and continued double-digit growth in cardholder spend throughout through the first half of the year, reflecting the customer's recognition of the value we are delivering in the program. Customer loyalty is increasingly tied to what we deliver on board as well. With our upcoming first-class product and the Starlink rollout Jimmy mentioned, we will be delivering a meaningfully better in-flight experience, one that gives the customers who fly us today more reason to come back, and it puts frontier in play for customers our fares alone haven't reached. That's what converts a one-time booking into a repeat customer and a repeat customer into a cardholder. As we layer in first-class Starlink Wi-Fi and additional loyalty enhancements, we are building a more durable, increasingly diversified revenue base while preserving the cost discipline that defines Frontier's model. Domestic capacity in the third quarter is scheduled to be flat year-over-year, while competitive capacity is down over four points. Our third quarter scheduled capacity is expected to increase two to three percent sequentially and 17 to 18 percent year-over-year as we continue to normalized productivity and seize the unique opportunity to backfill lost capacity in the high-value carrier space. Fourth quarter growth, assuming execution of the deals Jimmy mentioned previously, is expected to be approximately 7% year-over-year, more in line with our long-term growth targets. With that, I'll now turn it over to Mark.

Thanks, Bobby. Total adjusted operating expenses in the second quarter were $1.3 billion, or 11.77 cents per ASM, including $436 million of fuel expense at an average cost of $4.17 per gallon, approximately $180 million higher compared to forward indications from early February. Total adjusted operating expenses, excluding fuel in early return agreement were 870 million or 7.42 cents per asm stage adjusted reflecting a sequential decline of over 10 percent on higher aircraft utilization second quarter adjusted net loss was 22 million 10 cents per share significantly favorable to our expected guidance range of a 45 to 60 cent loss the beat was driven by stronger than expected revenue performance and disciplined and cost management. We ended the quarter with total liquidity of $1.16 billion, significantly above our guidance range, representing 27% of trailing 12-month adjusted revenue. The increase during the quarter was supported by stronger sales than expected, the signing bonus received in connection with the Barclays Amendment, which was slightly above expectations, and disciplined and capital allocation. We ended the quarter with 165 Airbus aircraft, having taken delivery of two A320 NEOs and four A321 NEOs and returning all 24 A320 NEOs pursuant to the early return agreement. During the third quarter, we expect to take delivery of one additional A320 NEO and five A321 NEOs from our Airbus order book. As Jimmy mentioned, we are an advanced discussions to early terminate the leases associated with 13 A320 NEO aircraft and enter into direct leases for up to 10 newer and more cost-efficient A321 NEO aircraft. Assuming execution of these agreements, we would expect to operate a fleet of no greater than 168 Airbus aircraft by the end of the first quarter of 2027 and remain at that level through the end of 27. We will provide an update should formal agreements be executed. Turning to guidance, third quarter adjusted diluted EPS is expected to range from a loss of $0.10 per share to a profit of $0.10 per share at an average fuel cost of $3.70 per gallon. Fourth quarter adjusted diluted EPS is expected to range from break-even to a profit of $0.20 per share at an average fuel cost of $3.45 per gallon, which would reflect the third consecutive quarter of earnings improvement. Operator, we're ready to open the line for questions.

We will now begin the question and answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Stand by while we compile the Q&A roster. Your first question comes from the line of Savi Sith with Raymond James. Please go ahead. Hey, good morning, everyone.

The kind of question that I had was on the capacity growth. I think Bobby mentioned that maybe this kind of 7% level in 4Q is kind of maybe the target level. I was wondering if you can talk a little bit about that. And it looks like you're continuing to favor maybe a higher gauge aircraft.

