Frontier Group Holdings, Inc.

and thank you for standing by. Welcome to the Frontier Group Holdings first quarter 2022 earnings call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during this session, you'll need to press star 1 on your telephone. Please be advised that this conference may be recorded. I would now like to hand the conference over to your speaker today, David Erdman, Senior Director of Investor Relations. Please go ahead.

Thank you, and good afternoon, everyone. Welcome to our first quarter 2022 earnings call. Today's speakers will be Barry Biffle, President and CEO, Jimmy Dempsey, EVP and CFO, and Daniel Scherz, Senior Vice President, Commercial. Each will deliver brief prepared remarks, and then we'll get to your questions. But first, let me quickly cover the safe harbor provisions. During this call, we will be making forward-looking statements which are subject to risks and uncertainties. Actual results may differ materially from those predicted in these forward-looking statements. Additional information concerning risk factors which could cause such differences are outlined in the announcement we published earlier and with reports we have filed with the SEC. We may also discuss non-GAAP financial measures which are reconciled to the nearest comparable GAAP measure in the appendix of the earnings announcement. As well, during the call, any commentary regarding the proposed combination of frontier and spirit does not constitute an offer to sell or the solicitation of any offer to buy any securities or solicitation of any vote or approval. A registration statement and subsequent amendment were previously filed in Form S-4 with the SEC, and you should closely read those documents as they contain important information related to the proposed combination. And just lastly, we will be participating in several investor conferences in the coming months, and we hope to see you at one of those events. With that, I'll give the floor to Barry to begin his comments.

Thanks, David. Good afternoon, everyone, and thanks for joining our call. As we progress through the first quarter, we entered a period of post-pandemic when demand for air travel is on solid path to recovery. Our revenue for the first quarter was 11% higher than the comparable pre-COVID quarter in 2019 and included $69 of ancillary revenue per passenger, 21% higher than the first quarter of 2019. In addition, capacity in the first quarter increased by 20% versus the comparable pre-COVID quarter in 2019. The recovery began in earnest in March and has continued into the second quarter. The strength of the recovery is the strongest I've experienced in my career, and we expect it to gain momentum as we progress through the year. Accordingly, we expect record revenue in the second quarter with RASM growth of over 20% compared to the second quarter of 2019 and continued strength in our ancillary performance leading to an expectation of a further improvement to $70 per passenger in the second quarter. As we position the airline to be a leader in the post-pandemic recovery, we are focused on balancing capacity in response to elevated fuel prices and the current demand environment to enable the airline to return to profitability in the second quarter and full year 2022. Utilization in the first quarter was impacted by COVID in January and February and severe weather in March exacerbated by staffing shortages at the Jackson Air Traffic Control Center. Daniel will elaborate further on this in his prepared remarks later. We plan to grow second quarter capacity 10% to 12% versus the comparable quarter in 2019 and full year capacity by 12% to 15% versus the full year of 2019. Utilization should continue to improve as overall passenger volumes increase through year end. our expectation of record revenue for the second quarter, and our industry-leading fuel efficiency validate our ultra-low-cost model, even in a high-cost fuel environment, providing confidence in our return to profitability. Before I turn the call over to Daniel for a commercial update, I wanted to highlight how proud I am of Team Frontier, which has successfully navigated the airline through the pandemic and positioned us to succeed in the recovery while upholding our mission of low fares done right. With that, I'll hand the call over to Daniel.

