Frontier Group Holdings, Inc.

Good day, everyone, and welcome to the Frontier Group Holdings, Inc., second quarter 2025 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 participate, you will need to press star-1-1 on your telephone. You will then hear a message advising your hand is raised. To withdraw your question, simply press star-1-1 again. Please note this event is being recorded. Now it's my pleasure to turn the call over to the Senior Director of Investor Relations, David Erdman.

Thank you and good morning and welcome to our second quarter 2025 earnings call. On the call with me in speaking order are Barry Biffle, Chief Executive Officer, Jimmy Dempsey, President, Bobby Schroeder, Chief Commercial Officer, and Mark Mitchell, Chief Financial Officer. Each will deliver brief remarks, but before they do, 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 such differences are outlined in the announcement we released earlier, along with reports we file with the Securities and Exchange Commission. During this call, we will be discussing non-GAAP financial measures, actual results of which are reconciled to the nearest comparable gap measure in the appendix of the earnings announcement. We'll also be referencing stage-adjusted unit metrics, which are based on 1,000 miles. With that, I'll give the floor to Barry to begin his prepared remarks. Barry?

Thanks, David. Good morning, everyone. Our second quarter results were within our guidance range, overcoming significant weather and extensive air traffic controls delay in late May and June, which we estimate to be two to three points on the quarter. Our third quarter guidance incorporates a similar impact for July. Proud of Team Frontier for the contributions during the quarter as we navigated through this environment and for remaining focused on our top priority of delivering a safe and reliable experience to our customers. We're seeing an improvement to our forward bookings for August and beyond as the industry adjusts capacity. Encouragingly, in frontier markets specifically, we're seeing a greater reduction in competitive capacity than the average in the industry by about three points, which alongside with our commercial initiatives is expected to support mid to high single-digit RASM growth in the third quarter on a stage-adjusted basis. I'm confident in our ability to generate incremental RASM benefit from our enhanced loyalty initiatives and our additional premium product offerings. For example, our cardholder spend is up nearly 20% year-over-year, These product and loyalty enhancements, combined with our industry-leading total cost advantage, are expected to provide a solid foundation for profitability in 2026. And I'll turn this call over to Jimmy for a commercial review. Jimmy?

Thanks, Barry, and good morning, everyone. Briefly recapping our revenue performance, total revenue in the second quarter was $929 million, down 5% on 2% lower capacity versus the prior year quarter. RASM was 9.01 cents, while RASM stage length adjusted to 1,000 miles, was 8.74 cents, slightly higher compared to the same period last year. As Barry mentioned earlier, our performance incorporates the revenue-related headwinds from ATC and weather-related operational challenges and the impact of weak consumer sentiment in the early part of the quarter. Total revenue per passenger was $109, flat to the prior year quarter, on a 79% load factor of 1.2 percentage points. We launched 35 new routes in the second quarter, primarily from existing crew bases, including our first-ever service to Seattle's Payne Field and Puerto Plata in the Dominican Republic. We also announced an expansion of service across the eastern and midwestern United States to include non-stop connections between Baltimore and Chicago O'Hare, Myrtle Beach and Trenton, and nine new routes from Atlanta. These new routes are consistent with our strategy to penetrate large markets with limited or no ULCC service that expand our revenue pool and support growth. Looking ahead, we expect stage-adjusted RASM to be up mid to high single digits in the third quarter year over year. supported by an improving industry capacity backdrop and tailwinds from normalizing exposure to immature markets. Based on our current selling schedule, which extends through January 5th, immature market concentration is expected to trend toward low teens over the next six months, roughly half the level it was in the prior year. Capacity in the third quarter is expected to be down 4% to 5% year over year on an average stage of approximately 915 miles. while fourth quarter capacity is expected to be relatively flat year over year on an average stage of approximately 900 miles. I'll now hand it over to Bobby to provide an update on our enhanced product and loyalty offering. Thanks, Jimmy.

We're pleased to have achieved an increase of over 40% year over year in the second quarter in our co-brand loyalty revenue per passenger, driven by greater card acquisition and spending. Our current momentum, coupled with the introduction of first class seating, Mileage burn for ancillaries and additional product features such as our companion pass give us confidence in achieving our target of $6 per passenger by the end of 2026 and $10 by the end of 2028. We're also continuing to invest in the onboard experience. Our fleet-wide installation of first-class seating remains on track for completion by next spring, expanding on the strong response to our upfront plus product. And shortly, we're rolling out additional rows of upfront plus, enabling us to serve high premium routes more effectively while maintaining flexibility elsewhere. From a digital perspective, we're making major strides across all our distribution channels. We launched our new iOS and Android mobile apps, featuring an improved interface and expanded self-service tools. And we'll launch our newly redesigned website later this year. Our NDC transition accelerated this quarter with key partnerships signed with Amadeus, Fairportal, and Hopper with more to come. These agreements will allow us to revenue manage in real time, deliver more relevant personalized offers, and provide a seamless booking experience while also significantly reducing distribution costs. In short, we're modernizing every part of our commercial offering from digital tools and distribution to loyalty and onboard experience with a focus on premiumization which supports a better revenue outcome. With that, I'll turn it over to Mark for the financial update.

