Frontier Group Holdings, Inc.: Form 10-Q for the period ended Sep 30, 2024

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”).

Recent Developments

Financing - In September 2024, we entered into a series of transactions to provide a revolving line of credit, available for general purposes, as well as increased our overall capacity for financing facilities to fund aircraft PDPs. The Revolving Loan Facility provided $205 million of committed funding. We also amended the PDP Financing Facility and entered into the Second PDP Financing Facility and Third PDP Financing Facility, resulting in an overall increase to our Pre-delivery Credit Facilities from $365 million to $478 million. Lastly, we entered into an additional loan facility related to our headquarters building to fund an additional $6 million, bringing the financed total outstanding balance to $12 million.

Fleet - We continue to experience delays in the deliveries of Airbus aircraft, which may persist in future periods. During the three months ended September 30, 2024, we amended our Airbus Purchase Agreements which amended our aircraft delivery schedule. This amendment deferred previously scheduled firm aircraft delivery dates from 2025 through 2028 to later years, as well as converted certain A320neo aircraft into A321neo aircraft. Please refer to “Notes to Condensed Consolidated Financial Statement — 9. Commitments and Contingencies” for the amended delivery schedule.

Pratt & Whitney - Since 2022, we have begun to introduce aircraft into our fleet that use the Pratt & Whitney PW1100 Geared Turbo Fan (“GTF”) engine, and we have selected this engine for most of our planned future deliveries. During 2023, Pratt & Whitney announced the requirement, mandated by the FAA, for removal of certain engines for inspection due to a possible condition in the powdered metal used to manufacture certain engine parts. This will require accelerated inspection of the PW1100G engine, which we use for certain of our A320neo family aircraft. While this has not impacted our operations through September 30, 2024, these additional inspection and/or maintenance obligations could result in lengthy turnaround times to perform these inspections including any resulting repairs or other modifications that may be identified. This inspection program may have an adverse impact on our operations, particularly if we are required to temporarily take aircraft out of service. We continue to assess the impact on our future capacity plans and we are in communication with Pratt & Whitney regarding compensation related to this matter.

Legal - During the three months ended September 30, 2024, we agreed to settle a claim against a former aircraft lessor regarding a breach of contract, pursuant to which we received $40 million in damages. The settlement amount is final and may not be appealed by either party. For the three months ended September 30, 2024, the $40 million was recognized within other operating expenses on our condensed consolidated statements of operations. As of September 30, 2024, $40 million was included as a component of accounts receivable on our condensed consolidated balance sheets, and final cash proceeds were received in October 2024.

Labor - We are currently in negotiations with the unions which represent our pilots and flight attendants regarding their next labor contract.

Product - During the year, we launched BizFare, a new, cost-effective program for companies that includes benefits like a free carry-on, priority boarding, and Premium seating, with no fees for changes, cancellations, and same day standby. We also introduced UpFront Plus, offering extra legroom and a guaranteed empty middle seat in the first two rows for enhanced comfort and space. Further, The New Frontier introduced clear, upfront pricing and new options that include certain benefits like no change fees, bags, seat assignments, and more, along with expanded customer benefits and support.

Overview

The following table provides select financial and operational information for the three and nine months ended September 30, 2024 and 2023, respectively (in millions):

Revenues

Total operating revenues for the three months ended September 30, 2024 totaled $935 million, an increase of 6% compared to the three months ended September 30, 2023. This was primarily due to the 4% increase in capacity, as measured by ASMs, as well as a 2% increase in revenue per available seat mile (“RASM”). The increase in RASM is driven by 15% higher enplanements partially offset by 8% lower total revenue per passenger on a 14% decrease in average stage length as compared to the corresponding prior year period.

Total operating revenues for the nine months ended September 30, 2024 totaled $2,773 million, an increase of 3% compared to the nine months ended September 30, 2023. This was primarily due to the 8% increase in capacity, as measured by ASMs, partially offset by a 5% decrease in RASM driven by an 8% decline in total revenue per passenger, as compared to the corresponding prior year period.

Operating Expenses

Total operating expenses during the three months ended September 30, 2024 decreased to $916 million, resulting in a cost per available seat mile (“CASM”) of 9.10¢, a decrease of 6% compared to the three months ended September 30, 2023. Fuel expense was 10% lower, as compared to the corresponding prior year period. The $30 million decrease in fuel expense for the three months ended September 30, 2024, as compared to the corresponding prior year period, was primarily driven by the 13% decrease in fuel cost per gallon, partially offset by the 4% increase in fuel gallons consumed, as a result of our 4% capacity increase.

