Earnings Call Transcript - ULCC Q4 2025

David Erdman, Senior Director, Investor Relations

Thank you, and good morning, everyone. Welcome to our Fourth Quarter and Year-End 2025 Earnings Call. With me this morning are Jimmy Dempsey, President and Chief Executive Officer; Bobby Schroeter, Chief Commercial Officer; and Mark Mitchell, Chief Financial Officer. On today's call, Jimmy will be providing commentary on his strategic priorities, and then we're going to jump directly to the Q&A. However, a transcript of the prepared remarks, which would otherwise have been delivered by Bobby and Mark is available for download on our Investor Relations website. Before yielding, let me recite the customary safe harbor provisions. 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 filed with the Securities and Exchange Commission. Moreover, we will also 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. And then we'll also be referencing state-adjusted unit metrics, which are based on 1,000 miles. So I'm going to give the floor to Jimmy to begin his prepared remarks. Jimmy?

James Dempsey, CEO

I'd like to start by emphasizing how honored I am to be taking on the role of CEO, particularly at such a pivotal moment for Frontier. When I accepted this role, the Board gave me a clear mandate to enact change at our company. We know that we need to do better across the business and deliver increased value for all our stakeholders, employees, customers and our investors. With this in mind, I have spent the past 2 months rolling up my sleeves to build a clear strategic path designed to return Frontier to sustained profitability as the low-cost, high-value airline of choice. This plan comprises 4 strategic priorities: rightsizing the fleet, strengthening our cost discipline, reducing cancellations and improving on-time performance, and driving customer loyalty. Today, I will walk you through the actions we are taking on these priorities that I expect will drive meaningful changes and improvement across our organization. First and foremost, I am focused on resetting and stabilizing the business through a comprehensive rightsizing of our fleet. Returning Frontier to profitability is about going back to our roots as an organization. This means taking action to increase fleet productivity and efficiency. Just recently, we entered into a non-binding agreement with AerCap, which will enable us to benefit from the early termination of 24 aircraft leases in the second quarter. We plan to take advantage of this by increasing utilization across our remaining fleet to support our planned growth and drive efficiency. AerCap will remain one of our largest lessors, and we look forward to expanding our partnership with an additional 10 sale-leasebacks in the future as part of this agreement. Separately, we reached a non-binding framework agreement with Airbus, which revises the delivery profile of our order book. It supports a more measured and sustainable long-term growth rate of approximately 10%, representing a meaningful moderation versus our prior growth trajectory. The update to our delivery profile and underlying growth rate helps to minimize the proportion of new market activity while supporting ongoing productivity and operational reliability. Our plan to rightsize the fleet directly contributes to my next strategic priority, strengthening our cost discipline. Cost discipline has always been a cornerstone of our business model. We are targeting $200 million of annual run rate cost savings by 2027, largely from network optimization, productivity enhancements and other efficiencies across the business, which includes approximately $90 million of expected annual rent savings from the early termination of the 24 aircraft leases. The next strategic priority throughout 2026 is centered around improving our operational reliability by reducing cancellations and improving our on-time performance. We're simply not satisfied with our past record in these areas. The status quo is not acceptable, and every available option is on the table to improve our performance. I will give you some examples in a long list of initiatives we are working on across the business. Turn times, we are working on improvements to optimize our airport operation workflows, strengthening our head start performance and improving day of travel communications with our customers. Over 85% of our customers use our recently updated mobile app. By leveraging digital channels, we can push timely alerts of our clear next steps during delays and ensure customers feel supported and informed throughout their journey. We are also working on improved operational planning that better integrates scheduled maintenance into the early stage of our network design process to take advantage of our enhanced maintenance footprint. While we remain firmly committed to cost discipline and operational excellence, our final strategic priority is pairing that discipline with smart high-return upgrades that will accelerate the maturity of our customer loyalty program. Last year, we launched a series of enhancements to our loyalty ecosystem, including changes that simplify elite benefits, enhanced redemption opportunities and create broader customer engagement. Our simplified reward structure and easier elite status benchmarks have already begun to resonate with customers, and we are expanding on these efforts in 2026. Furthermore, we'll be modernizing every part of our commercial offering this year and into 2027 from digital tools and distribution to loyalty and onboard experience. These initiatives include the fleet-wide rollout of first-class seating, onboard WiFi, and upgraded website and mobile app and enhanced digital products and communications. These enhancements will broaden our appeal and effectively address friction points that have historically limited conversion and loyalty. We're building a product that remains incredibly affordable while delivering more value than ever before. Our loyalty assets represent one of our strongest long-term levers for value creation in the business. We're confident our recent and planned investments in our loyalty program and product offerings will be a significant part of our revenue growth. Overall, we're pairing our unique ability to provide low fares with an increasingly elevated product and customer experience to deliver unmatched value in air travel. The path ahead requires meaningful change, and we are embracing that reality with clarity and conviction in order to capitalize on the substantial opportunity we see in front of us. We've adopted a disciplined, actionable set of strategic priorities to transform our company and put Frontier on a path towards sustained profitability. Above all, we are deeply committed to creating long-term value for our shareholders, employees and customers. Thank you for your continued support. As David noted, we'll preempt commentary from Bobby and Mark to allow sufficient time for analyst questions. With that, operator, we're ready to begin the Q&A segment.

