Frontier Group Holdings, Inc.: Form 10-Q for the period ended Mar 31, 2024

General

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and the related notes included elsewhere in this Quarterly Report on Form 10-Q, as well as Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Part II, Item 8. “Financial Statements and Supplementary Data” included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023, which was filed with the SEC on February 20, 2024 (the “2023 Annual Report”). This discussion contains forward-looking statements based upon current plans, expectations and beliefs involving risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth in the “Risk Factors” section of our 2023 Annual Report and other factors set forth in other parts of this Quarterly Report on Form 10-Q and our other reports and documents filed with the SEC from time to time.

Overview

Frontier Airlines, Inc. (“Frontier”) is an ultra low-cost carrier whose business strategy is focused on Low Fares Done Right. We are headquartered in Denver, Colorado and offer flights throughout the United States and to select international destinations in the Americas. Our unique strategy is underpinned by our low-cost structure and superior low-fare brand.

The following table provides select financial and operational information for the three months ended March 31, 2024 and 2023, respectively (in millions):

Total operating revenues for the three months ended March 31, 2024 totaled $865 million, an increase of 2% compared to the three months ended March 31, 2023. This was primarily due to an 8% increase in capacity, as measured by ASMs, partially offset by a 5% decrease in revenue per available seat mile (“RASM”), which was driven primarily by a decrease in load factor.

Total operating expenses during the three months ended March 31, 2024 totaled $896 million, resulting in a cost per available seat mile (“CASM”) of 9.49¢, compared to 9.95¢ for the three months ended March 31, 2023. Fuel expense decreased by $29 million, or 10%, during the three months ended March 31, 2024, as compared to the three months ended March 31, 2023, primarily driven by a 15% reduction in fuel prices, partially offset by a 6% increase in fuel gallons consumed as a result of our 8% capacity increase. Our non-fuel expenses increased by 9% during the three months ended March 31, 2024, as compared to the corresponding prior year period, driven primarily by higher capacity and a larger fleet size and the resulting increase in operations during the same period, partially offset by increased sale-leaseback gains. While non-fuel expenses increased by 9%, CASM (excluding fuel), a non-GAAP measure, increased only 1% to 6.71¢ for the three months ended March 31, 2024, on 8% capacity growth. The increase in CASM (excluding fuel) was largely due to increased rent expense as a result of a larger fleet and increases in salaries wages and benefits costs and station costs due to a lower stage length on higher departures, partially offset by increased sale-leaseback gains. For the reconciliation to corresponding GAAP measures, see “Results of Operations—Reconciliation of CASM to CASM (excluding fuel), Adjusted CASM (excluding fuel), Adjusted CASM, Adjusted CASM including net interest and CASM including net interest.”

We generated a net loss of $26 million during the three months ended March 31, 2024, compared to a net loss of $13 million for the three months ended March 31, 2023.

As of March 31, 2024, our total available liquidity was $622 million, made up of cash and cash equivalents.

Results of Operations

Three Months Ended March 31, 2024 Compared to Three Months Ended March 31, 2023

Operating Revenues

Total operating revenue increased $17 million, or 2%, during the three months ended March 31, 2024 compared to the three months ended March 31, 2023, primarily driven by 8% capacity growth, as measured by ASMs. Further, revenue was unfavorably impacted by a 5% reduction in RASM due to lower load factors, mainly due to the transition of our network to high-fare, underserved markets as well as decreased total revenue per passenger, partially offset by shorter stage length. The increase in capacity was driven by a 13% increase in average aircraft in service during the three months ended March 31, 2024, as compared to the three months ended March 31, 2023, partially offset by a 6% decrease in average daily aircraft utilization to 10.6 hours per day compared to 11.3 hours per day for the corresponding prior year period.

Operating Expenses

N/M = Not meaningful

(a) Cost per ASM figures may not recalculate due to rounding.

(b) These metrics are not calculated in accordance with GAAP. See the reconciliation to corresponding GAAP measures provided below.

Reconciliation of CASM to CASM (excluding fuel), Adjusted CASM (excluding fuel), Adjusted CASM, Adjusted CASM including net interest and CASM including net interest

($ in millions)

($ in millions)

(a) Cost per ASM figures may not recalculate due to rounding.

(b) CASM (excluding fuel) and Adjusted CASM (excluding fuel) are included as supplemental disclosures because we believe that excluding aircraft fuel is useful to investors as it provides an additional measure of management’s performance excluding the effects of a significant cost item over which management has limited influence. The price of fuel, over which we have limited control, impacts the comparability of period-to-period financial performance, and excluding the price of fuel allows management an additional tool to understand and analyze our non-fuel costs and core operating performance, and increases comparability with other airlines that also provide a similar metric. CASM (excluding fuel) and Adjusted CASM (excluding fuel) are not determined in accordance with GAAP and should not be considered in isolation or as a substitute for performance measures calculated in accordance with GAAP.