Thanks, Bobby, and good morning, everyone. Our adjusted non-fuel operating expenses in the second quarter were $774 million, or 7.5 cents per available seat mile. The increase over the prior year quarter was largely as expected and was mainly due to a 13% reduction in average daily aircraft utilization related to our discipline capacity deployment, fleet growth, and lower sale leaseback gains from less inductions in the prior year quarter. Fuel expense totaled $230 million, 20% lower than the 24 quarter, driven by a 17% decrease in the average fuel cost, 2% lower capacity, and a 2% fuel efficiency improvement over the 24 quarter. Second quarter pre-tax loss and net loss were both $70 million, resulting in $0.31 of net loss per share with the tax benefit generated from the pretax loss offset by a corresponding valuation allowance. We ended the quarter with $766 million of total liquidity comprised of unrestricted cash and cash equivalents of $561 million and $205 million of availability from our undrawn revolving line of credit. We have committed financing, which is expected to boost liquidity by over $200 million by year end. We took delivery of three A321neo aircraft during the quarter, all financed with sale-leaseback transactions, and returned two A320COs, bringing our total aircraft fleet to 164 at quarter end. As previously disclosed, most of our planned inductions for this year are scheduled to occur in the second half of the year, with 13 aircraft deliveries expected in the next six months, including two A321neo aircraft in the third quarter and 11 in the fourth quarter, comprised of seven A320neos, four A321neos. All remaining 2025 deliveries and all planned deliveries through the third quarter of 2026 have committed sale-leaseback financing. Turning to guidance. As provided in this morning's announcement, we expect a third quarter adjusted loss between 26 and 42 cents per share and fuel at an expected average all-in cost of $2.51 per gallon based on the jet fuel curve as of August 1st, which is 15 cents higher than the second quarter. Third quarter non-fuel costs include some transition costs due to the timing of our capacity reductions and higher expected maintenance-related costs. Our capacity for the third quarter is expected to be down 4% to 5% to the corresponding prior year quarter. And we expect mid to high single digit RASM growth on a stage length adjusted basis in the third quarter. Lastly, we expect tax expense in the range of $2 to $4 million due to the anticipated recognition of a non-cash valuation allowance. Thanks for joining us this morning. Operator, we're ready to begin the Q&A segment.

Thank you so much. And as a reminder to ask a question, press star 1-1 on your telephone and wait for your name to be announced. To withdraw the question, press star 1-1 again. Our first question is from Ravi Shankar with Morgan Stanley. Please proceed.

Great. Thanks. Morning, everyone. So understanding that it is a pretty challenging environment out there, Barry, can you just help us with a What does the path back to positive margins look like and then eventually to double digits over time? Apart from just industry kind of tailwinds, what are some of the big moving blocks to get you there?

I think one of the big moving blocks, we're already kind of in it, and this is one of those where I almost wish we would report by month rather than quarter because you don't see the kind of the trends. I think If you take a step back, so let's talk about just underlying baseline, and then we can talk about the building blocks from there. So if I go back to April, we had pretty big challenges. Everybody's well aware of what happened. Things stabilized. And actually, we saw really good bookings. Fares were going up, and demand was really good. It wasn't clear. There was some challenges. We started seeing a lot more weather ATC in late May and into early June. But then it became clear in mid-June that there was kind of a setback, kind of a slowdown, if you will. And it's hard for us to tell, was that demand or was it just oversupply in the summer? And then we went kind of negative year-over-year on sales against, in our case, flat to down capacity. And then now in the last few weeks, it's been widely reported, we've seen significant jumps. In fact, we're running double-digit sales year-over-year for all forward sales. against capacity that is actually down year over year. So you take that trend and you roll that out and that puts pretty good RASM trajectory for the balance of the year. So that gets you much closer to break even just on a sales trend basis and then you start adding all the incremental things that we're doing that are specific to Frontier. As I mentioned in my opening remarks, we see when we look at forward capacity, the industry capacity is getting better domestically But in frontier markets specifically, we're seeing about a two to three point better just in September alone, and we expect that to continue. We see a certain carrier getting out of a lot of our routes. We suspect they're going to continue to do that. So we think that's unique to frontier. And I think in broader, it's very clear with the majority of all domestic capacity losing money at this point, I think you should expect continued capacity reductions. But we're not counting on that, and we don't need it specifically. But you're going to get several points in RASM just from, you know, kind of the competitive capacity coming out of markets. We also then, as we move into the fall, we move out of having a lot of new capacity. So I think we get that down, you know, to a much more manageable number, a little bit of redistribution. I mean, we were running over 20% new flying in the fourth quarter last year. This year it's down to 10%. I mean, so that alone, I mean, it's just math, right? Brand new flying is about a 30% discount. If you have 10% less of it, that's three points right there. So you get several points from kind of the less new flying. And then you actually take, you get several more points just from our slowing our overall growth rate. So you actually get a razz and bump there. And then lastly, you get into kind of the product side and loyalty. We've got several points, as Bobby mentioned a moment ago. We've got 40% up year over year. I know it's on a small base, but that's a huge improvement. Our credit card acquisitions are up materially. Our spend is up. People are liking the new frontier. We're finally starting to see some maturity of that payoff. So that's another couple of points. And then lastly, I think you get into the premiumization with the first class seating that will be introduced late this year, but fully rolled out by spring. And we've also got an expansion of upfront plus that we're going to be continuing to do based on the success of that. And so that's another couple of points there. So you add all these things up, and we believe we're more than back to profitability, and you're back on track to hit our targets.

Well, thank you. Maybe it's a quick follow-up there. Do you have an early view in your capacity plans for 26?

We have not put that out. I think as we have said, and I think as we have reacted, we said this earlier this year, we will be the first probably to react to any changes, but we have reduced capacity. We need to wait and see what the rest of the industry does, but the trends suggest, and again, I think the overall financial situation of most of the domestic markets suggest that you'll continue to see less capacity in the industry. But until we see that, it's hard to gauge what we're going to do for 2026. Understood. Thank you.

Thank you. Our next question is from Savi Sith with Raymond James. Please proceed.

Hey, good morning. Just on the cost side, I was kind of curious if... you know, what the capacity, you know, you're thinking about with flat here in the fourth quarter and kind of down still in the third quarter, what does that mean from a utilization evolution? And is there anything else that we should consider in terms of year over year on the CASMX side that might drive things?