Our non-fuel expenses increased by 1% during the three months ended September 30, 2024, as compared to the corresponding prior year period, driven primarily by higher capacity and larger fleet size and the resulting increase in operations during the same period. This movement was partially offset by an increase in sale-leaseback gains and a legal settlement, as compared to the three months ended September 30, 2023. CASM (excluding fuel), a non-GAAP measure, decreased by 2% to 6.51¢ on a 4% increase in capacity for the three months ended September 30, 2024, as compared to the corresponding prior year period. This decrease was primarily due to the increase in sale-leaseback gains and a legal settlement. This movement was partially offset by increases in stations costs due to a lower stage length on higher departures and higher aircraft rent expense due to increases to the fleet size.

Adjusted (non-GAAP) CASM (excluding fuel) increased from 6.66¢ for the three months ended September 30, 2023 to 6.89¢ for the three months ended September 30, 2024. For the three months ended September 30, 2024, this excludes the impact of $38 million relating to the legal settlement. There were no adjustments for the three months ended September 30, 2023.

Total operating expenses during the nine months ended September 30, 2024 totaled $2,760 million, resulting in a CASM of 9.18¢, a decrease of 5% compared to the nine months ended September 30, 2023. Fuel expense was

$15 million lower, as compared to the corresponding prior year period. This 2% decrease in fuel expense for the nine months ended September 30, 2024, as compared to the corresponding prior year period, was primarily driven by the 8% decrease in fuel cost per gallon, partially offset by the 7% increase in fuel gallons consumed, as a result of our 8% capacity increase.

Our non-fuel expenses increased by 4% during the nine months ended September 30, 2024, as compared to the corresponding prior year period, driven primarily by higher capacity and larger fleet size and the resulting increase in operations during the same period, partially offset by an increase in sale-leaseback gains and a legal settlement. CASM (excluding fuel) decreased by 4% to 6.48¢ on an 8% increase in capacity for the nine months ended September 30, 2024, as compared to 6.73¢ in the corresponding period year period. This decrease was primarily due to the increase in sale-leaseback gains and a legal settlement, partially offset by higher station and crew costs due to a lower stage length on higher departures, and aircraft rent expense due to increases to the fleet size.

Adjusted CASM (excluding fuel) decreased from $6.72 for the nine months ended September 30, 2023 to $6.60 for the nine months ended September 30, 2024. For the nine months ended September 30, 2024, this excludes the impact of the $38 million relating to the legal settlement, and for the nine months ended September 30, 2023, this excludes the impact of $1 million in net transaction and merger-related costs.

Net Income (Loss)

We generated net income of $26 million during the three months ended September 30, 2024, compared to a net loss of $32 million for the three months ended September 30, 2023. Considering these aforementioned non-GAAP adjustments and related tax impacts, as well as the write-off of $1 million in unamortized deferred financing costs for the current year period, our adjusted (non-GAAP) net loss was $11 million for the three months ended September 30, 2024, as compared to an adjusted net loss of $32 million for the three months ended September 30, 2023.

We generated net income of $31 million during the nine months ended September 30, 2024, compared to net income of $26 million for the nine months ended September 30, 2023. Considering these aforementioned non-GAAP adjustments and related tax impacts, as well as the $5 million valuation allowance and the write-off of $1 million in unamortized deferred financing costs for the current year period, our adjusted net loss was $1 million for the nine months ended September 30, 2024, as compared to an adjusted net income of $27 million for nine months ended September 30, 2023.

For the reconciliation to the corresponding GAAP measures of the aforementioned non-GAAP adjusted 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” and “Results of Operations — 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”.

As of September 30, 2024, our total available liquidity was $576 million, made up of cash and cash equivalents, and we have $205 million of funds available to be drawn under our revolving loan facility.

Results of Operations

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

Operating Revenues

Total operating revenue increased $52 million, or 6%, during the three months ended September 30, 2024 as compared to the three months ended September 30, 2023, primarily driven by 4% capacity growth, as measured by ASMs, and a 2% increase in RASM. The increase in RASM is driven by the 15% higher enplanements partially offset by an 8% decline in total revenue per passenger and a 2-point reduction in load factor on a 14% decrease in average stage length. The lower total revenue per passenger was the result of lower ancillary revenue per passenger. The increase in capacity was driven by the 17% increase in average aircraft in service during the three months ended September 30, 2024, as compared to the three months ended September 30, 2023, partially offset by a 10% decrease in aircraft utilization as compared to the corresponding prior year period.