(c) Represents $1 million in employee retention costs incurred in connection with the terminated merger with Spirit Airlines, Inc., for the three months ended March 31, 2023.

(d) Adjusted CASM is included as supplemental disclosure because we believe it is a useful metric to properly compare our cost management and performance to other peers, as derivations of Adjusted CASM are well-recognized performance measurements in the airline industry that are frequently used by our management, as well as by investors, securities analysts and other interested parties in comparing the operating performance of companies in the airline industry. Additionally, we believe this metric is useful because it removes certain items that may not be indicative of base operating performance or future results. Adjusted CASM is not determined in accordance with GAAP, may not be comparable across all carriers and should not be considered in isolation or as a substitute for performance measures calculated in accordance with GAAP.

(e) Adjusted CASM including net interest and CASM including net interest are included as supplemental disclosures because we believe they are useful metrics to properly compare our cost management and performance to other peers that may have different capital structures and financing strategies, particularly as it relates to financing primary operating assets such as aircraft and engines. Additionally, we believe these metrics are useful because they remove certain items that may not be indicative of base operating performance or future results. Adjusted CASM including net interest and CASM including net interest are not determined in accordance with GAAP, may not be comparable across all carriers and should not be considered in isolation or as a substitute for performance measures calculated in accordance with GAAP.

Aircraft Fuel. Aircraft fuel expense decreased by $29 million, or 10%, during the three months ended March 31, 2024, as compared to the three months ended March 31, 2023. The decrease was primarily due to a 15% reduction in fuel cost per gallon, partially offset by the 6% increase in gallons consumed, driven by higher capacity.

Salaries, Wages and Benefits. Salaries, wages and benefits expense increased by $30 million, or 15%, during the three months ended March 31, 2024, as compared to the three months ended March 31, 2023. The increase was primarily due to higher crew costs, driven by elevated credit hours on higher capacity, and an increased headcount of salaried support staff for the three months ended March 31, 2024, as compared to the corresponding prior year period.

Aircraft Rent. Aircraft rent expense increased by $28 million, or 21%, during the three months ended March 31, 2024, as compared to the three months ended March 31, 2023, primarily due to a larger fleet as well as an increase in lease return costs.

Station Operations. Station operations expense increased by $13 million, or 10%, during the three months ended March 31, 2024, as compared to the three months ended March 31, 2023, primarily due to increased airport operations and the resulting 14% increase in departures, partially offset by an increase of airport revenue sharing arrangements.

Maintenance, Materials and Repairs. Maintenance, materials and repair expense increased by $4 million, or 9%, during the three months ended March 31, 2024, as compared to the three months ended March 31, 2023. This was primarily due to a 13% increase in average aircraft in service, which resulted in higher maintenance costs, partly offset by lower contract labor costs.

Sales and Marketing. Sales and marketing expense remained consistent during the three months ended March 31, 2024, as compared to the three months ended March 31, 2023, primarily due to a reduction in contract labor, offset by an increase in customer reservation system fees. The following table presents our distribution channel mix:

Depreciation and Amortization. Depreciation and amortization expense increased by $5 million, or 45%, during the three months ended March 31, 2024, as compared to the three months ended March 31, 2023, primarily due to an increase in capitalized maintenance depreciation due to our growing fleet.

Other Operating. Other operating resulted in a net gain of $1 million during the three months ended March 31, 2024, compared to an expense of $27 million during the three months ended March 31, 2023. This movement was primarily driven by the increase in sale-leaseback gains compared to the corresponding prior year period as a result of six aircraft inductions subject to sale-leaseback transactions in the current period compared to three aircraft inductions and one engine induction subject to sale-leaseback transactions in the corresponding prior year period. This change was partially offset by increases in travel expenses relating to crew accommodations, driven by an increase in capacity.

Other Income (Expense). We recognized $7 million in other income during the three months ended March 31, 2024, as compared to $8 million in other income during the three months ended March 31, 2023. The decrease was primarily due to increased interest expense, driven mainly by higher principal balances on our debt and lower interest income, partly offset by greater capitalized interest.

Income Taxes. Our effective tax rate for the three months ended March 31, 2024 was an expense of 8.3%, compared to a benefit of 23.5% for the three months ended March 31, 2023, on a pre-tax net loss for both periods. The primary difference between the effective tax rate and the federal statutory rate is related to nonrecognition of current period tax benefits due to the valuation allowance established for U.S. federal and state net operating losses as well as the impact of non-deductibility of certain executive compensation costs and other employee benefits in addition to net shortfalls related to the vesting and exercise of our share-based awards. Please refer to “Notes to Condensed Consolidated Financial Statements—11. Income Taxes” for additional information.

