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spk08: Good day and thank you for standing by. Welcome to the Frontier Group Holdings Incorporated Q1 2024 earnings 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 one one on your telephone. You will then hear an automated message advising you that your hand is raised. To withdraw your question, please press star one one again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, David Erdman, Senior Director of Investor Relations. David, you have the floor.
spk02: Thank you and good morning. Welcome everyone to our first quarter 2024 earnings call. On the call with me this morning is Barry Biffle, Chief Executive Officer, Jimmy Dempsey, President, Mark Mitchell, Chief Financial Officer, and our new Chief Commercial Officer, Bobby Schroeder. Before yielding, I'll recite the customary 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 us such differences are outlined in the announcement we released earlier along with reports we filed with the Securities and Exchange Commission. We will also discuss non-GAAP financial measures which are reconciled to the nearest comparable GAAP measure in the appendix of this morning's earnings announcement. So I'll give the floor to Barry to begin his prepared remarks, Barry.
spk16: Thanks, David, and good morning, everyone. First, I'd like to welcome Bobby Schroeder to the team and introduce him as our new Chief Commercial Officer. Bobby has extensive experience in the industry with nearly 25 years combined Spirit, US Airways, and America West. He's in the process of relocating his family to Denver and in his new role, assumes responsibility for our commercial teams reporting to Jimmy Dempsey. We're fortunate to have him on Team Frontier. Along with the recent additions of Alex Clark, our Senior Vice President of Customers, and Reza Akana, our Chief Information Officer, we now have the strongest senior leadership team we've ever had. Turning to the quarter, we reported an adjusted pre-tax loss margin of 2.8%, significantly better than our guide on cost and revenue performance. The adjusted pre-tax loss margin was within one percentage point of the prior year quarter despite continuing to encounter far greater excess capacity in some of our key markets, as we previously highlighted. While we're not insulated from inflation, we continue to hammer on costs with the objective to maintain and widen our relative cost advantage to the industry. To that end, we exceeded our expectations the first quarter and our cost advantage to the industry widened to 42% on a trailing 12-month basis. Cost divergent between Frontier and the industry is indeed real. We're on track to achieve our target of 80% out and back flying by June, and the corresponding $200 million of annual run rate cost savings by year end. With that, we're reaffirming our guide of one to 3% reduction in our adjusted CasimX fuel, stage adjusted to 1,000 miles. Redeployment of our capacity from oversupplied markets is on track and progressing as planned. To this end, we opened our 10th crew base in Cleveland last month, while Cincinnati and Chicago will launch later this month, and finally San Juan, Puerto Rico in June. The addition of these crew bases supports our ability to achieve our target of out and back flying by June and drives further network efficiency. Our San Juan base will not only support demand growth from the US mainland to compete with significantly higher cost carriers, it will also serve as our gateway to other Caribbean destinations. In the second quarter, a significant portion of our flying will be in new markets, more than double we would expect in normal year. As these new markets mature over the next year, we expect a meaningful improvement in our system RASM. Further, we have a range of revenue initiatives including various distribution and merchandising enhancements as well as launching loyalty and premium products, all of which diversify our revenue sources. Jimmy will go into more detail on these products as part of the commercial update. Despite the immaturity of new markets, we expect to generate a three to 6% adjusted pre-tax margin in the second quarter. We're also reaffirming our full year guide of three to 6%, despite fuel prices, which are 10 cents per gallon higher than they were in early February when we gave our guide for the year. As we move to 2025, we are confident in our 10 to 14% adjusted pre-tax margin due to our cost tailwinds, expected network maturity, and overall revenue diversity initiatives. Finally, I'd like to thank every member of Team Frontier. They deserve recognition for their significant effort to achieve the milestones I highlighted today and for the remaining cost discipline and staying focused on our top priority of delivering a safe and reliable experience to our customers. I'll now turn the call over to Jimmy for a commercial overview. Jimmy?