Operator, Operator

The first question we have today is coming from Atul Maheswari of UBS.

Atul Maheswari, Analyst

I had a question on your long-term growth plan of 10%. So where is this growth going to be concentrated? Is it simply going to be backfilling the space vacated by Spirit? Or are there other geographies where you see an opportunity? And then related to this topic, why is 10% the right growth target for this year and for the long term? Why is it not a smaller number than that, as that would in theory, accelerate your ROIC improvement? So any thoughts there would be helpful.

James Dempsey, CEO

Thank you, Atul. We will be careful in how we deploy our capacity over the coming years. This year, we are working on filling out our network for growth, which we expect to be around 10%. There is still time left in the year to see how that will play out exactly. We expect about half of this growth will come from enhancing our existing network by reintroducing capacity that was previously reduced on certain days, while the other half will come from new markets. These new markets arise from opportunities driven by previous challenges or shifts in capacity. We are currently taking advantage of this in various U.S. locations like Atlanta and Las Vegas. Historically, our airline has grown in the mid- to high single digits, and occasionally over 20%. We believe that achieving a growth of around 10% does not lead to significant revenue per available seat mile penalties. This growth pace allows for flexibility in managing utilization based on market opportunities. Currently, as we are improving productivity within the airline, we expect this to stabilize our revenue performance throughout the year, building on the positive revenue trends from the end of the fourth quarter and the ongoing rate we are experiencing as we move into the next quarter.

Atul Maheswari, Analyst

Got it. That's helpful. And then as my follow-up, I had a question on the guidance that was issued for this year. So based on my math, it appears you will need high-single digit to maybe double-digit RASM growth over the second to the fourth quarter to achieve the midpoint of the guidance. So a, can you confirm if that math is correct? And then b, if it is, what's giving you the confidence that you can drive this level of RASM increase beginning in the second quarter of this year because that's the time when your capacity growth will also accelerate to double-digit levels.

James Dempsey, CEO

Look, a couple of things are happening, right? This is a major transition year for the airline. We will change the utilization profile of the business as you progress through into the second half of the year. And what we're seeing right now in terms of the RASM performance is meaningfully improved year-over-year. We're seeing a trend above 10% in terms of RASM improvement. We're seeing that in the early booking process through March and particularly April and May. And so we're actually quite encouraged by what we see in terms of RASM trends going across the year. In terms of the long term, post-adjusting our costs, like one of the focuses in the business is getting a significant saving in unit costs across this year, but largely moving into 2027. And so you effectively have a reset year in terms of the business and its productivity, and that's where our focus lies at the moment. We're certainly seeing that stability in revenue and improvement in revenue carry forward, which gives us confidence that, that performance happens for the rest of the year.