Reconciliation of Net Income (Loss) to Adjusted Net Income (Loss), Pre-Tax Income (Loss) to Adjusted Pre-Tax Income (Loss), and Net Income (Loss) to EBITDA, EBITDAR, Adjusted EBITDA, and Adjusted EBITDAR

(in millions)

(a) Adjusted pre-tax income (loss), adjusted net income (loss), EBITDA and adjusted EBITDA are included as supplemental disclosures because we believe they are useful indicators of our operating performance. Derivations of pre-tax income (loss), net income (loss) and EBITDA are well-recognized performance measurements in the airline industry that are frequently used by our management, as well as by investors, securities analysts and other interested parties in comparing the operating performance of companies in our industry.

Adjusted pre-tax income (loss), adjusted net income (loss), EBITDA and adjusted EBITDA have limitations as analytical tools. Some of the limitations applicable to these measures include: adjusted pre-tax income (loss), adjusted net income (loss), EBITDA and adjusted EBITDA do not reflect the impact of certain cash charges resulting from matters we consider not to be indicative of our ongoing operations; adjusted pre-tax income (loss), adjusted net income (loss), EBITDA and adjusted EBITDA do not reflect our cash expenditures, or future requirements, for capital expenditures or contractual commitments; EBITDA and adjusted EBITDA do not reflect changes in, or cash requirements for, our working capital needs; EBITDA, and adjusted EBITDA do not reflect the interest expense, or the cash requirements necessary to service interest or principal payments, on our indebtedness or possible cash requirements related to our warrants; although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and EBITDA and adjusted EBITDA do not reflect any cash requirements for such replacements; and other companies in our industry may calculate adjusted pre-tax income (loss), adjusted net income (loss), EBITDA and adjusted EBITDA differently than we do, limiting their usefulness as comparative measures. Because of these limitations, adjusted pre-tax income (loss), adjusted net income (loss), EBITDA and adjusted EBITDA should not be considered in isolation from or as a substitute for performance measures calculated in accordance with GAAP. In addition, because derivations of adjusted pre-tax income (loss), adjusted net income (loss), EBITDA and adjusted EBITDA are not determined in accordance with GAAP, such measures are susceptible to varying calculations and not all companies calculate the measures in the same manner. As a result, derivations of pre-tax income (loss), net income (loss) and EBITDA, including adjusted pre-tax income (loss), adjusted net income (loss) and adjusted EBITDA, as presented may not be directly comparable to similarly titled measures presented by other companies.

For the foregoing reasons, each of adjusted pre-tax income (loss), adjusted net income (loss), EBITDA and adjusted EBITDA has significant limitations which affect its use as an indicator of our profitability. Accordingly, you are cautioned not to place undue reliance on this information.

(b) EBITDAR and adjusted EBITDAR are included as a supplemental disclosure because we believe them to be useful solely as valuation metrics for airlines as their calculations isolate the effects of financing in general, the accounting effects of capital spending and acquisitions (primarily aircraft, which may be acquired directly, directly subject to acquisition debt, by capital lease or by operating lease, each of which is presented differently for accounting purposes), and income taxes, which may vary significantly between periods and for different airlines for reasons unrelated to the underlying value of a particular airline. However, EBITDAR and adjusted EBITDAR are not determined in accordance with GAAP, are susceptible to varying calculations and not all companies calculate the measure in the same manner. As a result, EBITDAR and adjusted EBITDAR, as presented, may not be directly comparable to similarly titled measures presented by other companies. In addition, EBITDAR and adjusted EBITDAR should not be viewed as a measure of overall performance since they exclude aircraft rent, which is a normal, recurring cash operating expense that is necessary to operate our business. Accordingly, you are cautioned not to place undue reliance on this information.

(in millions)

(a) See “Reconciliation of CASM to CASM (excluding fuel), Adjusted CASM (excluding fuel), Adjusted CASM, Adjusted CASM including net interest and CASM including net interest” above for discussion on adjusting items.

(b) During the three months ended March 31, 2024, we recorded a $5 million non-cash valuation allowance against our U.S. federal and state net operating loss deferred tax assets, which largely do not expire, mainly as a result of being in a three-year historical cumulative pre-tax loss position and due to the current quarter loss, which has no impact on cash taxes and is not reflective of our effective tax rate for deductible net operating losses generated or actual cash tax obligations created. Please refer to “Notes to Condensed Consolidated Financial Statements—11. Income Taxes” for additional information.