spk11: Thanks Barry, and good morning everyone. I want to echo Barry's comments and welcome Bobby to the team. Briefly recapping the quarter, total operating revenue increased 2% to $865 million on capacity growth of 8%, both compared to the 2023 quarter, resulting in a rasm of 9.2 cents. Departures increased 14% on a 9% shorter average stage length, and total revenue per passenger was $124, down 1%, all compared to the 2023 quarter. During the quarter, our transition to Ettenbach flying developed as planned. By March, we were operating at a 67% Ettenbach network and achieved 75% in April. This progression is a key driver in our ability to reduce our cancellation rate by 10% and improve on-time arrivals by over five points, January through April, year over year. A key milestone was the opening of our Cleveland crew base, which was successfully launched in mid-March, and by summer, we'll serve a total of 30 destinations from Cleveland. Our planned schedule is to achieve 80% Ettenbach flying by June, supported by the planned opening of the Cincinnati and Chicago crew bases in May and San Juan, Puerto Rico in June, bringing our crew base footprint to 13 by the end of the second quarter. One of the most significant long-term investments is in our San Juan base, where we see a massive opportunity for flights to the mainland United States, given our cost advantage versus the competition. In addition, the geography of San Juan provides a logical gateway to the broader Caribbean region where we believe our low-fare stimulation will have a dramatic effect on traffic flows within the region. We want to thank the government of Puerto Rico and their elected officials for helping make this investment possible. Today, we fly to more destinations from San Juan, Puerto Rico to the mainland United States than any other airline, and by this summer, we will serve Santiago, Punta Cana, and Santo Domingo in the Dominican Republic, as well as St. Thomas, St. Croix, St. Martin, Barbados, and Trinidad within the region. Overall, we remain focused on maximizing total revenue as evidenced in the first quarter by our trade for yield over load factor, which resulted in total revenue exceeding our expectations. We believe that further revenue initiatives will not only diversify our revenue, but improve overall demand and increase load factors as we move through the coming years. We launched our reimagined Frontier Miles loyalty program late last year and have seen the highest spend on record per cardholder because of these enhancements. It's very early in our journey to close the gap in our loyalty revenues, but we believe there are several dollars per passenger of opportunity over the next several years. Following our recent introduction of BizFair, we recently launched our Upfront Plus product for customers that value a premium product. Upfront Plus is a new upgraded seating option with extra space and comfort in the first two rows of the aircraft. Customers in Upfront Plus will enjoy a window or aisle seat with extra leg room and a guaranteed empty middle seat, providing additional personal space and comfort at an exceptional value. It's very similar to the intra-European business class product. The new offering combined with our premium seating options expand our ability to offer choice to our customers. Later this year, we will introduce NDC, a new website and a mobile app that will include improved merchandising, day of travel and post travel experience for our customers. We believe the distribution of merchandising changes will increase our revenue per passenger and load factors over the next several years. That concludes my remarks, so I'll now yield to Mark to provide a finance update.
spk01: Thanks, Jimmy, and good morning, everyone. Total revenue was 865 million, 2% higher than the comparable 2023 quarter. Fuel expense was 263 million, 10% lower than the 2023 quarter at an average cost per gallon of $2.93. The year over year decline in fuel expense was the result of 15% lower fuel prices and 2% greater fuel efficiency, enabling us to achieve an industry-leading 105 ASMs per gallon, partly offset by higher consumption from the 8% capacity growth during the quarter. Adjusted non-fuel operating expenses were 633 million, or 6.71 cents per ASM due to better than expected cost performance. On a stage-adjusted basis to 1,000 miles, adjusted chasm ex-fuel was down 3% compared to the 23 quarter due to three additional sale-lease spec transactions in the quarter, along with our aggressive cost management across the organization that helped mitigate -over-year inflationary impacts. As Barry mentioned, our relative cost advantage to the industry widened to 42%, and we remain on track to achieve our annual run rate cost savings target of 200 million by the end of the year. Our first quarter pre-tax loss margin of .8% was lower than anticipated due primarily to better cost and revenue performance than expected. We ended the quarter with 622 million of unrestricted cash and cash equivalents, and 156 million of cash net of total debt at quarter end, slightly higher than our net cash position at year end. We had 142 aircraft in our fleet at quarter end after taking delivery of six A321neo aircraft during the quarter. We expect to take delivery of another six A321neos in the second quarter, and 11 A321neo aircraft in the second half of 24, all of which are expected to be financed through sale-leaseback transactions. Turning to second quarter guidance, capacity growth is anticipated to be in the range of 12 to 14% over the 23 quarter on stage length, which is expected to approximate 900 miles. We expect fuel to remain elevated at $2.80 to $2.90 per gallon based on the blended fuel curve on May 1st. Adjusted non-fuel operating expenses are expected to be between $705 to $720 million, driving an expected sequential decrease in our adjusted Chasm X fuel on a stage-adjusted basis to 1,000 miles. Adjusted pre-tax margin in the second quarter is expected to be in the range of three to 6%, including the impact of higher fuel prices in our network transition. As Barry mentioned, we are also reaffirming our full year 2024 adjusted pre-tax margin range of three to 6% despite the expectation of higher fuel prices. Additionally, we are also reaffirming our guidance for Chasm X fuel during 2024 on a stage-adjusted base to 1,000 miles to be lower by one to 3% versus the prior year. With that, I'll turn the call back to Barry for closing remarks.