Thank you, Barry, and good afternoon, everyone. Total operating revenue in the first quarter was $605 million, or approximately $111 per passenger. Our total revenue per passenger was in line with the level achieved in the comparable pre-COVID quarter, despite the lingering effect of the Omicron variant in January and February, due in large part to the strength and resiliency of our ancillary products. Our ancillary revenue per passenger of $69 in the first quarter was 21% higher than the amount in the comparable pre-COVID quarter and represented 62% of our total revenue per passenger. We're seeing strength across our ancillary product portfolio. In addition, we introduced new ancillary product offerings during the first quarter, including our Board First and Greener Check Bag programs, which are providing further strength. With this quarter's results, we have significantly surpassed our previously stated ancillary target of $65 per passenger, and as Barry mentioned, we are now targeting $70 per passenger in the second quarter. We will continue to expand and enhance our ancillary product offering to further strengthen our loyalty programs, our customers' ability to personalize their travel experience, and our ability to offer low fares to our customers. We averaged over 420 departures per day during the quarter, 30% higher than the comparable 2019 quarter, while our capacity, as measured by ASMs, increased by 20% over the same period. Our stage length was 9% lower than the comparable 2019 quarter, the intended consequence of our modular network strategy, which is engineered to reduce costs and enhance operational performance. As travel demand gained momentum during the first quarter, capacity in March 2022 was 26% higher than the corresponding pre-COVID month in 2019, and load factors in March 2022 improved to 80%. Average aircraft utilization was 10.8 hours per day during the first quarter, given the lingering demand impact from COVID in January and February. and severe weather patterns during March across parts of Florida where we operate at a high concentration of flights. The weather issues and resulting downline impacts were exacerbated by staffing shortages at the Jacksonville Air Traffic Control Center, which controls airspace over the northern two-thirds of Florida. Further improvement to aircraft utilization is expected as operations normalize and the recovery from the pandemic progresses. As Barry mentioned, the demand recovery is expected to continue into the second quarter in the lead-up to the summer travel season. and supported an improvement in both low factors and passenger yields. Turning to commercial highlights, earlier this year we announced the launch of 14 non-stop routes from two new airports. Service at Chicago Midway commenced today, offering daily flights to eight destinations, with another route starting in May and two more set to begin this October. At Houston Hobby, we will offer non-stop flights to Cancun, Las Vegas and Orlando beginning Memorial Day weekend. This new service complements our existing operations at Chicago O'Hare and Houston Bush Intercontinental, and it strengthens our position in two of the five largest metropolitan areas in the United States. We also announced 23 new domestic non-stop routes during the quarter, the majority of which will originate from Raleigh, Durham and Philadelphia, two rapidly growing markets. In our international Caribbean region, we launched service from Orlando to Aguadilla, Puerto Rico, and announced new routes from Las Vegas to Guadalajara and Monterey, and from Houston and Tampa to Cancun, and finally from Miami to Kingston. As part of our Western expansion, we announced plans for a new crew base in Phoenix to open in November 2022. It will be our eighth pilot base and ninth flight attendant base and is expected to grow to 180 pilots and 275 flight attendants within the first year, with additional growth planned in the future. Finally, earlier this month, plans were approved to construct a new addition to Denver International, our hometown airport, and the third busiest in the United States. The plans call for a new facility to be constructed at the east end of the ACOM course to include 14 ground loading gates for our preferential use. The gates will be configured to facilitate in-planning and de-planning through the front and rear aircraft doors, providing us with the ability to improve our efficiency with shorter turn times. The expansion is expected to be completed in 2024 and will provide our customers travelling in and out of Denver with even more travel options at ultra-low fares. That concludes my remarks and so I'll now hand it over to Jimmy.

