Frontier Group Holdings, Inc. Q3 FY2025 earnings call

Barry Biffle's Remarks:

• Delivered Q3 results per share at midpoint of guidance range, navigated competitive fare pressures with cost management.
• Operationally, ranked 3rd and 4th in completion factor in Sept and Oct. Competitive landscape shifting in favor with largest low-fare competitor reducing capacity, positioning to accelerate commercial initiatives.
• Strategy to be leading low-fare carrier in top 20 US metros, leveraging loyalty program enhancements and first-class seating rollout by spring.

Jimmy Dempsey's Commercial Review:

• Q3 total revenue $886M, 4% lower capacity YOY. RASM $0.0914, stage-adjusted RASM up 2% YOY. Q4 capacity roughly flat, competitive seat capacity projected to decline 2 percentage points. Announced 42 new routes launching through early 2026.

Bobby Schroeter's Loyalty Update:

• Significant investments in loyalty assets generated ~$7.50 revenue per passenger in Q3, up over 40% YOY. Frontier Miles offers most attainable elite status with benefits like premium seat upgrades, free bags, etc.

Mark Mitchell's Financial Update:

• Nonfuel operating expenses $729M, down 6% QoQ. Adjusted CASM ex fuel $0.0753, 9% higher YOY. Fuel expense $234M, down 10% YOY. Q3 net loss $77M, net loss per share $0.34 at midpoint of guidance. Ended Q3 with $691M liquidity, issued $105M note post quarter end.

In the third quarter, total revenue was $886 million on 4% lower capacity year-over-year. Revenue per passenger rose to $106, up 1% from the prior year, supported by an 81% load factor. RASM was $0.0914 and stage-adjusted RASM improved 2% year-over-year. Loyalty assets, including Frontier Miles, co-brand credit card, etc., generated approximately $7.50 in revenue per passenger in Q3, up more than 40% year-over-year.

Q4 Guidance:

• Expect adjusted earnings between $0.04 and $0.20 per diluted share on roughly flat capacity year-over-year.
• Average all-in fuel cost expected at $2.50 per gallon, $0.09 higher than prior quarter forward curve indication.
• 2026 capacity guidance to be provided on next earnings update.

Risks Discussed:

• Potential impact of government shutdown on customer disruption and financials, though expected to be a positive on balance due to RASM but concerns about customer disruption.
• Aircraft certification by Boeing and potential impact on competition from legacy carriers expanding basic economy offerings.

Q: Just a couple of questions on the competitive capacity here. Obviously, you guys are being pretty disciplined right now with flat growth next quarter. But what's the rest of the industry potentially fills in for the capacity that's coming out here and we end up in roughly the same situation that we had before?

A: I don't think that's likely. Look, the capacity that's coming out right now is some of the lowest cost capacity and some of the lowest yielding customers. The only ones that could actually profit off that is actually us. So, I just don't see that being replaced by big airlines. It's not their business.

Q: I have a question on the government shutdown. There's just recent news that if a deal is not reached by November 7, we're looking at 10% cuts across the top 40 airports. If that were to come to pass, what would be the financial impact on Frontier? Presumably, this is good for RASM for the fourth quarter, but then you would end up carrying excess costs. So maybe can you help us dimensionalize relative to your current guidance, like how much of an incremental risk this would be?

A: We've heard about this in the last 20 minutes just like you did. My knee-jerk reaction is we need to figure out how to make sure we can accommodate all of our customers. I guess the good news here is that we're in a low demand period of November. I mean the high demand, obviously, is Thanksgiving. So, I think we'll be able to accommodate everyone. And so I would actually expect on balance, this is probably a positive just simply because of the RASM that we're going to generate on less flights. But I think that the customer disruption is more my larger concern. But I don't see this being a major impact to us.