Robert "Bobby" Schroeter, Chief Commercial Officer

Yes. And this is Bobby. So some of the things that we're seeing, of course, there's a good supply/demand backdrop that exists, capacity has been moderated a bit. But some of the things we've done that we're seeing unique benefits to as well. Last quarter, we moved back to a basic first product architecture that has the 3 clearly defined bundles that we have within there, so economy and premium and business. And then we reinforced revenue management discipline around that structure. So that allowed us to yield up more effectively across the fare ladder. And then in addition to that, which has enhanced this, we've seen significant in the past quarter, significant NDC distribution enhancement. So that's helping to improve the conversion across third-party channels. It's allowing us to merchandise those bundles more effectively on the OTAs and aggregators. And they're effectively, if you think about it now, they're on the shelf that they weren't before. So that's driving purchases early in the curve, allowing for improved attachment rates and better yield opportunities. And those are things that are going to continue in the future. So as Jimmy said, we're seeing that in the first quarter, and those are continued benefits that we'll see throughout the year, we believe.

Operator, Operator

And our next question is coming from the line of Savi Syth of Raymond James.

Savanthi Syth, Analyst

I wonder if you could remind us what the delivery cadence is for 2026. And then as you look to '27 and '28, just generally how many aircraft are you kind of anticipating with this revised orders?

Mark Mitchell, CFO

Yes. So the delivery cadence for this year. So we have 24 aircraft scheduled, 6 in the first quarter, 8 in the second quarter and then 5 in both the third and fourth quarter. And with the fleet plan that we announced, when you look at those 24 inductions, 24 early terminations, we expect to end the year with the same number of aircraft we began the year with, so 176. And then as you look across '27, we expect to be roughly by the end of '27 at a similar level to where we ended '25 and expect to end '26.

James Dempsey, CEO

Yes. And Savi, I mean that's an important point, right? We're going to start and end the year at the same number of aircraft and actually start and end 2027 with the same number of aircraft that we started 2026 with. And so really, the growth that you're seeing in the business is bringing back that productivity in the airline that's been missing for the last couple of years. And so that puts us on a better trajectory in terms of core operating unit costs in the business. So that gives us real confidence that this plan that we're putting in place today is very manageable across the airline. You're effectively infilling utilization into a largely already existing network. So that's where our confidence is coming from this plan from a stability of revenue perspective, but also from an ability to operate the airline at a higher utilization clip.

Savanthi Syth, Analyst

That makes sense. I mean I wonder like what do you think you can get to in terms of utilization as you exit this year? And what's the dispute order, like what's the new normal in utilization? And when can we get there?

James Dempsey, CEO

We've targeted about 11.5 hours across the entire fleet. And the fleet is more complicated than it was prior to COVID, where you got closer to 12 hours because of some of the engine noise with the new engine technology that exists across the fleet. So you do have aircraft that are less productive because of that. And so we've picked 11.5 hours. It gives us flexibility to add time to it, if we see it in certain periods and take time away from a seasonal perspective or other periods. So we think about 11.5 hours. That's our initial target to reset the business and do that between now and probably running into the summer of 2027. You get a big boost from a utilization rate of like averaging about 9 hours last year when you remove the 24 aircraft and rightsized the fleet. I mean that's a very, very important change that will happen quite abruptly midway through the second quarter. So that's a really good step change as you progress into the second half of this year. And then you've got to grow into the remainder of the fleet from a pilot flight attendants perspective to operate at close to 11.5 hours probably by summer 2027.

Operator, Operator

And the next question will be coming from the line of Jamie Baker of JPMorgan Securities.

Jamie Baker, Analyst

So the $200 million of run rate cost savings, I'm curious what labor assumptions underpin that. I believe at one time, Barry had at least sort of implied that revised economics were part of a longer-term plan that you would articulated. I know that there was never an official 2026 guide today. But yes, straightforward question. Is there a pilot deal in your full year guide?