Thank you, Daniel. and welcome everyone. Our financial results for the first quarter reflect the soft travel demand experienced in January and February due to the lingering effect of the pandemic, followed by a substantial recovery in demand and passenger yields in March. Fuel prices were elevated during the quarter, resulting in $215 million of fuel expenses at an average fuel cost of $2.99 per gallon. Total operating expenses for the first quarter was $758 million, including $11 million of transaction and merger-related costs and adjusted total operating expense excluding fuel was 532 million. This resulted in a chasm of 10.19 cents with an adjusted chasm excluding fuel of 7.15 cents in the first quarter as compared to 8.3 cents and 5.5 cents in the first quarter of 2019 respectively. The increase in adjusted chasm excluding fuel was driven by the reduction in average stage length, lower average daily aircraft utilization, the timing of aircraft deliveries and aircraft returns, and labour rate increases. We consequently recognised a $121 million net loss for the quarter on a gap basis and a $109 million adjusted net loss after adjusting for transaction and merger related costs and costs associated with the repayment of our Treasury loan. We ended the first quarter of 2022 in a strong financial position with $727 million of unrestricted cash and cash equivalents after the repayment in February of the $150 million previously outstanding the Treasury loan. Our loyalty program brand assets are now unencumbered and available for debt issuance should the need arise. We ended the first quarter with 112 aircraft in our fleet after the delivery of two A320neo aircraft. Our fleet is 5% larger than the comparable prior year quarter and 30% larger than the comparable pre-COVID quarter in 2019. Our fleet continues to be the most fuel efficient of all major US carriers when measured by ASMs per fuel gallon consumed. Frontier is positioned to build on its fuel efficiency advantage with the introduction of the A321neo aircraft in the second half of 2022. Consistent with earlier comments, the A321neo aircraft will also enable the company to continue its trend to higher average seats per departure, driving cost efficiency into the business. Looking forward to the second quarter and the balance of 2022, we expect continuous strength in demand and resulting passenger yields as the travel recovery progresses and our primary focus is on returning the airline to profitability. Capacity is anticipated to grow by 10% to 12% in the second quarter versus the comparable quarter of 2019, bolstered by continued strength in ancillary revenue per passenger. RASM is expected to improve by over 20% in the second quarter versus the comparable 2019 quarter. Fuel costs are anticipated to be between $3.85 and $3.90 per gallon. And adjusted total operating expenses excluding fuel are expected to be between $545 million and $555 million in the second quarter. As utilization improves and capacity is restored, we expect a downward trend in our unit cost metrics of almost one cent as the year progresses. As Barry mentioned, the benefit from the anticipated strength in demand for the balance of the year is expected to more than offset the forecast fuel prices and non-fuel expenses, resulting in the company's expectation of profitability for both the second quarter and full year 2022, excluding special items. Adjusted pre-tax margin in the second quarter is expected to range between 1% and 5%. With that, I'll turn the call back to Barry to deliver closing remarks before we enter the Q&A.

Thanks, Jimmy. As we fully transition into the post-pandemic recovery, I'm as optimistic for this business as I've ever been as we showcase the merits of the ultra-low-cost model. We're here to win. We have the right people, an optimal fleet of modern, fuel-efficient aircraft with more on the way, a strong brand, and the financial flexibility to meet that objective. Before we move to questions, I'd like to comment on our pending merger with Spirit Airlines. Our signed agreement remains in place, and we continue to be excited about completing the merger and delivering the significant benefits that will come with it. For shareholders, this combination offers tremendous value. In addition, the structure of the transaction will enable both Spirit and Frontier shareholders to benefit from the substantial upside potential of the combined company. Our regulatory process is already well underway and many months ahead of any alternative. For consumers, this merger will supercharge the ULCC model. You've heard it before, and I'll say it again. Together, Frontier and Spirit will offer even more ultra-low fares to more people in more places and deliver a billion dollars in annual savings for consumers. For employees, we expect a combination to create 10,000 new direct jobs and thousands more at our business partners. For the competition, the dominant big four airlines and other high-cost airlines like JetBlue will be faced with a true nationwide ultra-low fare competitor. With that said, we're here today to talk about our results for this quarter and our strong outlook, so I ask that you keep your questions focused on these topics. We appreciate everybody's time this afternoon. Let's open the call for questions.

Thank you. As a reminder, to ask a question, you need to press star 1 on your telephone. To withdraw your question, press the pound key. Our first question comes from Duane Senningworth with Evercore ISI. Your line is open.