Maybe I'll talk about utilization and then I can kick it off to Mark from a cost perspective. Savi, we've reduced utilization quite meaningfully on Tuesday, Wednesday, Saturday, more pronounced on Tuesday, Wednesday, particularly in the off-peak periods, which is really driving the year-over-year flat capacity. That'll take some time to lap if we maintain this level of lower utilization on the off-peak days of the week. And as Barry mentioned, this is dependent on what we see going forward in the marketplace. Our expectation is that we stay around flat, maybe slightly positive in certain months, slightly negative in other months as you progress through the first six months of next year. And that's what we've put together in terms of our hiring plans and the productivity that we expect to come from the business. I'll just hand it over to Mark in terms of

Tom Penna- yeah I mean, I think, beyond you know what Jimmy mentioned, I mean with those you know capacity adjustments, I mean you're naturally going to have some transition costs, you know tied to those where. Tom Penna- you're working to you know best align the resources to you know the capacity that you're putting forward, you know there's just some some timing nuances there, then, as we've talked about before. You know, our inductions, our aircraft inductions, you know, are heavily weighted. You know, as I mentioned in my remarks to the fourth quarter, so you have 11 aircraft planned for delivery in the fourth quarter. And so, you know, you just need to bake, you know, that nuance into your expectations.

That's helpful. And just on the, maybe to follow up just on the capacity. I curious, as Barry mentioned, you want to be flexible to the environment. Just curious how much you can flex up, flex down. I'm guessing a fair amount just from the aircraft availability, but perhaps maybe not from some of the other kind of staffing levels. It's curious how much you can flex that up depending on them or down, but depending on the environment.

Yeah, I mean, we sit in the surplus pilot situation at the moment, given the adjustment to capacity earlier in the year. So we can move capacity in relatively quickly. I mean, if you're talking about meaningful capacity increases from where we are today, you know, you really have a six- to eight-month lead time for that. So it really depends on what happens in the industry as to whether we deploy that and activate a training program to support, you know, meaningful capacity increases.

Yeah, and actually, I would add, in fact, I answered the question just on a RASM basis, how you get back to double-digit margins. But on the cost side, you know, we're carrying several points just this quarter of cost, and that translates straight to margin, because of the excess pilots, because of excess flight attendants, we've got too many staff right now because we had planned to be larger close in, and this is a significant drag on our chasm at this second. To answer your question, flexing up or down, you can always flex down, but you end up in a situation like this where if you do it close in, as we have done, then you carry all that extra cost. And so I can tell you that we are, you know, not going to be hiring and adding to that problem. We will bring in some aircraft, not increasing day 236, but increasing, you know, the peak days of flying, and use that excess, you know, over the next year. And so you will get to the point where we will have plenty of aircraft to add capacity, but if we needed to increase capacity, the lead time on that once we get properly staffed and right size on the staffing, is probably in the six to eight month range. And the reason for that is flight attendants are much faster, but the long pole in the tent on growth to increase utilization is on the pilot side. And it's just a simple cycle. You have to hire a first officer. You have to bring them in, get them trained, get them on the line. that then pops a spot, if you will, to upgrade an existing first officer to a captain. And that cycle takes between six and eight months from recruiting, making the decision, and so forth. So it's probably a two-quarter decision in the future if and when we see demand come back. But we're not planning on an improvement in demand to get back to our profitability. We're planning for what it is. And we're planning for a similar utilization for right now unless we see things change.

Very helpful. Thank you.

Thank you. One moment for our next question. And it comes from Duane Fenningworth with Evercore ISI. Please proceed.

Hey, good morning. So you talked about sales up double digits for future periods. I wonder if you could speak to book yields and if you're seeing an inflection, or maybe that's not the right word, maybe acceleration in yield improvement and how you think about that in the months going forward.

Yeah, thanks, Dwayne. We're seeing, and part of this is because I think we've right-sized our capacity probably more than most and probably got it nailed down. We're seeing increases in load factors. You saw that in Q2, we're seeing that materially now. We are consistently on peak days, booking to the high 80s, low 90s. And so we've seen it in load factor, but what's driving the double digit actually as we look forward, and I'm actually staring at a report for this morning and for today's sales and yesterday, it's actually the yield. The yield is what's driving the biggest part of that. So we're seeing a few points in load factor, But what's driving double digits is actually you're seeing more than double-digit jumps in revenue per passenger. And by the way, that would include fare and ancillary.

And just to put a finer point on it, I assume that's not a July comment. Is that a September comment? How far out are you seeing that?

Yeah, so this started mid-July. We've got about three weeks into it. This is for all future sales. So total sales... for the last several weeks for all future periods. So yes, July was gone by that point. And that's why I made the comment earlier, I wish we could report by month. I think everybody would see what we're seeing, which is now that we're starting to get to fall and starting to see the benefits of all these capacity reductions, it is right-sizing demand with capacity is actually really starting to bear fruit. So yes, it's all periods. And so in our particular case, with our capacity down for all future periods, to see sales up year over year, that kind of numbers, it's meaningful. Again, it's a new trend, and it's been a challenging year, but we're cautiously optimistic when you see these kind of numbers in the last few weeks.

Thanks, Barry. And then if you look at relative performance within your network, are there any themes or maybe characteristics of markets that are working better than others?

Yeah, I think it's been widely reported, but Las Vegas seems to have had some challenges, and it's probably the most pronounced on a leisure basis. I think, conversely, we're seeing, obviously, your VFR markets and maybe their business markets. Depending upon the airline, the big guys might call it a business market. We're seeing a lot of VFR traffic being very strong. So kind of tough in Vegas, and I think everywhere else is actually really, really doing well.

Thank you. Thank you. Our next question comes from Michael Linenberg with Deutsche Bank. Please proceed.

Oh, yeah.

