Frontier (ULCC) Q3 2026 Earnings Call Transcript

DATE

Wed, Oct. 28, 2026

CALL PARTICIPANTS

• Senior Director of Investor Relations - David Erdman
• President and Chief Executive Officer - James G. Dempsey
• Chief Commercial Officer - Robert A. Schroeter
• Chief Financial Officer - Mark C. Mitchell

TAKEAWAYS

• Total Operating Revenues -- Total operating revenues reached $1.355 billion, representing a 53% increase versus the corresponding 2025 quarter.
• Adjusted Non-GAAP EPS -- Adjusted diluted earnings per share was $0.18, exceeding management's guidance despite significantly higher fuel prices during the period.
• RASM Growth -- Revenue per available seat mile (RASM) rose 30% to 11.87 cents, driven by strong leisure travel demand and the execution of revenue management initiatives.
• Capacity Growth -- Available seat miles (ASMs) increased 18% to 11.4 billion, while the flown load factor decreased 1.9 percentage points to 78.8%.
• Adjusted Net Income -- Adjusted net income was $40 million for the quarter, compared to an adjusted net loss of $77 million in the prior year quarter.
• Fuel Expense -- Average fuel cost per gallon increased 56% to $3.96, resulting in total fuel expenses of $425 million and approximately $150 million in incremental year-over-year expense.
• Adjusted CASM Ex-Fuel -- Adjusted CASM excluding fuel, stage-adjusted to 1,000 miles, declined 2.5% to 7.40 cents when excluding sale and leaseback gains.
• Total Revenue Per Passenger -- Total revenue per passenger increased 30% to $138.22, reflecting a 71% rise in fare revenue per passenger to $67.82.
• Liquidity Position -- Total liquidity ended the quarter at $1.18 billion, comprised of unrestricted cash and revolving credit facility availability.
• Loyalty Revenue Performance -- Loyalty-related revenue increased 37% year over year, supported by higher engagement in membership programs and co-brand credit card spending.
• Fleet Rightsizing Transactions -- Management finalized agreements to early return 13 A320neo aircraft and replace them with direct leases for 10 newer, larger A321neo aircraft.
• Leverage Ratio Improvement -- The leverage ratio declined to just over 4x adjusted EBITDAR on a trailing 12-month basis, down from 7x at the end of 2025.
• Q4 Earnings Guidance -- Management projected fourth quarter adjusted diluted earnings per share to range from a loss of $0.15 to a profit of $0.05.
• Q4 RASM and Capacity Guidance -- Fourth quarter RASM is expected to increase over 20% on capacity growth of 5% to 6% versus the fourth quarter of 2025.
• Q4 Fuel Cost Projection -- Estimated average fuel cost for the fourth quarter is $4.75 per gallon, which is $1.25 higher than the prior guidance range.
• Cost Savings Target -- The company remains on track to deliver $200 million in annual run rate cost savings by 2027 through fleet productivity and operational execution.
• Capital Expenditure Forecast -- Full year 2026 other capital expenditures, including capitalized heavy maintenance, are estimated between $170 million and $195 million.
• Maintenance Savings Forecast -- Fleet rightsizing initiatives are expected to generate approximately $400 million in net maintenance savings over the next five years.
• Fleet Composition Projections -- The company ended the quarter with 164 aircraft, with the A321neo model expected to represent 60% of the total fleet by the end of 2026.
• 2027 Capacity Outlook -- Management provided a preliminary estimate for 2027 capacity growth of 5% to 7% as it focuses on maturing its existing network.

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RISKS

• Dempsey stated, "During the summer, we had some noise around ACC and weather like every airline. And it showed the fragility of the operation," referring to the impact of volatile conditions on operational reliability.
• Mitchell warned that the expected fourth quarter average fuel cost of $4.75 per gallon represents an increase of "over $100 million from our prior guidance," serving as a material cost headwind.
• Dempsey noted that "the supply chain got in the way of getting that competency into a lot of the airports," which delayed the implementation of maintenance planning improvements earlier in the year.

SUMMARY

Frontier Group Holdings, Inc. (NASDAQ:ULCC) reported record third quarter revenue driven by strong leisure demand and improved revenue management. Management stated that the company is transitioning from a period of high capacity growth to a model focused on maturing its existing network, improving unit revenues, and enhancing operational reliability. The airline is executing a fleet rightsizing plan to replace older aircraft with larger, more efficient models while introducing premium seating and high-speed connectivity to diversify revenue streams. Despite significant fuel price increases, the company achieved adjusted profitability and improved its leverage profile through cost discipline and strategic capacity adjustments.

