Frontier Group Holdings, Inc.

Hello, everyone. Thank you for joining us and welcome to the Frontier Group Holdings second quarter 2026 earnings conference call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. I will now hand the conference over to David Erdman, Senior Director of Investor Relations. David, please go ahead.

Thanks and good morning, everyone. Welcome to our second quarter 2026 earnings call. Joining me this morning in speaking order are Jimmy Dempsey, President and Chief Executive Officer, Bobby Schroeter, Chief Commercial Officer, and Mark Mitchell, Chief Financial Officer. Each will deliver brief prepared remarks and then we'll open the call for questions. Before we begin, however, I will remind you that today's discussion will include forward-looking statements subject to risks and uncertainties, and we will refer to certain non-GAAP financial measures. Reconciliations can be found in the earnings release issued earlier today and on our investor relations website. We also will be referencing stage adjusted unit metrics which are based on a conversion to 1,000 miles. So I'll turn the call over to Jimmy to begin his prepared remarks. Jimmy?

Thanks, David, and good morning, everyone. Our second quarter performance was well ahead of our earlier expectations and marks a meaningful step forward in Frontier's transformation. The progress we've delivered this quarter validates the actions we have taken to strengthen the airline and position the business for sustained profitability. I'm incredibly proud of the focus, urgency, and execution across Team Frontier as we continue advancing the plan we announced in February. Adjusted loss per share narrowed to 10 cents compared to our original guidance range of a loss of 45 to 60 cents per share, with top-line performance the primary factor. We delivered an all-time company record for quarterly revenue, of $1.3 billion, up 38% year-over-year, with RASM up 28%, augmented by strong travel demand, the continued progression of our revenue management initiatives, and a more favourable competitive capacity backdrop. We ended the quarter with liquidity of $1.16 billion, further strengthening our balance sheet and giving us added flexibility as we execute against our transformation priorities. Across the business, the team has been executing with discipline and momentum against the four priorities we set out in February. Right Sizing our Fleet, Strengthening Cost Discipline, Improving Operational Reliability, and Deepening Customer Loyalty. Beginning with Fleet Right Sizing, this work is now largely complete and is creating a more efficient, more productive platform for the future. In the second quarter, we returned all 24 aircraft under the aircraft agreement. Moreover, we are in advanced discussions to early terminate leases associated with 13 A320neo aircraft in the coming months and substantially replace that capacity with direct leases for up to 10 newer, more cost-efficient A321neo aircraft by the first quarter of 2027, facilitating slower capacity growth in Q4 of approximately 7%. On cost discipline, we are seeing clear benefits from the actions we have taken to bring productivity back into the airline and remain on track to deliver $200 million of targeted annual run rate cost savings by 2027. Operational reliability also continued to improve, supported by a system-wide maintenance strategy that is contributing to stronger completion factor and on-time performance. For the first half of the year, Frontier ranked fourth among domestic carriers in completion factor and delivered a controllable completion factor of 99.3%. As demonstrated by today's results, customer loyalty and revenue management are gaining momentum. In late June, we expanded and improved our Barclays co-brand credit card partnership. In addition, and please, we recently announced the fleet-wide rollout of Starlink high-speed Wi-Fi. We expect it to launch in early 2027. The introduction of Wi-Fi in conjunction with first-class seating significantly enhances our onboard experience and it reinforces our overarching commitment to delivering meaningful value to customers while maintaining industry-leading fares. In conclusion, we are focused on strengthening the fundamentals of our business and segmenting our revenue base to meet customer expectations. We have real momentum and I'm confident in the path ahead for Frontier. As noted in our guidance update, we anticipate returning the airline to profitability in the second half of the year. With that, I'll turn the call over to Bobby to walk through the commercial update.

Thanks, Jimmy. RASM came in at 11.52 cents, 28% higher year over year. The vast majority of the increase is a reflection of more disciplined revenue management alongside an improved overall supply-demand backdrop, which is further enhanced by CES exit from overlapping markets. These factors are allowing us to substantially mitigate higher fuel prices. Total revenue per passenger rose 20% to approximately $131 on flown load factor of 80.3%, up a point on capacity that was 8% higher. Loyalty continues to be one of our fastest-growing highest market and revenue streams, and the second quarter reinforced the strength of that platform. For example, the revenue contribution from the Barclays co-brand card increased nearly 30% year-over-year, supported by record co-brand card acquisition activity and continued double-digit growth in cardholder spend through the first half of the year, reflecting the customer's recognition of the value we are delivering in the program. Customer loyalty is increasingly tied to what we deliver on board as well. With our upcoming first class product and the Starlink rollout Jimmy mentioned, We will be delivering a meaningfully better in-flight experience, one that gives the customers who fly us today more reason to come back, and it puts Frontier in play for customers our fares alone haven't reached. That's what converts a one-time booking into a repeat customer and a repeat customer into a cardholder. As we layer in first-class Starlink Wi-Fi and additional loyalty enhancements, we are building a more durable, increasingly diversified revenue base while preserving the cost discipline that defines Frontier's model. Domestic capacity in the third quarter is scheduled to be flat year-over-year, while competitive capacity is down over four points. Our third quarter scheduled capacity is expected to increase 2% to 3% sequentially and 17% to 18% year-over-year as we continue to normalize productivity and seize the unique opportunity to back the lost capacity in the high-value carrier space. Fourth quarter growth, assuming execution of the deals that Jimmy mentioned previously, is expected to be approximately 7% year-over-year, more in line with our long-term growth targets. With that, I'll now turn it over the call to Mark.

