Frontier Group Holdings, Inc.: Form 10-Q for the period ended Jun 30, 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 and six months ended June 30, 2024 and 2023, respectively (in millions):

Total operating revenues for the three and six months ended June 30, 2024 totaled $973 million and $1,838 million, respectively, an increase of 1% compared to each of the three and six months ended June 30, 2023, respectively. This was primarily due to an increase in capacity, as measured by ASMs, partially offset by a reduction in revenue per available seat mile (“RASM”) for the three and six months ended June 30, 2024 as compared to the corresponding prior year periods.

Total operating expenses during the three and six months ended June 30, 2024 totaled $948 million and $1,844 million, respectively, resulting in a cost per available seat mile (“CASM”) of 8.98¢ and 9.22¢, compared to 9.51¢ and 9.72¢ for the three and six months ended June 30, 2023, respectively. Fuel expense was 18% and 3% higher, respectively, as compared to the corresponding prior year periods. The $44 million increase in fuel expense for the three months ended June 30, 2024 as compared to the corresponding prior year period was primarily driven by a 13% increase in fuel gallons consumed as a result of our 13% capacity increase and a 6% increase in fuel cost per gallon. The $15 million increase in fuel expense for the six months ended June 30, 2024 as compared to the corresponding prior year period was primarily driven by a 9% increase in fuel gallons consumed as a result of our 10% increase in capacity partially offset by a 6% reduction in fuel cost per gallon.

Our non-fuel expenses increased by 2% and 6% during the three and six months ended June 30, 2024, respectively, as compared to the corresponding prior year periods, driven primarily by higher capacity and larger fleet size and the resulting increase in operations during the same periods partially offset by increased sale-leaseback gains, lower lease return costs and lower maintenance, materials and repairs costs. While non-fuel expenses

See Notes to Condensed Consolidated Financial Statements

increased by $16 million and $68 million, CASM (excluding fuel), a non-GAAP measure, decreased by 10% and 5% to 6.24¢ and 6.46¢ for the three and six months ended June 30, 2024, respectively. The decrease in CASM (excluding fuel) on increased ASMs of 13% and 10% for the three and six months ended June 30, 2024, respectively, as compared to the corresponding prior year periods, was due to an increase in sale-leaseback gains compared to the corresponding prior year periods as well as a decrease in aircraft rent expense due to lease extension events and a decrease in maintenance, materials and repairs primarily due to lower contract labor costs partially offset by an increase in station costs due to a lower stage length on higher departures. Additionally, for the six months ended June 30, 2024, CASM (excluding fuel) was unfavorably impacted by higher crew costs including other benefits and increased salaried support staff expenses. 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 net income of $31 million and $5 million during the three and six months ended June 30, 2024, respectively, compared to net income of $71 million and $58 million for the three and six months ended June 30, 2023, respectively.

As of June 30, 2024, our total available liquidity was $658 million, made up of cash and cash equivalents.

Results of Operations

Three Months Ended June 30, 2024 Compared to Three Months Ended June 30, 2023

Operating Revenues

Total operating revenue increased $6 million, or 1%, during the three months ended June 30, 2024 as compared to the three months ended June 30, 2023. While capacity grew by 13%, as measured by ASMs, revenue was unfavorably impacted by the 11% reduction in RASM due to a 14% decline in total revenue per passenger as well as a 7.2 point reduction in load factor. Revenue per passenger reflected weak domestic pricing as seat growth outpaced seasonal demand and the above-average concentration of capacity allocated to new markets which also led to lower load factors. The increase in capacity was driven by an 18% increase in average aircraft in service during the three months ended June 30, 2024, as compared to the three months ended June 30, 2023, partially offset by a 13% decrease in average stage length to 899 miles compared to 1,038 miles for the corresponding prior year period.

See Notes to Condensed Consolidated Financial Statements

Operating Expenses

N/M = Not meaningful

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

(b) This metric is not calculated in accordance with GAAP. See the reconciliation to the corresponding GAAP measure provided below.