Hey, thanks. And I might violate your request on my first one just as an attempt. Look, this might be a really dumb question, and clearly there was a sort of spirited defense of the benefits that you see on this call request. But I guess why hasn't there been more of a campaign? Why haven't you been more vocal about those benefits since the JetBlue bid?

Well, I think we've been pretty clear. I don't think we have to keep repeating it. And I think if we read what's going on, I think people understand it. You know, like I said a while ago, we think this benefits consumers. We think it benefits the employees. We think it benefits shareholders. And there's not much else to say.

Okay, Barry.

We'll let you ask a real question, Dwayne, if you don't mind.

All right, yeah, I will. That's all I'm going to do on that. I appreciate it. Just with respect to the 2Q and just the massive change, the massive inflection that happened over the course of the first quarter, you know, how much of 2Q was maybe given away or sold in a very different revenue environment? And said differently, when you think about close-in and close-in inventory, do you feel like you have enough of that left kind of in this environment? Are there enough of those seats available in your network to benefit from those much higher revenues close-in fares. And I would think that those sort of drive the value proposition of what Frontier brings very clearly in a close-in environment.

Sure. Thanks, Dwayne. It's a good question. I mean, look, we do sell relatively close-in, I think, versus some other airlines. And to be clear, while the March revenue really started to take off, the sales kind of started turning back in February, right? And so as the sales turned, I mean, we've got smart people in revenue management just like everybody else, and they started figuring out that, hey, we need to be more conservative around underselling, if you will, kind of eastern beyond. And so while we might have, I guess, undersold some part of April – It was a small amount, and the majority, I would say probably over 80% of the quarter, was still available for sale when we started to see the inflection kind of in your mid to late February. So that's why you're seeing the majority of the benefit in the quarter. But, yes, I mean, could it have been a little bit better had we known in December? Sure.

Yeah, I mean, I guess the point is as you look beyond the second quarter into third quarter and beyond, and you had made some – bullish comments about the summer, which obviously falls across both quarters. So I guess the question is, is there incremental upside as sort of everybody adjusts to this new normal? And thanks for taking the questions.

Yeah, thanks, Dwayne. And actually, I mean, it may have been subtle, but I referenced that just a small amount in my prepared remarks. But yes, we expect the momentum to continue. And you're correct. While it was a small amount that we had maybe undersold, if you will, for the quarter. There'll be none in future quarters. And interestingly, every day that goes by, we're seeing the demand continue to recover even more. I mean, as great as everything is right now, I think we need to remember that, you know, the mask rule just kind of just, well, based on the ruling, the mask just changed last week. I mean, there's a lot of excitement. I don't know if any of you have flown in the last week or so, but I mean, there's maybe one out of 10 people still wearing masks. People are excited about it. So you've got that barrier kind of gone. And then now you've got still the international testing. which I can attest to, and several people in this room have actually been caught by this, it's still a drag on the international side, and so that's still a barrier. And then you've still got a handful of communities like New York and some of the Northeast and parts of California are still a little bit behind and lagging, so you've still got that benefit to come, as well as kind of the return to office and kind of the full robustness of business travel, which I think will continue to improve through the summer and definitely by fall. So there's plenty more legs up from here. So, yes, that is why we believe that there will continue to be sequential improvement in demand.

Thank you.

Thank you. Our next question comes from Jamie Baker with J.P. Morgan. Your line is open.

Hey, good afternoon. So the press release, guys, was refreshingly bereft. of any, you know, pointed language on the topic of labor strain, you know, outside of some ATC commentary. You're obviously aware of what other airlines are saying about pilot challenges. Are you sweeping the topic under the rug, or do you just think the narrative is a bit overblown here?