spk16: Thanks, Mark. I'm proud of the significant progress we're making in revenue and cost performance. The hard work and dedication of Team Frontier are showing that low costs have always mattered and they will continue to matter. Thanks again for joining us this morning. We're ready to take the Q&A portion of the call.
spk08: Thank you. At this time, we will conduct a question and answer session. As a reminder, to ask a question, you will need to press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. Please stand by while I compile the Q&A roster. Our first question comes from Brandon Ogilenski with Barclays. Brandon, go ahead with your question.
spk03: Hey, good morning, guys, and thanks for taking the question. Barry or Jimmy, can you guys talk to some of the network changes that you've made and the results that you're seeing in forward bookings, especially in the second quarter here, given the improvement in the margin guide on top of a lot of capacity growth?
spk16: Yeah, sure, I'll go ahead and take it. I think if you look at the changes we've made so far, they really just started in April in terms of the additions and they kind of continue to roll through the summer. But I'll tell you, we're really excited. We've got a lot of new routes that we just started just in the last few weeks that are running in 90s load factors. So I think that our network planning team has picked well on many of these. So we're really excited about how it's shaping up, but it's very early, right? I mean, as I said a while ago, with over double the amount of new flying that we would normally have because of this repositioning, it's significant. We estimate five to 10 point drag on RASM with this investment, but it's the right thing to do to get the network optimized.
spk03: And Barry, I guess going ahead from here, do you expect to be profitable every quarter going ahead, especially with reiterating a much higher margin target for 2025? Yes. Okay, appreciate that. And then on the 200 million of cost reduction, can you give us some idea of where that's gonna impact the cost line as you get to more out and back flying in the network? Thank you.
spk01: Yeah, hey Brandon, this is Mark. So on the 200 million cost savings plan, so we're on track as we indicated in the prepared remarks and where you're gonna see that, I mean, you're gonna see really benefits across the operation. So you're gonna see, as we've talked about previously, lower travel related costs, you're gonna see crew efficiency benefits, you're gonna see benefits on the station operations front. You're also gonna see a higher capture rate from a maintenance standpoint at our crew bases, which is gonna drive some improved favorability on the maintenance front. And then with the initiatives that we have to simplify the network, you're gonna see an increase in utilization that's gonna provide benefit across the P&O.
spk05: Thank you. Standby for our next question.
spk08: Our next question comes from Dwayne Finningworth with Evercore ISI. Dwayne, go ahead with your question.
spk14: Hey, thanks. Good morning, guys. This is Jake on for Dwayne. So appreciate the capacity guidance, but based on what we're seeing in the schedules, we were expected to be higher in 2Q than your guiding. Is there just a level of conservatism there around completion or are you still refining the schedule?
spk16: Yeah, I mean, look, we always put in something that there's gonna be air traffic control and weather issues. So we continue to put in what we believe is gonna be realistic capacity.
spk14: Okay. And then just, you have this load factor and yield dynamic. How would you think about that evolving over the course of the year? Would you expect yields to be positive again in 2Q? And then I guess what impact is that lower load having on ancillary performance?
spk15: Yeah, go ahead.
spk11: Actually, I'll just answer the second part of the question first. Actually, the lower load factor actually had a positive impact on non-ticket performance in the quarter. You saw some recovery in the non-ticket through January, February, and March. Look, we obviously focused on the total revenue output that's coming from the business. We're seeking to optimize that total revenue output. And in the quarter, we saw an opportunity to trade some load factor for yield, particularly in the off-peak months. So it actually worked out very well for us and it exceeded our expectations in terms of revenue output. But going forward, we'll always optimize it. So it'll depend on the situation and the environment that we're in. And certainly in peak periods, we'll be pushing for very high load factors.