Just any high level thoughts on as you think about kind of medium term growth and and how you're thinking about the strategy there yeah hi it's Jimmy look we haven't changed what we said earlier this year I mean we talked about somewhere between seven and ten percent capacity growth on an annualized basis over the kind of medium term we're obviously going through a significant fleet transition at the moment and so it's quite lumpy in terms of the capacity that we have to fly versus what we want to get to and then you're also lapping quite an unproductive airline a year ago and so if you look at capacity growth in Q3 you know it's it's elevated compared to where we want it to be and we were taking advantage of an opportunity that we have to return 13 aircraft and and quite frankly I really like the timing of us and and we return 13 aircraft in the next couple of months if we if we execute this deal and then we largely don't replace the fleet until after the winter and so we'll take the fleet down from where it is as you as you cross through the winter and it does give us that plus an opportunity to retrofit the first class seats onto the aircraft through this winter and so you'll see our capacity dip from a growth perspective down to like six seven eight percent we haven't really settled on it and we're working on timing but in that range in the fourth quarter which is which is a nice change from where we are in Q3, which is 18% and capacity growth.

Yeah, and just to add on, I know you were talking about the gauge. I mean, look, the growth we're talking about is asset productivity, and then there is some gauge conversation in there. We like the A321neo. We think it's the best unit cost machine in domestic flying. So we're looking at how we switch those out with some of these deals that were brought up. You're talking about an up gauge of 29%, but the unit costs or the costs per departure are significantly less than that. So from a P&L perspective, we think that's a really great move for us.

A very helpful color.

And if I just, on the implications of the unit cost side, any kind of thoughts as we think about like the next six to 12 months on unit cost and and how that might progress yeah thanks avi this is mark um yeah so as you look at the unit cost so we had good progression from q1 to q2 right so we're still in the midst of the the transition but you know the completion or you know the substantial completion of the fleet rights i think puts us in a good place um we're on track with our cost savings plan so i think you know what what you saw in q2 which was a 12 sequential sequential improvement, slightly higher year over year because of some higher maintenance activities, some transition-related items, and some incremental sales and marketing on higher revenue. As you fast forward into Q3 and Q4, what you're going to see as you look at Q3, continued progress where you're getting on our cost savings where you get a full quarter of the rent savings. You're going to see labor productivity come through. You're still in a bit of a transition on the ownership cost front, and we're still expecting some higher maintenance activity and certainly the incremental sales and marketing. And so when you put that together, you'll see progress on the plan, but some headwinds that we're working to mitigate. In addition to Q3 from a year-over-year basis, lower SLB gains. And as you fast forward beyond Q3, what we're really targeting as a business, because as you look at 27 based upon our fleet plan there's little to no you know sale leaseback gains in there and you know we're targeting profitability in 27 you know and so as part of that from a unit cost you know perspective getting our unit costs you know to trend when you adjust out the the SLB you know to be trending favorable yeah I mean in summary savvy like we're seeing real improvement in productivity in the business take out noise of sale and lease back gains and the airlines unit costs are actually improving um and so we're pretty happy where we're going appreciate the call thank you your next question

comes from the line of atul mahaswari with ubs please go ahead atul a reminder to please unmute yourself locally we will move on to the next question from john godden with city group John, your line is open. Please go ahead.

Hey, guys. Thank you for taking my question. I wanted to just follow up on the long-term ASM growth, Savvy's first question. And maybe you guys could just speak about the drivers and the contours of that growth over multiple years in the face of what could be rising profitability. When you think about 7% versus 10% or even being above 10% at certain times, is that a margin trigger? Is that a return trigger? We may be in a period here where profitability is improving, and I think people are just trying to get a handle on the interplay of your capacity growth decisions with respect to that.

Yeah. Hi, John. I mean, look, if you look across the medium term for the airline, I mean, we established earlier this year that we wanted to have a fleet of aircraft, around 170 aircraft, and to keep the fleet steady over a two-year period and give the airline an opportunity to to mature into its fleet you know the the airline in 2019 at 95 aircraft at the end of 2019 and it grew quite meaningfully in the next kind of four to five years and so giving that the airline an opportunity to mature into itself and improve your operational performance is really foundational to actually running a good airline and that's what we needed to do So establishing a stable fleet over two years is very, very important to me. And so that discipline around fleet is something that we've invested a huge amount of time in getting right. And we think we're moving into the right place. You then take that fleet and you know you have an order book that runs from 2028 through to 2033. And we're trying to shape that order book that drives growth in the airline after you get the airline back to productivity of somewhere with, I suppose, with flexibility of somewhere between 7% and 10%. I mean, if you push productivity hard, you can go above 10%, but we've got to see if that makes any sense. I think I like the idea of growing the airline in the high single digit level in order to create a more stable revenue backdrop for the airline and to give us the ability to mature the airline without actually having an operational stress in the airline. And so, like, will it be lumpy? Yeah, there's periods probably through the next five years where you may have slightly higher than 7% or 8% and there'll be maybe periods where it's down around 5% or 6% growth. But in that kind of high single digits is where I'd like to see the airline in the medium term growth from where it is today. But look, the fundamental thing that we're doing at the moment, rather than looking beyond 2028, is really getting the airline in a really strong condition before it adds aircraft to the fleet.