James Dempsey, CEO

There is not a pilot deal in our full year guide. We continue, Jamie, in negotiations with the pilots through the mediation process. And so look, we'll update on that if we have something to talk to you about. The $200 million of cost savings, about half of it is rent, right, which comes from the deal we've done today. About another 1/3 of it is really network shape, driving unit cost savings into the business from where we fly basically. And then you've got efficiencies that come on the back of having a business that was fragmented as the week progressed. So Tuesdays and Wednesdays had lower flying. Saturday had slightly lower flying than the other 4 days of the week. And so you get efficiencies from that. But back to your primary question, no, we haven't baked in the cost savings, any changes to crew other than efficiency that comes naturally across the week from flying a more stable schedule.

Jamie Baker, Analyst

Well, that's a good segue into my second question. And I guess this kind of builds on what Savi was asking about. But clearly, there are 2 iterations of low-cost flying in the U.S., the high daily utilization model and the other being more of the kind of Allegiant Sun country, only fly when you can make money, low utilization model, whatever you want to call that. So it's clear you're leaning back into the high utilization model. What is it about Frontier's structure or network that assures us that, that is the better of the 2 low-cost iteration operating models in the U.S.?

James Dempsey, CEO

The efficiency gained from maintaining a consistent flight schedule throughout the week results in significant cost savings for the airline. This business model emphasizes enhancing cost discipline across the organization. Our recent investments in loyalty programs, network expansion, and adapting to the current market conditions have led to noticeable performance improvements throughout the week, even on off-peak days, despite operating with lower capacity. We are optimistic about the current run rate of revenue per available seat mile, especially considering the ongoing structural changes in the industry and the capacity management practices of several carriers. This positions us well to leverage these changes and restore our cost discipline to pre-COVID levels.

Operator, Operator

One moment for the next question. And the next question will come from the line of Ravi Shanker of Morgan Stanley.

Katherine Kallergis, Analyst

This is Katherine on for Ravi. I guess just a question on the guidance range. Obviously, there's a bit of a wide range here. So can you just maybe talk us through what would push you maybe to the low end of the guidance versus the high end and what you're assuming there for the full year?

Mark Mitchell, CFO

Yes. So as you look at the full year, right? I mean, as Jimmy highlighted, this is a transition year. So as we go through this year, working to reset the productivity and the efficiency of the airline. We've got cost savings that we've got line of sight to that we're targeting. And so as you look at that guidance range, it takes into account the fact that there is a transition, there's a timing element to that needs to be worked through. And as you look at the other side of the range, we are seeing a more constructive supply-demand environment, and we do expect as we go through the year, benefits on it from a productivity standpoint and a cost savings standpoint and also further traction on the revenue initiatives that were highlighted earlier.

Katherine Kallergis, Analyst

Got it. That's very helpful. And just as a quick follow-up. What was the catalyst for deferring some of these planes? I know you talked about how 10% is going to be the right growth for you. So is it more so figuring out what the growth rate long term would work for you guys? Or kind of what kind of kicked this off?

Robert "Bobby" Schroeter, Chief Commercial Officer

Yes. We've been managing two deals over the last two months to rightsize the fleet. We chose a 10% growth rate because we believe it offers more stability in revenue compared to the airline's historical growth, which has sometimes exceeded 20% and has typically been in the high teens. We feel that a 10% growth rate is appropriate for the business, as it allows us to expand into new markets where we can offer unique value due to our low cost structure. While we can adjust this growth rate, we believe that around 8%, 9%, or 10% is ideal for the airline in the long term. As the airline grows past 2030, this growth rate might decrease slightly due to the larger size of the airline, but it should remain consistent with the annual production of available seat miles.

Operator, Operator

And the next question will come from the line of Duane Pfennigwerth of Evercore.

Duane Pfennigwerth, Analyst

Thank you. Jimmy, I wonder if you could speak to return conditions generally on your engines. How much is an engine rebuild costing you in the current backdrop versus maybe what was contemplated in these leases 12 years ago? And if you're willing to speak to it, just remind us what your agreements sort of require at the back end? Is there a true-up mechanism in your return conditions?