Thanks, Bobby. Total adjusted operating expenses in the second quarter were $1.3 billion, or $0.1177 per ASM, including $436 million of fuel expense at an average cost of $4.17 per gallon approximately $180 million higher compared to forward indications from early February. Total adjusted operating expenses, including fuel and the early return agreement, were $870 million, or 7.42 cents per ASM stage adjusted, reflecting a sequential decline of over 10% on higher aircraft utilization. Second quarter adjusted net loss was $22 million, 10 cents per share, are significantly favorable to our expected guidance range of a 45 to 60 cent loss. The beat was driven by stronger than expected revenue performance and disciplined cost management. We ended the quarter with total liquidity of $1.16 billion, significantly above our guidance range, representing 27% of trailing 12-month adjusted revenue. The increase during the quarter was supported by stronger sales than expected, The signing bonus received in connection with the Barclays Amendment, which was slightly above expectations, and disciplined capital allocation. We ended the quarter with 165 Airbus aircraft, having taken delivery of two A320neos and four A321neos, and returning all 24 A320neos pursuant to the Early Return Agreement. During the third quarter, We expect to take delivery of one additional A320neo and five A321neos from our Airbus order book. As Jimmy mentioned, we are in advanced discussions to early terminate the leases associated with 13 A320neo aircraft and enter into direct leases for up to 10 newer and more cost-efficient A321neo aircraft. Assuming execution of these agreements, We would expect to operate a fleet of no greater than 168 Airbus aircraft by the end of the first quarter of 2027 and remain at that level through the end of 2027. We will provide an update should formal agreements be executed. Turning to guidance, third quarter adjusted diluted EPS is expected to range from a loss of 10 cents per share to a profit of 10 cents per share at an average fuel cost of $3.70 per gallon. Fourth quarter adjusted diluted EPS is expected to range from break-even to a profit of $0.20 per share at an average fuel cost of $3.45 per gallon, which would reflect the third consecutive quarter of earnings improvement. Operator, we're ready to open the line for questions.

We will now begin the question and answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Stand by while we compile the Q&A roster. Your first question comes from the line of Savi Sis with Raymond James. Please go ahead.

Hey, good morning, everyone. The kind of question that I had was on the capacity growth. I think Bobby mentioned that maybe this kind of 7% level in 4Q is kind of maybe the target level. I was wondering if you can talk a little bit about that. And it looks like you're continuing to favor maybe a higher gauge aircraft. Just any high-level thoughts on if you think about kind of medium-term growth and how you're thinking about the strategy there?

Yeah, hi Fabi, it's Jimmy. Look, we haven't changed what we said earlier this year. I mean, we talked about somewhere between 7% and 10% capacity growth on an annualized basis over the kind of medium term. We're obviously going through a significant fleet transition at the moment, so it's quite lumpy in terms of the capacity that we have to fly versus what we want to get to. And then you're also lapping quite an unproductive airline a year ago. And so if you look at capacity growth, in Q3, it's elevated compared to where we want it to be. We're taking advantage of an opportunity that we have to return 13 aircraft. And quite frankly, I really like the timing of it. We return 13 aircraft in the next couple of months if we execute this deal. And then we largely don't replace the fleet until after the winter. And so we'll take the fleet down from where it is as you cross through the winter and it does give us that plus an opportunity to retrofit the first class seats onto the aircraft through this winter. And so you'll see our capacity dip from a growth perspective down to like 6%, 7%, 8%. We haven't really settled on it. We're working on timing, but in that range in the fourth quarter, which is a nice change from where we are in Q3, which is an 18% to 10 capacity growth.

Yeah, and just to add on, I know you were talking about the gauge. I mean, look, the growth we're talking about is asset productivity, and then there is some gauge conversation in there. We like the A321neo. We think it's the best unit cost machine in domestic flying. So we're looking at how we switch those out with some of these deals that were brought up. You're talking about an up gauge of 29%. But the unit costs or the cost per departure are significantly less than that. So from a P&L perspective, we think that's a really great move for us.