Comparative Operating Statistics

The following table sets forth our operating statistics for the three months ended March 31, 2024 and 2023. These operating statistics are provided because they are commonly used in the airline industry and, as such, allow readers to compare our performance against our results for the corresponding prior year period, as well as against the performance of our peers.

(a) Figures may not recalculate due to rounding. See “Glossary of Airline Terms” for definitions of terms used in this table.

(b) These metrics are not calculated in accordance with GAAP. For the reconciliation to corresponding GAAP measures, see “Results of Operations—Reconciliation of CASM to CASM (excluding fuel), Adjusted CASM (excluding fuel), Adjusted CASM, Adjusted CASM including net interest and CASM including net interest.”

(c) Stage-length adjusted to 1,000 miles: Adjusted CASM (excluding fuel) * Square root (stage length / 1,000).

Liquidity, Capital Resources and Financial Position

Overview

As of March 31, 2024, we had $622 million in total available liquidity, made up of cash and cash equivalents. We had $466 million of total debt, net, of which $265 million is short-term and consists of amounts outstanding under our pre-delivery deposit payment (“PDP”) facility (as amended from time to time, the “PDP Financing Facility”) and secured indebtedness related to our headquarters building. Our total debt, net is comprised of $304 million outstanding under our PDP Financing Facility, $83 million outstanding under our pre-purchased miles facility with Barclays Bank Delaware (“Barclays”), $66 million in 10-year, low-interest loans from the U.S. Department of the Treasury (the “Treasury,” and such loans, the “PSP Promissory Notes”) and $16 million in secured indebtedness for our headquarters building, partially offset by $3 million in deferred debt acquisition costs.

In connection with the PSP Promissory Notes and the term loan facility entered into with the Treasury on September 28, 2020, which was repaid in full on February 2, 2022, we issued to the Treasury warrants to purchase 3,117,940 shares of our common stock at a weighted-average price of $6.95 per share. We have the intent and ability to settle the warrants issued to the Treasury in common shares and we have classified the warrant liability to additional paid-in-capital on our condensed consolidated balance sheet. The Treasury has not exercised any warrants as of March 31, 2024.

We continue to monitor our covenant compliance with various parties, including, but not limited to, our lenders and credit card processors. As of the date of this report, we are in compliance with all of our covenants.

The following table presents the major indicators of our financial condition and liquidity:

($ in millions)

Use of Cash and Future Obligations

We expect to meet our cash requirements for the next twelve months through use of our available cash and cash equivalents, our PDP Financing Facility and cash flows from operating activities. We expect to meet our long-term cash requirements with cash flows from operating and financing activities, including, but not limited to, potential future borrowings under the PDP Financing Facility and/or potential issuances of debt or equity. We also have unencumbered loyalty and brand related assets, which we believe could generate significant additional liquidity, if desired. Our primary uses of cash are for working capital, aircraft PDPs, debt repayments and capital expenditures.

Our single largest capital commitment relates to the acquisition of aircraft. As of March 31, 2024, we operated all of our 142 aircraft under operating leases. PDPs relating to future deliveries under our agreement with Airbus are required at various times prior to each aircraft’s delivery date. As of March 31, 2024, we had $394 million of PDPs held by Airbus which have been partially financed by our PDP Financing Facility. As of March 31, 2024, our PDP Financing Facility, which allows us to draw up to an aggregate of $365 million, had $304 million outstanding. As of March 31, 2024, we had a firm obligation to purchase 204 A320neo family aircraft and 15 additional spare engines to be delivered by 2029. Of our aircraft commitments, nine had committed operating leases for 2024 deliveries, and seven were subject to non-binding letters of intent to provide operating lease financing for 2024 deliveries. We intend to evaluate financing options for the remaining aircraft.

Additionally, we are required by some of our aircraft lease agreements to pay maintenance reserves to the applicable aircraft lessors in advance of the performance of major maintenance activities; these payments act as collateral for the lessors to ensure aircraft are returned in the agreed-upon condition at the end of the lease period. Qualifying payments that are expected to be recovered from lessors are recorded as aircraft maintenance deposits on our condensed consolidated balance sheets. The amount we have deposited as maintenance reserves is, therefore, unavailable until after we have completed the scheduled maintenance in accordance with the terms of the operating leases. We made $4 million in maintenance deposit payments to our lessors for each of the three months ended March 31, 2024 and 2023. As of March 31, 2024, we had $98 million in recoverable aircraft maintenance deposits on our condensed consolidated balance sheet, of which $11 million was included in accounts receivable because the eligible maintenance had been performed and the remaining $87 million was included within net aircraft maintenance deposits.