spk14: All right,
spk05: thank
spk14: you.
spk05: Standby for our next question. Our next question
spk08: is coming from Robbie Schenker with Morgan Stanley. Robbie, go ahead with your question.
spk10: Good morning, this is Katherine Ahn for Robbie. So thank you for taking my question. As you guys had mentioned in your opening remarks, you recently introduced the upfront plus seating option. And premiums obviously been a large focus. So how has that kind of been trending since introducing it? And what do you guys think the non-corporate premium domestic opportunity for Frontier is like? And do you think that gets more competitive amongst peers?
spk11: Look, we introduced the upfront plus just recently. It's been in place for a few weeks now. We're actually quite encouraged by its performance. It's really exceeding our expectations. It's giving our customers an opportunity to buy effectively more space at the front of the aircraft. We think that's really, really helpful to our customer base. And so we're quite excited about it. That plus the business fair option that we gave to customers earlier in the year, we think is a nice compliment to the business that we have today. Clearly, we're still focused very much on unit costs and delivering very, very strong unit costs. But these options, we think will be helpful to giving choice to our customers.
spk10: And just as a quick follow up, with domestic yields down in the first quarter and some harder comps coming up, what are you guys seeing in the domestic space as we move into 2Q and maybe in the back half of the year as well? Thank you.
spk16: Well, look, I think you see overall capacity going up. I think Frontier is probably leading the charge and probably bucking the system because we pivoted away, we're six, eight months now into this, pivoting away from the oversupply in Florida. So for us, we see a really good landscape setting up for the markets we're in. We see the fares in the markets that we're going into higher than the existing system. And so we see a lot more kind of ripe opportunities for market stimulation where we're headed. I can't really speak for the rest of the industry, but we see good demand for summer and we're excited about the network changes and what that can do as these things mature for our revenue over the next year.
spk08: Thank you. Standby for our next question. Our next question comes from Savi Seath with Raymond James. Savi, go ahead.
spk09: Hey, good morning, everyone. You mentioned the ability with San Jose to kind of expand into kind of connecting into some of those Caribbean markets. I was curious if you could talk about what you're seeing in that short haul leisure given that some of your competitors have talked about a lot of kind of overcapacity in that market and kind of why you find this kind of an attractive place to add capacity.
spk11: We see a really attractive opportunity in Puerto Rico, Savi. Our cost base gives us a real opportunity to stimulate that market where there's been very high fares for a long period of time. So we see great opportunity there. It's very early days in terms of the investment in Puerto Rico. The base opens in next month. And so, but the early results, as Barry mentioned, across the new network changes, look promising for our business given our cost base. And so we're quite excited about opening up in Puerto Rico.
spk09: So you mean that is the international segment then beyond just maybe Puerto Rico, is the international segment doing fairly well despite some of the comments by the industry?
spk16: Oh, we've done, well, we've done really well on our intra San Juan up until now just because it's relatively small. I think some of that commentary, look, I don't know what they're talking about. We're not seeing that. I think it's month, you know, could be some other destinations in the region, but not necessarily where we're starting service to.
spk09: That's helpful. And if I might, just with the comment there that you mentioned about, you know, the new markets being double what they normally are. Although it's probably, and I guess I'm surprised that it's having a five to 10 point drag on RASM given that I would think that the reason you're going into these are because they're better. So I just kinda, could you add a little bit more color on like what the percentages and how you think that that should kind of progress?
spk16: Yeah, sure. So here's the thing. We are chasing higher yield opportunities, right? So if we fast forward to a year from now, we're gonna love these markets because once they're mature, they're likely in many cases to produce a higher RASM than our existing system. However, when they're brand new, literally like some of them still starting in the next week or two, I'm doing an inaugural in another week, like they're brand new. And so they're likely to produce a third or even half the revenue that a mature market will when they're brand new. And so all we're saying is that when you have double the amount you would normally have in brand new markets, that is a bigger drag than normal. And we have calculated this, we believe this to be in the high single digits of a drag on the company's RASM and it flows straight through to margin because of this much new capacity. But it will mature as we move through the year, especially when we get towards the fourth quarter and into the first quarter, we expect significant improvement and you should see a natural kind of seven in that case, kind of a natural seven, eight point improvement in our RASM over the next year as these markets mature.