That's a very helpful color. And if I just on the implications of the unit cost side, any kind of thoughts as we think about the next six to 12 months on unit costs and how that might progress?

Yeah, thanks, Avi. This is Mark. Yeah, so if you look at the unit cost, so we had good progression from Q1 to Q2, right? So we're still in the midst of the transition, but, you know, the completion or, you know, the substantial completion of the fleet rightsizing puts us in a good place. We're on track with our cost savings plan. So I think, you know, what you saw in Q2, which was a 12% sequential improvement, Slightly higher year over year because of some higher maintenance activity, some transition related items, and some incremental sales and marketing on higher revenue. As you fast forward into Q3 and Q4, what you're going to see as you look at Q3, continued progress where you're getting on our cost savings where you get a full quarter of the rent savings. You're going to see labor productivity come through. You're still in a bit of a transition on the ownership cost front, and we're still expecting some higher maintenance activity and certainly the incremental sales and marketing. And so when you put that together, you'll see progress on the plan but some headwinds that we're working to mitigate in addition to Q3 from a year-over-year basis, lower SLB gains. And as you fast-forward beyond Q3, what we're really targeting as a business, because as you look at 27 based upon our fleet plan, There's little to no sale-leaseback gains in there, and we're targeting profitability in 27. And so as part of that, from a unit cost perspective, getting our unit costs to trend when you adjust out the SLB to be trending favorable.

I mean, in summary, Savvy, we're seeing real improvement in productivity in the business. Take out the noise of sale-and-leaseback gains, and the airline's unit costs are actually improving. and so we're pretty happy with where we're going.

Appreciate the call. Thank you.

Your next question comes from the line of Atul Maheswari with UBS. Please go ahead. Atul, a reminder to please unmute yourself locally. We will move on to the next question from John Godden with Citigroup. John, your line is open. Please go ahead.

Hey, guys. Thank you for taking my question. I wanted to just follow up on the long-term ASM growth, Bobby's first question, and maybe you guys could just speak about the and the contours of that growth over multiple years in the space of what could be rising profitability. When you think about 7% versus 10% or even being above 10% at certain times, is that a margin trigger? Is that a return trigger? We may be in a period here where profitability is improving and I think people are just trying to get a handle on the interplay of your capacity growth decisions with respect to that.

Yeah. Hi, John. I mean, look, if you look across the medium term for the airline, I mean, we established earlier this year that we wanted to have a fleet of aircraft, around 170 aircraft, and to keep the fleet steady over a two-year period and give the airline an opportunity to mature into its fleet. The airline in 2019... at 95 aircraft at the end of 2019. And it grew quite meaningfully in the next kind of four to five years. And so giving the airline an opportunity to mature into itself and improve your operational performance is really foundational to actually running a good airline. And that's what we needed to do. So establishing a stable fleet over two years is very, very important to me. And so that discipline around fleet is something that we've invested a huge amount of time in getting right, and we think we're moving into the right place. You then take that fleet, and you know you have an order book that runs from 2028 through to 2033. And we're trying to shape that order book that drives growth in the airline after you get the airline back to productivity of somewhere with, I suppose, with flexibility of somewhere between 7% and 10%. I mean, if you push productivity hard, you can go above 10%. and so on. We've got to see if that makes any sense. I think I like the idea of growing the airline in the high single-digit level in order to create a more stable revenue backdrop for the airline and to give us the ability to mature the airline without actually having an operational stress in the airline. Will it be lumpy? Yeah, there's periods probably through the next five years where you may have slightly higher than 7% or 8% and there'll be maybe periods where it's down around 5% or 6% growth. But in that kind of high single digits is where I'd like to see the airline in the medium term from where it is today. But I look at it, I mean, the fundamental thing that we're doing at the moment rather than looking beyond 2028 is really getting the airline in a really strong condition and before that, Derek Ross to the fleet.

I think that's great. I think investors will appreciate kind of a thoughtful, disciplined message there. If I could just ask one more on Now that we have the benefit of hindsight, the sort of play-by-play in markets after the spirit wind down, I think I've heard you guys talk about 4% capacity, competitive capacity declines in your markets. That's a number that kind of implies, to no surprise, backfill maybe from other players. And maybe you could just kind of plug us into the competitive dynamic in the wake of it. Obviously, you guys are benefiting considerably and doing a great job. But what's the competitive situation like?