• Dempsey noted that shifting toward "slower growth to create stability in the revenue base" and the operating platform is a primary strategic objective.
• The company will begin installing first class seating this quarter, with sales expected to commence toward the end of the first quarter of 2027.
• Starlink Wi-Fi installation is scheduled to begin in the first quarter of 2027, which Schroeter described as a "game changer" for the customer experience and value proposition.
• Management backfilled approximately one quarter of the capacity exited by Spirit Airlines, focusing on markets deemed most accretive to Frontier's portfolio.
• Operational reliability improved in September and early October, with the company's completion factor ranking third among domestic U.S. carriers.
• Mitchell indicated that the airline's primary unencumbered asset is its loyalty pool, which provides potential financing opportunities in the capital markets.

INDUSTRY GLOSSARY

• A14: An operational metric measuring the percentage of flights that arrive at the gate within 14 minutes of the scheduled arrival time.
• ASM (Available Seat Mile): A measure of an airline's carrying capacity, calculated by multiplying the number of seats available for passengers by the number of miles flown.
• CASM (Cost per Available Seat Mile): A standard industry unit cost metric representing the operating expenses divided by the total available seat miles.
• EBITDAR: Earnings before interest, taxes, depreciation, amortization, and aircraft rent; used to compare airlines with different aircraft financing structures.
• Load Factor: The percentage of available seating capacity that is filled by passengers.
• PDP (Pre-delivery Payments): Progress payments made to aircraft manufacturers during the construction phase of an aircraft before final delivery.
• RASM (Revenue per Available Seat Mile): A measure of unit revenue calculated by dividing total operating revenue by available seat miles.
• Stage-Length Adjusted: A calculation that normalizes airline unit costs or revenues to a standard distance, such as 1,000 miles, to allow for more accurate comparisons between carriers.

Full Conference Call Transcript

Operator: Oh, Hello everyone. Thank you for joining us, and welcome to Frontier Group Holdings Q3 2026 Earnings Call. After today's prepared remarks, we will host a Q&A session. If you would like to ask a question, please press *1. To raise your hand. To withdraw your question, press 1 again. I will now hand the conference over to David Erdman. Senior director of investor relations. David? Please go ahead.

David Erdman: Thank you, and good morning. Welcome to our Group Holdings third quarter 26 earnings call. Joining me today and speaking to order are Jimmy Dempsey, President and Chief Executive Officer Bobby Schroeder, chief commercial officer, and Mark C. Mitchell, chief financial officer. Each will deliver brief prepared remarks and then we will open the call for questions. However, before we begin, I will remind you that today's discussion will include forward looking statements subject to risks and uncertainties. And we will be referring to certain non GAAP financial measures during the call. Reconciliations can be found in the earnings release issued earlier today and on our Investor Relations website.

We will also be referencing stage adjusted unit metrics, which are based on a conversion to 1 thousand miles. So I will give the call over to Jimmy to prepare-- to begin his prepared remarks. Jimmy?

James G. Dempsey: Thanks, David, and good morning, everyone. Our third quarter results represent another meaningful step forward in Frontier's transformation. The team delivered record revenue, exceptional unit revenue performance, adjusted profitability in a high fuel price environment. This performance demonstrates that the changes we are making across the business are positioning the business for sustained profitability. I want to begin by thanking Team Frontier for all their efforts in helping us to make progress and execute on our transformation plan. Their focus on safety, operational execution, and customer experience is fundamental to our success. We are moving with urgency, we are doing so with the discipline required to build a stronger and more durable airline.

Third quarter revenue of $1.4 billion was a company record. Up 53% year over year. With RASM growth of 30% on an 18% increase in capacity. Adjusted diluted earnings per share was $0.18 above the high end of our guidance range, as our revenue performance more than absorbed incremental fuel headwind. Adjusted pretax margin improved nearly 12 percentage points year over year, to 3%. Despite absorbing a 56% increase in fuel price. Our fleet rightsizing work is now substantially complete. During the quarter, we finalized agreements to early return 13 a 23 NEO aircraft and replaced that capacity with direct leases for 10 newer, larger, and more cost efficient A321neo aircraft.