No, I think that's great. I think investors will appreciate kind of a thoughtful, disciplined message there. If I could just ask one more on now that we have the benefit of hindsight, the sort of play-by-play in markets after the Spirit wind down. I think I heard you guys talk about 4% capacity, competitive capacity declines in your markets. That's a number that kind of implies, to no surprise, backfill maybe from other players. And maybe you could just kind of plug us into the competitive dynamic in the wake of it.

Obviously, you guys are benefiting considerably and doing a great job but but what's the competitive situation like look i mean this is the airline business in in the united states like the field that we play on has four very dominant airlines that um you know supply over 80 of the capacity or seats in the in the domestic uh market um and so it's it's extremely competitive it continues to be competitive what's what what has happened is structural change on the back of two things right one of spirit started restructuring and the airline meaningfully in in November last year and so they cost that meaningful capacity and we also changed the way we we were we were managing revenue and we moved to a much more disciplined revenue management strategy around the end of the fourth quarter and into the first quarter of this year and so those two things drove like if you look at our RASM numbers going into into Q1 they drove high teen RASM improvement through the first quarter prior to Spirit's liquidation. And then obviously, you know, on our last earnings call, we kind of laid out that we thought the removal or liquidation of Spirit would cause about a three to five point improvement in RASM. It's probably a little bit higher than that. And that allied to the ability to mitigate high oil prices has come really from that structural change that's happened in the last couple of months. But look, back to your earlier question, it's still a very competitive marketplace.

Appreciate the thoughts. Thank you.

Your next question comes from the line of Atul Mahaswari with UPS. Atul, your line is open. Please go ahead.

Good morning. Are you guys able to hear me? Yes. Yes. Good morning. Okay. Awesome. Thank you. Sorry. Don't know what happened there. So first question, Look, I mean, you'll be lapping some big RASM numbers next year, and the growth plans are moderate. So, given, you know, the compares from this year, are you optimistic that you can drive positive RASM-CASMX spread, XDSLB gains next year? And if so, what would be the key drivers of that positive spread?

I mean, we're not guiding into next year at this point. but look the airline is on a very very good path you know we've moved the airline back to talking about profitability towards the end of this year and we have big investments going on into the onboard product and the operational performance of the airline and so the introduction of Wi-Fi in early 2027 plus the the rollout of our first class seats across this winter I think adds a significant amount of improvement in product offering and diversification in revenue that we will get in the airline and i think that's very very positive and then we'll move into next year obviously focused on on unit costs and so you know we're not forecasting next

year but the airline is certainly uh on the right trajectory to return to sustainable profitability and that's what we're focused on today got it that's helpful and you know as my follow-up uh The average daily aircraft utilization is currently a little under 10 hours a day. Where do you see this metric over the medium term? And as you approach that medium term level versus where you are currently, is there a way to size the Chasamex tailwind that this might provide?

Our objective is to get the airline to around 11, 11 and a half hours of utilization. and you'll have periods in the in the year where it's higher than that and other periods of the year where it's lower depending on seasonality in the business. I mean the airline today moving through Q3 I think has a utilization rate of just over 10 hours and so you know we are behind in terms of moving the airline back and to a higher utilization given the spike in oil prices we've effectively trimmed about five or six points in available capacity across the summer months to mitigate or manage through a high oil price environment and we'll continue to be diligent in terms of how we deploy our fleet and so I think we what we're building is flexibility with an objective to get the airline to above 11 hours of utilization over the medium term and that productivity obviously enables you to improve your unit cost output. Thank you.

Your next question comes from the line of Scott Group with Wolf Research. Scott, your line is open. Please go ahead.