Well, I don't know if it's overblown for some airlines. I mean, I think there's some airlines with some real challenges, but... In our particular case, in the near term, we have an excess of the pilots, for example. And so while we've seen some attrition greater than years past, Frontier is really in a fortunate position. We actually have a lot of tailwinds in our pilot workforce and our recruiting success versus some of the low-cost and regional airlines. I mean, number one, we're the best brand in the low-fare space, so there's kind of a natural affinity that folks want to work here. You've also got the fact that our growth enables people to upgrade to captain within four years. So when you look at your first 10 years of W2s, you're going to make as much or more money at Frontier than you will at the big airlines, even though we have lower pay rates because you upgrade to captain so much faster. And then you have to add in not just pay, but lifestyle. And when you look at the fact that we've got probably one of the best portfolios of bases available in selection and choice in some of the best cities, including the fact, you know, Daniel mentioned a while ago, we're opening Phoenix later this year. We've got a lot of attractive places people want to live. And also, because of the growth, the other benefit to lifestyle is you're going to have holidays and weekends off a lot sooner, maybe a decade sooner than going to one of the big airlines. So So when you put all that together, that's just a completely different, much more compelling value proposition that we offer to pilots versus an airline that might base you at JFK or Boston, and you're living in a crash pad sitting reserved for a long time. So that's why Frontier is just a much better home for pilots, and I don't think we have the distress that you've seen at some of these other airlines.

Barry, were you prepared for the question, or was that just all off the top of your head? Because that was a really good response. um second on on fleet you know in the event you find yourself you know just hypothetically let's a year year and a half from now in a situation where you want more planes how does that work with the indigo order book you know i know allocations have already been determined but you know with If you can prove that you can generate a better return on the next airplane than, I don't know, JetSmart, I mean, is there a mechanism there, or would you have to look outside of the Indigo order?

So we have actually disclosed within our order, the large order that you referenced, we have the ability to move a percentage of aircraft amongst the portfolio carriers that actually move. Did that order. We can always get whitetails from leasing companies. And then there's another huge mechanism that we have that can moderate our capacity growth. And one of those would be we could actually extend leases. So we have a lot of aircraft over the next three to five years that will be falling off lease. So if we found we wanted to raise our capacity growth greater than the planned that's out there, we could do that pretty quickly.

Okay. Very helpful. Thanks a lot, gentlemen. Thanks, Barry.

Thanks, Jimmy.

Thank you. Our next question comes from Mike Lindberg with Deutsche Bank. Your line is open.

Oh, yeah. Hey, good afternoon, everyone. Hey, Barry, you know, the fact that in the release you call out, you know, some of the issues with the Jacksonville ATC. This summer, can you tell us, maybe you or Daniel, you know, what percent of your capacity actually touches Florida, maybe June, September quarter, and I guess you'll probably correct me and say maybe it's more important what touches Orlando, Tampa, Jacksonville. I'd be interested to kind of know what that is. And sort of as a part two, we heard on the Southwest call there is like an all-hands meeting in May with the FAA to figure this situation out because it's been unworkable. And so maybe you can talk to that as well. Thanks.

Sure. And Daniel can get you the percentages here in a moment. But overarching... we're going to be smaller in Florida in the near term as a result. Jimmy mentioned the reduction in capacity and talked about the headwinds that that causes, and that's a large reason why we have excess staff in the near term. But we did trim near term, and it's simply that the air traffic control is an unsustainable thing. We're really excited that the FAA is stepping in knee-deep on this, and they are going to have a – a summit in the next couple weeks and we'll go through it we've got everything from space shuttle launches to general aviation and other factors but the good news is ourselves and other carriers have reduced some of the scheduled flying and I can tell you that in our particular case we have looked at some of the most at risk flying so for example if an airplane was to transit Jacksonville Center if it transits once you have a one to three hour delay that's not the end of the world If it transits twice, you could have two to four hours of delay. If it transits three times, then almost in every case we've seen that that results in the crew timing out. So we will be taking, as we do with everything that the company faces, a very active and aggressive role in taking steps that we can to control our destiny. and kind of schedule around this. And then hopefully that summit results in some things that will help us by fall. But I can tell you in the near term, we're actively looking at rescheduling, like I mentioned, changing some of the pairings, as well as reducing the overall capacity in the impacted airports.