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. For the reconciliation to the corresponding GAAP measures of the aforementioned non-GAAP adjusted measures, see “Reconciliation of CASM to CASM (excluding fuel), Adjusted CASM (excluding fuel), Adjusted CASM, Adjusted CASM including net interest and CASM including net interest”.

Aircraft Fuel. Aircraft fuel expense decreased by $30 million, or 10%, during the three months ended September 30, 2024, as compared to the three months ended September 30, 2023. The decrease was primarily due to the 13% decrease in fuel cost per gallon, partially offset by the 4% increase in fuel gallons consumed, driven by higher capacity.

Salaries, Wages and Benefits. Salaries, wages and benefits expense increased by $15 million, or 7%, during the three months ended September 30, 2024, as compared to the three months ended September 30, 2023. The increase was primarily due to higher crew costs, driven primarily by elevated credit hours on higher capacity and other benefit costs, as well as an increase in headcount of salaried support staff, as compared to the corresponding prior year period.

Aircraft Rent. Aircraft rent expense increased by $27 million, or 18%, during the three months ended September 30, 2024, as compared to the three months ended September 30, 2023, primarily due to a 17% larger fleet.

Station Operations. Station operations expense increased by $31 million, or 23%, during the three months ended September 30, 2024, as compared to the three months ended September 30, 2023, primarily due to increased airport operations as a result of the 17% increase in departures and 15% increase in passengers partially offset by increased benefits from airport revenue and cost sharing arrangements.

Maintenance, Materials and Repairs. Maintenance, materials and repair expense increased by $5 million, or 10%, during the three months ended September 30, 2024, as compared to the three months ended September 30, 2023. This increase was primarily due to the 17% increase in average aircraft in service, which resulted in higher aircraft maintenance costs, partially offset by lower contract labor costs.

Sales and Marketing. Sales and marketing expense increased by $5 million, or 12%, during the three months ended September 30, 2024, as compared to the three months ended September 30, 2023, primarily due to the increase in credit card and third-party distribution channel fees as a result of a 6% increase in revenue. The following table presents our distribution channel mix:

Depreciation and Amortization. Depreciation and amortization expense increased by $6 million, or 46%, during the three months ended September 30, 2024, as compared to the three months ended September 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 $40 million during the three months ended September 30, 2024, compared to an expense of $40 million during the three months ended September 30, 2023. This movement was primarily driven by a legal settlement gain of $40 million and the increase in sale-leaseback gains, as a result of five aircraft inductions subject to sale-leaseback transactions in the current period, compared to three aircraft induction subject to sale-leaseback transactions in the corresponding prior year period.

Other Income (Expense). Other income decreased by $1 million, or 11%, during the three months ended September 30, 2024, as compared the three months ended September 30, 2023. The decrease was primarily due to the $1 million loss on extinguishment of debt from the write-off of unamortized deferred financing cost related to the PDP Financing Facility.

Income Taxes. Our effective tax rate for the three months ended September 30, 2024 was an expense of 3.7% on pre-tax income, compared to a benefit of 28.9% on a pre-tax loss for the three months ended September 30, 2023. 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.

Results of Operations

Nine Months Ended September 30, 2024 Compared to Nine Months Ended September 30, 2023

Operating Revenues

Total operating revenue increased $75 million, or 3%, during the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023. While capacity grew by 8%, as measured by ASMs, revenue was unfavorably impacted by a 5% decline in RASM due to the 8% decline in total revenue per passenger as well as a 6-point reduction in load factor, partially offset by a reduction in stage length of 12% on a 12% increase in passengers. The increase in capacity was driven by the 16% increase in average aircraft in service during the nine months ended September 30, 2024, as compared to the nine months ended September 30, 2023, partially offset by a 7% decrease in average daily aircraft utilization to 10.6 hours per day compared to 11.4 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) This metric is not calculated in accordance with GAAP. For the reconciliation to the corresponding GAAP measures of the aforementioned non-GAAP adjusted measures, see “Reconciliation of CASM to CASM (excluding fuel), Adjusted CASM (excluding fuel), Adjusted CASM, Adjusted CASM including net interest and CASM including net interest”.