Hey, thanks. Good morning. So the, if I look back at Q2, you guys were talking about a, you know, 20% plus rasm and it ended up up 28%. I guess this quarter, you're saying 20% plus again. Any more directional color on where you think we could end up? Maybe thinking about it this way, the last couple of years, RASM's picked up a little bit on an absolute basis, Q2 to Q3. Is that something that is achievable again? Just any more near-term RASM color?

Look, there's a couple of things happening. We grew the airline at a slower pace in Q2, which contributes obviously to RASM, than we're growing in Q3. We think the airline has structurally changed its revenue platform, which enables you to get to the RASM levels that we're at today. But we do have growth coming in Q3 that's lapping a very unproductive airline last year. And so sequentially, the growth level is not that dissimilar to what we should be doing seasonally as you're rolling into this portion of the year. But we think a reasonable RASM output, given the 18% growth in ASMs year over year, is just over 20%. And that's what we're seeing in the system.

Makes sense. And then I just want to make sure I'm understanding your point about uh next year so lapping the sale leaseback i don't know what's that like a four or five point sort of chasm headwind is the point you're trying to make that you think like core chasm could be down year over year and so like the reported chasms up but it's not up the you know full four to five points of what you know the sale leaseback headwind is is that what you're trying to say yeah scott i think as you look um you know it it you know call it 25 right i mean you had 300 million in sale leaseback gains and so you know that you know on the asm base was probably 0.7

you know or 0.8 right which would have put 25 close to um you know eight cents um you know on a on a stage adjusted basis and so as we look um you know into 27 um you know what we are you know expecting Is it our costs are trending to be able to be roughly flat, excluding that impact?

Look, Scott, it's dependent on growth and inflation that you see across the airport world and other parts of the business. But, yeah, I mean, I think a Chasamex fuel number to work off of somewhere in the mid-sevens makes a lot of sense to me in the medium term. We're obviously challenging the business to get it lower than that, but I think that's a reasonable chasm of X fuel number to work on.

So I'm just confused. So you're saying 25 X gains, you were over – you were 8-plus, but you're thinking you can get that down to mid-sevenths.

Is that – Yes, I think when you adjust for the sale, leaseback gains, yeah, like for like, you were pushing $0.08 and $0.25, and to Jimmy's point, as you look at $0.27, a reasonable target is mid-sevens.

Look, it'll be plus or minus something in the mid-sevens. I mean, we haven't done our budget yet for next year. We need to look across the inflation that exists in the industry and in the model. It could be slightly higher than that, slightly better than that, and we'll just up to see. Thank you. Okay.

Your next question comes from the line of Ravi Shankar with Morgan Stanley. Please go ahead.

Great. Thanks. Just on the current environment out there, do you feel like there's still room for the consumer to accept more jet fuel price pass-throughs at an industry level without seeing demand destruction? What do you think is the current sense on elasticity?

Hi, Robbie. I don't have a crystal ball, so it's difficult for us to predict what's going to happen in the future. I think there's been structural change in our revenue base, which I think is really positive for the airline. What we're seeing in the booking engine at the moment is 20% plus RASM improvement into Q3. We've slightly slower growth in Q4 than that, but the year-over-year comps get a little bit harder. So, look, we think we've put a really good structural change into the business with more disciplined revenue management. Obviously, the actual change in structure of the competitive capacity that's happening is a big positive for Frontier, and we're benefiting from that. And that's enabling us to mitigate high oil at the moment or largely mitigate high oil. And we obviously want to get the airline back to profitability and overcome higher oil. And the volatility in price in oil is really difficult to predict, as is the consumer's willingness to continue paying it. So we just don't have a crystal ball behind that.

Yeah. And then this is Bobby. I'll just add, look, the demand environment, we talked about a good demand supply backdrop. The demand environment is strong. The fair environment is constructive. And then, you know, the demand environment isn't just strong for a fair, but for our increasingly diverse revenue base in terms of, you know, ancillary, et cetera. So there's a lot of good things that we see in the environment overall that's constructive for what you were discussing.

