Frontier Group Holdings, Inc.

Good day and thank you for standing by. Welcome to the Frontier Group Holdings Inc. Fourth Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, David Erdman, Senior Director, Investor Relations. Please go ahead.

Thank you. Good morning, everyone. Welcome to our fourth quarter 2023 earnings call. Today's speakers will be Barry Biffle, Chief Executive Officer, Jimmy Dempsey, President, and Mark Mitchell, Chief Financial Officer. Each will deliver brief prepared remarks, and then we'll get to your questions. On today's call, we will be presenting supplemental materials which can be viewed on the webcast platform with a PC or a smartphone. If you're not accessing the call from either, or if technical issues arise, you can follow along by downloading the presentation from our website at ir.flyfrontier.com backslash events and presentations. Before yielding, let me quickly review the customary Safe Harbor provisions, which are included on slides two and three. 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, along with reports we file with the SEC. We will also discuss non-GAAP financial measures which are reconciled to the nearest comparable GAAP measure in the appendix of the earnings announcement and in the presentation supplementing this call. I'll now yield the floor to Barry to begin his comments. Barry?

Thank you, David, and good morning, everyone. Before beginning the brief slide presentation, I'd like to quickly recap the fourth quarter results. We generated a pre-tax margin of nearly 1% for both the fourth quarter and the full year. Our fourth quarter results significantly outperformed guidance on strong operational performance and cost execution with our chasm excluding fuel 8% lower than the prior year quarter. We achieved a 99.5% completion factor on industry leading average system utilization of 11.3 hours during the quarter and the highest on time arrivals and departures for the month of December since 2015, excluding pandemic year 2020. Our operational performance during the December to January holiday season was also notable. We had 15% more departures than the prior year holiday season, making it our busiest in airline history. In addition, our completion rate and on-time arrivals and departures during the holiday period all ranked as our best post-pandemic performance. I want to take a moment to thank all of Team Frontier for producing such great results and taking care of our customers. While I'm pleased with the operational performance and that we generated a positive pre-tax margin for the fourth quarter and full year, I'm disappointed in the absolute result. We are therefore focused on taking meaningful steps to address the challenges that impacted our results during 2023 and on returning to double-digit margins. Turning to slide five, one of the largest challenges many low-cost and ultra-low-cost carriers faced in 2023 was the industry's oversupply of capacity and leisure markets, with Las Vegas and Orlando being two significant examples. Both markets have experienced rapid and disproportionate growth compared to 2019 when demand and capacity were far more balanced. As total U.S. domestic capacity increased just over 4% since 2019, total industry capacity in Las Vegas and Orlando grew by a combined 20% and are expected to continue to grow in 2024 based on current published schedules. This has resulted in a relative RASM and margin headwind to many LCCs and ULCCs, and Frontier is no exception. On slide six, no one's more aggressive and engaging in self-help to address overcapacity in leisure markets than Frontier. By summer, we plan to reduce Las Vegas and Orlando combined capacity by 11 points of our system share year-over-year, reducing the share of these markets by one-third. To be clear, we're not retreating from our network footprint in either market. We're merely cutting what we believe is marginal unprofitable flying to return both bases to a rational optimal position for our cost structure and remain the low-cost leader in both markets. Turning to slide seven, Our network growth in 2024 is focused on exploiting higher fare visiting friends and relative markets. The market mix of routes by this summer will increase industry average fares in those markets by 5% year-over-year. Not only are we chasing higher fare markets, the total revenue pool of industry revenue in our network this summer will be up over 50%, despite only growing capacity 12% to 15%, meaning we need a much smaller share of industry revenue, extremely constructive for increasing RASM. Additionally, the historical data suggests VRFR routes tend to ramp quicker and reach maturity sooner than leisure routes. Turning to slide eight, another significant challenge we faced last year was the extended ATC ground delay programs, which negatively impacted our completion factor and utilization, particularly during the summer peak. To address this, we're executing on the network simplification strategy that we discussed on our last earnings call, with a focus on increasing the percentage of aircraft that return to base nightly to greater than 80% by peak summer this year. We expect this strategy to enable expanding our industry-leading utilization and improve reliability. A key element of our plan is leveraging our 13 crew bases, including our recently announced crew bases in Cleveland, Cincinnati, Chicago, and San Juan, Puerto Rico. Single day trips flown from our crew bases support operational reliability, recoverability, and higher fares. Our relative cost advantage to the industry, outlined on slide 9, is a key factor in our ability to stimulate demand with low fares and an increase to over 40% in 2023. We believe unit cost leadership is fundamental to our long-term profitability and expect Frontier will remain the lowest unit cost provider in the United States, particularly as significant cost savings materialize from our network simplification strategy. We expect that our network simplification strategy will underpin the $200 million of associated annual run rate cost savings, which should be implemented by the end of 2024, as we highlighted on our third quarter earnings call. Further, our order book is heavily weighted to the high gauge A321neo, which will contribute meaningfully to our ability to control costs as we continue to increase gauge. Accordingly, we expect 2024 adjusted chasm ex-fuel to be down 1% to 3% on a stage-adjusted basis to 1,000 miles. As highlighted on slide 10, we plan to leverage our network, product, brand, and distribution to diversify our revenue and drive sequential RASM improvement. I've spoken extensively about network enhancements, so let's briefly review the latter initiatives. Last week, we launched our innovative BizFares product to cater to cost-sensitive small business travelers while providing a premium experience for one low price. We've rebranded our stretch product to promote our premium economy seating, starting at $19, consistent with our recent launch of our Get It All for Less campaign. As we showcased last quarter, our relaunched Frontier Miles program features enhanced elite status tiers that can be earned faster and offers the highest credit card spend-based travel reward earn rate in the industry for each dollar of spending with the Frontier Barclays MasterCard. A new website and new mobile app, as well as NDC, are expected to launch by late 2024 and should provide significant distribution, merchandising, and conversion benefits, as well as improved brand positioning. Further, we've seen competitive overlap recede in recent months. To the extent carriers further engage in capacity rationalization, this would drive additional unit revenue benefit to Frontier, which would be accretive to our guide. However, we've only included the published reductions in our base case. On slide 11, network cost and revenue initiatives are expected to drive profit and growth in the business. We expect our pre-tax margin for the full year 2024 to be in the range of 3% to 6% with capacity growth of 12% to 15% and adjusted CASMX down 1% to 3% on a stage-adjusted basis to 1,000 miles. First quarter 2024 guidance is reflective of seasonality and off-peak dynamics expected during the quarter. Our guidance is based on fuel pricing as of February 2nd. Turning to the final slide, with full-year benefit of our network, cost, and revenue initiatives, we expect 2025 to be between 10% and 14% pre-tax margins. This includes the expectations of new labor agreements with pilots and flight attendants, as both recently became amendable. That concludes the slide presentation, and I'll now hand the call over to Jimmy for a commercial update.