Look, I mean, this is the airline business in the United States. Like the field that we play on has four very dominant airlines that, you know, supply over 80% of the capacity or seats in the domestic market. And so it's extremely competitive. It continues to be competitive. What has happened is structural change on the back of two things, right? One is Spirit started restructuring the airline meaningfully in November last year. And so they cut their meaningful capacity. We also changed the way we were managing revenue. We moved to a much more disciplined revenue management strategy around the end of the fourth quarter and into the first quarter of this year. And so those two things drove, like if you look at our RASM numbers going into Q1, they drove and so on. And then obviously, on our last earnings call, we kind of laid out that we thought the removal or liquidation of Spirit would cause about a three to five point improvement in RASM. It's probably a little bit higher than that and that's allied to the ability to mitigate high oil prices. has come really from that structural change that's happened in the last couple of months. But look, back to your earlier question, it's still a very competitive marketplace.

Appreciate the thoughts.

Thank you.

Your next question comes from the line of Atul Maheswari. Yes. Atul, your line is open. Please go ahead.

Morning. Are you guys able to hear me? Yes. Yes.

Morning.

Okay. Awesome. Thank you. Sorry, don't know what happened there. So, first question, look, I mean, you'll be lacking some big RASM numbers next year and the growth plans are moderate. So, given, you know, the compares from this year, are you optimistic that you can drive positive RASM, CASMX spread, XDSLB gains next year? And if so, what would be the key drivers of that positive spread?

I mean, we're not guiding into next year at this point. But look, the airline is on a very, very good path. We've moved the airline back to talking about profitability towards the end of this year. And we have big investments going on into the onboard products and the operational performance of the airline. And so the introduction of Wi-Fi in early 2027, plus the rollout of our first class seats across this winter, I think adds a significant amount of improvement in product offering and diversification in revenue that we will get in the airline. I think that's very, very positive. And then we'll move into next year, obviously focused on unit costs. And so we're not forecasting next year, but the airline is certainly on the right trajectory to return to sustainable profitability. And that's what we're focused on today.

That's helpful. And, you know, as my follow-up, the average daily aircraft utilization is currently a little under 10 hours a day. Where do you see this metric over the medium term? And as you approach that medium term level versus, you know, where you are currently, is there a way to size the CASMX tailwind that this might provide?

Yeah. Our objective is to get the airline to around 11, 11.5 hours of utilization and you'll have periods in the year where it's higher than that and other periods of the year where it's lower depending on seasonality in the business. The airline today moving through Q3 I think has a utilization rate of just over 10 hours. We are behind in terms of moving the airline back to a higher utilization given the spike in oil prices. We've effectively trimmed about five or six points in available capacity across the summer months to mitigate or manage through a high oil price environment. And we'll continue to be diligent in terms of how we deploy our fleet. And so I think what we're building is flexibility with an objective to get the airlines to above 11 hours of utilization over the medium term. and that productivity obviously enables you to improve your unit cost output.

Thank you.

Your next question comes from the line of Scott Group with Wolf Research. Scott, your line is open. Please go ahead.

Hey, thanks. Good morning. If I look back at Q2, you guys were talking about a 20% plus RASM and it ended up up 28%. I guess this quarter you're saying 20% plus again. Any more directional color on where you think we could end up? Maybe thinking about it this way, the last couple of years, RASMs picked up a little bit on an absolute basis, Q2 to Q3. Is that something that is achievable again? Any more near-term RASM colors?

Look, there's a couple of things happening. We grew the airline at a slower pace in Q2, which contributes obviously to RASM, and then we're growing in Q3. We think the airline has structurally changed its revenue platform, which enables you to get to the RASM levels that we're at today. But we do have growth coming in Q3. that's lapping a very unproductive airline last year. So sequentially the growth level is not that dissimilar to what we should be doing seasonally as you're rolling into this portion of the year. But we think a reasonable RASM output given the 18% growth in ASMs year over year is just over 20%. And that's what we're seeing.

Makes sense. And then I just want to make sure I'm understanding your point about next year. So, lapping the sale leaseback, I don't know, what's that, like a four or five point sort of chasm headwind? Is the point you're trying to make that you think, like, core chasm could be down year over year, and so, like, the reported chasm's up, but it's not up the, you know, full four to five points of what, you know, the sale leaseback headwind is? Is that what you're trying to say?

Yeah, Scott, I think as you look, you know, it's – you know, call it 25, right? I mean, you had 300 million in sale leaseback gains, and so, you know, that, you know, on the ASM base was probably 0.7, you know, or 0.8, right, which would have put 25 close to, you know, 8 cents, you know, on a stage-adjusted basis. And so, as we look, you know, into 27, you know, what we are, you know, expecting is that our costs are trending, you know, to be able to be, you know, roughly flat, right, excluding, you know, excluding that impact.

Look, it's dependent on growth, right, and inflation that you see across the airport world and other parts of the business. But, yeah, I mean, I think a CASMX fuel number to work off of somewhere in the mid-7s makes a lot of sense to me in the medium term. We're obviously challenging the business to get it lower than that, but I think that's a reasonable CASMX fuel number to work off.