James Dempsey, CEO

Yes. I'm not going to get into the complexity of the deal that we've done in great detail. These are not 12-year-old aircraft. These are midway through their lease life. And so the opportunity that came is related to a need for more engines in the CFM engine pool. And so we have been in dialogue with multiple parties around this for the last month or so to try and put a structure in place that work for both us and them. And so we've got to a very creative place. There is no liquidity penalty on Frontier in 2026 in relation to this deal. We have to work through the redelivery conditions of the engines over the coming months. But we think that the cost of this is relatively minor in the context of our fleet. And actually, what it does, Duane, is it gives a meaningful improvement in expected maintenance costs in the next 3 to 5 years from removing these aircraft from the fleet. So this is a very positive deal both in the short term and to reset the productivity of the airline, but over the medium term in terms of the maintenance profile of the business in the next 3 to 5 years. And so we're really happy with the deal that's been struck.

Duane Pfennigwerth, Analyst

Okay. How will you determine if this is a one-time action or if there could be more similar actions in the future? How will you assess if 24 aircraft is enough to get you back to where you need to be?

James Dempsey, CEO

I don't believe there's another opportunity that can replicate this one involving the removal of 24 aircraft. There might be a chance for another opportunity, which could speed up the airline's productivity. It would allow us to return to an 11.5 hour utilization rate more quickly. We have been heavily focused on this deal, as well as on improving the airline's medium- to long-term growth rate to ensure a steady growth trajectory. If another opportunity arises, we will evaluate it carefully, but we will be mindful in determining if it is the right choice for the airline.

Operator, Operator

And the next question will come from the line of Michael Linenberg of Deutsche Bank.

Michael Linenberg, Analyst

Yes. Just maybe touching back on Duane's question, Jimmy. Obviously, the return of 24 airplanes, normally, there's a sizable upfront cash component tied to redelivery costs. I think you said that there was no liquidity penalty. So presumably, no cash goes out the door when they return. And I think you mentioned also that the P&L impact, it seemed like it would be modest. Is that reflected like when I look at the range for the year, the loss of $0.40 for the profit of $0.50, does that include any sort of P&L impact that would be associated with any sort of redelivery costs on the airplane?

James Dempsey, CEO

There will be a one-time noncash expense when we finalize the agreements. This expense is likely to be excluded from our non-GAAP measures. The guidance range considers any actual costs related to this deal from a return condition perspective.

Mark Mitchell, CFO

So those one-time costs that we expect to be non-GAAPed out would not be part of that range.

Michael Linenberg, Analyst

Yes. Okay. Great. And then just on my second question, I saw that you did increase the size of the revolver and as I recall, I believe you had collateral pledged against that revolver, you could correct me if I'm wrong. But if you could just give us a sense where does your sort of unencumbered collateral position stand?

Mark Mitchell, CFO

Yes. So the revolver is backed by our loyalty assets. And so as we have in the script and as we've talked about before, those cash flows continue to perform well. We just had in Q4, our third consecutive quarter of double-digit growth. Q4 was up over 30%. So those are the assets that back the revolver. And yes, you're right. In December, one of the banks that supports the facility, increased their position, providing a vote of confidence for the revolver.

James Dempsey, CEO

Yes. And just to add to what Mark has said, like one of the byproducts of deferring aircraft with Airbus is that you have less PDP payments that are required in the near term because you're effectively taking a pause on deliveries during 2027. And so you end up actually with less because we finance some of our PDP, you end up with less drawn debt in our PDP structure. So you actually end up in a lower net debt position.

Mark Mitchell, CFO

Yes. And to Jimmy's point, so you'll see in the guidance that we put forward an expectation of net PDP deposit returns. So lower PDP balance at the end of the year of $170 million to $210 million. And with that deposit level going down, the corresponding debt levels would go down as well, so helping the leverage ratios.

Operator, Operator

Our next question is coming from the line of Scott Group of Wolfe Research.

Ryan Capozzi, Analyst

This is Ryan Capozzi on for Scott. Maybe first, so we saw a pretty big divergence in fare revenue versus ancillary revenue trends this quarter. What were some of the drivers here? And how should we think about the growth of both segments going forward?