Hey, good morning, everyone.

Hey, Barry and Mark, if you could just speak to the guidance range. It just seems unusually wide. I mean, you know, July is in the bag. You probably have half of August already a good view, so we're talking about 45 days left in the quarter, and yet on a pre-tax basis, it's about five points of margin for the quarter. Are you just concerned that the price-sensitive traveler is not going to show up in the month of September? What's the rationale behind that wide range?

Well, July is in, and the first part of August is in, but we still have a decent amount of sell in the back two weeks of August. and a lot to sell in September. Obviously with the trends we're seeing, that's why we said if this holds up, we could clearly be to the high end of that guidance. But to your point, like we've been burned in the last six months in this industry in the domestic market. And so while we're optimistic, yes, we could hit, I mean, obviously when we put out a range like that, we all get together. and and Mark and Jimmy and Bobby and all this look look at this and we are we are we are staring at some just big numbers you know like when we look at the yield right now for August the yields for August are up 5% but the yields for September are up 15% right now if that holds up fantastic Michael but I mean It's still a little early, and so that's why you get a larger range. And, yes, I could have told you five to seven, but, I mean, I've heard in the last six months. You know, I saw a dip. I saw a dip in June. Didn't expect. And so, you know, I'd love for it to be towards the higher end, but I've got to be realistic on recent history. You know, when we saw the Gaza and we saw Israel and there was consumer sentiment and things changed in the middle of June, you know what, kind of corresponded with sales in June. We've seen it come back, and now it's doing great. So we're in a month-to-month consumer sentiment game, I think. But right now, consumer sentiment is good. And I think where I'm a little more optimistic, even than just the demand environment, is I think we're finally starting, we're going to see the benefits of the competitive capacity coming out. I mean, we're finally starting to see And I'll give you an example. I mean, you know, South Florida, I mean, we opened a base kind of pre-COVID in Miami. And then in the middle of COVID, everyone decided, Southwest Jet, Blue Spirit, they all decided to all start flying in Miami. I mean, we're finally now seeing that kind of little battle all unwind. And you're starting to see all of these little battles across the U.S. that kind of took place. We're seeing all these competitive events. dynamics, everybody's finally realized that things are going to get back to normal, but we need to get capacity right-sized with demand. So we're really encouraged, but yeah, we're just giving you the actuarial range based on history in the last six months.

Okay, great. And then just one other quick one, and I know you said this and it may have been off the cuff, you sort of threw out the fact that with all domestic capacity losing money, Is that frontier-specific? Is that low-fare carrier-specific? Or are you just saying that maybe everybody's been losing money domestically this summer?

We believe, looking at everyone's numbers and unpacking that, that everyone right now is losing money domestically. There are two carriers that are subsidizing it significantly with international, but I think, as you have seen, the domestic marketplace is, without international or international code share or other benefits, they are not trending well. So history shows that this will not continue. That's why we look at this and we say, we've got one of the cleanest balance sheets in the industry. And so we see... We see plenty of opportunity for the carrier-like frontier to come out the other side of this because there's going to be a huge opportunity for the lowest-cost provider, and I think there's going to be a lot less low-cost capacity competing with us, and I think there's going to be a lot less even legacy capacity in the United States because there is domestically too many narrow bodies in the United States, period.

Great. Thanks for the great answers, Barry. Appreciate it.

Thanks. Thank you. Our next question comes from Scott Group with Wolf Research.

Hey, thanks. Good morning. I want to start as a big picture question, Barry. So capacity this year is going to be flat to down a little bit, obviously a big change versus your history, and it's going to be a pretty unprofitable year. And I get it's a very tough backdrop, but do you feel like are the pieces there or that you can see that we can't see in the numbers yet? Or ultimately, do you think, does this model really need growth to work?

I believe this model needs growth to work. I think it works a lot better with growth, obviously. The whole airline industry has shown that forever. But I think I'm going to go back to before kind of the crisis that hit the United States earlier this year, we were up 20%, our RASM's up 20% year-over-year in January, 20%. That fell to almost flat by the time we got to the end of the, I mean it was a precipitous drop, went negative year-over-year in March, it went negative year-over-year in April, went back, say adjusted positive, Then in May and June, slightly positive in July, now wildly positive in August. And sequentially, as I just mentioned, we're staring at up 15% yields in September right now in advanced sales. So I think once you get past the economic shock that we had and the excess capacity, we think that we're going to be probably the best position in this marketplace. Because again, just like the last question, we believe that the domestic flying for everyone is not producing positive margins today. Can't count the international flow. I'm talking about on domestic fares, in the domestic marketplace, we believe that the entire industry is not making money. If you take out your code share, take out your international flow, all that, the domestic is not making money. And that's because there is too much supply relative to demand. However, as we have seen, the industry keeps growing. as it always has, it will react to this. And unless you see a meaningful jump in demand, there's going to continue to be reductions in capacity in this industry.

And maybe it's a dumb question. Maybe I'm missing something. But if we're seeing this big improvement in August and September, why do we not see that in the actual earnings guidance for Q3 versus Q2? Because July was not.

Sales fell off in June. for June and July, but it hit July the most. In fact, the first week or so of July, our sales were down year over year. July was kind of the month that didn't happen this year. Now, again, unfortunately, there were plenty of things. There was a war breakout in the Middle East and all kinds of other things, and consumer sentiment fell in June. It was probably the worst time ever. But this is why I said a moment ago, I'd love to report monthly instead of quarterly, but also you're looking at revenue, not sales. And I think oftentimes, I think there's not a great understanding of revenue versus sales. Revenue is what you sold maybe six to 12 weeks ago and what you're flying now. Sales are a predictor of the future. And so as long as the sales trends hold up as The whole industry has reported over the last several weeks. We have seen the same thing. And actually, I guess we're one of the last ones to report so we can kind of put a punctuation point on it. Yes, starting in mid-July, now for several weeks, sales are up materially year over year. If that trend were to continue, you're going to see a meaningful jump in RASM year over year. As I said just a moment ago, our yields for September on a forward basis are up 15%. But we haven't booked that much September yet. There's still a lot of September to go. But if these trends hold up, we're going to have a great remainder of the year.