Aircraft Fuel. Aircraft fuel expense decreased by $15 million, or 2%, during the nine months ended September 30, 2024, as compared to the nine months ended September 30, 2023. The decrease was primarily due to the 8% decrease in fuel cost per gallon, partially offset by the 7% increase in fuel gallons consumed, driven by higher capacity.

Salaries, Wages and Benefits. Salaries, wages and benefits expense increased by $78 million, or 12%, during the nine months ended September 30, 2024, as compared to the nine months ended September 30, 2023. The increase was due to higher crew costs, driven primarily by elevated credit hours on higher capacity and other benefit costs, as well as an increased headcount of salaried support staff, as compared to the corresponding prior year period.

Aircraft Rent. Aircraft rent expense increased by $54 million, or 13%, during the nine months ended September 30, 2024, as compared to the nine months ended September 30, 2023, primarily due to a larger fleet, partially offset by a decrease in aircraft lease return costs.

Station Operations. Station operations expense increased by $83 million, or 22%, during the nine months ended September 30, 2024, as compared to the nine months ended September 30, 2023, primarily due to increased airport operations as a result of the 19% increase in departures and 12% increase in passengers partially offset by increased benefits from airport revenue and cost sharing arrangements.

Maintenance, Materials and Repairs. Maintenance, materials and repair expense decreased by $1 million, or 1%, during the nine months ended September 30, 2024, as compared to the nine months ended September 30, 2023. This decrease was primarily due to lower contract labor, partially offset by a 16% increase in average aircraft in service, which resulted in higher aircraft repair and maintenance costs.

Sales and Marketing. Sales and marketing expense increased by $8 million, or 6%, during the nine months ended September 30, 2024, as compared to the nine months ended September 30, 2023, primarily due to an increase in customer reservation system fees and increase in paid media advertising. The following table presents our distribution channel mix:

Depreciation and Amortization. Depreciation and amortization expense increased by $17 million, or 47%, during the nine months ended September 30, 2024, as compared to the nine months ended September 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 $42 million during the nine months ended September 30, 2024, compared to an expense of $120 million during the nine months ended September 30, 2023. This movement was primarily driven by a legal settlement gain of $40 million and the increase in sale-leaseback gains, as a result of 17 aircraft inductions subject to sale-leaseback transactions in the current period, compared to seven aircraft inductions subject to sale-leaseback transactions in the corresponding prior year period.

Other Income (Expense). Other income decreased by $4 million, or 15%, during the nine months ended September 30, 2024, as compared the nine months ended September 30, 2023. The decrease was primarily due to lower interest income from lower balances in interest-bearing cash accounts and the $1 million loss on extinguishment of debt from the write-off of unamortized deferred financing cost related to the PDP Financing Facility.

Income Taxes. Our effective tax rate for the nine months ended September 30, 2024 was an expense of 11.4%, compared to an expense of 0% for the nine months ended September 30, 2023, on pre-tax income for both periods. The primary difference between the effective tax rate and the federal statutory rate for the nine months ended September 30, 2024 is related to a decrease in our valuation allowance relating to federal and state net operating losses, partially offset by the impact of non-deductibility of certain executive compensation and other employee benefits. Please refer to “Notes to Condensed Consolidated Financial Statements—11. Income Taxes” for additional information.

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) We reached a legal settlement with a former lessor for breach of contract for a total of $40 million (please refer to “Notes to Condensed Consolidated Financial Statement — 9. Commitments and Contingencies” for additional information). $38 million of the settlement represents a one-time reimbursement of damages incurred and $2 million relates to the reimbursement of previously recorded legal expenses.

(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) In September 2024, we reduced the capacity of the PDP Financing Facility from $365 million to $135 million. The downsize of the facility resulted in a one-time write-off of $1 million in unamortized deferred financing costs. This amount is a component of interest expense within the condensed consolidated statements of operations.

(f) 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.

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) We reached a legal settlement with a former lessor for breach of contract for a total of $40 million (please refer to “Notes to Condensed Consolidated Financial Statement — 9. Commitments and Contingencies” for additional information). $38 million of the settlement represents a one-time reimbursement of damages incurred and $2 million relates to the reimbursement of previously recorded legal expenses.