Robert "Bobby" Schroeter, Chief Commercial Officer

Yes, I touched on this earlier. In the last quarter, we shifted back to a basic first product. This means customers can choose to take the basic product and add any ancillary products they desire or opt for one of our three bundles. This approach has positively impacted ancillary revenue and our new distribution capability, which acts as a direct connection. We have been expanding this more broadly in the last quarter. Not only does this enhance overall conversion rates, but it also ensures that bundled products are available, which was not the case before. This improvement aids in driving revenue up and increases bundle attachments. We have several unique factors contributing to this positive shift. Additionally, as we returned to the basic first model, we exercised discipline in our revenue management strategies. This has been beneficial, especially in conjunction with favorable macroeconomic conditions. As a result, we are seeing enhancements in both fare and ancillary revenues. We expect these structural changes to yield continued benefits moving forward.

James Dempsey, CEO

And Ryan, to build on what Bobby mentioned, one of the advantages we've realized from our experience with the new Frontier website about two years ago is that we've established a more disciplined approach to pricing since October. It's important to recognize the influence of transitioning to NDC, which provides clarity for customers booking through online travel agents regarding the total cost of their trip with Frontier. Customers can now assess the value they receive from Frontier by adding bundles, such as the economy bundle, to their bookings, knowing the full price upfront. Previously, customers booking through a GDS or OTA linked to GDS wouldn't have that transparency; they would only see the fare and then typically come to our site to add extra products either a la carte or through a bundle at either management booking or check-in. We're now observing an earlier adoption of bundles during the booking process, giving customers clearer insight into the value of booking with us compared to our competitors. This transition is proving beneficial for Frontier. While other airlines have been using NDC for some time, we were a bit late to implement it, but since our launch, we've experienced an encouraging attachment rate and conversion rate through that distribution channel, contributing to the improvement in unit revenues we are seeing in the business.

Ryan Capozzi, Analyst

Got it. That's helpful there. And then could you maybe just talk specifically about your strategy in Atlanta this year and maybe why you're growing so aggressively there this year?

James Dempsey, CEO

Yes. I mean you've seen Southwest and Spirit reduced capacity in Atlanta. And we have, for a long time, had an operation in Atlanta, and we've seen an opportunity to enhance that in terms of the volume of traffic flows that we are flying from Atlanta. And we're really happy with the performance of the base. We had about 60 daily departures in Atlanta through the peak last summer. And obviously, we're encouraged by the commercial performance that we're adding more departures this year to Atlanta. So we're very happy with the performance.

Operator, Operator

Our next question is coming from the line of Andrew Didora of Bank of America.

Andrew Didora, Analyst

Actually, just another question on your growth this year. So you talked about 50-50, kind of 50% new markets. You just touched on Atlanta. I guess in the 50% that you kind of dub the infilling, adding in Tuesday, Wednesday, Saturday flying. But RASM is improving now, I know these off-peak days have been highlighted as sort of the weakest RASM days. So why are you adding these back?

James Dempsey, CEO

We see a significant improvement in the revenue environment due to more disciplined capacity deployment across the industry. Spirit Airlines has notably reduced its capacity, especially in the Western United States. Historically, the overlap between Frontier and Spirit was nearly 50%, but it is now significantly lower, particularly in the West. This reduction presents opportunities for us to shift more flights to off-peak days successfully, contributing to the overall airline performance. Additionally, we observe discipline in capacity management among other airlines, which positively impacts our revenue generation. The changes we've implemented, including a disciplined pricing strategy and enhanced distribution capabilities across all our online travel agencies, reinforce our confidence that the revenue environment is improving significantly. Our business model is fundamentally based on higher utilization and strong cost discipline, which we believe will lead to a sustainable profitability path for the airline.

Andrew Didora, Analyst

Got it. Understood. And then I guess I'll ask the question. Given you're backfilling a lot of Spirits markets, does that mean you're no longer would have interest kind of going forward in terms of combining with Spirit in the future?

James Dempsey, CEO

Sure. Look, I'm not going to speculate on what happens next with Spirit. Look, both the Board and I are solely focused on putting Frontier on a path back to sustainable profitability. And that's really been the focus and high attention for the last 2 months.

Operator, Operator

Our next question will come from the line of Daniel McKenzie of Seaport Global.