Our fleet rightsizing transaction transactions ensure measured growth, considerably lower future maintenance obligations, lower financial leverage and better gauge dynamics for the business. On cost discipline, we remained on track to deliver $200 million of annual run rate cost savings by 2027. Including the benefits from a more productive fleet. To this end, our adjusted unit costs, excluding fuel and sale and leaseback gains, are down approximately 2.5% year over year. Operationally, we are making meaningful progress to build a more reliable airline, through improved maintenance planning, stronger station capabilities, and more consistent execution. Following volatile weather in most of July and August, our completion factor in September and through October month to date ranked third among domestic carriers.

While this demonstrates significant progress, we are focused on improving the level of consistency in the delivery of the operation. The results we announced today also demonstrate the continued progress we are making with revenue management and customer loyalty. Including the strong response to our premium offerings. First class seat installation begins this quarter, with Starlink Wi Fi installation beginning in the first quarter. Diversifying the revenue base and enhancing our value proposition. Looking ahead, we expect the commercial momentum to continue, RASM for the fourth quarter is expected to be up over 20% on capacity growth of 5% to 6%. Which will be our fourth consecutive quarter of double digit unit revenue growth.

Helping us mitigate the elevated fuel costs expected during the fourth quarter. Our performance reflects the successful progression of the company's strategic initiatives set out earlier this year. It gives us confidence in our ability to translate our momentum into sustained profitability With that, I will turn the call over to Bobby.

Robert A. Schroeter: Thanks, Jimmy. Third quarter RASM increased 30% year over year to 11.87¢ on capacity growth of 18%. Total revenue per passenger also rose 30% to approximately $138, while load factor declined modestly by 2 percentage points, highlighting our focus on proactively adjusting our strategy to maximize results in the current environment. Importantly, the strength in RASM extended across the week as we reintroduced off peak capacity. The positioning of our network has enabled us to take advantage of a more favorable supply demand dynamic in our markets. And in conjunction with our continued revenue management discipline is leading to an outsized revenue improvement. Importantly, we are delivering these results ahead of the First Class and Starlink rollouts Jimmy mentioned.

Those investments will build on the progress we are already making, giving customers more choice and broadening our appeal to leisure and small business travelers. See further opportunities to increase revenue per passenger and build loyalty while maintaining the cost discipline that supports our low fares. Contributing to our revenue performance is a 37% year over year improvement in loyalty related revenue, supported by growth in our co brand card and membership programs along with higher engagement and spending. These programs give customers more reason to choose Frontier and return more often, and they provide recurring revenue streams that diversify our revenue mix and support more resilient earnings.

Looking ahead, we expect our commercial momentum to continue into the fourth quarter, with RASM increasing more than 20% year over year on capacity growth of 5% to 6%. With that, I will turn it over to Mark.

Mark C. Mitchell: Thanks, Bobby. Adjusted net income was $40 million during the third quarter, or $0.18 per diluted share meaningfully above our previously issued guidance. Fuel expense was $425 million at an average cost of $3.96 per gallon. The average cost per gallon reflects an increase of 56% versus the corresponding 2025 quarter or approximately a $150 million of incremental expense on current quarter fuel consumption. Adjusted operating expenses excluding fuel were $896 million or 7.4¢ stage-adjusted, 3% higher year over year. However, as Jimmy mentioned, excluding sale leaseback gains, adjusted CASM ex fuel declined approximately 2.5% on a stage adjusted basis driven by efficiencies from our fleet rightsizing and other cost savings initiatives.

We ended the quarter in a strong liquidity with $1.18 billion up slightly from the end of the second quarter. Due in large part to our fleet rightsizing and other strategic initiatives our leverage ratio declined meaningfully from 7x adjusted EBITDAR at the end of 2 thousand 25 to just over 4x on a trailing 12 month basis at the end of September. We ended the quarter with a 164 Airbus aircraft following the delivery of 1 A320neo and 3 A321neo aircraft, 2 fewer than expected. We also returned all 13 A320neo aircraft under the most recent early return agreement with 5 returns in the third quarter of 2026 and the remainder in October.

In the fourth quarter, we expect to take delivery of 2 A321neo aircraft from our order book and 5 of the 10 A321neo aircraft under direct lease transactions with AerCap. The remaining 5 direct lease aircraft are expected in the first quarter of 2027. Separately, we expect to take delivery in the fourth quarter of 3 of the 11 aircraft being sold to Avalon, with the remaining 8 expected to be received and sold to Avalon in the first half of 2027. The gains from the sale of the 11 aircraft to Avalon will be excluded from our non GAAP results.