And as far as percentages... So if you look, it comes down naturally in our summer schedule, Mike. We see strength in the rest of the country. So we've We go from the mid-50s in March down to 50% in April, and by June we've made some changes to the schedule. We're down to 40% of our operations in and out of Florida. And as Barry said, we're taking the right actions. The things we can control, we're going to make adjustments to make sure that we can maintain our operational integrity.

Okay. That's awesome. Just a quick follow-up on the pilots. It's really encouraging to hear that it sounds like you guys either have a good pipeline or you have a good amount of, like you said, Barry, you know, you're scaling back capacity and so you have some excess. One of the issues, though, we hear also is just the whole process where you bring the pilot on board, they go through the classroom training, the new hire, and the next thing you know it, you're waiting three months for a sim to get sim time. I mean, I never even thought to ask this question, but do you have a training center with a bunch of sims? Are you running into the lack of flight simulator availability? Any color on that, because I think it's all part of, you know, what's kind of creating this bottleneck.

Sure. And so, yeah, Mike, when we've been, I mean, all been dealing with it, we've gone from negligible attrition to a measurable attrition, maybe not at the level that other carriers have. And so what that just simply causes is you to hire more, which necessitates the need to train more. And so while there's been a shortage maybe of pilots that's caused by this bottleneck, the good news is we continue to have 14 to 15 good applications a day that are coming in. We've got plenty of folks in the class, as you described. The gating item in Frontier's case is the simulator. And that is why I'm pleased to say that we have secured that. We've been working on that for months. And by August, we literally will be doubling our ability from a class size perspective per month. So we don't see any challenges and it kind of lines up with what we've seen from the demand, the fuel environment. the ATC and so forth. So we think that we will be more than in a position to make up any deficit that we've seen, you know, as we move into the fourth quarter. So we still remain on track that we can, you know, kind of hit the pilot numbers that we had hoped for.

Very good. Thanks, everyone.

But if you didn't get your SIMs lined up, it's getting harder. That's right.

Great. Thanks.

Thank you. Our next question comes from Savi Seif with Raymond James. Your line is open.

Hey, good afternoon. This is actually Matt on for Savi. Thanks for the time. I hate to belabor the labor point, but maybe you can just quantify the surplus in the pilots that you talk about a little bit more when you look at your 2022 growth rate. How big is that surplus versus your in 2021 levels? And then if you have any idea out into 2023 based on growth expectations there, I mean, is it sufficient or how much further do you have to go to get all that money?

Well, look, I mean, to give you an idea of magnitude, I mean, we have over 2,000 qualified applicants on file right now, and we've got a robust pipeline. There's plenty coming. And as I just mentioned, we're going to double our training footprint beginning in August. So, So as far as 2023, we believe that with the robust nature of our pipeline, the attractiveness of Frontier that I mentioned earlier, that we should be able to solve 23. As far as an excess, it's probably in the area code of high single digits percentages this summer. on that hopefully that will moderate as we're able to get the utilization back, and hopefully they come up with some great solutions for the ATC, but we're hopeful that by fall we will not have an excess. It's not a good idea. These are our most expensive workforce, so having a lot of extra ones laying around. And look, and they want to work too, so you don't want to have a lot of pilots stuck at the minimums. So we should be able to resolve that and get moderated back to not having a whole lot of excess by fall.

Okay, great. Really appreciate the extra detail there. And then maybe the 2023, if you could provide any color about how you're thinking growth there, if possible.

Yeah, Matt, this is Jimmy Dempsey here. We're not guiding into 2023 at the moment. Clearly, the business is designed to grow by mid-teens every year. We'll go through the planning process as the year progresses. We'll have ample capability, training capability, to feed the pilot requirement for next year. We would anticipate adding somewhere between 200 and 250 pilots per annum, and given the number of applicants we have on file, we feel pretty good about filling that capacity should the actual capacity go to a higher level of utilization than it is today.

