Frontier Airlines Reports Financial Results for the Third Quarter of 2021

Frontier Group Holdings, Inc., parent company of Frontier Airlines, Inc. (NASDAQ: ULCC), reported its financial results for the third quarter of 2021.

Frontier was profitable in the third quarter on a GAAP basis, recognizing $23 million of net income. After adjusting for non-GAAP items, including $72 million of CARES Act credits and $1 million in early lease termination costs, Frontier recognized a net loss of $24 million. Frontier had 112 aircraft at the end of the quarter, 10 percent higher than the corresponding prior year period and 20 percent higher than the third quarter of 2019. Frontier's capacity, as measured by ASMs, modestly exceeded the levels achieved in the comparable pre-COVID quarter in 2019. Frontier opened three new stations during the third quarter of 2021 and operated an average of over 435 flights per day, which was eight percent higher than the comparable pre-COVID quarter in 2019. Frontier generated $106 of total revenue per passenger during the quarter, including $63 of ancillary revenue per passenger. Frontier's ancillary revenue per passenger during the third quarter was 12 percent higher than the comparable pre-COVID quarter in 2019. While the quarter was impacted by the Delta variant and rising fuel prices, management remained financially disciplined and the Company ended the quarter in a strong financial position.

"This quarter reflected another step in our path to recovery, with the business remaining resilient in managing the dynamic nature of the pandemic," said Barry Biffle, Frontier's president and CEO. "Despite the impact of the Delta variant on bookings during the quarter, we increased our capacity, departures and level of ancillary revenue per passenger as compared to the comparable pre-COVID quarter. We continue to view the Delta variant as transient and remain focused on getting the airline back to full utilization in the second quarter of 2022 while being nimble to address any further impacts from the Delta or other COVID-19 variants."

Recent Company Highlights:

• The company recognized $23 million of net income on a GAAP basis during the quarter.
• Frontier ended the third quarter of 2021 with $802 million of unrestricted cash and cash equivalents. The company also has a $161 million current income tax receivable from its annual tax returns filed during the first quarter of 2021.
• Frontier's capacity during the quarter, as measured by ASMs, modestly exceeded the levels achieved in the comparable pre-COVID quarter in 2019.
• The company generated $63 of ancillary revenue per passenger during the quarter. This was 12 percent higher than the ancillary revenue per passenger generated during the comparable pre-COVID quarter in 2019.
• Frontier took delivery of five A320neo aircraft during the quarter. This brings the airline's total fleet count to 112 aircraft, which is 10 percent higher than the prior year. Frontier has no planned aircraft deliveries during the fourth quarter of 2021.
• Frontier’s fleet continues to be the most fuel-efficient of all major U.S. carriers when measured by ASMs per fuel gallon consumed, generating almost 100 ASMs per gallon during the third quarter of 2021. The company retired the last of the A319 aircraft from its fleet during the quarter, increasing the proportion of the more fuel efficient A320neo family aircraft to 65 percent of its total fleet.
• Frontier continued its domestic and international network expansion during the third quarter, opening stations in St. Maarten, San Jose, Costa Rica, and Burbank, California, as well as expanding the company's Las Vegas schedule to its highest number of departures ever. The expansion will continue through the balance of 2021, with new stations being added in Antigua, Belize, and Costa Rica along with Frontier's largest ever schedule in Orlando. With this expansion, Orlando will be Frontier's largest station in terms of daily departures for the winter schedule.

Cash and Liquidity:
Frontier ended the third quarter of 2021 with $802 million of unrestricted cash and cash equivalents. The company also has a $161 million current income tax receivable from its annual tax returns filed during the first quarter of 2021. The company is focused on repaying the $150 million outstanding under the Treasury Loan. Repayment of this loan would unencumber the company’s co-branded credit card program and related brand assets that currently secure the Treasury obligation and make that collateral available to access substantial liquidity, if needed. While the company has adequate liquidity on its balance sheet, the company estimates that there is approximately $1 billion of potential untapped liquidity associated with its loyalty programs and related brand assets, based on debt financings secured by similar assets engaged in by other airlines.

Revenue Performance

Total operating revenues for the third quarter of 2021 were $630 million, with total revenue per passenger of $105.75, an increase of eight percent compared to the $98.06 generated in the second quarter of 2021 and reflecting 97 percent of the comparable amount during the pre-COVID quarter in 2019. Frontier’s $105.75 of total revenue per passenger during the quarter included $63.01 of ancillary revenue per passenger. This amount of ancillary revenue per passenger was five percent higher than the second quarter of 2021 and 12 percent higher than the $56.32 of ancillary revenue per passenger generated during the comparable pre-COVID quarter in 2019. Frontier had 21 percent more average aircraft in service during the third quarter of 2021 as compared to the third quarter of 2019, with average daily aircraft utilization and load factors continuing their recovery. Frontier's average daily aircraft utilization increased from 10.1 hours per day in the second quarter of 2021 to 10.6 hours per day in the third quarter and the airline's fleet operated at a 77.4 percent load factor. Further improvement is expected to the utilization and load factor levels achieved in the comparable pre-COVID period in 2019 as the recovery from the COVID-19 pandemic continues. Frontier’s capacity during the third quarter of 2021 totaled 7,505 million ASMs, which was approximately one percent higher than the capacity achieved in the third quarter of 2019.