I'm just confused. You're saying 25x gains, you were 8+, but you're thinking you can get that down to mid-7s.

Yes, I think when you adjust for the sale-leaseback gains, like-for-like, you were pushing 8 cents and 25, and to Jimmy's point, as you look at 27, a reasonable target is mid-7s.

and look, it'll be plus or minus something in the mid-sevenths. I mean, we haven't done our budget yet for next year. We need to look across the inflation that exists in the industry and in the model. It could be slightly higher than that, slightly better than that. We'll just have to see. Thank you. Okay.

Your next question comes from the line of Ravi Shankar with Morgan Stanley. Please go ahead.

Great, thanks, Monica. Just on the current environment out there, do you feel like there's still room for the consumer to accept more jet fuel price boxes at industry level without seeing demand destruction? What do you think is the current sense on elasticity?

Hi, Ravi. I mean, I don't have a crystal ball, so it's difficult for us to predict what's going to happen in the future. I think there's been structural change in our revenue base, which I think is really positive for the airline. What we're seeing in the booking engine at the moment is 20% plus RASM improvement into Q3. We slightly slower growth in Q4 than that. But the year-over-year comps get a little bit harder. So we think we've put a really good structural change into the business with more disciplined revenue management. and obviously the actual change in structure of the competitive capacity that's happening is a big positive for Frontier and we're benefiting from that and that's enabling us to mitigate high oil at the moment or largely mitigate high oil. We obviously want to get the airline back to profitability and overcome higher oil and the volatility in price in oil is really difficult to predict as is the consumer's willingness to continue are paying it. So we just don't have a crystal ball behind us.

Yeah, and then this is Bobby. I'll just add, look, the demand environment, we talked about a good demand supply backdrop. The demand environment is strong. The fair environment is constructive. And then, you know, the demand environment isn't just strong for a fair, but for our increasingly diverse revenue base in terms of, you know, ancillary, et cetera. So there's a lot of – a lot of – Good things that we see in the environment overall that's constructive for what you were discussing.

Understood. That makes sense. And maybe as a quick follow-up, if you can give us a little more detail around the new credit card agreement and specifically around sharing any color on the thinking behind the duration of the agreement here. Kind of it's great that it's a long-term agreement, but at the same time, just given changing dynamics of loyalty out there, do you guys consider doing maybe a shorter agreement and getting more by Seattle? Thank you.

Yeah, I mean, I'll sit there and say, I mean, Barclays is an incredible partner for us. Frankly, you've seen the results in some of the things that we've transformed over the past year or two, and there's a lot more to come in terms of capability to continue making our loyalty program the best loyalty program out there. that people want to engage with both on an acquisition side and a spend side. Our thought process on the length, frankly, again, we've got a partner that actually is leaning into this with us and getting us to a place where we think we can grow the overall loyalty pie by a fairly significant amount over the next few years. So we got what we wanted out of the The deal. And again, we think that partnering with Barclays is the best move we can make for the next decade. Very good. Thank you.

Your next question comes from the line of Michael Linenberg with Deutsche Bank. Please go ahead.

Oh, hey. Hey, good morning, everyone. Just maybe to follow up on the Barclays deal, the pre-purchase mileage facility I saw that you were able to sell $175 million this quarter. How much capacity is left on that facility before you hit the cap?

So the facility in the new agreement has a max amount of $375 million. Right, where we sat at the end of the quarter was roughly 120 million. So you have plenty of runway, right, as we progress through the term of the agreement.

Okay, great. Thanks, Mark. And then just maybe actually another question for you. Just on the sale leaseback gains, it looked like the receipts per aircraft were down about 30%. Is that sort of two things? Is that the right run rate to use for the third quarter? and is that discount, that's not a function of some sort of decline in asset values, right? That's probably more likely a function of just how the lease was structured. Thanks for taking my question.

Yeah, so I appreciate the question. So yeah, I think what you're seeing is a function of the two things. So one, the mix, right? So we had two 320s and four 321s. and then keep in mind from prior expectations, one tail did slip into the third quarter.

Okay, thanks.

Your next question comes from the line of Jamie Baker with J.T. Morgan Securities, LLC. Jamie, your line is open. Please go ahead.

Thanks, Operator, and good morning, everybody. So, look, the industry seems to achieve – it seems to have achieved new levels of pricing power. Frontier is obviously part of that. I assume you agree with the characterization. And, you know, I suppose a good fuel crisis brings out the best in, you know, everybody's pricing department and all that good stuff. My question, though, is what have your lessons learned – in at Frontier that you think are unique to your passenger demographics? So is it a subset of travelers that are comfortable paying higher fares? Is it a broad-based rising tide? Are you seeing travelers modify their booking behavior at all? I mean, look, obviously the goal is to assess the permanence of this, so understanding those building blocks and the nuances would be helpful.