(d) Represents $1 million in employee retention costs incurred in connection with the terminated merger with Spirit Airlines, Inc., for the nine months ended September 30, 2023.

(e) 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.

(f) In September 2024, we reduced the capacity of the PDP Financing Facility from $365 million to $135 million. The downsize of the facility resulted in a one-time write-off of $1 million in unamortized deferred financing costs. This amount is a component of interest expense within the condensed consolidated statements of operations.

(g) 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.

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.

(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 nine months ended September 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.

Comparative Operating Statistics

The following table sets forth our operating statistics for the three and nine months ended September 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).

Liquidity and Capital Resources

Overview

As of September 30, 2024, our total available liquidity was $576 million, made up of cash and cash equivalents, and we have $205 million of funds available to be drawn under our Revolving Loan Facility. We had $469 million of total debt, net, of which $190 million is short-term and consists primarily of amounts outstanding under our Pre-delivery Credit Facilities. Our total debt, net is comprised of $296 million outstanding under our Pre-delivery Credit Facilities, $100 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 $12 million in secured indebtedness for our headquarters building, partially offset by $5 million in deferred debt acquisition costs.

In September 2024, we entered into a series of transactions designed to provide us with a revolving line of credit available for general corporate purposes as well as increased capacity for financing facilities intended to fund aircraft PDPs. The new pre-delivery credit facilities, which consist of the Second PDP Financing Facility and the Third PDP Financing Facility, in addition to the pre-existing PDP Financing Facility, increased overall borrowing capacity from $365 million to $478 million. We also entered into the Revolving Loan Facility, which provided $205 million of commitments secured by our loyalty program and brand-related assets which was undrawn as of September 30, 2024.

During the nine months ended September 30, 2024, we increased our borrowings under the Barclays agreement by an additional $20 million. Additionally, during the nine months ended September 30, 2024, we repaid the remaining outstanding balance, inclusive of any unpaid principal, interest and other amounts related to our previous headquarters note and subsequent to the payoff of the headquarters note, we entered into multiple loan agreements in the total amount of $12 million with a different lender secured by our headquarters. 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 September 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)

38

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 Pre-delivery Credit Facilities, 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 Pre-delivery Credit Facilities, our undrawn Revolving Loan Facility and/or potential issuances of debt or equity. The Revolving Loan Facility also permits us to enter into additional indebtedness secured by our loyalty program and brand-related assets, to the extent such indebtedness is pari passu to that of the Revolving Loan Facility. 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 September 30, 2024, we operated all of our 153 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 September 30, 2024, our Pre-delivery Credit Facilities, which allow us to draw up to an aggregate of $478 million, had $296 million outstanding. As of September 30, 2024, we had $390 million of PDPs held by Airbus which have been partially financed by our Pre-delivery Credit Facilities.

As of September 30, 2024, we had a firm obligation to purchase 193 A320neo family aircraft and 13 additional spare engines to be delivered by 2031. Of our aircraft commitments, 23 had committed operating leases for deliveries occurring between 2024 and 2026, and 12 were subject to non-binding letters of intent to provide operating lease financing for 2024 and 2025 deliveries. We intend to evaluate financing options for the remaining aircraft.

During the nine months ended September 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 September 30, 2024.

The following table summarizes current and long-term material cash requirements as of September 30, 2024, which we expect to fund primarily with operating and financing cash flows (in millions):

(a) Includes principal commitments only associated with our Pre-delivery Credit Facilities with borrowings as of September 30, 2024 pertaining to aircraft with deliveries through 2027 and certain deliveries in 2028, our affinity card unsecured debt due through 2029, our building notes through September 2031 and the PSP Promissory Notes due through 2031. See “Notes to Condensed Consolidated Financial Statements — 6. Debt”.

(b) Represents interest and commitment fees on debt obligations and our undrawn Revolving Loan Facility.

(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”.

Cash Flows

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

Operating Activities

During the nine months ended September 30, 2024, net cash used in operating activities totaled $169 million, which was driven by non-cash adjustments of $149 million and $51 million of outflows from changes in operating assets and liabilities, partially offset by $31 million of net income.