The fleet actions associated with the latest early return agreement result in nonrecurring charges of $134 million in the third quarter, including lease return costs, accelerated depreciation related to capitalized maintenance, due to shortened useful lives, and the write off of nonrecoverable capitalized prepaid maintenance balances. These nonrecurring charges were excluded from our non GAAP results. Turning to guidance. We expect fourth quarter adjusted diluted earnings per share to range from a loss of $0.15 to a profit of $0.05 based on an expected average fuel cost of $4.75 per gallon up $1.25 or over $100 million from our prior guidance, on capacity growth of 5% to 6% year over year.

RASM is expected to be up over 20% versus the prior year quarter, which would be our fourth consecutive quarter of double digit growth. Operator, we are ready to open the line for questions.

Operator: We will now begin the Q&A session. Please limit yourself to 1 question and 1 follow-up. If you would like to ask a question, please press *1 to raise your hand. To withdraw your question, press *1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Savanthi Syth with Raymond James. Your line is open. Please go ahead.

Savanthi Syth: Hey. Good morning. Can I impress with revenue performance there? And can I have loyalty I was curious, some time ago, you about that loyalty opportunity on a per-passenger basis? And wonder if you could give an update on where you are a credit card revenue or loyalty as a whole on a per passenger basis. And, again, thoughts on where that can get to in the next 12 to, you know, 18 months.

James G. Dempsey: Yeah. I mean, I would actually build more towards, like, 3 to 5 years. We are building a loyalty program, David, that we are we are we are creating a more stable diversified revenue base for the airline. And we are certainly seeing the loyalty program perform exceptionally well. I mean, the year over year performance across all of our programs the Barclaycard card and then the membership programs is performing exceptionally well. We are not going to give you exact targets over the next number of years. But we can certainly see on a per passenger basis this going into double digit territory. In the next 3 to 5 years. I think it is.

You know, the enhancement of premium products into the business will only improve the performance in the loyalty program. Really what we are after as a business is creating reliability in our customers' eyes. And, you know, Frontier has for many years, you know, struggled during peak periods. With completion factor and A14. 1 of the things that we said about at the beginning of this year was fixing the operation in the airline to create reliability into the airline. We are actually moving positively towards that. During the summer, we had some noise around ACC and weather like every airline. And it showed the fragility of the operation.

Where you had day after day of ATC and weather noise and that affects. That needs to be fixed in order to create that reliability in the customer's eyes. That then will drive real loyalty into the business going forward. Allied to the to the premium products that we are bringing in. So we are pretty excited about where we are going. If you look at the last couple of months, the operation performed really well. And you are seeing the revenue base of the airline perform exceptionally well. And loyalty is a is a big contributor to that year over year.

Savanthi Syth: Got it. And if I might follow-up on that, just I think in a you know, recent interview, Jimmy, you had mentioned, you know, the complication of fixing the operation is just because we had to do it across the whole fleet and across bases. Where are you in terms of you know, is it-- do you go base by base, or is it just a little bit across all the bases? Or what is the progress on getting that? And do you still expect it by the end of 27 to get where you want to?

James G. Dempsey: Yeah. I mean, we are getting into the weeds here, but, I mean, I would say a couple of things. We planned on having a better more capable maintenance footprint across the airline running into the summer. And the supply chain is not an excuse, but the supply chain got in the way of getting that competency into a lot of the airports that we have our base maintenance happening. Actually got that competency in place in late September, early October. So what we are seeing at the moment is really a step change. You are seeing our completion factor. Move into the top 3 across the industry.

Now we have seen pretty benign weather over the last couple of months. But we are certainly seeing the completion factor in the airline perform really, really well. The next step is really to fix A14 and get the start up at the beginning of every day, the first wave, operating more efficiently and more effectively. And that is in progress. We are spending a lot of time modernizing the architecture of the airline in the background. So a lot of the stuff that is you guys will never ever see but we are we are. That will take through the first half of next year.

And, look, my ambition is to have the airline operating the platform in a really strong position go. Going through next summer. And, you know, when I talk about competency in stations, I am talking about parts and tooling, and people in the stations and having them in place across the summer. that is all in a very strong position, and you are seeing the performance as a result of it. that is helpful. Thank you.

Operator: Your next question comes from the line of Atul Maheswari With UBS. Your line is open. Please go ahead.