Yeah, I mean, I think, Jamie, it's quite simply, you know, running a better airline operationally drives attachment from customers into the value that we provide from a pricing perspective to the customer base. I mean, we are certainly running a better operation this year. That's a meaningful change. for the business where our completion factor has risen quite considerably. I think we were fourth ranked in the industry across the first six months of the year. I mean, that's not unnoticed by our customer base. I think some of our tools that we're using from a pure revenue management perspective improves the output that we get and the discipline that we're able to provide in terms of the fares we're offering in the system. and just managing that. And look, a big portion of the improvement that we saw in Q1 is really twofold. One was revenue management, that you saw much more discipline around the deployment of bundles and bundle pricing and the ability to do that through NBC and into the LTAs. And I think that has been helpful to the business, but also pricing bundles in a more competitive fashion and creating attractiveness for the customer into our business has been beneficial to Frontier. And then you have structural change, right? And so you've had meaningful structural change across the industry and that enables you to manage a higher oil price environment. So it's a lot of different things that are going on, but certainly a large part of it is our own discipline around revenue management.

Okay, perfect. And then just a quick follow-up, and I'll ask, I'll rephrase Mike's question, but a little bit more bluntly. Given a similar number of deliveries in the third quarter, is $47 million for sale impact gains a reasonable number to pencil into our models?

Yeah, I mean, I think, yeah, somewhere in that neighborhood of, yeah, I'd call it 50 to 60. Okay, perfect.

All right, thank you very much. Your next question comes from the line of Brandon Oglemski with Barclays. Brandon, please go ahead.

Hey, good morning. Thanks for taking the question. Jimmy, I guess as you look into 27, I think you said you do expect the airline to be profitable. And I understand that you want to keep the fleet flat. But is there inherent utilization capacity increases that we should be expecting next year? Is that high single-digit growth rate the right one to pencil in?

Look, we haven't defined our plan for next year. I mean, we have the flexibility to grow the airline by heights like single digit if the market gives us the opportunity to. Like, it really depends on what happens with ongoing oil prices. As it stands at the moment, we would anticipate growing by somewhere between 5% and 8% next year. But, you know, we've got to go through a planning cycle and understand what we get to. We have the ability to obviously lower the productivity in the airline, but that'll raise costs. And is that the right overall answer for the airline? We'd prefer to get the airline back into a productive state. And we're probably about five or six points behind in terms of capacity from where we'd like to be because of the oil price crisis. And so you should see some growth into next year. in the high single digits. And we'll work from there. And, look, the lower the growth, the higher the unit cost, the higher the unit revenues we have to achieve to overcome it. It's not complicated. And we understand those metrics. We just have to see what we feel about the environment as we're rolling into 2027. We feel pretty good at the moment.

Okay. And, I mean, you guys have talked about first class for a while now. Starlink, I think, is a big announcement. How do you view these initiatives and new products really rolling in to result?

How they're rolling in from a timeline perspective?

Yeah, and the potential revenue and margin upside from them.

Yeah, so from a first-class perspective, we are looking at what we've discussed before, sort of starting in a fourth quarter rollout going into the early part of next year. on the Starlink portion we anticipate starting in early 2027, and that rollout will continue through. We're hopeful that would complete summer, but you could see that moving through the year a little bit longer as well. As it pertains to revenue, look, we talked about this before. I mean, first class was born in large part by our – our view on Upfront Plus and the value that that brought. The paid load factor on that is now up over 80% which is in line generally with what you see across the industry with other airlines premium products. So we're showcasing that frankly that segmentation and that desire for that product from our customer base and frankly maybe even capturing folks that wouldn't have looked at us before without that is high. And so as we progress into the first class, we're not necessarily given a guide as to what we think that's worth, but we're going into it thinking that it's accretive beyond the premium products we have today.

Thank you for that.

Our next question comes from the line of Daniel McKenzie with Seaport Global. Daniel, please go ahead.

Oh, hey. Good morning. Thanks. You know, one house cleaning question here and then just a broader question. I guess for Mark, I'm curious how much cash you expect the additional lease returns to unlock and if it's included in the CapEx portion of the release today. And then if you could just remind me, would that filter through the cash flow from operations? And I'm just trying to get at the cash that could be produced by the business this year.