Understood. That makes sense. And maybe as a quick follow-up, if you can give us a little more detail around the new credit card agreement and specifically around sharing any color on the thinking behind the duration of the agreement here. Kind of it's great that it's a long-term agreement, but at the same time, just given changing dynamics of loyalty out there, kind of do you guys consider doing maybe a shorter agreement and getting more bite to the apple?

Yeah, I mean, I'll sit there and say, I mean, Barclays is an incredible partner for us. Frankly, you've seen the results in some of the things that we've transformed over the past year or two, and there's a lot more to come in terms of capability to continue making our loyalty program the best loyalty program out there that people want to engage with, both on the acquisition side and the spend side. Our thought process on the length, frankly, again, we've got a partner that actually is leaning into this with us and getting us to a place where we think we can grow the overall loyalty pie by a fairly significant amount over the next few years. So we got what we wanted out of the deal. And again, we think that partnering with Barclays is the best move we could make for the next decade.

Very good. Thank you.

Your next question comes from the line of Michael Linenberg with Deutsche Bank. Please go ahead.

Oh, hey. Hey, good morning, everyone. Just maybe to follow up on the Barclays deal, the pre-purchase mileage facility, how much – I saw that you were able to sell $175 million this quarter. How much capacity is left on that facility before you hit the cap?

So, the facility and the new agreement has a max amount of $375,000, you know, where, you know, we sat, right, where we sat, you know, at the end of the quarter was, you know, roughly $120 million. So, you have plenty of runway, right, as we progress through the term of the agreement.

Okay, great. Thanks, Mark. and then just maybe actually another question for you um just on the sale lease back gains it looked like the receipts per aircraft were down about 30 percent is is that sort of two things is is that the right run rate to use for the third quarter and is that discount if that's not a function of some sort of decline in asset values right that's probably more likely a function of is how the leases are structured. Thanks for taking my question.

Yeah, so I appreciate the question. So yeah, I think, you know, what you're seeing is a function of, you know, the two things. So one, the mix, right? So we had two 320s and four 321s, and then keep in mind, you know, from, you know, prior expectations, one tail did slip into the third quarter.

Okay, thanks.

Your next question comes from the line of Jamie Baker with JPMorgan Securities, LLC. Jamie, your line is open. Please go ahead.

Thanks, Operator. Good morning, everybody. So, look, the industry seems to have achieved new levels of pricing power. Frontier is obviously part of that. I assume you agree with the characterization. And, you know, I suppose a good fuel crisis brings out the best in, you know, everybody's pricing department and all that good stuff. My question, though, is what have your lessons learned being at Frontier that you think are unique to your passenger demographics? So is it a subset of travelers that are comfortable paying higher fares? Is it a broad-based rising tide? Are you seeing travelers modify their booking behavior at all? I mean, look, obviously the goal is to assess the permanence of this. So understanding those building blocks and the nuances would be helpful.

Yeah, I mean, I think, Jamie, I think it's quite simply, you know, running a better airline operationally drives attachment from customers into the value that we provide from a pricing perspective to the customer base. I mean, we are certainly running a better operation this year. That's a meaningful change for the business where our completion factor has risen quite considerably. I think we were fourth ranked in the industry across the first six months of the year. I mean, that's not unnoticed by our customer base. I think some of our tools that we're using from a pure revenue management perspective improves the output that we get and the discipline that we're able to provide in terms of the fares we're offering in the system and just managing that. And look, a big portion of the improvement that we saw in Q1 is really twofold. One was revenue management that you saw much more discipline around the deployment of bundles and bundle pricing and the ability to do that through um ndc and into the otas and i think that that has been helpful uh to to the business but also pricing bundles in a more competitive fashion and creating an attractiveness for the customer into our businesses has been beneficial to frontier and then you have structural change right and so you've had meaningful structural change across the industry and that enables you to, you know, manage a higher oil price environment. So it's a lot of different things that are going on, but certainly a large part of it is our own discipline around revenue management.

Okay, perfect. And then just a quick follow-up and I'll ask, I'll rephrase Mike's question, but a little bit more fluently, given a similar number of deliveries in the third quarter, is 47 million for sale leads back gains, a reasonable number to pencil into our models?

Yeah, I mean, I think, yeah, somewhere in that neighborhood of, yeah, call it 50 to 60. Okay, perfect. All right, thank you very much.