OK. If I can just ask one more. In my freight world, we've got the biggest rail merger announcement ever. And I think there's a chance we could go from four rails in the US to two. And that's at least how maybe the rails are thinking about maybe what's going on with the change in administration. What does this mean? Is it the time to be revisiting airline M&A? Is the administration more supportive? What are your thoughts?

I don't know. I haven't followed the M&A across industries. I have to believe they're, from what I understand, more accepting and than the last administration. Setting that aside just in our industry, yes, I think if you look in history, there's going to be, and continue to be, there already is, and there's going to continue to be reductions in capacity. And one of the mechanisms that helps make that easier to do is consolidation.

All right. Thank you, guys. Appreciate it.

Thank you. Our next question comes from Atul Maheshwari with UBS. Please proceed.

Good morning. Thanks a lot for taking my question. Barry, last quarter you talked about a profitable back pass. That's not something you reiterated today, so I assume that's no longer an expectation. A, could you confirm that? If that's no longer an expectation, why is that the case? What has changed versus three months back that's driving this lower expectation? Because on the outside, it could appear that the demand is probably in a better place today than where it was three months ago.

It is. It absolutely is. I'm going to repeat what I said a moment ago. If I look at the sales trends through the year and the revenue trends, we started off the year fantastic. We had the episode in the spring. Then it recovered kind of late April into kind of the end of May, early June. Then kind of around the, pretty much, I think it was around the June 10th or so to kind of the 10th of July, really that 30-day period, we saw a significant sales slump. And that hit, you know, July, which is, you know, I don't know the exact number, 36, 37%. You know, it's over a third of our quarter. And on a capacity basis, And then on a revenue basis, it's closer to half. So we took a significant hit to sales in one of our best months of the year. And I'm not ruling out making money in the second half, but when that happened, while we now are seeing huge improvements in sales, and as I mentioned, I mean, these are staggering numbers. For our yields to be up 15% in September, these are big numbers. Obviously, if that trend goes through through the fourth quarter, we are going to make money through the second half. But we're just cautiously optimistic. As I said a while ago, we gave a four-point range because if I actually look at this year and the volatility we've seen, that is a more accurate range. If I had to give you a range for the full balance of the year, it would be even wider than that because of the variations. But again, I'll say this. I agree with you. Given the current trends, barring any other major exogenous event or kind of economic slowdown that we hadn't already seen, and continuing to see a favorable capacity backdrop, yes, it's still on the table. We're just not guiding the fourth quarter yet.

Okay, that's fair. And then just a quick follow-up on the third quarter RASM guidance, mid to high single-digit state adjusted. Could you maybe give us a number that's not adjusted or maybe give a stage so that we can back into a non-adjusted RASM?

Yeah, the stage, as we highlighted in the remarks for the third quarter, I believe is 915.

Okay. Thank you, and good luck with the rest of the year.

Yeah, thanks.

Thank you. Our next question is from Andrew DeDora with Bank of America. Please proceed.

Hey, good morning, everyone. Barry, I kind of want to go back to your load factor. I mean, second quarter obviously continued to trend higher here. I'm just curious, if you look at that monthly, did you see steady progression throughout the quarter, or was it more like back half-weighted? Just curious, especially given after a The competitor changed its bad fee policy. Just curious what you saw around that.

Yeah, it continued to improve through the whole quarter. In fact, one of my directors in revenue management one day, I was walking through there, and he was just so – he was glowing. I think this was early June, late May, early June. And I said, what's going on? I think it was the Sunday after Memorial Day. So it wasn't even a great period. And he's like, we booked a 94. We haven't booked to a 94 on a non-holiday yet. in a long time. So yes, we're seeing really good momentum and traction for our product. I mean, if I take out kind of the slump for July, yeah, we're seeing good results. I mean, we said this earlier, but in the year when it happened, but one of the largest carriers in the United States is now charging for bags on a check bag basis on its primary product. So now the new frontier in our product lineup of how we sell of having a basic product, an economy product, and some premium options. We're on a level playing field, and customers are figuring that out. And so we're seeing greater demand for our product as our product mix and what we charge for those relative products is the best value in the industry.

Thanks for that. And I'm just curious, as you head into kind of 4Q and peak holiday, Obviously, you're going from kind of down, call it mid-single-digit capacity, to flatten your guidance. I think your schedules are up a little bit. Just curious, Barry, what you are assuming for demand over that period, given that inflection in capacity. Thank you.

Yeah, so I think one of the things that we have is a tailwind for us. I mean, that shape of capacity, even flat capacity, is actually better seats. So what you have to remember, we're using lower utilization with more flying on the peak days. So what that enables us to do is to command a lot better load and a lot better yield. And so that's why I think we will be an outlier on a performance basis because of what we've done and the actions we've taken to get rid of our own excess capacity.

Okay, thank you.

Thank you. Our next question is from Brandon Oglenski with Barclays. Please proceed.

Hey, good morning, everyone. Thanks for taking the question. And Barry, I ask this with the most respect, but I guess it's been two or three years now where we've seen a clear divergence in profitability between those that maybe have transatlantic roots and those that don't. But there's a narrative that there's a structural shift happening. I guess what's going to change looking forward, because you guys have a huge order book. You're taking deliveries, but yet shrinking capacity. So how do we reconcile the outlook here versus an order book and an industry that needs to shrink? And I guess, where do you fit into that? And how do we hit that ever elusive double digit pre-tax margin? And I mean that with respect, Barry, I know you guys are working hard.