The $51 million of outflows from changes in operating assets and liabilities included:

• $142 million in increases in other long-term assets primarily driven by increases in prepaid maintenance, capitalized maintenance and supplier incentives; and
• $53 million in increases in accounts receivable primarily from a legal settlement; partially offset by
• $82 million in decreases in our capitalized aircraft maintenance deposits;
• $39 million in increases in our air traffic liability primarily driven by increased bookings, partially offset by lower fares on bookings;
• $17 million in increases in other liabilities driven primarily by leased aircraft return accruals and passenger taxes payable;
• $4 million in decreases in supplies and other current assets; and
• $2 million in increases in accounts payable.

Our net income of $31 million was also adjusted by the following non-cash items to arrive at cash used in operating activities:

• $218 million in gains recognized on sale-leaseback transactions; partially offset by
• $53 million in depreciation and amortization;
• $12 million in stock-based compensation expense;
• $3 million in deferred income tax expense; and
• $1 million loss on extinguishment of debt.

During the nine months ended September 30, 2023, net cash used in operating activities totaled $207 million, which was driven by $183 million of outflows from changes in operating assets and liabilities and non-cash adjustments totaling $50 million, partially offset by $26 million of net income.

The $183 million of outflows from changes in operating assets and liabilities included:

• $132 million in increases in other long-term assets driven by increases in capitalized maintenance, prepaid maintenance, prepaid bonuses and capitalized interest;
• $50 million in decreases in other liabilities driven primarily by leased aircraft return payments;
• $18 million in increases in supplies and other current assets;
• $13 million in increases in aircraft maintenance deposits; and
• $6 million in decreases in our air traffic liability; partially offset by
• $24 million in increases in accounts payable; and
• $12 million in decreases in accounts receivable due to the collection of station receivables.

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

• $97 million in gains recognized on sale-leaseback transactions; partially offset by
• $36 million in depreciation and amortization;
• $10 million in stock-based compensation expense; and
• $1 million in amortization of cash flow hedges, net of tax.

Investing Activities

During the nine months ended September 30, 2024, net cash used in investing activities totaled $46 million, driven by:

• $62 million in cash outflows for capital expenditures; and
• $1 million in cash outflows relating to other investing activity; partially offset by
• $17 million in net proceeds for PDP activity.

During the nine months ended September 30, 2023, net cash used in investing activities totaled $91 million, driven by:

• $52 million in net outflows for PDP activity;
• $37 million in cash outflows for capital expenditures; and
• $2 million in cash outflows relating to other investing activity.

Financing Activities

During the nine months ended September 30, 2024, net cash provided by financing activities was $182 million, driven by:

• $418 million in cash proceeds from debt issuances, consisting of $386 million of net borrowings on our Pre-delivery Credit Facilities, $12 million in new borrowing on our building note and $20 million in draws on our Barclays facility;
• $185 million in net proceeds received from sale-leaseback transactions; and
• $1 million in proceeds from the exercise of stock options; partially offset by
• $420 million in cash outflows from principal repayments on debt, which includes $404 million on our Pre-delivery Credit Facilities and $16 million on our prior building note that reached maturity; and
• $2 million in cash outflows for payments related to tax withholdings of share-based awards.

During the nine months ended September 30, 2023, net cash provided by financing activities was $177 million, primarily driven by:

• $124 million in net proceeds received from sale-leaseback transactions; and
• $141 million in cash proceeds from debt issuances, consisting of $132 million drawn on our PDP Financing Facility, net of issuance costs, and $9 million in draws on our Barclays facility; partially offset by
• $84 million in cash outflows from principal repayments on our PDP Financing Facility and our headquarters building; and
• $5 million in cash outflows for payments related to tax withholdings of share-based awards.

As of September 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.

Critical Accounting Policies and Estimates

There have been no material changes in our critical accounting policies and estimates during the nine months ended September 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 28% and 29% of total operating expenses for the three and nine months ended September 30, 2024, respectively, and 31% of total operating expenses for each of the three and nine months ended September 30, 2023. 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 September 30, 2024, a hypothetical 10% increase in the average price per gallon of aircraft fuel would have increased aircraft fuel expense by approximately $112 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, Second PDP Financing Facility and Revolving Loan Facility, which remains undrawn as of September 30, 2024, as well as Effective Federal Funds Rate (“EFFR”) based interest rates on our affinity card advance purchase of miles with Barclays. During the nine months ended September 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 $3 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 nine months ended September 30, 2024 and 2023, we did not enter into any swaps and, therefore, paid no upfront premiums for interest rate hedges. As of September 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 September 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 September 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 September 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.