Atul Maheswari: Good morning. Thanks a lot for taking my question. Jimmy, on the last call, you spoke about plans for high single to maybe 10% capacity. Growth for next year? But since then, fuel's obviously moved higher, so I am wondering if you have any updated thoughts on your capacity plans for next year. And then related to that, where do you plan to deploy capacity growth next year? Is it primarily in previous market or have those opportunities already been tapped out?

James G. Dempsey: Yeah, look, I think our capacity growth-- I mean, we have got to go through planning for next year. I mean, we will have a better sense of it when we come back in our next call in the New Year. But I suspect that somewhere in the 6%, 7%, 8% zone. Going into next year. it is obviously dependent on where fuel price is. Migrate to over the coming months. And through next year. We are very conscious of that. If you recall, like, earlier this year, we set up a set about a plan of bringing productivity back into the airline across this year.

And with the onset of the Iranian conflict and oil prices rising, we took some capacity out in order to manage through the summer period. Continue that dynamic of productivity back in the airline where we see it makes sense. And also deploying the capacity growth to the airline. And I think, look, 10%-- see it at about 5% to 7% capacity growth next year. On your second question of where-- I mean, we are You know, obviously, we are going to mature our network that exists today and add to it. And we would like 5% to 7% capacity growth. You are not gonna see a meaningful change overall in the network. Deployment in the airline.

We position the airline very effectively. Earlier this year to take advantage of continued reductions in capacity by Spirit Airlines. That has proven to be very successful as we progress through this year. We will continue to look at opportunities that exist as we roll into next year.

Atul Maheswari: Got it. that is very helpful. And this is my follow-up. Just sticking to this for your topic? Like, are you able to quantify the RASM lift in the third quarter from lack of Spirit? And what is your expectation for the fourth quarter? And then really, what are you seeing in those expert markets that you have entered from a competitive standpoint currently?

James G. Dempsey: Well, we see supply demand dynamic really positive across the business at the moment. Both in ex spirit markets and just across the entire environment. You know, we all overlapped with about 30% of our business overlapped with Spirit earlier this year. And so, yeah, it is it is it is helpful to the business, but I think the airline is run-- is moving beyond that structural change. I mean, you look at the performance from a RASM trajectory, we have done a loss in our revenue management systems to improve the delivery of better unit revenues into the business. That started this time last year. And so we have seen real progress on that.

And if you looked at the airlines, I talked about this in the last call, you looked at the airline running into the Iranian crisis, we were up high single. Or high teens in terms of RASM. Year over year in Q1. You have seen that obviously advance with the fare environment that is developed. With higher fuel and also the structural change that happened with Spirit. We feel pretty good about where the airline sits today and moving forward. This is all prior-- like, Bobby mentioned this in his transcript. This is all prior to advancement in premium products that the airline is pushing towards.

Like, we are eminently going to get first class seats in place across the airline. We delay that process. We have had those first class seats. Delay that process in order to get the rightsizing of the fleet done. This year. And so that process is happening as we speak. And then in addition, we add Starlink pretty soon. And I am really excited about adding Starlink to the business. You know, we have-- if you look at other airlines, they have connectivity and they are moving to Starlink or Amazon, Leo. And that is a game changer in terms of connectivity. You look at our business, we have no connectivity today.

And we are moving to the best product out there for connectivity on an aircraft in Starlink. And so we feel really excited that our existing customer base is going to embrace that product really, really successfully. And then widen the aperture in terms of the addressable market for Frontier, providing really good value customers across The US. And adding these premium products into-- into the into the airline. We feel pretty good about the future in terms of unit revenues. Thank you.

Operator: Your next question comes from the line of Brandon Oglenski with Barclays Capital Inc. Your line is open. Please go ahead.

Brandon Oglenski: Hey. Good morning, and thanks for taking the question. Jimmy, can you just help us out on the fleet now? Because I think with all the transactions, you should be roughly flat from a shell count into next year. Is that correct? And then maybe talk about expectations as we look out in 2028 and 2029.

James G. Dempsey: I will let Mark bring you through it in a second, Brandon. But look, we. You know, the objective here in the airline was to have approximately the same fleet entering into 2026, that ends 2028. Right? And so. And what we are doing with capacity growth is really in filling productivity into the airline and actually very successfully in filling productivity into the airline. And that adds, like, the. If you are looking at the capacity growth this year, you are seeing, you know, us infill that capacity across the week. You are you are not perfectly flat across the week. You are certainly flattening the week in terms of activity during the week.