See Notes to Condensed Consolidated Financial Statements

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. During the three months ended June 30, 2024 and 2023, there were no non-GAAP adjustments.

(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) 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.

(d) 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 increased by $44 million, or 18%, during the three months ended June 30, 2024, as compared to the three months ended June 30, 2023. The increase was primarily due to an increase of 13% in fuel gallons consumed due to higher capacity and a 6% growth in fuel cost per gallon.

Salaries, Wages and Benefits. Salaries, wages and benefits expense increased by $33 million, or 16%, during the three months ended June 30, 2024, as compared to the three months ended June 30, 2023. The increase was

See Notes to Condensed Consolidated Financial Statements

primarily due to higher crew costs, driven by elevated credit hours on higher capacity and other benefit costs, as well as increased headcount of salaried support staff, as compared to the corresponding prior year period.

Aircraft Rent. Aircraft rent expense decreased by $1 million, or 1%, during the three months ended June 30, 2024, as compared to the three months ended June 30, 2023, primarily due a decrease in lease return costs caused by aircraft lease extension events that occurred in the current period as well as the ongoing benefit from extensions in prior periods, which was mostly offset by a larger fleet.

Station Operations. Station operations expense increased by $39 million, or 31%, during the three months ended June 30, 2024, as compared to the three months ended June 30, 2023, primarily due to increased airport operations as a result of the 26% increase in departures and 17% increase in passengers.

Maintenance, Materials and Repairs. Maintenance, materials and repair expense decreased by $10 million, or 19%, during the three months ended June 30, 2024, as compared to the three months ended June 30, 2023. This decrease was primarily due to lower contract labor costs, partially offset by the 18% increase in average aircraft in service, resulting in higher aircraft maintenance costs.

Sales and Marketing. Sales and marketing expense increased by $3 million, or 7%, during the three months ended June 30, 2024, as compared to the three months ended June 30, 2023, primarily due an increase in customer reservation system fees and paid media advertising. The following table presents our distribution channel mix:

Depreciation and Amortization. Depreciation and amortization expense increased by $6 million, or 50%, during the three months ended June 30, 2024, as compared to the three months ended June 30, 2023, primarily due to an increase in capitalized maintenance depreciation due to the increase in fleet size as well as a gain on asset disposal during the comparable prior year period.

Other Operating. Other operating resulted in a net gain of $1 million during the three months ended June 30, 2024, as compared to an expense of $53 million during the three months ended June 30, 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 and two engine inductions subject to sale-leaseback transactions in the current period compared to one aircraft induction and one engine induction subject to sale-leaseback transactions in the corresponding prior year period.

Other Income (Expense). Other income decreased by $2 million, or 22%, during the three months ended June 30, 2024, as compared the three months ended June 30, 2023. The decrease was primarily due to lower interest income from lower balances in interest-bearing cash accounts and increased interest expense, driven mainly by higher interest rates and higher principal balances on our debt, partially offset by greater capitalized interest due to higher interest rates.

Income Taxes. Our effective tax rate for the three months ended June 30, 2024 was an expense of 3.1%, compared to an expense of 19.3% for the three months ended June 30, 2023, on pre-tax net income for both periods. The primary difference between the effective tax rate and the federal statutory rate is related to a decrease in our valuation allowance relating to federal and state net operating losses. Please refer to “Notes to Condensed Consolidated Financial Statements—11. Income Taxes” for additional information.

See Notes to Condensed Consolidated Financial Statements

Results of Operations

Six Months Ended June 30, 2024 Compared to Six Months Ended June 30, 2023

Operating Revenues

Total operating revenue increased $23 million, or 1%, during the six months ended June 30, 2024 compared to the six months ended June 30, 2023. While capacity grew by 10%, as measured by ASMs, revenue was unfavorably impacted by the 8% reduction in RASM due to decreased total revenue per passenger as well as lower load factor. Revenue performance reflected weak domestic industry pricing and the above-average concentration of capacity allocated to new markets. The increase in capacity was driven by a 16% increase in average aircraft in service during the six months ended June 30, 2024, as compared to the six months ended June 30, 2023, partially offset by an 11% decrease in average stage length to 925 miles compared to 1,045 miles for the corresponding prior year period as well as a 4% decrease in average daily aircraft utilization to 10.9 hours per day compared to 11.4 hours per day for the corresponding prior year period.