spk09: That's clear, that's very helpful. Just to clarify, Barry, what's the percentage of markets on the development in Tukey?
spk16: Barry, what's the percentage of markets on the development Well, we believe it's over 20% is in new markets.
spk09: Okay, that's helpful, thank you.
spk05: Standby for our next question. Our next question comes from Michael Lineberg
spk08: of Deutsche Bank. Michael, go ahead with your question.
spk07: For my first question, Barry, how many aircraft are you planning to take this year? Presumably you may be getting impacted just like every other carrier by delivery delays, even Airbus, right? So I'm just trying to understand the capacity growth in the back half of the year and corresponding cousin extra.
spk16: Yes, so real fast, I'm gonna let Mark answer the actual numbers, but are the aircraft delayed from our original order? Yes, however, are the delays known and have they been known now for over six months? And the answer is yes. So we're not seeing the disruption that we were seeing before. So yes, they're late, but that was really just a problem, call it a year ago when everything got moved to the right. We're now at a point where yes, we have airplanes that are delayed from now, that were maybe just supposed to be delivered now, but I'm now catching a delivery that was delayed that was supposed to be here three or four months ago, if that makes sense. So it's not as impactful to the business anymore. We've seen this really smoothed out and Mark that.
spk01: Yeah, from a number standpoint, I mean, we're still at 23 deliveries for this year, all 321 NEOs, six expected in the second quarter, 11 in the back half of the year.
spk07: Very helpful, thank you guys. And then my second question, what drove the 6% decline in aircraft utilization? Are you still pursuing to get to 12 plus hours with the network changes? Getting to the 80% out and back flying, it sounds like you got to 75 already. I thought that we would have had much better aircraft utilization by now, but maybe to your earlier point, because the markets are still ramping, any color here would be helpful.
spk11: Yeah, Shannon, we're still managing the oversupply that we saw in the back six months of last year, particularly in the January and February period. And so in managing that, we took utilization down, like we've done previously in the January and February off-peak periods, but we're expecting utilization to be up in the high 11s, 12s for the rest of the year.
spk08: Standby for our next question. Our next question comes from Helene Becker with TD Cohen. Helene, go ahead with your question.
spk06: Thanks very much, operator. Hi, team, thanks for the time. Two questions. One, at one point, your flight attendants were objecting to the new schedule because they would earn less. Was that issue ever resolved?
spk16: Yeah, thanks, Helene. So we actually negotiated on this very issue. They had wanted a guarantee of a minimum amount of multi-day trips in past negotiations, and we did not agree to that. So it's not really a dispute. It's been settled. We do know that there are flight attendants that prefer multi-day trips, right, and that prefer to get the per diem and stay in hotels. This is a challenge for some of them. However, when you look at our growth, as we grow, if you think about it, every day, even though it's only 20%, call it multi-day trips, versus call it 40, 40, 45%, maybe six months ago, we cut that in half, but every day we grow, the percentage of the total grows, and within a year or so, we'll likely be close to the number of people that want multi-day trips. We'll be able to have them. And when you look at the fact of what we've done in our hiring for the last six months, we have targeted specifically into bases, especially these out and back, but Cleveland is a great example. Like almost everyone in Cleveland we hired locally, and they are doing out and back from that city. So I know it's a challenge for small minority that still want the out and backs, but as we continue to grow, we expect those that want it, within a year, all of them should be able to get it. So we don't see it as being a major challenge.
spk06: Okay, that's really helpful. Thanks for explaining that. And then my other question is, you guys talk a lot about your cost advantage relative to the PR group, and I'm just wondering, how much does that advantage matter anymore, given everybody's changes in the way they're operating their root networks?