Your next question comes from the line of Brandon Oglensky with Barclays. Brandon, please go ahead.

Hey, good morning. Thanks for taking the question. And, Jimmy, I guess as you look into 27, I think you said you do expect the airline to be profitable. And I understand that you want to keep the fleet flat. But is there inherent utilization capacity increases that we should be expecting next year? Is that high single-digit growth rate the right one to pencil in?

Look, we haven't defined our plan for next year. I mean, we have the flexibility to grow the airline by high single digit if the market gives us the opportunity to. It really depends on what happens with ongoing oil prices. As it stands at the moment, we would anticipate growing by somewhere between 5% and 8% next year, but we've got to go through a planning cycle and understand what we get to. We have the ability to obviously lower the productivity in the airline but that'll raise costs and is that the right overall a better answer for the airline and we'd prefer to get the airline back into a productive state and we're probably about five or six points behind in terms of capacity from where we'd like to be because of the oil price crisis and so you should see some growth into next year in the high single digits and we'll work from there. And look, the lower the growth, the higher the unit cost, the higher the unit revenues we have to do to achieve to overcome it. It's not complicated and we understand those metrics. We'll just have to see what we feel about the environment as we're rolling into 2027. We feel pretty good at the moment.

Okay. And I mean, you guys have talked about first class for a while now. Starlink, I think, is a big announcement.

How do you view these initiatives and new products like really rolling into uh you know results how they're rolling in from a timeline perspective or how we're thinking yeah and the potential you know revenue and margin upside from them yeah so um from a from a first class perspective um we are looking at um what we've discussed before sort of a fourth starting in a fourth quarter rollout um going into the early part of of next year um on the starlink uh portion we anticipate starting in early 2027. And that rollout will continue through. We're hopeful that would complete for summer, but you could see that moving through the year a little bit longer as well. As it pertains to revenue, look, we've talked about this before. I mean, first class was born in large part by our view on Upfront Plus and the value that that brought. The paid load factor on that is now up over 80% which is in line generally with what you see across the industry with other airlines premium products. So we're showcasing that frankly that segmentation and that desire for that product from our customer base and frankly maybe even capturing folks that wouldn't have looked at us before without that is high. And so as we progress into the first-class side. We're not necessarily giving a guide as to what we think that's worth, but we're going into it thinking that it's accretive beyond the premium products we have today.

Thank you for that.

Your next question comes from the line of Daniel McKenzie with Seaport Global. Daniel, please go ahead.

Oh, hey. Good morning. Thanks. You know, one house cleaning question here, and then just a broader question. So I guess for Mark, I'm curious how much cash you expect the additional lease returns to unlock and if it's included in the CapEx portion of the release today. And then if you could just remind me, would that filter through the cash flow from operations? And I'm just trying to get at the cash that could be produced by the business this year.

Yeah, no, absolutely. So as you're looking at the CapEx, so our CapEx guide from what we put forward last time has not changed. When you think about the transactions that we've executed, the savings, the maintenance savings that we expect, and we do expect hundreds of millions of dollars of savings as you look over the coming years, that is going to flow through operating expenses. But as you look at the balance of this year, given those returns just occurred, what we had in our CapEx plan really would have incorporated any sort of CapEx that was anticipated. So I think that the right way to look at this is the go forward, you're getting a material ownership cost benefit by the early return of these aircraft.

Yeah. And then, Jimmy, is it too early to talk about a return on invested capital in the median term that exceeds the cost of capital? So just going back to an earlier question on the link between growth and and profitability and what the North Star is that's behind how you're managing the company. Because there's been a number of structural changes, of course, and it seems like these structural changes, you know, better position frontier.