See Notes to Condensed Consolidated Financial Statements

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.

See Notes to Condensed Consolidated Financial Statements

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. During the six months ended June 30, 2024, there were no non-GAAP adjustments.

(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 six months ended June 30, 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 increased by $15 million, or 3%, during the six months ended June 30, 2024, as compared to the six months ended June 30, 2023. The increase was primarily due to a 9% increase in fuel gallons consumed, driven by higher capacity, partially offset by a 6% reduction in fuel cost per gallon.

Salaries, Wages and Benefits. Salaries, wages and benefits expense increased by $63 million, or 15%, during the six months ended June 30, 2024, as compared to the six months ended June 30, 2023. The increase was due to higher crew costs, driven primarily by elevated credit hours on higher capacity, an increased headcount of salaried

See Notes to Condensed Consolidated Financial Statements

support staff and increased other benefits for the six months ended June 30, 2024, as compared to the corresponding prior year period.

Aircraft Rent. Aircraft rent expense increased by $27 million, or 10%, during the six months ended June 30, 2024, as compared to the six months ended June 30, 2023, primarily due to a larger fleet, partially offset by a decrease in lease return costs.

Station Operations. Station operations expense increased by $52 million, or 21%, during the six months ended June 30, 2024, as compared to the six months ended June 30, 2023, primarily due to increased airport operations as a result of the 20% increase in departures and 10% increase in passengers, partially offset by an increase in airport revenue sharing arrangements.

Maintenance, Materials and Repairs. Maintenance, materials and repair expense decreased by $6 million, or 6%, during the six months ended June 30, 2024, as compared to the six months ended June 30, 2023. This was primarily due to lower contract labor costs, partially offset by a 16% increase in average aircraft in service, which resulted in higher aircraft maintenance costs.

Sales and Marketing. Sales and marketing expense increased by $3 million, or 4%, during the six months ended June 30, 2024, as compared to the six months ended June 30, 2023, primarily due to an increase in customer reservation system fees and paid media advertising, partially offset by less contract labor costs. The following table presents our distribution channel mix:

Depreciation and Amortization. Depreciation and amortization expense increased by $11 million, or 48%, during the six months ended June 30, 2024, as compared to the six months ended June 30, 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 $2 million during the six months ended June 30, 2024, compared to an expense of $80 million during the six months ended June 30, 2023. This movement was primarily driven by the increase in sale-leaseback gains compared to the corresponding prior year period as a result of twelve aircraft inductions and two engine inductions subject to sale-leaseback transactions in the current period compared to four aircraft inductions and two engine inductions subject to sale-leaseback transactions in the corresponding prior year period.

Other Income (Expense). Other income decreased by $3 million or 18% during the six months ended June 30, 2024, as compared the six months ended June 30, 2023. The decrease was primarily due to increased interest expense, driven mainly by higher interest rates and higher principal balances on our debt as well as lower interest income from lower balances in interest-bearing cash accounts, partially offset by greater capitalized interest due to higher interest rates.

Income Taxes. Our effective tax rate for the six months ended June 30, 2024 was an expense of 37.5%, compared to an expense of 18.3% for the six months ended June 30, 2023, on pre-tax net income for both periods. The primary difference between the effective tax rate and the federal statutory rate for the six months ended June 30, 2024 is related to 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.

See Notes to Condensed Consolidated Financial Statements

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)

(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.

See Notes to Condensed Consolidated Financial Statements

(in millions)

(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 six months ended June 30, 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 loss generated during the three months ended March 31, 2024, 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.