Great. Thank you all for your time.

Thank you, and as a reminder, if you would like to ask a question, press star 1 on your telephone. Our next question comes from Miles Walton with UBS. Your line is open.

Thanks, Evening. I was wondering if you could touch on the ancillary expectation here in the second quarter. Obviously, you've got a pretty boundless opportunity on the present side, so I'm just wondering why 70 is the number you're using, giving you to 69. in the first quarter.

Thanks, Miles. It's Daniel. Look, we're saying that's our current expectation. We were, as I said, able to roll out some new products in the first quarter. We've made pricing adjustments. We've focused on ancillary since the pandemic's been going on, and we've been looking for the opportunities. The team's been working on ideas and working on ways we can further increase our non-ticket revenue. And we're going to continue to work to build the pipeline and to build our performance in this area. Based on what we see currently, that's our expectation. And we would expect that to continue to increase beyond the second quarter. We're obviously focused on non-ticket because it's more stable. And we're also focused on it because it allows us to offer the lowest fares.

Maybe one question. I should probably know this. But how close in... Or how disparate is the timing of booking the ancillary from the actual ticket itself? How coincident are those two occurrences?

It's a mix. We have a healthy portion of customers who book directly, who book by their ancillary at time of booking. That's when they get their best value. We incentivize paying for your ancillary as soon as possible. The longer you wait, the more you will pay. We obviously do have customers who pay at check-in, notably a higher rate of third-party customers who pay at check-in. But we do everything we can to incentivize earlier payment and communicate that customers will save money if they buy early. And obviously, we also give customers savings with bundles. We encourage customers to buy bundles of products. That's been another successful part of our business. And we optimize the pricing and we optimize the offerings we make to customers. And that's part of how we're increasing the revenue.

All right. Thank you.

Thank you. Our next question comes from Helene Becker with Cowan. Your line is open.

Thanks very much, Operator. Hey, everybody. Thank you for the time. I have a question, Jimmy, about the Treasury loan. You paid that off. Are there any warrants or anything outstanding that Treasury still has related to the CARES Act?

Yes, Helene. I hope you're keeping well. We have warrants linked to the Treasury loan outstanding. both to the Treasury loan and also to the apparel support program that we participated in. So they continue to be outstanding.

Okay. Would you consider buying those back if it was available to you?

Certainly, we would look at it. It's not something that we've been looking at in the short term, but it's certainly something we would look at if an opportunity existed. Absolutely.

Okay, great. That's helpful. And then my other follow-up question is on, I saw an article about four or five weeks ago about hiring pilots from Australia on an E3 visa. Are you actually doing that? And if so, how many pilots can you hire? I know they can only stay for 24 months, but is that something that you're doing or was that like a throwaway comment from a Oh, no.

No, Helena, that wasn't a throwaway. We're excited about it. Look, we've always been aggressive and creative and innovative, and we've been looking at this for a while, and we've been really successful with it. And there's the E3 program from Australia, but we're looking at other parts of the world, and we think the E3 program alone could do at least 50-plus pilots a year. So, you know, you could solve, call it a quarter of your – your demands just from that. We're looking at other parts of the world. And so I just think that, yeah, it just kind of shows how creative we are. But they want the job, and there's lots of opportunities, and some of these can end up, depending upon their situation and whatever type of visa program, it can be a lot longer than 24 months. They could end up possibly with citizenship. But I think what's really important, too, that people seem to miss on the pilot side with us is that Jimmy mentioned it. It's not a throwaway comment. The 321neo that's coming in later this year has 240 seats. Think about the precious use and how the scarce resource is getting used here at Frontier. We're going to be able to spread two pilots over 240 seats, not 120, not 140, not 180, 240 seats. So we're getting aggressive to make sure we have plenty of pilots, but we're also using them in a very efficient and productive way by ensuring we're getting plenty of passengers moved per pilot.

