Frontier Group Holdings, Inc. — FY2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023; comparisons are with FY2022. Frontier is a Denver-based ultra-low-cost airline serving the United States and select destinations in the Americas.
Financial and operating performance
| Metric | FY2023 | FY2022 |
|---|---|---|
| Operating revenue | $3.589 billion | $3.326 billion |
| Operating expenses | $3.592 billion | $3.371 billion |
| Operating income (loss) | ($3 million) | ($45 million) |
| Income (loss) before taxes | $32 million | ($45 million) |
| Net income (loss) | ($11 million) | ($37 million) |
| Operating cash flow | ($261 million) | ($78 million) |
| Cash and cash equivalents at year-end | $609 million | $761 million |
- Revenue rose 8%, while operating expenses rose 7%. Operating margin was approximately negative 0.1%; net margin was approximately negative 0.3%.
- Capacity, measured by available seat miles, increased 19%; passengers increased 19% to 30.2 million, and load factor improved 0.5 percentage points to 81.4%.
- Revenue per available seat mile fell 9% to 9.49 cents, and revenue per passenger fell 9% to $118.77. Fare revenue per passenger declined 22% to $42.26, while ancillary revenue per passenger was nearly flat at $76.51.
- CASM fell 11% to 9.50 cents; CASM excluding fuel fell 6% to 6.51 cents. Adjusted net income, a non-GAAP measure, was $28 million versus an adjusted net loss of $17 million.
- FY2023 net loss included $43 million of income tax expense, primarily reflecting a $37 million valuation allowance against U.S. federal and state net operating loss deferred tax assets. The allowance was non-cash.
Liquidity, debt and commitments
- Year-end cash was $609 million; the filing describes this as total available liquidity. Net debt was $470 million, comprising $474 million of debt less $4 million of debt acquisition costs and discounts. Debt-to-capital was 48%, or 87% including operating lease obligations.
- Operating cash outflow increased to $261 million, driven in part by working-capital movements, maintenance-related assets and a $60 million reduction in air traffic liability. Cash declined $152 million during the year.
- All 136 aircraft were under operating leases. Recorded lease liabilities were $2.989 billion; undiscounted future operating lease payments were $3.832 billion. Aircraft rent expense was $554 million.
- Firm commitments included 210 Airbus A320neo-family aircraft and 15 spare engines through 2029, with disclosed flight-equipment purchase obligations totaling $12.456 billion. Four aircraft scheduled for 2024 delivery had committed operating leases; 12 had non-binding letters of intent, and financing for remaining aircraft was still being evaluated.
Changes, outlook and material risks
- Higher capacity and passenger volume supported revenue growth, but lower fares reduced unit revenue. Fuel expense decreased 3% as the average fuel price per gallon fell 17%, largely offset by a 17% increase in fuel consumption. Frontier had no fuel cash-flow hedges at year-end.
- Reported aircraft rent was broadly flat, including a $53 million benefit from extending leases on six aircraft and five engines and reversing previously accrued variable return costs. Sale-leaseback gains were $147 million, compared with $87 million in FY2022; these gains are non-cash operating adjustments when recognized.
- Management said it expects to fund the next 12 months with cash, operating cash flows and its pre-delivery deposit facility. It gave no specific FY2024 earnings or revenue guidance in the provided filing text. Growth plans depend on aircraft deliveries, financing, network execution and maintaining a low-cost structure.
- Pratt & Whitney GTF engine inspections are expected to begin in the second half of 2024; higher-than-normal engine maintenance is anticipated. The operational and delivery effects remain uncertain. Airbus delivery delays had occurred and could persist.
- Labor is a material exposure: approximately 86% of employees were union-represented. Pilot contract negotiations were proceeding through mediation, and flight-attendant negotiations were ongoing.
- The DOT requested information in December 2023 about Frontier’s customer care, notifications and refunds during Winter Storm Elliott disruptions. Frontier said it was cooperating; the filing does not quantify a potential outcome.
- Other significant risks include intense fare competition, fuel-price volatility, operating disruptions and weather, maintenance costs, substantial lease and aircraft commitments, staffing and labor costs, and evolving consumer-protection and climate regulation. The Spirit merger was terminated in July 2022; FY2023 merger-related costs were $1 million.
Important facts for investors to verify
- Whether fare and unit-revenue pressure persists, and whether capacity growth translates into sustainable profitability and positive operating cash flow.
- The timing, scale and operational impact of GTF inspections, engine maintenance needs and aircraft delivery delays.
- How Frontier will finance aircraft and engine commitments, and its ability to maintain liquidity and meet lease, debt and pre-delivery deposit requirements.
- Progress and potential cost effects of pilot, flight-attendant and other union negotiations, as well as the outcome of the DOT review of Winter Storm Elliott.
- The assumptions behind the $37 million tax valuation allowance and the sustainability of sale-leaseback gains and lease-return-cost estimates. The auditor issued an unqualified opinion; leased aircraft return costs were identified as a critical audit matter.