See Notes to Condensed Consolidated Financial Statements

Comparative Operating Statistics

The following table sets forth our operating statistics for the three and six months ended June 30, 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).

See Notes to Condensed Consolidated Financial Statements

Liquidity, Capital Resources and Financial Position

Overview

As of June 30, 2024, we had $658 million in total available liquidity, made up of cash and cash equivalents. We had $452 million of total debt, net, of which $263 million is short-term and consists primarily of amounts outstanding under our pre-delivery deposit payment (“PDP”) facility (as amended from time to time, the “PDP Financing Facility”). Our total debt, net is comprised of $300 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 $6 million in secured indebtedness for our headquarters building, partially offset by $3 million in deferred debt acquisition costs and other discounts.

The previous note related to our headquarters had a maturity date in June 2024 and we repaid the remaining outstanding balance, inclusive of any unpaid principal, interest, and other amounts, during the three months ended June 30, 2024. Subsequent to the payoff of the loan, we entered into a loan agreement in the amount of $6 million, with a maturity date in June 2031, which was outstanding on our condensed consolidated balance sheet as of June 30, 2024. Please refer to “Notes to Condensed Consolidated Financial Statements—6. Debt” for additional information.

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 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 in common shares and we have classified the warrant liability to additional paid-in-capital on our condensed consolidated balance sheet. These warrants will expire between May 2025 and June 2026. No warrants have been exercised as of June 30, 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 as of:

($ 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 June 30, 2024, we operated all of our 148 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 June 30, 2024, we had $392 million of PDPs held by Airbus which have been partially financed by our PDP Financing Facility. As of June 30, 2024, our PDP Financing Facility, which allows us to draw up to an aggregate of $365 million, had $300 million outstanding. As of June 30, 2024, we had a firm obligation to purchase 198 A320neo family aircraft and 14 additional spare engines to be delivered by 2029. Of our aircraft commitments, 13 had committed operating leases for 2024 and 2025 deliveries, and 15 were subject to non-binding letters of intent to provide operating lease financing for 2025 and 2026 deliveries. We intend to evaluate financing options for the remaining aircraft.

During the three months ended June 30, 2024, we reached an agreement with one of our aircraft lessors which eliminated requirements to pay maintenance reserves held as collateral in advance of our required performance of major maintenance activities on its aircraft leases. As a result of the agreement, the lessor disbursed back to us previously paid aircraft maintenance deposits of approximately $104 million, resulting in us no longer having any aircraft maintenance deposits with any of our lessors as of June 30, 2024.

The following table summarizes current and long-term material cash requirements as of June 30, 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 June 30, 2024 pertaining to aircraft with deliveries through 2025, our affinity card unsecured debt due through 2029, our building note through June 2031 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. In August 2024, Airbus agreed to an amended delivery schedule which delays previously scheduled firm aircraft delivery dates from 2025 through 2028 to later years. The table above reflects our commitments as of June 30, 2024 and does not reflect our aircraft purchase commitments after giving effect to this revised delivery schedule. See “Notes to Condensed Consolidated Financial Statements — 9. Commitments and Contingencies” and “Notes to Condensed Consolidated Financial Statements — 14. Subsequent Events” for further detail.

Cash Flows

The following table presents information regarding our cash flows in the six months ended June 30, 2024 and 2023 (in millions):

Operating Activities

During the six months ended June 30, 2024, net cash used in operating activities totaled $13 million, which was driven by non-cash adjustments of $102 million partially offset by $5 million of net income and $84 million of inflows from changes in operating assets and liabilities.

The $84 million of inflows from changes in operating assets and liabilities included:

• $82 million in decreases in our capitalized aircraft maintenance deposits;
• $70 million in increases in our air traffic liability driven by increased bookings;
• $28 million in increases in other liabilities driven primarily by passenger taxes payable;
• $9 million in increases in accounts payable; and
• $1 million in decreases in supplies and other current assets; partially offset by
• $105 million in increases in other long-term assets primarily driven by increases in prepaid maintenance, capitalized maintenance, and supplier incentives; and
• $1 million in increases in accounts receivable.