Right. Got it. Yeah, that's totally helpful. Thank you very much. Have a nice afternoon.

Thank you. And our next question comes from Andrew DeDora with Bank of America. Your line is open.

Hey, good afternoon, everyone. Jimmy, I know you were highly focused on the balance sheet in the pandemic, and it's in a good spot right now. I guess, you know, when you look out into more recovered earnings power later this year into 2023, at what leverage level do you have kind of the most comfort running your business, and what's an upper cap we should be thinking about in terms of net leverage levels?

Well, we I suppose during the pandemic, we've been really focused on spending as little money as possible and preserving as much liquidity as we could without actually burdening the business with debt. And so we've emerged from the pandemic in a really good shape from a balance sheet perspective. Our focus at the moment is really getting our liquidity levels back to, like if you looked at us pre-COVID, we always had about 30% of trailing 12 months in cash on the balance sheet. And the only debt we had on the balance sheet was effectively productive debt. So we had debt related to PDP facilities for pre-delivery payments to Airbus, and then also clearly operating lease debt linked to the aircraft fleet that we have. And so we want to get back to that type of scenario where the debt that's sitting on the balance sheet is really for funding growth into the business. And so my focus at the moment and across the business is really getting our cash as a first measure to 30% of trailing 12 months of normalised revenues. And we're a little bit short of that at the moment. We do sit in a good place, but we're a little bit short of it. And then normalising our leverage ratios based on the productive aircraft we have in the business. We don't disclose publicly our leverage targets, but if you look at us pre-COVID, you can get a sense of where we would anticipate to get to. Got it. That's helpful.

I want to go back to the non-ticket front. Just a really good result in the quarter. Obviously, the $70 is already exceeding your prior targets. We get a lot of questions around demand elasticity, around fares as they continue to move higher here. How do you think about that in terms of non-ticket? Where do you think it is? you know, maybe maxes out in terms of, you know, percentage of total fare or something like that. Just curious to get your thoughts. Thanks.

Andrew, I'll start, and I think Barry might have some thoughts as well. Look, we don't know where the limit is, and we've got a lot of ideas, and we've got a lot of experience, obviously, continuing to build this. And what you watched, as I said, what you watched during the pandemic was we set targets last year of 63 and then 65 and we kept moving the needle up and we've delivered higher than that. As we continue to find opportunities, we build products. A lot of what we're now doing is finding things that truly have no impact on fare. We're introducing new products that customers value and We think there's plenty more opportunity to do that. And obviously, as we've talked, and again, there's more opportunity over time as we grow. Our third-party type programs, discount down our own program and our credit card program, will continue to get stronger. We get to be a larger airline. These products become more and more relevant to customers and will drive more revenue. So, Barry, is there anything else you want to add?

No, I just want to add I'm really proud of Daniel and his team. I mean, we've got an impressive result, and we didn't waste the pandemic. They've been really busy in growing the non-ticket. And in years past, I think we thought a 50-50 split of non-ticket and ticket was a good idea. We've kind of learned in the pandemic that the non-ticket is a lot more sticky, right? And if you'll be creative and, to Daniel's point, work on things that are truly incremental that don't have any degradation to the ticket, that's where the real profit potential is. So I'm really pleased with what they put together. As he said, we announced last year a target of 63, then 65. We keep blowing through these. So all I can tell you is that they're not done. They're really busy. and really excited about what we get done. But 50-50 is no longer the idea. We think it's going to be considerably higher and will deliver a lot more sustainable profitability in the years to come if we can grow that percentage.

Great. Thank you.

Thank you. Again, if you would like to ask a question, press the star, then the one key on your touchtone telephone. One moment while we compile the Q&A roster. That concludes today's conference call. Thank you for participating. You may now disconnect. Everyone, have a great day.

Thanks, everyone, for joining. We'll talk next quarter.