Yeah, no, absolutely. So, yeah, so as you're looking at the CapEx, so our CapEx guide, you know, from what we put forward last time, right, has not changed. When you think about, you know, the transactions that we've executed, you know, the savings, the maintenance savings that we expect, and we do expect hundreds of millions of dollars of savings as you look, you know, over the coming years, that is going to flow through operating, you know, expenses. You know, but, you know, as you look at, you know, the balance of this year, you know, given those returns, just occurred. What we had in our CapEx plan really would have incorporated any sort of CapEx that was anticipated. So I think the right way to look at this is to go forward. You're getting a material ownership cost benefit by the early return of these aircraft.

Yeah. And then, Jimmy, is it too early to talk about a return on invested capital in the median term that exceeds the cost of capital? So just going back to an earlier question on the link between growth and profitability and what the North Star is that's behind how you're managing the company, because there's been a number of structural changes, of course, and it seems like these structural changes better position frontier.

Yeah, Dan has gone. I agree with you. Look, What we're doing in the airline is focusing initially on the fundamentals, right? Cost, good revenue management, putting the right fleet size in place, establishing the network to support the fleet that we have, and driving a better balance sheet and liquidity into the airline. We're very disciplined about those items and getting the airline on the right path from that perspective. We've got to adapt to the field that we play on. It's changed post-COVID. You know, you have significant loyalty cash flows coming directly off credit card programs that fund a large portion of basic economy in the domestic airline business. And it's something that we're quite immature in. And so we've looked at the business in the context of our loyalty program and the immaturity of our loyalty program. in comparison to the rest of the industry. And we think there's a huge opportunity for Frontier to move the dial on loyalty. But you've got to run a good operation in order to do that. You've got to invest in the operation and improve the performance of the business and enhance your product. And so we're doing all of those things. And Bobby mentioned like Wi-Fi, first class seats. We're looking at more segmentation around premium seats in the cabin. We'll talk to you guys later on in the year probably about that. but certainly it's with the purpose of bringing the airline back to sustainable profitability and that's the real focus of the airline. We're not giving long-term targets yet in the business. What we're managing at the moment is bringing the airline back to those core fundamentals I mentioned and that needs to happen in order to have a strong platform and foundation to grow the airline and have discussions around growth versus return on invested capital. But certainly that's the objective in the airline is to get the airline back to really generating operating cash flows and cash flow production in the airline over the long term. And so that's where we are. We've made real progress this year on doing a lot of that, but we've still got a long way to go. We're probably about a year out from having an operation that we are really comfortable with. We've made real progress, but we've still got a lot of work to do. We've got to establish the premium products into the airline and allow those to season into the airline and get the customer base aware of those new products that we have and excited about them. but certainly we're very excited about the path around.

Yeah, thank you for that. If I could just squeeze one final one in here, you know, just given that reference to premium products and getting those up to maturity, I'm just wondering if you can share, you know, that revenue uplift, like what percent of revenues are laid today and what would you expect that premium revenue bucket to look like as a percent of total once they're up to maturity?

I mean, we don't have Wi-Fi first class seats on board the aircraft at the moment. So, you know, we don't have any revenue linked to them at the moment. So, you know, we'll come back to you in time when we launch these to give you a sense of the revenue uplift that comes into Frontier on the back of them. But you can see structural change in the... You're thinking the existing... We don't disclose that.

Yeah, it's economy plus very soon.

Yeah.

Upfront Plus. I mean, we talked about – I just – I stated what our paid load factor is on that above 80%, which is effectively in line with what other carriers – legacy carriers get in their premium products, which, frankly, showcases the want from our customer base for premium products. That gives us the confidence to go into, for example, First Class and, frankly – what Jimmy was saying that we're reviewing additional premium seating and those are things that again we'll provide more information in the coming months on but it gives us the confidence to go and look at that. We believe there's a lot of opportunity there not only on the revenue side but frankly it helps provide the products and services that different segments are looking for and frankly with some of these things like premium seating, Wi-Fi, etc., certain customer segments that our price alone wasn't able to compete for. So there is opportunity to go capture customers that we haven't been able to be in the consideration set for before with this as well.

Thanks so much for the time, you guys.

Our next question comes from the line of Duane Fenningworth with Evercore ISI. Duane, please go ahead.

Hey, thanks, Jimmy and team. Just on the fleet, can you confirm that the fleet is basically fixed now through a year-end 2027, or are there A321 lease deals that could bring you back to the table if the economics were attractive enough?

There's always an openness within Frontier to look at and Lee Steeles, if the economics make sense. Yes. But from what we see on the horizon, we think we are nearing the conclusion of some of the fleet opportunities that come. Maybe some stuff that we'll be able to tinker with, but I think we're largely getting to the point where we like the fleet that we have. We like the transition from the 320neo into the 321neo. It gives us flexibility around, particularly around the interior cabin of the aircraft and also obviously the operating cost benefit that the aircraft provides to Frontier. And so we like that mix. If more opportunities arise, we'll look at them. But as you said, Dwayne, the economics have to make sense.