Yeah, look, I don't take offense. I mean, I didn't buy wide bodies 10 years ago, and maybe I'd love to have them. But I think history shows that You know, there's periods of time where international is really good. If I go back to the late 90s, the legacies were minting money on international. It really helped. It really helped. And low costs actually underperformed. You flipped a few years later, and, well, you know, those fortunes change. I think what's become clear, and we actually think the model is now vindicated, is this is not a model issue. If you go look under the hood, this is a domestic oversupply issue, period. And what we now see is that these larger carriers and small, in some cases, competitors will be reducing capacity in the United States, full stop. And we then, with the lowest costs and one of the cleanest balance sheets, will be a huge beneficiary of that. So I think it's always darkest before the dawn. It's been a very difficult year. But it's starting to become clear that Frontier will be the winner when we move into 2026. And there's no one in the ultra-low-cost space that is going to be our size, scale, our cost structure, and a relative cost advantage. There's going to be no one that can win in the domestic like us. And I'm just telling you, history shows you will not see this oversupply for a long time, and we'll want every one of those airplanes when it starts to become our turn.

Barry, I appreciate that answer. I mean, do you think the market is still stimulative, though, or have we reached more maturity of travel demand in the U.S.? Is that a possibility? And I guess looking forward, are there any strategic actions that you think you can make to help drive outcomes in this direction? And thank you.

Yeah, I think I answered what you're hinting at last one a moment ago. But look, I think there are There are strategic things that others may do. I think there's been moves by some others that kind of precursor for some potential consolidation opportunities. But ultimately, I think this is a situation where supply is gonna come out. Are we fully stimulated? It's funny you mention that. I mean, we went through all the places we're not flying and we're kind of filtering through today. Places we're not flying, we're not chasing places that have ultra low-cost carriers in them, where we can stimulate. And yes, there is a significant part of the United States and near international that is still kind of untapped, if you will. And so there's more than enough, we believe, for our growth. And we don't think that anyone else in our space is going to be growing to fill that void. And I think it's going to be, again, against a backdrop where fares are going to go up across the industry because everyone's going to be chasing margins, and that is going to give us more room to move our affairs up as well.

Thanks for the candor, Barry. Appreciate it.

Thank you. One moment for our next question. That comes from Jamie Baker with J.P. Morgan Securities. Please proceed.

Oh, yeah. Good morning, everybody. So, Barry, one of the themes that emerged recently on some of the aircraft leasing conference calls this earnings season was that the sale-leaseback market right now is pretty competitive. There are not a huge number of transactions. There's a lot of capital chasing the space. And therefore, the economics of sale-leasebacks have been skewed in favor of the airlines. So first, I'm curious if you happen to agree, but more importantly... the view articulated by some of the lessors is that as production rates gradually rise from here and there are potentially more transactions to get done, that could actually drive economics to move in favor of the lessors. I know it sounds a little counterintuitive, you know, more supply leading to better pricing, but just wondering if there's any sort of read-through to Frontier in this regard.

Yes, so thanks. Good question. Look, there are plenty of other airlines, one based in Dallas. There's one based in Atlanta and ourselves that probably buy airplanes, probably one of the best in the United States. And components and engines and all the things go with them, and we tend to probably be on the tighter end of what we pay. And that's what drives the sale-leaseback gain, okay? And in other cases, other airlines, it's embedded in a lower cost of ownership. We have spent significant amount of time illustrating this, that whether we did sale lease backs or whether we did debt finance, we would have an advantage because we buy everything lower than we believe on a benchmark basis. And so I don't believe because we didn't see in recent years the ability to raise that because of, I mean, the market prices haven't gone up that much. So I don't know. I mean, I would take exception to that comment We are, however, having said that, we are always concerned about things in the future. And that's why Mark made a point to explain how far out we are now in committed sale leaseback transactions. We tend to stay 12 to 24 months way ahead of the airline. So we have firm commitments on all of those. So we don't see a challenge in that regard. And so if there's any kind of slump, I think we've got committed financing through that. And then quite honestly, there might be a bank, possibly yours, Jamie, that if the market wasn't there, we could flip to a financing world. So if that were to happen, we would potentially go the other way. We're going to have the lowest cost of aircraft ownership on a perceived basis of anybody in the industry, period. And we will achieve that through whatever financing is available in the marketplace. But we do kind of hedge, if you will, by staying ahead way in advance on committed transactions.

And Jamie, this is Jimmy here. One of the things that the leasing companies watch, obviously, in their market is the cross-currency to the dollar and the interest rate world. And as, say, the yen gets stronger against the dollar, that hurts them, right? Yeah, absolutely. You know, we have seen over time pockets of financing ability in various different parts of the world dependent on exchange rates and obviously the core dollar interest rates. And so, I mean, we're pretty calm about what's happening in the leasing world. We've had no problem financing our fleet for a long period of time. And our appetite for exposure to frontier assets and through Southern Eastpac has been really, really strong and continues to be so. So we're not concerned about it at all.

Okay, that's very helpful. Yeah, the only thing I would say on the aircraft, I mean, Jamie, what we've seen in the past, right, when these kind of situations, and we don't have to debate which one of us has been around longer in this industry, but what typically happens is that And one of your competitors puts out a chart every now and then that shows, I think, the value of a 17-year-old aircraft. That's where the market, if you want to say something's gotten frothy, I think that's where it's frothy, right, is these end-of-life. The values of these end-of-life aircraft have gotten very high. I do think you're going to see a lot of those parked or parted out or moved out. And I think if there's a change in residual value or financing abilities, it's probably on that end, not on the new stuff. Because typically what happens is when people are skinny and down, they're going to want the most fuel-efficient stuff. And so if you've got the latest next generation, that's what people want.