Yeah, Dan has gone. I agree with you. Look, what we're doing in the airline is focusing initially on the fundamentals, right? cost, good revenue management, putting the right fleet size in place, establishing the network to support the fleet that we have and driving a better balance sheet and liquidity into the airline. Like we're very disciplined about those items and getting the airline on the right path from from that perspective. We've got to adapt to the field that we play on, you know it's changed post-COVID, you know, you have significant loyalty cash flows coming directly off credit card programs that fund a large portion of basic economy in the domestic airline business, and it's something that we're quite immature in. And so we've looked at the business in the context of our loyalty program and the immaturity of our loyalty program in comparison to the rest of the industry, and we think there's huge opportunity for Frontier to to move the dial on loyalty but you've got to run a good operation in order to do that you've got to invest in the operation and improve the performance of the business and enhance your product and so we're doing all of those things and Bobby mentioned like wi-fi first class seats and we're looking at more segmentation around premium seats in the cabin we'll talk to you guys later on in the year probably about about that but certainly it's with the purpose of bringing the airline back to sustainable profitability and that's the real focus of the airline. We're not giving long-term targets yet in the business. What we're managing at the moment is bringing the airline back to those core fundamentals I mentioned and that needs to happen in order to have a strong platform and foundation to grow the airline and have discussions around growth versus return on invested capital but certainly that's the objective in the airlines to get the airline back to really generating operating cash flows and cash flow production in the airline over the long term and so that's where we are and you know we've made real progress this year on doing a lot of that and but we still got a long way to go and so like I thought you know I appreciate it we're probably about a year out from from having an operation that we are really comfortable with we've made real progress and but we still got a lot of work to do and we've got to establish the the premium products into the airline and allow those to season into the airline and get the customer base um aware of those new products that we have um and excited about them but certainly works we're very excited about the path we're on yeah thank you for that if i can just squeeze one final one in here um you know just given that reference to premium products and getting those up to maturity i'm just wondering if you can share you know that revenue uplift like what percent of revenues are they today and what would you expect that premium revenue bucket to look like to say as a percent of total uh once they're up to maturity i mean we don't have wi-fi first class seats uh on board the aircraft at the moment so um you know we we don't have any revenue linked to them at the moment so um you know we'll come back to you in time when we when we launch these to to give you a sense of the revenue uplift that comes into frontier on the back of them um but you can see The structural change in the – you're thinking the existing – well, we don't disclose that.

Yeah, like Economy Plus, for example.

Upfront Plus. I mean, we talked about – I just – I stated what our paid load factor is on that above 80%, which is effectively in line with what other carriers – legacy carriers get in their premium products, which frankly showcases the want from our customer base for premium products. That gives us the confidence to go into, for example, first class. And frankly, what Jimmy was saying, that we're reviewing additional premium seeding. And those are things that, again, we'll provide more information in the coming months on. But it gives us the confidence to go and look at that. We believe there's a lot of opportunity there, not only on the revenue side, But, frankly, it helps, you know, provide the products and services that different segments are looking for. And, frankly, with some of these things like premium seating, Wi-Fi, et cetera, certain customer segments that our price alone wasn't able to compete for. So there is, you know, opportunity to go capture customers that we haven't been able to be in the consideration set for before with this as well.

Thanks so much for the time, you guys.

Your next question comes from the line of Duane Benningworth with Evercore ISI. Duane, please go ahead.

Hey, thanks, Jimmy and team. Just on the fleet, can you confirm that the fleet is basically fixed now through a year-end 2027, or are there A321 lease deals that could bring you back to the table if the economics were attractive enough? there's always an openness within Frontier to look at lease deals if the economics makes sense.

But from what we see on the horizon, we think we are nearing the conclusion of some of the fleet opportunities that come. Maybe some stuff that we'll be available to tinker with, but I think we're largely getting to the point where we like the fleet that we have. We like the transition from the 320 NEO into the 321 NEO. It gives us flexibility around, particularly around the interior cabin of the aircraft and also obviously the operating cost benefit that the aircraft provides to Frontier. And so we like that mix. If more opportunities arise, we'll look at them. But as you said, Dwayne, the economics have to make sense.

Okay, thanks. And then second question, and apologies if we're geeking out on this one a little, But I'm just curious how you define competitive capacity and specifically the set of routes. Is it essentially capacity on routes that you've served for over a year, or does it consider newer routes that you've served for less than a year?

Yeah, both.

It considers our network.

And maybe just remind us what that is for that quarter.

Think of it as a snapshot. So we're looking at what the network is comparatively to, you know, what are competitors within those routes, within the markets specifically, and then taking that snapshot versus previous year. If we're looking at it year over year.