Okay, thanks. Second question, and apologies if we're geeking out on this one a little, but just curious how you define competitive capacity and specifically the set of routes. Is it essentially capacity on routes that you've served for over a year, or does it consider newer routes that you've served for less than a year?

Both. Yeah, both. Okay.

It considers... And maybe just remind us what that...

Think of it as a snapshot, so we're looking at what the network is comparatively to, you know, what our competitors within those routes, within the markets specifically, and then taking that snapshot versus previous year, if we're looking at it year over year. Does that answer your question?

If you have... It does. If you have it, what is the... Mix of new routes less than a year. How has that been changing and trending over time?

Yeah, I mean, as we pulled the airline down from a fleet perspective, we've added a little bit of frequency into the airline, like a modest amount of frequency into the airline. And so I think the immature markets are considerably below what they would have been historically. So historically, we may have been running somewhere between 25% and 35%. and the rest of them. We're in the low teens immaturity at the moment. Okay, great.

Thank you. Thanks.

Your next question comes from the line of Chris Statuopoulos from Susquehanna International Group. Chris, please go ahead.

Hi. Good morning, everyone. The comment that there's been a structural change in the revenue platform for the airline, I appreciate that. Obviously, a lot going on here with segmentation, loyalty, premium products. But there's also, obviously, as you know, been a structural change here in costs as you think about the U.S. certainly here. And so, as we think about The flow through here, and this is obviously not a 26, perhaps 20, back half of 27, 28 event. Is it fair that as these initiatives mature, we should think that on a per-flight segment basis or a hub basis that you're going to be in a position where these changes are ultimately heroic accretive across the system, meaning not in markets where perhaps there are fewer competitors in different economics, more so in markets where there are larger airlines with considerably different hub or point economics?

I think it will be a mix of markets, but certainly the objective is to invest in loyalty and premium products. To invest in loyalty and premium products, that actually improves the revenue output of the airline. I mean, one of the key principles that we're operating the airline under is actually improving loyalty with the objective of creating a more stable revenue base for the airline. And so product technication, we've seen other airlines obviously do this very successfully here and premiumization of their product. I mean, that's certainly something that we've learned from other airlines, and we think that that will be agreed at the frontier.

I guess I'll ask it a different way. So, if I were to look at your top 25 or top 50 routes and rank order those based on your stage length adjusted trials, the top quartile, let's say, obviously, margins are going to look better because of these regular initiatives here, but as we move lower, should we expect a meaningful change in the margin profile given the, I guess, the cost convergence, cost harmonization, however you want to describe that dynamic as all of these initiatives start to really materialize in 27 and beyond. Thank you.

Well, Chris, we still have a meaningful cost advantage over the industry given the way we operate the airline and the focus on cost discipline within the airlines. and so what we're really, if you look at it, what we're providing is incremental value to the customers at really low fares. We think that's going to be accretive irrespective of whether it's on the top 50 or the bottom 50 routes in our network and we think the product resonates with the customer base and the product changes. You just have to look at upfront plus. We launched this over two years ago where we blocked the middle seat and the front two rows of the aircraft and it has significantly increased the revenue for the real estate that exists at that part of the aircraft. And Bobby has given you an insight into the load factors that we're achieving but those are driving a significant increase in the revenue for that portion of the aircraft. And so it encourages us to do more of that. And it's not necessarily focused on specific routes. It's typically network-wide.

Okay, and there's a quick follow-up here as we do our own math or bottoms-up build on FY27 capacity. Any color you can give on how we should think about the net active fleet for next year and then the, I guess, if we decompose that stage gauge and the partners. Thank you.

Yeah, we'll have to come back to you on that. There's a lot of work going on in the background around modifying the existing fleet and aircraft coming out of service, particularly across the first quarter and the back end of this year. So, look, we'll have to come back to you on what the inactive fleet would look like going into next year.

Okay.

Thank you. But it shouldn't be that dissimilar to this year with a few lines of flying stripped out in order to facilitate the modification of the cabins.

We have reached the end of the Q&A session. I will now turn the call back to Jimmy Dempsey for brief closing remarks.

Thanks, guys, for attending the call. As you can see, we're pretty happy with the direction that we're going in in the business. We still have work to do to complete some of the things that we laid out earlier in the year. We're really excited about the product updates that we're bringing to the airline, particularly the introduction of high-speed Wi-Fi. We think that's a big product change for the airline and very complementary to the addition of first-class seats. And so we're very focused on providing a very low value to our customer set. If you guys have any further questions, please do reach out to either me or the team. We'd be delighted to clarify any issues that you have. and I appreciate your support. Thanks very much, guys.

This concludes today's call. Thank you for attending. You may now disconnect.