Yeah. All right. And then quick, and thanks for that, Barry and Jimmy. And just a quick follow-up. You know, you mentioned, I think, three or four times that you wish you could you know, report by month, is there anything to preclude you from disclosing monthly RASM? I mean, it used to be a thing.

Yeah, it did actually used to be a thing. Actually, I don't know. Yeah, I mean, it could cause other volatile craziness, but, yeah, we thought about it. Yeah, I think what's happened this year, we've talked about it, We don't want an overreaction up or down. I think it's, again, I'm going to say it again. Probably the best way to say this. We're cautiously optimistic. Jamie, the numbers, I mean, we just gave you the facts. Interpret them how you want. But we're staring at these massive double-digit yields over the next 30 days or so, and we're like, wow, if that holds up, we're starting to see a change. I think the other thing that's happened too, Jamie, just to kind of put a footnote to this, is what we're finally seeing, and there was kind of a question about stimulation a moment ago, what we're finally seeing, I think the industry has figured out that, you know, 79 is the new 49, and 99 is the new 79. I mean, there's really no need. I mean, we've seen the data on this. In fact, you know, we ran a sale, I think it was about a month or so ago, maybe six weeks ago, and we dropped the fares, and the total dollar stayed the same. Yeah, you've got some more volume, but you get so low. And I think that's what happened over the last few years. I'm not going to name names, but I think the levels have just gotten silly. I mean, when you've got a $29 fare, by the time I take out PFCs and I take out taxes, that's only $15 to the airline. I mean, you don't make it up in volume, right? You don't make it up on $49 fares. And so when the big airlines are running $49 sales every week, I think you've seen those slow down because I think they've discovered the same thing as us, is they're not actually accretive. You can't make it up in volume. And so that's why you've seen, I mean, you go out and look, I mean, on a year-over-year basis, for those of you that kind of watch scrapes and so forth, that's why you're seeing the fares come up because... You don't make it up in volume, and that's one of the big things that I think is benefiting the industry. And I think as you clean up the capacity, then you clean up the pricing, and that's how this works.

All right. Thanks so much for your thoughts. I appreciate it, Barry. Take care.

Thank you. Our next question comes from the line of Chris Talopolos with Suitkahana. Please proceed.

Thank you. Good morning, everyone. Barry, I appreciate all the color on The U.S. domestic market as it relates to profitability, particularly X code share and international benefit, certainly a point of debate here. But the first question here, three parts on the capacity piece. You mentioned in your prepared remarks there are certain markets where you're seeing a three-point reduction in competitive capacity. I wonder if you could elaborate on that and then how you're thinking about peak versus off-peak capacity for the second half. And next year, I realize you're not ready to give an explicit guide, but you have your order book out there. You've given us stage numbers for the second half. Maybe if you could help us think about stage, engage. For next year, I realize you're keeping the departures piece sort of a, optionality there as you look to respond to demand. Thanks.

Yeah, so a couple questions there, I guess. So first, on the three points, it wasn't certain markets. That is all of our markets. So if you go look and you do a capacity-weighted industry capacity in frontier markets, so I recognize that the industry is closer to flat or slightly down. Our markets, it's actually down almost three points going into the fall. And we expect that to accelerate as we get into winter with kind of the tea leaves of what we've seen, if you will, from the competitors that are making those changes and so forth. As far as the shape of the capacity, we are flying down. We are now down on Tuesday, Wednesdays going into the fall. We're only going to be flying around three or four hours on Tuesday, Wednesdays. That's not all the way down to maybe an allegiance level, but at the end of the day, the best way to stop losing money is stop doing things that lose money. The things that we've been doing to lose money, quite honestly, is flying on Tuesday and Wednesdays and not covering our variable cost. This has gone on for a while and we keep chasing it, but we finally think we've gotten to that level. I'm sitting here today on a Tuesday and I looked at the report this morning, we're booked to 88. Did we go a little too far? Maybe. I don't know. But a year ago, we were at seven or eight hours. And all I know about picking the forecast is I know you're going to be wrong. Three or four hours may be too low. Maybe the answer needs to be closer to five, maybe six. I don't know. But as I've joked with everybody, when you show you can fill up airplanes on a Tuesday, I'll let you add some more. And so if we continue to run in the mid to upper 80s on Tuesdays, we might add a little bit more. My commitment, as I've said before, is we are going to match capacity to demand, and we're going to get back to profitability. And that right now means flying maximum on the peak days and on the off-peak days less. And we've got to figure out, we've got to dial in what that is, because when you go too low, it's probably going to impact our chasm too much. If we can cover the variable on Tuesday and Wednesday, we probably should do it. I think it'll probably take us a quarter or two to dial in, if you will, and what the number is going to be. But it's probably north of where we are now, but still south of seven or eight hours. So I'm guessing the real answer is probably going to be in the five to seven hours. But as far as next year, again, it's too early to say on next year.

Any color at all? I do think, Chris, it's reasonable. Yeah, because you have the order book out there.

Sorry, Chris. I think it's reasonable to assume that given the fleet order, that we will grow, but the growth will be on peak days of the week or peak periods of the year, as opposed to the off-peak days of the week. Manage that capacity, as Barry mentioned, on the off-peak days of the week to ensure that it's cash positive to the business.

Yeah, on the fleet, it's – Mark, we've got the – Yeah, yeah, on the fleet.

I mean, when you look at our remaining order book, right, I mean, most of, you know, what's coming are 321s. And so as you look at that mix playing forward, and so you're going to see, you know, just a continued steady increase, you know, as you progress year to year, you know, in the gauge.

But we do take a step back a little bit shortly because we're taking a higher mix of 320s. Sure, sure.

Over the next... In the very short term, yeah. In the fourth quarter, the 11 aircraft we're taking delivery of, seven of those are 320s, and then the balance are 321s. But I think broad strokes, you've got more 321s coming than 320s.