The following table summarizes current and long-term material cash requirements as of March 31, 2024, which we expect to fund primarily with operating and financing cash flows (in millions):

(a) Includes principal commitments only associated with our PDP Financing Facility with borrowings as of March 31, 2024 pertaining to aircraft with deliveries through 2025, our floating rate building note through June 2024, our affinity card unsecured debt due through 2029 and the PSP Promissory Notes due through 2031. See “Notes to Condensed Consolidated Financial Statements — 6. Debt”.

(b) Represents interest on debt obligations.

(c) Represents gross cash payments related to our operating lease obligations that are not subject to discount as compared to the obligations measured on our condensed consolidated balance sheets. See “Notes to Condensed Consolidated Financial Statements — 7. Operating Leases”.

(d) Represents purchase commitments for aircraft and engines. See “Notes to Condensed Consolidated Financial Statements — 9. Commitments and Contingencies”.

(e) Represents fixed maintenance reserve payments for aircraft including estimated amounts for contractual price escalations. See “Notes to Condensed Consolidated Financial Statements — 7. Operating Leases”.

Cash Flows

The following table presents information regarding our cash flows in the three months ended March 31, 2024 and 2023 (in millions):

Operating Activities

During the three months ended March 31, 2024, net cash used in operating activities totaled $22 million, which was driven by a $26 million net loss, and non-cash adjustments totaling $49 million, partially offset by $53 million of inflows from changes in operating assets and liabilities.

The $53 million of inflows from changes in operating assets and liabilities included:

• $75 million in increases in our air traffic liability driven by increased bookings;
• $25 million in increases in other liabilities driven primarily by passenger taxes payable;
• $5 million in increases in accounts payable; and
• $4 million in decreases in supplies and other current assets; partially offset by
• $48 million in increases in other long-term assets driven by increases in prepaid maintenance, capitalized maintenance and deferred purchase incentives;
• $4 million in increases in accounts receivable; and
• $4 million in increases in aircraft maintenance deposits.

Our net loss of $26 million was also adjusted by the following non-cash items to arrive at cash used in operating activities:

• $71 million in gains recognized on sale-leaseback transactions; partially offset by
• $16 million in depreciation and amortization;
• $4 million in stock-based compensation expense; and
• $2 million in deferred income tax expense.

During the three months ended March 31, 2023, net cash used in operating activities totaled $25 million, which was driven by a $13 million net loss, and non-cash adjustments totaling $29 million, partially offset by $17 million of inflows from changes in operating assets and liabilities.

The $17 million of inflows from changes in operating assets and liabilities included:

• $111 million in increases in our air traffic liability as a result of increased bookings; and
• $19 million in decreases in station and credit card receivables; partially offset by
• $64 million in decreases in other liabilities driven primarily by leased aircraft return payments and decreased return costs, and other related accruals;
• $37 million in increases in other long-term assets driven by increases in prepaid maintenance and capitalized maintenance;
• $8 million in decreases in accounts payable; and
• $4 million in increases in aircraft maintenance deposits.

Our net loss of $13 million was also adjusted by the following non-cash items to arrive at cash used in operating activities:

• $40 million in gains recognized on sale-leaseback transactions; and
• $4 million in deferred income tax benefits; partially offset by
• $11 million in depreciation and amortization; and
• $4 million in stock-based compensation expense.

As of March 31, 2024, we did not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on our results of operations, financial condition or cash flows.

Investing Activities

During the three months ended March 31, 2024, net cash used in investing activities totaled $7 million, driven by:

• $17 million in cash outflows for capital expenditures; and
• $3 million in cash outflows relating to other investing activity; partially offset by
• $13 million in net proceeds for PDP activity.

During the three months ended March 31, 2023, net cash provided by investing activities totaled $10 million, driven by:

• $23 million in net proceeds for PDP activity; partially offset by
• $11 million in cash outflows for capital expenditures; and
• $2 million in cash outflows relating to other investing activity.

Financing Activities

During the three months ended March 31, 2024, net cash provided by financing activities was $42 million, driven by:

• $69 million in cash proceeds from debt issuances, consisting of $66 million drawn on our PDP Financing Facility, net of issuance costs and a $3 million draw on our Barclays facility;
• $48 million in net proceeds received from sale-leaseback transactions; and
• $1 million in proceeds from the exercise of stock options; partially offset by
• $74 million in cash outflows from principal repayments on our PDP Financing Facility; and
• $2 million in cash outflows for payments related to tax withholdings of share-based awards.

