Frontier Group Holdings, Inc. — FY2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022; comparisons are with FY2021 unless noted. Frontier operates an ultra-low-cost airline serving approximately 100 airports in the United States and the Americas.
Financial and operating results
| Metric | FY2022 | FY2021 |
|---|---|---|
| Operating revenue | $3.326 billion | $2.060 billion |
| Operating income (loss) | $(45) million | $(117) million |
| Net income (loss) | $(37) million | $(102) million |
| Operating cash flow | $(78) million | $216 million |
| Cash and cash equivalents at year-end | $761 million | $918 million |
| Total debt, net | $429 million | Not stated here as a comparable net figure |
- Passenger revenue increased 62% to $3.248 billion; other revenue rose 30% to $78 million. Revenue growth reflected stronger leisure demand and pricing, higher load factor and 18% more capacity.
- Load factor rose to 80.9% from 75.9%; revenue per available seat mile (RASM) increased 37% to 10.48 cents. Total revenue per passenger grew 31% to $130.50, including ancillary revenue of $76.28 per passenger.
- Operating expenses increased 55% to $3.371 billion. Fuel expense more than doubled to $1.160 billion, as fuel price per gallon rose 71% to $3.72 and consumption increased 18%. Fuel was 34% of operating costs versus 26% in FY2021.
- CASM increased 31% to 10.62 cents; CASM excluding fuel rose 17% to 6.96 cents. Management’s non-GAAP adjusted CASM excluding fuel decreased 2% to 6.90 cents; these adjusted measures exclude specified items and are not GAAP measures.
- Cash declined by $157 million. Investing activities used $154 million, mainly for aircraft pre-delivery deposits and capital expenditures; financing activities provided $75 million.
- Year-end total assets were $4.499 billion and stockholders’ equity was $509 million. Operating lease liabilities totaled $2.499 billion, separate from reported debt. Total debt was $431 million before $2 million of debt discounts and acquisition costs.
Changes, unusual items and capital structure
- Net loss improved to $37 million from $102 million. FY2021 included $295 million of CARES Act-related credits, which did not recur in FY2022; FY2022 results included $10 million of net merger-related costs, $7 million of software impairment and $2 million of collective-bargaining ratification costs.
- Frontier repaid its $150 million Treasury Loan in February 2022 and recorded a $7 million non-cash write-off of remaining deferred financing costs. Remaining debt included the pre-delivery deposit facility, the affinity-card mileage facility, payroll-support notes and a building note.
- Operating cash flow shifted from a $216 million inflow to a $78 million outflow. Management cited working-capital and maintenance-related outflows, partly offset by higher air traffic and other liabilities; FY2021 cash flow benefited from timing-related working-capital inflows.
- All 120 aircraft at year-end were under operating leases. The company had commitments to purchase 221 Airbus A320neo-family aircraft and 19 spare engines through 2029, with purchase obligations estimated at $13.065 billion. Frontier disclosed aircraft delivery delays that could persist.
Outlook, risks and contingencies
- The filing provides no formal quantitative earnings or revenue guidance. Management expected air-travel demand recovery to continue, while emphasizing uncertainty around demand, costs and the broader economic environment.
- Frontier planned additional fleet and network growth, including 10 directly leased A321neo aircraft scheduled for 2023 deliveries. It also planned to discontinue service at Providence, Albuquerque and Reno during 2023 and had exited Newark and Dulles in 2022.
- Key risks include fuel-price volatility, intense fare competition, inflation, pilot and other labor availability and costs, operational disruption, maintenance expense, aircraft delivery delays, reliance on Airbus and engine suppliers, and substantial lease and aircraft-purchase obligations. Approximately 87% of employees were union-represented; negotiations with dispatcher and material-specialist groups remained ongoing.
- A hypothetical 10% increase in average fuel prices would have increased annual fuel expense by approximately $116 million, based on recent consumption. Frontier had no fuel cash-flow hedges for future consumption at year-end.
- Frontier and Spirit mutually terminated their proposed merger in July 2022. Frontier recorded $10 million in net related costs after a $25 million reimbursement. The filing says Frontier may be owed an additional $69 million if Spirit completes or agrees to an acquisition with another acquirer within the specified 12-month period.
- A November 2022 DOT settlement on pandemic-era refunds required refunds or other customer remedies and a $1 million net cash penalty; the incremental effect beyond prior reserves was not material. The filing also notes ongoing legal matters, including employee gender-discrimination claims, but says the ultimate outcome of disclosed proceedings is not expected to materially affect the company.
- Auditors issued unqualified opinions on the financial statements and internal control over financial reporting; management also concluded controls were effective as of year-end.
Important facts for investors to verify
- Whether operating cash flow turns positive and liquidity remains adequate as aircraft deposits, maintenance needs and other obligations rise.
- How fuel prices, fares, load factor and non-fare revenue affect margins, particularly without fuel hedges.
- Aircraft delivery timing, financing for the order book, and the eventual cash and operating burden of purchase commitments and leases.
- Progress on staffing, labor negotiations, maintenance costs and operational reliability.
- Whether the conditions for the potential $69 million Spirit-related payment are met, and the status and potential cost of legal and regulatory matters.
- The assumptions supporting realization of deferred tax assets, which management assessed using projected future taxable income despite a cumulative three-year loss position.