But in the near term, that will be accretive for load factors as we kind of take our foot off the gas, a little bit on the gauge, continue to drive the loads higher and higher with the other commercial things that we've done. But yes, in the out years, it will be more 321s.

That's actually a good segue into my second question. So I just wanted to understand, there was a question earlier around, I guess, the dynamic between load factors and yields. You mentioned the double-digit bookings. I'm guessing April, May, and perhaps part of June, you were more load factor focused here. For the second half here, given with what you're seeing with respect to demand and the oversupply here, is it fair to assume that you're emphasizing yields overload factors. Are there any markets where that dynamic is inflicted? And, you know, I think you also mentioned that there's a certain carrier. I think we can all figure out who that is, who's continuing to retreat from certain markets you serve. So I just want to understand that dynamic in the second half. Thanks.

Yeah, look, I mean, if you've got higher costs than us and you're, you know, and you're in a similar business model, that's probably, you know, Kmart, didn't do itself any favors opening stores next door to Walmart, right? So that's not a really good strategy. So I suspect that we'll continue to see that improve. But yeah, on the revenue management side, I think it's very clear, right? Classic PRM. You got to get full to drive yield, generally. There's examples and there's markets that do well at a 60 to 70% load and really high yield and And so forth. But those are, in our business, very small percentage. I mean, less than 5% of the system. The majority of the time in our business, we tend to find that we stimulate enough to get full. And then once you're full, start to work on the yield. And the challenge we ran into in April is we ran some of the lowest load factors, I think, since COVID, actually. And so it took a few months to kind of repair that. By the time we got to early June, we had done that. And, in fact, we're running some of the highest loads, as I mentioned earlier, some of the highest loads we've run in years. We then were able to start translating that into yield. Saw, again, as widely reported by everyone, saw a little bit of slump in sales in mid-June to mid-July. That has now reversed and actually come back even higher than we were on a trend basis before. But when you look at the RASM, you know, benefit that we're seeing, and we put out a guide that is up to high single digits, that is a couple points in load, but the majority of that is yield. And in this particular moment, what we're seeing is a couple points in load, and as I mentioned a while ago, the August yields are up 5% year-over-year. September forward yields are up 15%. Okay. Great.

Thank you.

And by the way, I think that's going to roll through to the fourth quarter But in the fourth quarter, you'll get kind of the full benefit of it, right, because we didn't change the capacity meaningfully until kind of actually next week. So the back half of this quarter is finally seeing the benefit, and the fourth quarter will get all that benefit.

Okay. Thank you. Thank you. Our final question comes from the line of Tom Fitzgerald with CDCon. Please proceed.

Hi, thanks so much for the time. Quick one here just on other revenue. Is that $31 million? Is that a good run rate to use for the rest of the year, or do you expect another step up with the Growth and Loyalty Program?

So when we get to other revenue, I mean, Barry talked about this earlier. There are a lot of initiatives that we have that we believe create steps up in terms of where we're headed on this. Loyalty, you know, one of the things that we discussed, we've already got that up 40% year over year, and we anticipate seeing, you know, continued growth on that, similar growth percentage-wise as we cut through to even next year. The seat side of things, you know, on the product side, there's a lot of opportunity there that we have that will be incremental. One of those is the first class seats coming in early next year. We'll obviously start selling that earlier than that as the schedule is out for that. But beyond that, we have flexibility that we're providing and actually is launched from a sales side perspective, but it'll be, you know, the flights will be taken off with that where we're able to increase our upfront plus rows compared to what we have today. So that'll allow us to have flexibility within that that'll also add to the revenue side of things. Other than that, there's also some PRM initiatives, but also, frankly, on the NDC side, some opportunity when we fully cut over to that. So we talked about some of the things that we've done in that space as it pertains to some of the OTAs that we've already connected with and launched. When we get a, you know, over the course of the next month, two months, we'll have much more capacity going through or much more sales going through NDC. as we add more OTA partners. And that actually creates another benefit from a revenue perspective as well. So quite a few things as we get into how we are projecting in our initiatives, our commercial initiatives, some of which go into other revenue, some are on the fair side as well. But a lot of opportunity there that exists that ties to what Barry had brought up earlier around not only are the opportunities in the environment and capacity reductions, but a lot of the initiatives that we have that we have already seen good results and expect to continue those and add incremental revenue throughout this year and into next.

Okay, great. That's really helpful. And then just, you know, look, I get the confidence on 26. I get the thesis on the competitive dynamic, but just in the event that It takes longer to play out than you'd ideally like, and we're in, you know, we have deja vu again next spring, and there's another glut of domestic leisure capacity. How do you think about managing through that and just the risk of another year with significant cash from operations burn? Thanks again for the time.

Yeah, look, I mean, we're always, you know, we're paranoid people. We're always looking at the downside. I think you almost have to think about this as a flow chart. If this happens, then what? If this happens, then what? What we're excited about is that that could happen. Let's say that does. Do you realize how much domestic capacity is then going to come out? And so I'll just point out again, we've got one of the cleanest balance sheets in the industry. We are going to be last man standing in the low-cost space when you get to next year. No one's going to have our cost structure. No one's going to have our balance sheets. And we see that the capacity, it may not come out by next spring, but it's coming out. And history shows it actually will be out by next spring. Maybe it goes a little further, but I can't imagine that. I just don't believe that the balance of the industry is going to accept money losing flying for a full another year.

Thank you. And this concludes our Q&A session. I will turn the call back to Barry Beffel for closing remarks.

Thanks everyone for joining. We appreciate you being on and we look forward to talking to you next quarter. Thanks everyone. Have a great day.

Thank you. And this concludes our conference. Thank you for participating and you may now disconnect.