During the three months ended March 31, 2023, net cash provided by financing activities was $44 million, driven by:

• $51 million in cash inflows from sale-leaseback transactions related to A320neo family aircraft and spare engines delivered during the three months ended March 31, 2023; and
• $36 million in cash proceeds from debt issuances, consisting of $27 million draws on our PDP Financing Facility and $9 million draws on our Barclays facility; partially offset by
• $38 million in cash outflows from principal repayments on our PDP Financing Facility; and
• $5 million in cash outflows for payments related to tax withholdings of share-based awards.

Critical Accounting Policies and Estimates

There have been no material changes in our critical accounting policies and estimates during the three months ended March 31, 2024. For information regarding our critical accounting policies and estimates, see “Management's Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates” included in Part II, Item 7 of our 2023 Annual Report.

Recently Adopted Accounting Pronouncements

See “Notes to Consolidated Financial Statements —1. Summary of Significant Accounting Policies” included in Part II, Item 8 of our 2023 Annual Report for a discussion of recent accounting pronouncements.

GLOSSARY OF AIRLINE TERMS

Set forth below is a glossary of industry terms:

“A320 family” means, collectively, the Airbus series of single-aisle aircraft, including the A320ceo, A320neo, A321ceo and A321neo aircraft.

“A320neo family” means, collectively, the Airbus series of single-aisle aircraft that feature the new engine option, including the A320neo and A321neo aircraft.

“Adjusted CASM” is a non-GAAP measure and means operating expenses, excluding special items, divided by ASMs. For a discussion of such special items and a reconciliation of CASM to CASM (excluding fuel), Adjusted CASM (excluding fuel), Adjusted CASM, Adjusted CASM including net interest, and CASM including net interest, please see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations.”

“Adjusted CASM including net interest” or “Adjusted CASM + net interest” is a non-GAAP measure and means the sum of Adjusted CASM and net interest expense (income) excluding special items divided by ASMs. For a discussion of such special items and a reconciliation of CASM to CASM (excluding fuel), Adjusted CASM (excluding fuel), Adjusted CASM, Adjusted CASM including net interest, and CASM including net interest, please see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations.”

“Adjusted CASM (excluding fuel)” is a non-GAAP measure and means operating expenses less aircraft fuel expense, excluding special items, divided by ASMs. For a discussion of such special items and a reconciliation of CASM to CASM (excluding fuel), Adjusted CASM (excluding fuel), Adjusted CASM, Adjusted CASM including net interest, and CASM including net interest, please see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations.”

“Air traffic liability” means the value of tickets, unearned membership fees and other related fees sold in advance of travel.

“Ancillary revenue” means the sum of non-fare passenger revenue and other revenue.

“Available seat miles” or “ASMs” means the number of seats available for passengers multiplied by the number of miles the seats are flown.

“Average aircraft in service” means the average number of aircraft used in flight operations, as calculated on a daily basis.

“Average daily aircraft utilization” means block hours divided by number of days in the period divided by average aircraft in service.

“Average stage length” means the average number of miles flown per flight segment.

“Block hours” means the number of hours during which the aircraft is in revenue service, measured from the time of gate departure before take-off until the time of gate arrival at the destination.

“CASM” or “unit costs” means operating expenses divided by ASMs.

“CASM (excluding fuel)” is a non-GAAP measure and means operating expenses less aircraft fuel expense, divided by ASMs.

“CASM including net interest” or “CASM + net interest” is a non-GAAP measure and means the sum of CASM and net interest expense (income) divided by ASMs.

“DOT” means the United States Department of Transportation.

“Fare revenue” consists of base fares for air travel, including miles redeemed under our frequent flyer program, unused and expired passenger credits, other redeemed or expired travel credits and revenue derived from charter flights.

“Fare revenue per passenger” means fare revenue divided by passengers.

“Load factor” means the percentage of aircraft seat miles actually occupied on a flight (RPMs divided by ASMs).

“Net interest expenses (income)” means interest expense, capitalized interest, interest income and other.

“Non-fare passenger revenue” consists of fees related to certain ancillary items such as baggage, service fees, seat selection, and other passenger-related revenue that is not included as part of base fares for travel.

“Non-fare passenger revenue per passenger” means non-fare passenger revenue divided by passengers.

“Other revenue” consists primarily of services not directly related to providing transportation, such as the advertising, marketing and brand elements of the FRONTIER Miles affinity credit card program and commissions revenue from the sale of items such as rental cars and hotels.

“Other revenue per passenger” means other revenue divided by passengers.

“Passengers” means the total number of passengers flown on all flight segments.

“Passenger revenue” consists of fare revenue and non-fare passenger revenue.

“PDP” means pre-delivery deposit payments, which are payments required by aircraft manufacturers in advance of delivery of the aircraft.