And so that is the objective. You build the productivity into the airline. We are a little bit behind on that because of the Iranian crisis in terms of driving productivity back in the year. We have made a big leap forward We need to make a few leaps forward from here. And that is what drives your 7% or 6% growth next year. Probably something similar in 2028. And that kind of 5, 6, 7, 8%, zone. Without actually adding that many aircraft to the fleet. So this is all basically utilization of the existing asset base and that is 1 of the reasons why we are getting such good productivity and unit cost improvement.

If you exclude, like, fuel and exclude all the sale and leasebacks that happened last year versus this, and this year, we are actually seeing real productivity build back into the business and the benefit of having both higher gauge aircraft. And also, you know, more utilization.

Mark C. Mitchell: Yeah. And just, yeah, to confirm, you know, on top of what Jimmy just said, So yeah, Brandon, the fleet, where we sit at the end of September, 164, you know, based upon what is on the books. End of 2020 similar number, just as you as you mentioned. And then I think, you know, just to give a little bit more color on the mix, we ended 2025 with 46% of the fleet being 23 ones. The end of the third quarter, 55%. We will end the year at about 60%. So, meaningful gauge improvement you know, in the business. 2028 is when we start, you know, taking deliveries again from our order book. Okay.

Brandon Oglenski: Appreciate that. And then, Mark, can you speak to liquidity, especially as you look out into 2027? I think your cash balance did not change all that much into the third quarter. But how do we think about ongoing CapEx pre delivery payments potentially or lack thereof? As well as, you know, potential maintenance expense as well.

Mark C. Mitchell: Yeah. So, I mean, I think if you look at liquidity, sir, liquidity is up slightly, you know, from the second quarter. So we sit in the a strong position with nearly, you know, $1.2 billion of, you know, total liquidity. You know, we are not guiding, you know, 27, but based upon, you know, the trajectory we are on, and we think, you know, we are on a good trajectory, You know, we are certainly focused on, you know, growing, you know, that liquidity balance.

And when you think about, you know, the maintenance obligations, so, as we know, continue to step forward, I think you will see some, you know, measured growth in that CapEx, but I think it is important to understand that with the fleet transactions that we did, with all the fleet rightsizing, to the 37 aircraft, you know, that have been, returned this year, on a net basis over the next 5 years, that, you know, is somewhere in the neighborhood of, you know, $400 million, you know, of maintenance savings.

Operator: Your next question comes from the line of John Godyn with Citigroup. Your line is open. Please go ahead.

Analyst: Hey, guys. Thanks for taking my question. it is not lost on people that the capacity trend is more conservative. The language around that is more conservative. And I think that resonates I wanted to just maybe dialogue about that a little bit big picture. You know, under new management, if you will, has the bigger picture philosophy changed And is there a margin target? Is there a return on invested capital target Or is it just generic conservatism? I am just trying to understand kind of what is driving the change and how sticky and durable it could be and how deep it is kind of gone through the organization? Thank you.

James G. Dempsey: Hi, John. Look, You know, we clearly have learned from the last 3 or 4 years of growth in the airline. I mean, the airline was growing at 20%, 25% per annum, adding significant aircraft into the fleet. And that growth was diluting or creating volatility in your revenue base in the airline. And so the concept behind slower growth is really to create stability in the revenue base of the airline, and also the operating platform of the airline that supports the revenue base of the airline. Right? And so, we set about this plan at the beginning of the year to right size the fleet. Which is very, very important.

We had, in our calculation, somewhere around 40 to 45 aircraft that were unproductive in the airline. If you were to bring productivity back in. And so you had a choice to make. You either hired a lot of pilots and flight attendants and went out and grabbed a lot of customers and brought productivity to the airline. Or you right sized the fleet. And so we chose the path of right sizing the fleet because of an opportunity that existed in the engine world in the industry. And I think that has been a very, very, positive decision in the business both internally and externally. And that does create a better platform for growing the business.

And we are not running away from growing the business. We are just growing at a much more moderate pace which we think creates that stability in revenue. And that the airline needs as you as you move the airline to a bigger platform. there is also benefits that the airline gets. In running-- in growing at that pace for I do not know, 10 years or so, And there is a catch up that needs to happen in the background that we are going through at the moment. So having shell counts stay relatively similar over a 2-year period, allows us to modernize the foundation of the airline.