Does that answer your question? If you have, it does. If you have it, what is the, like, mix of new routes less than a year? Like, how has that been changing and trending over time?

Yeah, I mean, as we pulled the airline down from a fleet perspective, we've added a little bit of frequency into the airline, like a modest amount of frequency into the airline. And so I think the immature markets are considerably below what they would have been historically. So historically, we may have been running somewhere between 25% and 35% immature markets, so less than a year old. um we're we're in the in the low teens uh um uh immaturity at the moment okay great thank you your next question comes from the line of chris statuopoulos from susquehanna international group chris please go ahead all right good morning everyone um so the the the comment that there's been a structural change in the revenue platform for the airline and I appreciate that all

obviously a lot going on here with segmentation loyalty premium products but there's also obviously as you know been a structural change here in cost as we think about the U.S. certainly here and so as we think about the flow through here and this is obviously not a 26 perhaps 20 back half of 27, 28 events. Is it fair that as these initiatives mature, we should think that on a per-flight segment basis or a hub basis that you're going to be in a position where these changes are ultimately heroic accretive across the system, meaning not in markets where perhaps there are fewer competitors in different economics, more so in markets where there are larger airlines with considerably different hub or point economics?

I think it'll be a mix of markets, but certainly the objective is to invest in loyalty and premium products and premium products that actually improves the revenue output of the airline. I mean, one of the key principles that we're operating the airline under is actually improving loyalty with the objective of creating a more stable revenue base for the airline. And so product segmentation, we've seen other airlines obviously do this very successfully here and premiumization of their product.

I mean, that's certainly something that we've learned from other airlines, and we think that that will be a creative frontier. here i guess i'll ask it a different way so if i were to look at your top 25 or top 50 routes and rank order those based on your stage length adjusted trash um the the top quartile let's say obviously margins are going to look better because of these revenue initiatives here but as we move lower should we expect a a meaningful change in the margin profile given the i guess the cost convergence cost harmonization however you want to describe that dynamic as as all of these initiatives start to really materialize in 27 and beyond thank you well well well chris we'll still

have a meaningful cost advantage over the industry um given the the way we operate the airline and the focus on cost discipline within the airline um and so what we're what we're really if you if you if you look at it, what we're providing is incremental value to the customers at really low fares. We think that's going to be accretive, irrespective of whether it's on the top 50 or the bottom 50 routes in our network. And we think the product resonates with the customer base and the product changes. And you just have to look it up front plus, right? We launched this over two years ago, where we blocked the middle seat and the front two rows of the aircraft. and it has significantly increased the revenue for the real estate that exists at that part of the aircraft. And Bobby has given you an insight into the load factors that we're achieving, but those are driving a significant increase in the revenue for that portion of the aircraft. And so it encourages us to do more of that. And it's not necessarily focused on specific routes. It's typically network-wide.

Okay. And as a quick follow-up here, as we do our own math, our bottoms-up build on FY27 capacity, any color you can give on how we should think about the net actively for next year? And then, I guess, if we decompose that stage gauge and departures.

Yeah, we'll have to come back to you on that. there's a lot of work going on in the background around modifying the existing fleet and aircraft coming out of service particularly across the first quarter and the back end of this year so look we'll have to come back to you on what the inactive fleet would look like going into next year okay thank you but it shouldn't be that dissimilar to this year with a few lines of flying, stripped out in order to facilitate the modification of the cabin. Okay. So, but we'll come back.

We have reached the end of the Q&A session. I will now turn the call back to Jimmy Dempsey for brief closing remarks.

Yeah, thanks, guys, for attending the call. I mean, as you can see, we're pretty happy with the direction that we're going in in the business. We still have work to do to complete some of the things that we laid out earlier in the year. We're really excited about the product updates that we're bringing to the airline, particularly the introduction of high-speed Wi-Fi. We think that's a big product change for the airline and very complementary to the addition of first-class seats. We're very focused on providing a very low value to our customer set. But if you guys have any further questions, please do reach out to either me or the team. We'd be delighted to clarify any issues that you have and appreciate your support. Thanks very much, guys.

This concludes today's call. Thank you for attending. You may now disconnect.