Cost Performance

Total operating expenses for the third quarter of 2021 totaled $587 million, including $72 million of CARES Act credits and $1 million of early lease termination costs. The company’s adjusted total operating expense was $658 million, including $166 million of fuel expenses at an average cost per gallon of $2.19. Frontier’s adjusted total operating expenses, excluding fuel, totaled $492 million. This resulted in an adjusted CASM (excluding fuel) of 6.55 cents during the quarter compared to 5.57 cents in the third quarter of 2019. The company's adjusted CASM (excluding fuel) reflects cost discipline as well as lower utilization as the airline continues its recovery from the COVID-19 pandemic. As the recovery from the pandemic continues to unfold and utilization levels normalize, the resulting capacity benefit on the company's fleet, which had 21 percent more aircraft in service in the third quarter of 2021 compared to the corresponding pre-COVID quarter in 2019, is expected to favorably impact the company's Adjusted CASM (excluding fuel) in 2022 and beyond. Frontier had 109 average aircraft in service during the third quarter of 2021 as compared to 90 during the third quarter of 2019.

Fleet:

As of September 30, 2021, Frontier had a fleet of 112 Airbus single-aisle aircraft, consisting of 73 A320neos, 18 A320ceos, and 21 A321ceos. All aircraft in the fleet are financed with operating leases that expire between 2021 and 2033. Frontier’s fleet is the most fuel-efficient of all major U.S. carriers when measured by ASMs per fuel gallon consumed. This fuel efficiency reflects Frontier’s operation of a large number of aircraft with new generation, fuel-efficient engines, lightweight seats, and an efficient seating layout.

Frontier took delivery of five A320neo aircraft during the quarter and has no planned aircraft deliveries during the fourth quarter of 2021.

As of September 30, 2021, the company had commitments to purchase an additional 143 aircraft to be delivered through 2028, including 76 A320neo aircraft and 67 A321neo aircraft. The entry into service of the A321neo aircraft in the second half of 2022 will advance Frontier's structural advantage in fuel and operating expense efficiency versus the industry.

Forward Guidance:

The fourth quarter and full year 2021 guidance items provided below are based on the company's current estimates and are not a guarantee of future performance. This guidance is subject to significant risks and uncertainties that could cause actual results to differ materially, including the risk factors discussed in the company's reports on file with the Securities and Exchange Commission. Frontier undertakes no duty to update any forward-looking statements or estimates.

Looking forward to the fourth quarter, management remains focused on getting the airline back to full utilization in the second quarter of 2022 while remaining flexible to address the unpredictability of COVID-19 on the airline's bookings. As previously reported, the Delta variant had a significant impact on the airline's bookings through August and September, creating a deficit in forward bookings as the airline entered the fourth quarter. During September, the airline experienced a normalization of volume levels, but at discounted fares. Frontier is now seeing an improvement in fare levels as the holiday season approaches, however, fuel prices have continued to increase, creating a short-term cost hurdle to overcome. Frontier's current forward guidance estimates, summarized in the table below, take the lingering effect from the Delta variant into consideration along with higher expected fuel prices. These impacts are partly offset by the improvements in booking trends that began during the latter part of the third quarter of 2021 as COVID-19 cases stabilized.

Total operating revenues for the third quarter of 2021 were $630 million, with total revenue per passenger of $105.75, an increase of eight percent compared to the $98.06 generated in the second quarter of 2021 and reflecting 97 percent of the comparable amount during the pre-COVID quarter in 2019. Frontier’s $105.75 of total revenue per passenger during the quarter included $63.01 of ancillary revenue per passenger. This amount of ancillary revenue per passenger was five percent higher than the second quarter of 2021 and 12 percent higher than the $56.32 of ancillary revenue per passenger generated during the comparable pre-COVID quarter in 2019. Frontier had 21 percent more average aircraft in service during the third quarter of 2021 as compared to the third quarter of 2019, with average daily aircraft utilization and load factors continuing their recovery. Frontier's average daily aircraft utilization increased from 10.1 hours per day in the second quarter of 2021 to 10.6 hours per day in the third quarter and the airline's fleet operated at a 77.4 percent load factor. Further improvement is expected to the utilization and load factor levels achieved in the comparable pre-COVID period in 2019 as the recovery from the COVID-19 pandemic continues. Frontier’s capacity during the third quarter of 2021 totaled 7,505 million ASMs, which was approximately one percent higher than the capacity achieved in the third quarter of 2019.