spk16: Well, I think it matters a lot. I think we have clearly shown, Helene, I know that there's been this thought of bifurcation that the network carriers are somehow in a different place than now low-cost carriers are now in trouble. I think number one, the capacity deployment and the oversupply and the imbalances of that across the network is very clear and well understood now, which had a greater impact to low-cost carriers. But I think more materially, I think when you look at those that call themselves low-cost carriers, but yet their costs have been going up 5%, 10% a year, that eats into margins. That eats into margins. And the fact that we're hell-bent to be number one and continue to widen our cost advantage is why we're starting to outperform, why we have the three to six guide for Q2, despite a five to 10% drag of new markets, and why we're confident with the cost tailwinds that we're gonna have from completing the out and back, the 200 million that Mark and I have talked about over and over and over, plus these things, that cost advantage is what's gonna deliver us and get us back to 10 to 14% margins in our target next year. So costs matter and they always will, Helene.
spk06: Okay, no, that's really fair. I appreciate it. Just one quick one for Mark. How do we model the sale-lease specs for the rest of the year?
spk01: Yeah, so from an overall perspective, I think if you just follow the fleet profile that we've outlined, so 23 deliveries this year, all sale-lease back, finance, six expected in the second quarter, 11 in the back half of the year. So I think that's the way to look at it.
spk06: Okay, all right. So divide that 11 by two-ish.
spk01: Yeah, I mean, we haven't guided specifically, but I think it's not a bad approximation.
spk06: Okay, all right,
spk05: thanks, team. Stand by for our next question.
spk08: Our
spk05: next question
spk08: comes from Jamie Baker of JP Morgan. Jamie, go ahead with your question.
spk13: Hey, good morning. So a follow-up on that, it looks like you had 71 million of sale-lease back proceeds in the first quarter that you used to offset Chasm. I mean,
spk01: it
spk13: feels like the business model is becoming increasingly dependent on aircraft financing decisions, as opposed to the Rasm and Chasm stuff that we're all kind of accustomed to. So I guess my first question is, you know, when sale-lease back proceeds begin to fade, have you given any thoughts on how you might manage the business differently?
spk16: Thanks, Jamie. This horse has been beaten pretty dead. We covered this significantly, I think, a few months ago. But the bottom line is this. If you buy aircraft and you're able to deliver them at likely below market rates, you're gonna get a gain. And we have illustrated that whether you do this through a sale-lease back or whether you do it through debt finance, the economics and the net income is the same. So your gain that we're calling out is simply because of the accounting rules that changed a few years ago.
spk14: But if
spk16: you're being fair, you would give the same gains to America and United, Southwest, and back those out. And to your point of when they fade away, that's not happening any time in the near term. If 200 aircraft don't order, we have a clear path. This needs to stop being talked about as a negative, Jamie, and talked about as an asset and a positive to the business. You need to look at the guaranteed cash flows that come from this over the next decade. This will not change, and we don't plan on changing this unless the financing market changes. It's a core part of the business. The cash is real, the earnings are real, and it's the same as if we had debt financed.
spk13: Well, I guess the question though, if you had debt financed, wouldn't that be more similar to amortizing the gain over the life of the lease? So I guess put differently, if you would amortize the gain over whatever leases you struck in the first quarter, it wouldn't be a $71 million benefit. Do you know what the approximate benefit would have been? Because it's obviously gonna be a much smaller number.
spk16: Well, those aircraft would be a much smaller number, but then you would have been brought in the gains from all the other aircraft that you've delivered over the last 10 years. This is why we keep saying it, and there's a really good presentation we put out on this.
spk14: No, no, I remember.
spk16: Okay, well, that's why we did it. If you go back and look, we showed you whether you did this over the old accounting, whether you did it through debt finance, or whether you do it the way it's being done now, we're following proper accounting. It's the economic answer, the net income answer is the same.
spk13: Okay,
spk11: all
spk13: right, appreciate the color. I'd
spk11: rather, I think- Jamie, just to add to what Barry said, the market value for aircraft, particularly the 321neo is really, really strong. The issues that have been happening with the manufacturers in terms of delays in aircraft, the market price for selling an aircraft into the leasing community is higher than it's ever been. It isn't diminishing. Sure, the financing costs associated with that are going up with higher interest rates, but that market price of the aircraft is very, very strong. And we happen to buy aircraft at a material discount to the market. And so that's where we're getting the benefit. There's a real asset value intrinsic in our aircraft order, and you see that every quarter.
spk16: I think, let's get back to focusing on what's important. I mean, what we're excited about is we gave you a guide for Q1 that included it.
