Frontier Group Holdings, Inc. quarterly report, Q1 FY2024

Frontier Group Holdings, Inc. — Q1 2024 Form 10-Q

Reporting period: Three months ended March 31, 2024; unaudited. Frontier is a Denver-based ultra-low-cost airline serving about 90 airports in the U.S. and the Americas.

Financial and operating performance

Metric	Q1 2024	Q1 2023
Operating revenue	$865 million	$848 million
Operating income (loss)	$(31) million	$(25) million
Net income (loss)	$(26) million	$(13) million
Basic and diluted loss per share	$(0.12)	$(0.06)
Cash used in operating activities	$22 million	$25 million
Cash and cash equivalents at quarter-end	$622 million	$609 million at Dec. 31, 2023

Operating margin was approximately negative 3.6% and net margin approximately negative 3.0%. Total operating expenses rose 3% to $896 million. GAAP cost per available seat mile (CASM) declined 5% to 9.49 cents, while non-GAAP CASM excluding fuel increased 1% to 6.71 cents.

At March 31, 2024, total debt, net, was $466 million ($265 million current and $201 million long-term); debt-to-capital was 49%, or 88% including operating lease obligations. Current assets were $903 million and current liabilities $1.797 billion. The company reported $4.059 billion of undiscounted operating lease obligations and $12.104 billion of aircraft and engine purchase commitments.

Changes versus Q1 2023

• Revenue increased 2%, while capacity (ASMs) grew 8%. RASM fell 5% to 9.16 cents; load factor declined to 72.7% from 82.8%, and passengers rose 3%.
• Net loss widened to $26 million from $13 million. Fuel expense fell 10% to $263 million, largely on a 15% reduction in fuel price per gallon; salaries, wages and benefits rose 15%, and aircraft rent rose 21%.
• Other operating results improved from a $27 million expense to a $1 million net gain, mainly because sale-leaseback gains increased to $71 million from $40 million. These gains are noncash adjustments in operating cash flow.
• Operating cash use improved to $22 million from $25 million. Financing provided $42 million; cash increased $13 million during the quarter.

Outlook, commentary and risks

• The filing provides no specific earnings or operating guidance. Management expects to meet cash needs over the next 12 months using cash, operating cash flows and the pre-delivery payment facility; longer-term needs may also require financing activities.
• Management attributed weaker unit revenue primarily to lower load factor amid a network transition toward high-fare, underserved markets. It cited larger fleet size, higher staffing and station costs, and shorter stage length as cost pressures.
• Airbus delivery delays have occurred and may continue. The company had firm commitments for 204 aircraft and 15 engines, with deliveries scheduled through 2029. Funding and lease arrangements for future deliveries remain important.
• Fuel and interest-rate exposures remain material: a hypothetical 10% fuel-price increase would add about $110 million to annual fuel expense based on the prior 12 months; a 100-basis-point increase in variable borrowing rates would add about $4 million annually. No interest-rate hedges were outstanding at quarter-end.
• About 87% of employees were represented by unions. Pilot mediation and flight-attendant negotiations were ongoing; negotiations for several other groups were also underway. The DOT is investigating customer care during Winter Storm Elliott; the company says it is cooperating and does not expect pending matters to materially affect its financial position, liquidity or results.
• In April 2024, an Indigo-affiliated fund distributed its shares to members. Frontier ceased to be a Nasdaq “controlled company” and is in transition to applicable independent-board and committee requirements. The filing identifies possible loss of sponsor-related expertise and potential share sales as risks.
• A $42 million valuation allowance was recorded against U.S. federal and state net operating loss deferred tax assets; $5 million was added in Q1. The filing says this noncash charge did not affect cash taxes.

Important facts for investors to verify

• Whether load factor and RASM stabilize as Frontier’s network strategy develops, and whether revenue growth can outpace expense growth.
• Whether aircraft delivery schedules, aircraft financing and lease commitments remain manageable; specifically, the scale of the $12.104 billion purchase commitments and $4.059 billion lease obligations.
• Whether sale-leaseback gains continue to materially affect reported operating results and how underlying profitability performs without them.
• Developments in labor negotiations, the DOT’s Winter Storm Elliott investigation, and the company’s transition from controlled-company governance status.
• Liquidity, debt maturities and covenant compliance. The company reported compliance at March 31, 2024; $204 million of debt principal was scheduled for the remainder of 2024.