“RASM” or “unit revenue” means total revenue divided by ASMs.

“Revenue passenger miles” or “RPMs” means the number of miles flown by passengers.

“Total ancillary revenue per passenger” means ancillary revenue divided by passengers.

“Total revenue per passenger” means the sum of fare revenue, non-fare passenger revenue, and other revenue (collectively, “Total Revenue”) divided by passengers.

“Treasury” means the U.S. Department of the Treasury.

We are subject to market risks in the ordinary course of our business. These risks include commodity price risk, with respect to aircraft fuel, as well as interest rate risk, specifically with respect to our floating rate obligations and aircraft lease contracts. The adverse effects of changes in these markets could pose a potential loss as discussed below. The sensitivity analysis provided does not consider the effects that such adverse changes may have on overall economic activity, nor does it consider additional actions we may take to mitigate our exposure to such changes. Actual results may differ.

Aircraft Fuel. Our results of operations can vary materially due to changes in the price and availability of aircraft fuel and are also impacted by the number of aircraft in use and the number of flights we operate. Aircraft fuel represented approximately 29% and 33% of total operating expenses for the three months ended March 31, 2024 and 2023, respectively. Unexpected changes in the pricing of aircraft fuel or a shortage or disruption in the supply could have a material adverse effect on our business, results of operations and financial condition. Based on our fuel consumption for the 12 months ended March 31, 2024, a hypothetical 10% increase in the average price per gallon of aircraft fuel would have increased aircraft fuel expense by approximately $110 million.

Interest Rates. We are subject to market risk associated with changing interest rates, due to Secured Overnight Financing Rate (“SOFR”) based interest rates on our PDP Financing Facility and our floating rate building note and Effective Federal Funds Rate (“EFFR”) based interest rates on our affinity card advance purchase of miles. During the three months ended March 31, 2024, as applied to our average debt balances, a hypothetical increase of 100 basis points in average annual interest rates on our variable-rate debt would have increased the annual interest expense by $4 million.

We are also exposed to interest rate risk through aircraft lease contracts for the time period between agreement of terms and commencement of the lease, where portions of the rental payments are adjusted and become fixed based on swap rates. As part of our risk management program, we have historically entered into contracts in order to limit the exposure to fluctuations in interest rates. During the three months ended March 31, 2024, as well as the three months ended March 31, 2023, we did not enter into any swaps and, therefore, paid no upfront premiums for options. As of March 31, 2024, we had no interest rate hedges outstanding.

Evaluation of Disclosure Controls and Procedures

Management, with the participation of our principal executive officer and principal financial officer, evaluated the effectiveness of our disclosure controls and procedures as of March 31, 2024. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, refers to the controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Based on such evaluation, our principal executive officer and principal financial officer concluded that, as of March 31, 2024, our disclosure controls and procedures were effective at the reasonable assurance level.

Changes in Internal Control Over Financial Reporting

During the three months ended March 31, 2024, there were no changes in our internal control over financial reporting that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

There have been no material changes to the risk factors disclosed in Item 1A “Risk Factors” contained in our 2023 Annual Report, except for the change to the following risk factors. Investors are urged to review all such risk factors carefully.

Risk Related to Our Business

We rely on our private equity sponsor.

Indigo Partners, LLC (“Indigo Partners”) is a private equity fund with significant expertise in the ultra low-cost airline business, and this expertise has been available to us through the persons affiliated with Indigo Partners on our board of directors and through a Professional Services Agreement that was put in place in connection with the 2013 acquisition from Republic Airways Holdings, Inc. and pursuant to which we are charged a fee by Indigo Partners of approximately $375,000 per quarter, plus expenses. We also pay each director affiliated with Indigo Partners an annual director’s fee as compensation. Our engagement of Indigo Partners pursuant to the Professional Services Agreement will continue until the date that Indigo Partners and its affiliates own less than approximately 19.8 million shares of our common stock. In April 2024, an investment fund affiliated with Indigo Denver Management Company, LLC (“Indigo”) distributed all of the shares of our common stock held by the investment fund to its members on a pro rata basis, in-kind and without consideration (the “Share Distribution”). Approximately 99.4 million shares were distributed to William Franke, the Chair of our Board, or entities directly or indirectly controlled by him, including Indigo and Indigo Partners. Although Indigo Partners and its affiliates, including William Franke, continue to own a substantial percentage of our outstanding common stock following the Share Distribution, Indigo Partners and its affiliates may nonetheless elect to reduce their ownership in our company or reduce their involvement on our board of directors, which could reduce or eliminate the benefits we have historically achieved through our relationship with Indigo Partners, such as management expertise, industry knowledge and volume purchasing. For more information on the Share Distribution, please refer to our Current Report on Form 8-K filed on March 29, 2024.