spk00: Nothing
spk16: changed with that. And we had really great performance. And that is leading us to where we are now with what we believe is a solid guide for Q2 in the year, even despite a high single digit RASM hit and margin hit, which gives you the confidence to get back to the 10 to 14 points that we've labeled as our target next year. That's what we need to focus on.
spk13: Yeah, and I don't disagree as to the strength of the aircraft market. And we're not looking for that to reverse anytime soon. I mean, on that point, we are in full agreement. So thank you.
spk08: Standby for our next question. The next question comes from Connor Cunningham of Milius Research. Connor, go ahead.
spk04: Hi, everyone. Thank you. On the 13 new crew bases that you've introduced, or I guess the 13 crew bases that you have and the couple that you're introducing now, I'm just trying to understand the cost mismatch that is currently kind of happening in 2024. Like as you open up Cleveland, for example, and then you kind of move more to this out and back network, is there a cost mismatch where you're actually holding too many costs, too much costs this year before it starts to kind of, you know, become a good guy next year? I'm just trying to understand the dynamics of the cost side as you open up new bases. Thank you.
spk11: Do you want to answer?
spk01: Go ahead, Peter.
spk11: Go ahead.
spk01: Yeah, I mean, yeah, I don't think there is a cost mismatch. I mean, I think the $200 million cost savings target that we have, you know, that run rate that we expect to get to by the end of the year, it is underpinned by this network simplification and the shift to over 80% out and back. That simplifies the operation, that provides efficiency across the operation. And so we think, you know, it goes hand in hand and we don't think that there is a mismatch.
spk11: And just to add to what Mark said, the actual cost of opening the base, there are dollars involved, but they're relatively small in the context of moving really valuable assets around the network and putting them in places where actually they're making real money. And so the upfront investment in a base opening is relatively small from a cost perspective. So there isn't a material cost drag from the opening event itself.
spk04: Okay.
spk11: There's actually cost savings that come quite quickly after you open the base.
spk04: Okay, I got it. All right, perfect. And then just on your pilots, you know, the market's obviously moved a lot. You know, you have some airlines that are shedding pilots now or furloughing pilots. Can you just talk about, you know, where you are in terms of your negotiation? What have been the sticking, anything new that's kind of happening there? I mean, I obviously don't want you to negotiate and probably just curious on what's kind of going on right now and our expectations around when that could potentially get rectified. Thank you.
spk16: The landscape is completely changed, right? I mean, airlines have canceled classes, attrition rates have completely dried up. And if you want the canary in the coal mine, you actually saw this a while back. The fact that the regional airlines have been able to get staffed and hiring again tells you everything you need to know. There's not the shortage. So yeah, there's not the pressure that there was building. As far as our negotiations, it is very early. It is, I mean, we just started. And so, and we're in mediation. And, you know, the history of these things are, you know, one to two years. Most of them are kind of centered around the two year timeframe. So I wouldn't expect us anytime soon to be able to get through that process. It's just a process. Once you sign up for mediation, you're kind of locked into it. So it's gonna take a while.
spk04: Appreciate it, thank you.
spk08: Standby for our next question. The next question comes from Steven Trent with Citi. Steven, go ahead with your question.
spk12: Good morning, guys. And thanks for taking my question. Two quick ones for you. One, as you look at these new products, you know, that you mentioned with the upfront, plus I think you said it was called, and you look at this new route network, you know, what sort of competitive response are you seeing from the network airlines or others as you launch on these new routes? Thanks.
spk16: Yeah, thanks, Steven. So, you know, look, I think we're seeing what you normally see. I mean, you know, one person's great opportunity for high revenue opportunities with underserved or high price markets is another airline's definition of incursion. So we see normal reactions out there. But I think the truth is that the industry is focused on margins. And so I think, you know, any irrational things that you see, I think generally over time, I think most rational carriers will respond with different pricing and capacity as a result. But yeah, we're not seeing anything out of the normal.
spk12: Great, appreciate that, Barry. And just one other question from a regulatory standpoint. And I haven't even 100% seen all the details around this myself, but I guess the DOT made some rule changes about airlines having to compensate customers for delayed flights and lost bags and this kind of thing. You know, do you sort of have any color on what's the latest on that and, you know, to what extent the industry might push back on that?