Daniel McKenzie, Analyst

Jimmy, I guess, first, congrats on your new role. And I guess my first question really is just putting on the hat of a longer-term investor, getting that capital into your stock. Is the Board holding you to any specific profit metrics, so either return on invested capital, operating margin or however, I guess you're measuring the success of the business.

James Dempsey, CEO

For the past two months, we have been concentrating on achieving sustained profitability for the airline, as indicated in our announcements today. I have a clear mandate to implement changes in the business to achieve this goal. My immediate focus has been on adjusting the fleet size and developing a sensible cost plan for the airline in the medium term. Our current priorities include addressing other business aspects, such as decreasing cancellations and enhancing on-time performance, which requires significant effort. We are also working on various projects aimed at fostering customer loyalty and creating a positive customer experience that encourages repeat traffic. Ultimately, our success will be measured by our performance in building customer loyalty and the daily operational metrics we track. This is where our attention is centered at this time. From a long-term incentive standpoint, there are various metrics linked to shareholder performance and Frontier’s performance that our teams are focused on. We are committed to aligning with our shareholders to successfully return the airline to sustained profitability.

Daniel McKenzie, Analyst

Yes, very good. My next question really is, I guess, for Bobby. A couple of points here. Just going back to that point of loyalty. What was the redeemed revenue per passenger in 2025? And how would you see Frontier exiting 2026 on that metric? And then just related to this is sort of the K-shaped economic recovery that we have seen here. I'm just curious, what percent of your passengers and/or revenue has been permanently lost from this uneven economic recovery, sort of among the low to middle-income workers? And is that part of the missing revenue story today that potentially could come back at some point? Or how are you thinking about that?

Robert "Bobby" Schroeter, Chief Commercial Officer

Yes. Instead of discussing the specific revenue from our loyalty program, I will break it down into components that contribute to our revenue through loyalty. A key element is the co-brand card, which is essential to our loyalty program and helps us profit while also delivering value to our customers. We've experienced significant engagement with this card, and overall loyalty revenue has increased by over 30%. Much of that growth is attributed to the co-brand card, thanks to the improvements we've made across the organization in both product offerings and the loyalty program itself. Engagement has surged, not only in terms of acquiring new customers but also in increased spending, indicating that more customers want to connect with us as an airline than before. We also have two other subscription programs, Discount Den and Go Wild, which have proven to be very beneficial. Go Wild has shown substantial year-over-year revenue growth, largely due to the appealing product that allows customers to fly for free for a year or more, based on the launch timing. Customers are recognizing this value and have responded positively by increasing their transactions, resulting in higher acquisition of Go Wild customers compared to what we saw historically. Regarding the K-shaped recovery, I would say we possess a cost structure that creates opportunities across various segments and allows for flexibility. We cater to customers seeking the lowest prices while also offering a range of premium options, such as UpFront Plus, which has seen a paid load factor increase of over 80% recently. We are also introducing first-class services, among other enhancements. This versatility enables us to profit from different approaches to customer engagement, something that not all airlines are equipped to do. Our focus remains on maintaining a cost structure conducive to providing the lowest fares alongside premium product offerings for those who prefer them. We've observed increased customer engagement with us, which bodes well for the future as we continue to leverage our unique advantages.

James Dempsey, CEO

In terms of completing the comment about the K-shaped economy, we are observing a significant improvement in unit revenues, which are expected to rise by over 10% this quarter. We'll see how March ultimately performs in the coming weeks, but current trends are very favorable for the business. Bobby mentioned that we've introduced some premium products, and one benefit we are experiencing is that customers are booking earlier and making their non-ticket purchases earlier in the process. This is leading to an extended booking curve, which is a positive sign for our business and the products we are offering to our customers.

Operator, Operator

Our next question will be coming from the line of Chris Stathoulopoulos of Susquehanna International Group.