Our net income of $5 million was also adjusted by the following non-cash items to arrive at cash used in operating activities:

• $148 million in gains recognized on sale-leaseback transactions; partially offset by
• $34 million in depreciation and amortization;
• $9 million in stock-based compensation expense; and
• $3 million in deferred income tax expense.

During the six months ended June 30, 2023, net cash used in operating activities totaled $34 million, which was driven by $79 million of outflows from changes in operating assets and liabilities and non-cash adjustments totaling $13 million, partially offset by $58 million of net income.

The $79 million of outflows from changes in operating assets and liabilities included:

• $93 million in increases in other long-term assets driven by increases in capitalized maintenance, prepaid maintenance, prepaid bonuses and capitalized interest;
• $60 million in decreases in other liabilities driven primarily by leased aircraft return payments and decreased return costs, and other related accruals; and
• $9 million in increases in aircraft maintenance deposits; partially offset by
• $40 million in increases in our air traffic liability;
• $28 million in decreases in accounts receivable due to station and credit card receivables;
• $9 million in decreases in supplies and other current assets; and
• $6 million in increases in accounts payable.

Our net income of $58 million was also adjusted by the following non-cash items to arrive at cash used in operating activities:

• $57 million in gains recognized on sale-leaseback transactions; partially offset by
• $23 million in depreciation and amortization;
• $13 million in deferred tax expense;
• $7 million in stock-based compensation expense; and
• $1 million in amortization of cash flow hedges, net of tax.

As of June 30, 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 six months ended June 30, 2024, net cash used in investing activities totaled $34 million, driven by:

• $48 million in cash outflows for capital expenditures; and
• $1 million in cash outflows relating to other investing activity; partially offset by
• $15 million in net proceeds for PDP activity.

During the six months ended June 30, 2023, net cash used in investing activities totaled $33 million, driven by:

• $23 million in cash outflows for capital expenditures;
• $9 million in net outflows for PDP activity; and
• $1 million in cash proceeds relating to other investing activity.

Financing Activities

During the six months ended June 30, 2024, net cash provided by financing activities was $96 million, driven by:

• $142 million in cash proceeds from debt issuances, consisting of $133 million drawn on our PDP Financing Facility, $6 million in new borrowing on our building note and a $3 million draw on our Barclays facility;
• $116 million in net proceeds received from sale-leaseback transactions; and
• $1 million in proceeds from the exercise of stock options; partially offset by
• $161 million in cash outflows from principal repayments on debt, which includes $145 million on our PDP Financing Facility and $16 million on our building note that reached maturity; and
• $2 million in cash outflows for payments related to tax withholdings of share-based awards.

During the six months ended June 30, 2023, net cash provided by financing activities was $86 million, primarily driven by:

• $89 million in cash inflows from sale-leaseback transactions and spare engines delivered during the six months ended June 30, 2023; and
• $52 million in cash proceeds from debt issuances, consisting of $44 million in draws on our PDP Financing Facility and $9 million in draws on our Barclays facility, net of issuance costs; partially offset by
• $51 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 six months ended June 30, 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:

“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 seats (empty or full) multiplied by 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.

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 30%, 30%, 27% and 30% of total operating expenses for the three and six months ended June 30, 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 June 30, 2024, a hypothetical 10% increase in the average price per gallon of aircraft fuel would have increased aircraft fuel expense by approximately $114 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 Effective Federal Funds Rate (“EFFR”) based interest rates on our affinity card advance purchase of miles. During the six months ended June 30, 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 each of the three and six months ended June 30, 2024 and 2023, we did not enter into any swaps and, therefore, paid no upfront premiums for interest rate hedges. As of June 30, 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 June 30, 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 June 30, 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 June 30, 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, other than the risk factors disclosed in Item 1A “Risk Factors” contained in our Quarterly Report for the quarter ended March 31, 2024. Investors are urged to review all such risk factors carefully.