Risk Related to Owning Our Common Stock

The value of our common stock may be materially adversely affected by additional issuances of common stock or preferred stock by us or sales by our principal stockholder or its transferees.

Any future issuances or sales of our common stock by us will be dilutive to our existing common stockholders. We had 223.9 million shares of common stock outstanding as of March 31, 2024. An investment fund managed by Indigo, which held approximately 178.8 million shares of our common stock as of March 31, 2024, was entitled to rights with respect to registration of all such shares under the Securities Act pursuant to a registration rights agreement. Following the Share Distribution, certain of the recipients of such shares are entitled to the registration of their shares pursuant to the registration rights agreement. Sales of substantial amounts of our common stock in the public or private market, a perception in the market that such sales could occur or the issuance of securities exercisable or convertible into our common stock could adversely affect the prevailing trading price of our common stock.

Our anti-takeover provisions may delay or prevent a change of control, which could adversely affect the price of our common stock.

Our amended and restated certificate of incorporation and amended and restated bylaws may make it difficult to remove our board of directors and management and may discourage or delay “change of control” transactions, which could adversely affect the trading price of our common stock. These provisions include, among others:

• our board of directors is divided into three classes, with each class serving for a staggered three-year term, which prevents stockholders from electing an entirely new board of directors at an annual meeting;
• no cumulative voting in the election of directors, which prevents the minority stockholders from electing director candidates;
• the exclusive right of our board of directors to elect a director to fill a vacancy created by the expansion of the board of directors or the resignation, death or removal of a director, which prevents stockholders from being able to fill vacancies on our board of directors;
• actions to be taken by our stockholders may only be affected at an annual or special meeting of our stockholders and not by written consent;
• special meetings of our stockholders may be called only by the Chair of our board of directors or by our corporate secretary at the direction of our board of directors;
• advance notice procedures that stockholders must comply with in order to nominate candidates to our board of directors and propose matters to be brought before an annual meeting of our stockholders may discourage or deter a potential acquirer from conducting a solicitation of proxies to elect the acquirer’s own slate of directors or otherwise attempting to obtain control of our company;
• a majority stockholder vote is required for removal of a director only for cause (and a director may only be removed for cause), and a 66 2⁄3% stockholder vote is required for the amendment, repeal or modification of certain provisions of our certificate of incorporation and bylaws; and
• our board of directors may, without stockholder approval, issue series of preferred stock, or rights to acquire preferred stock, that could dilute the interest of, or impair the voting power of, holders of our common stock or could also be used as a method of discouraging, delaying or preventing a change of control.

Certain anti-takeover provisions under Delaware law also apply to us. While we have elected not to be subject to the provisions of Section 203 of the Delaware General Corporation Law (“DGCL”) in our amended and restated certificate of incorporation, such certificate of incorporation provides that in the event Indigo Partners and its affiliates cease to beneficially own at least 15% of the then-outstanding shares of our voting common stock, we will automatically become subject to Section 203 of the DGCL to the extent applicable. Under Section 203, a corporation may not, in general, engage in a business combination with any holder of 15% or more of its voting stock unless the holder has held the stock for three years or, among other things, the board of directors has approved the transaction.

We are no longer a “controlled company” within the meaning of the Nasdaq Stock Market rules. However, we may continue to rely on exemptions from certain corporate governance requirements during the applicable transition periods.

Following the Share Distribution, the investment fund managed by Indigo no longer controlled a majority of the voting power of our outstanding common stock, and we ceased to be a “controlled company” within the meaning of the Nasdaq Stock Market rules. As a result, the rules of the Nasdaq Stock Market require that, within 90 days of the date we no longer qualified as a “controlled company,” we have a compensation committee consisting of a majority of independent directors and a director nominations process whereby directors are selected by a nominations committee consisting of a majority of independent directors or by a vote of the board of directors in which only independent directors participate, and that, within one year of the date we no longer qualified as a “controlled company,” we have a majority of independent directors on our board of directors, a compensation committee consisting solely of independent directors, and a director nominations process whereby directors are selected by a nominations committee consisting solely of independent directors or by a vote of the board of directors in which only independent directors participate. During this transition period, we may continue to utilize the available exemptions from certain corporate governance requirements as permitted by the rules of the Nasdaq Stock Market, and our Compensation Committee and Nominating and Corporate Governance Committee do not presently consist solely of independent directors. Accordingly, during the transition period, you will not have the same protections afforded to stockholders of companies that are subject to all of the corporate governance requirements of the Nasdaq Stock Market, which could make our common stock less attractive to some investors or otherwise adversely affect its trading price.