Christopher Stathoulopoulos, Analyst

I would like to revisit a question about capacity. I'm trying to understand the relationship between sustained profitability and your four-pronged plan, particularly the long-term targets of 8% to 10%. It seems that part of your focus includes capturing 50% of new markets. Historically, your strategy has involved competing in larger markets, which tend to be more expensive. I'm curious how this aligns with your goal of sustained profitability. Could you provide a more detailed explanation of how you're approaching this, especially in terms of the different margin profiles associated with the various targets? Additionally, how do you consider macroeconomic factors and the competitive landscape, especially with recent rebanking and connectivity initiatives? It's not completely clear how your anticipated growth aligns with the plan you've shared, and I'd appreciate insights on the best path forward during this transition year toward your long-term goals.

James Dempsey, CEO

Yes. I mean, most of the growth that's coming, I mentioned this earlier in the call, is coming from infilling the network that already exists, right? And so it's not a charge for 10% growth over the next 2 years where you're adding substantially new markets into the airline. So you already have clearly with a 10% improvement in RASM in this quarter, revenue stability in that network. And so we're really encouraged by the performance that we're seeing in the business in that network. We're obviously then looking at the opportunities that exist across the entire U.S. where capacity is changing across airports. And so we'll take advantage of capacity opportunities that exist at our cost base. And so our cost base is very, very important to how we deploy assets and how we move the airline back to a path to profitability. And getting more productivity and efficiency into the airline is foundational to that cost base and giving us the ability to offer real value to customers and that they now see it very clearly that real value, and they're able to attach to it and convert. And so that's where our business is. That's why we have confidence in growing the airline by 10% a year. We think it's very, very good for the unit cost in the business. And look, we have a value proposition to the customer that really is unmatched across the United States in a lot of the major markets that exist out there. And so we consistently provide the lowest fares and the lowest all-in pricing for customers. And we should be very proud of that as an airline. And why wouldn't we grow?

Christopher Stathoulopoulos, Analyst

I would like to follow up on the point Jamie made earlier. It seems you are focusing on a high utilization model. While you've mentioned that this year is transitional, as we consider Frontier's position at the end of this year and decade, and your ability to implement these initiatives, could you provide some clarity on how we should view margins, free cash flow, and returns in this new environment? I'm not seeking specific guidance, but at a high level, assuming everything aligns and the high utilization model proves successful, how should we interpret these aspects?

James Dempsey, CEO

Sure. Look, we're very focused on moving the airline back to free cash flow generation business model. That is a core tenet of the modeling that's been put in place and the drive to rightsize the fleet this year. We use this year as a transition. I'm not going to start guiding 3, 4 years out but our expectation is that the airline gets back to sustained profitability and free cash flow generation over the next number of years, which puts the airline in a very, very strong position.

Operator, Operator

We next have a follow-up from the line of Savi Syth of Raymond James.

Savanthi Syth, Analyst

I just was curious as you kind of go through these changes and some of your kind of sister organizations have kind of thought about financing aircraft recently. And curious what your views are on kind of continuing to use sale-leaseback versus some other avenues for financing?

James Dempsey, CEO

Yes. I mean we're largely financed Savi this year through sale and leasebacks. I mean over the medium term, I think the airline will probably diversify somewhat from sale and leaseback financing. But I mean in the immediate near term, we've largely financed most of the fleet that's coming this year. And so I don't see any near-term change. But I can obviously over time, see navigating to kind of a more balanced financing structures across the airline where you continue to have a high proportion of your fleet financed with sale and leasebacks or financing, but you bring some other forms of financing into the business. That makes sense. If it commercially makes sense, we should do it.

Operator, Operator

We will now turn the call back to Jimmy Dempsey for brief remarks. Please go ahead.

James Dempsey, CEO

Thank you. I just wanted to quickly say thank you to all the analysts that are on the call. We're happy to take follow-up calls if you have any further questions today or in the coming days. And look, we look forward to seeing you in person over the next couple of months. Appreciate your time, and thank you very much. We have a lot of work to do here. We're going to roll up our sleeves now and move the airline back to a sustainable profitability path. I think that's fundamentally important for the airline. And I think today's plan that we've laid out to you puts us in a really good place and path to bring the airline back to that location. So thanks very much, and enjoy your day.

Operator, Operator

This concludes today's conference call. Thank you so much for joining. You may now disconnect.