spk16: Yeah, look, I know there's some pushback on it and a lot of it has to do with, you know, I think there's concern about the technology that's available, especially with third party to be compliant with the transparency. On the refund side, I would say that, you know, look, we refunded over $300 million last year all in these same categories. We believe largely in compliant with what they're looking for. We don't see any financial impact from this. And I'll just dovetail on the transparency. You know, we've got some big changes this year. We've got a new website coming out. We've got a new app coming out and we've also got some kind of improved merchandising that we think will not only be good for us from a revenue perspective, but I think it will really address much of these transparency issues and make it very clean and upfront. So I think we can hit the spirit of what they're looking for, but I think the way they've written it, I think the reason why some of the industry is having a challenge is because I think there's not the technology in place today to do exactly what they're looking for, but hopefully we can all get there. But again, we see no financial impact from this.
spk12: Okay,
spk05: appreciate it. Thanks, Barry. Stand by for our next question.
spk08: The
spk05: next question comes
spk08: from Christopher Stathinopoulos with Sequina Financial Group. Christopher, go ahead with your question.
spk15: Thank you, Operator. Good morning, everyone. Ari, I wanna go back to your comments where you're prepared comments around supply dynamic. If you could put a finer point on that as it relates to key pieces of your network. A lot has changed here. You've been very clear about how you're thinking about optimizing the network going forward, but also looking at the last, I don't know, few weeks of sales promos here, coincidentally or not, they seem to be overlapping with a larger network peer and should kinda reinterpret that you're having confidence here with your product, particularly as it relates to these revenue initiatives, business reworked loyalty and things like that. Thank you.
spk16: Well, look, I said a while ago, low costs have always mattered and the cost divergence is real. And at the end of the day, this enables us to sell to customers that can't afford possibly a network carrier. We're in a different business in that regard. And we think that we peacefully coexist in many places with the big airlines because they offer a different product and they cater to a different clientele. Yes, we have some new products that I think probably appeal to your more affluent travelers and those that want a little more comfort with the front plus or the premium product. But the truth is that we don't have a frequent flyer program that gets you to Dubai. We don't have eight frequencies a day in routes. So we're not really for the corporates that they chase. But yeah, I think we serve a different market and I think most of the more sophisticated legacy carriers have actually figured that out.
spk15: Okay, and then your comments before, I think there was an earlier question on this yield and load factor dynamic. And if you could speak to how that's progressing, if it's sort of consistent system wide or is it perhaps more market specific and is that the dynamic that we should expect to slowly shift as we get through the balance of the year? Thank you.
spk16: Well, look, we always look to optimize revenue. I mean, we have teams that this is their big thing, right? I mean, this is what they do. They optimize revenue every day. And we found that in Q1 that a greater focus on yield and less on load was a better outcome for us. And we've seen that we had a pretty good beat. And so obviously it worked. However, it's not good long term to have that kind of deficit to the load factors. And I think you're seeing that as a symptom of we still had too much capacity that was impacted by the oversupply in Florida as an example. And so as we move through the year, we would expect to regain all that load factor. And I think by the time you get to Q1 next year, I think we will largely close that gap back because of the changes we're making to the network and getting out of the oversupplied areas. Okay, thank
spk05: you. Standby for our next question. Our next question comes from Savi Seast with Raymond James. Savi, go
spk09: ahead with your question. Hey, thanks for the followup. You brought up a good point earlier that your one queue cost performance was quite commendable and kind of better than expected. I'm curious why your full year outlook hasn't changed and any thoughts on what drove the one queue out of performance that can maybe continue?
spk01: Yeah, I mean, yeah. So as we look from a cost out performance standpoint in the first quarter versus our expectations, as we continue to target and work towards that $200 million cost savings plan, which we're on target for, we started to see some of the early benefits in the first quarter come through across the business. And so that's what you saw in the first quarter. As you look on a full year basis, we're holding to that one to 3%, given that the strategy that we put forward, I mean, that is what we're still holding to. And so at this point, that guide still holds.
spk09: Okay, thank you.
spk08: And showing no further questions, I'd like to turn it back over to Barry Biffle for closing remarks.
spk16: Hey, I'd like to thank everybody for joining us today. We're really excited about our trajectory on costs as well as revenue and how we're improving in operations. I wanna thank all the team frontier, and we look forward to hosting you on our next call. Talk to you soon.
spk08: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
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