So I mentioned earlier, all the systems that you do not see in the background in order to operate the airline in a more effective way. And you are seeing real progress in that area. that is 1 of the areas that I am really proud of the progress we have made so far this year where you can see the stability coming into the operation of the airline. Which also then reflects well on the revenue performance in the business. So those 2 things are very, very important. And so it is not necessarily a conservative approach to capacity. it is really focused on creating that stable revenue base. And creating a stickiness to our customer base.

And a stickiness to our network enables us to actually create loyalty in the business. And so that is really what we are after. Obviously, the airline wants to generate profitability. It wants to generate free cash flow. It wants to get back to high performance in those measures. We will talk to you in February about what we feel about 2027. Feel really good about the direction the airline's going in right now.

Analyst: Can I ask a follow-up just in terms of where the growth is going? This year benefited from Spirit and the distress. Associated with Spirit, and you guys did a fantastic job of, you know-- but orienting yourselves to benefit from that. I guess it is debatable if there is another financial distress event next year, but let's just assume there is not. how are you thinking about the growth? Are there new markets still to open? Is it layering in behind existing markets? Maybe you could just help us think about the complexion of the growth.

Robert A. Schroeter: Hey. This is Bobby. So, you know, we look at the network as a portfolio. We are gonna look at what is the most accretive in terms of, you know, from a profitability perspective on routes. We have gone in and we are worried about, you know, in terms of just the spirit opportunity. We backfilled about a quarter of that. it is a little less than half when you talk about what other airlines have gone in and done. So the opportunity still exists there, for us to look at the routes and markets within that, and they have been very effective for us.

Frankly, both on the peak days and especially on the off peak days as well within those markets. As we go through, you have also seen we. We have actually increased our overall frequency within markets. So we will look at that continuing and how we provide not only connectivity and capability for our, flyers and our customers to fly throughout the week, but also helps, you know, what Jimmy was talking about on the operational side as we think about, you know, resiliency within the market. So you know, again, our network, we are continuously looking at it. it is a portfolio. it is looking at how we optimize the overall profitability picture within that.

And there is a lot of opportunity that still exists out there over the course of the next few years.

James G. Dempsey: And, look, just to add to that, like, we will be opportunistic if things crop up that we think are accretive to Frontier. And we do not know what they are yet. Right? And so that is something that is certainly there. And adapting our capacity framework to chase something. I mean. But what we have been doing this year, and we really started this in 2025, is actually picking the models that we would like we have seen structural change happen. And that continues. And so I feel pretty good about the direction of the network and how it is actually building. And building some prominence in markets.

And getting an element of loyalty and repeat customers into the business. But I cannot stress enough the operational side of the business and improving that. in order to support that network development. Appreciate the color. Thanks, guys.

Operator: Your next question comes from the line of Duane Pfennigwerth with Evercore. Your line is open. Please go ahead.

Duane Pfennigwerth: Hey. Hey. Thanks. Good morning. And maybe just to continue down that path, if it is possible, can you delineate between improvement in the overall fare environment in response to higher jet fuel? So, basically, Frontier following the fare umbrella higher from a lower baseline versus Frontier specific initiatives and Jimmy, you have touched on some of those, but is there any way to delineate between the 2?

James G. Dempsey: Yeah, I mean, it is hard, right? I mean, that is a challenging question. What I mentioned earlier was. Look. We were up pre fuel crisis or Iranian conflict. Up nearly 20% in RASM in Q1. And so for both structural change in that and also better performance by Frontier in managing its revenue. And so I would I would shape it as. And structural change we were getting was linked to Spirit. So if you look at this, you know, I would say it is about a third better revenue management maybe about a third Spirit, and about a third fuel. And the, obviously, the fare environment improving as a result of fuel.

And that is kind of where we sit at the moment. We will see how it progresses. We feel really good that there is a lot of stickiness in this revenue And I mentioned it earlier, we are seeing this unit revenue improvement in advance of adding real premium products to the airline. So we are really excited about where the unit revenues go next year and the year after as we establish these premium products in here. Thank you.

Duane Pfennigwerth: And then relatedly, maybe you can speak to the variation of performance across your markets, maybe what you are seeing today versus what you saw historically. Are there any themes in the profile of markets that are outperforming versus markets that are lagging? And is there any relationship to like how big your footprint is? I think about like in Orlando and your footprint in Orlando, how does that look relative to the system? Thank you.

James G. Dempsey: I mean, yeah, there is always pluses and minuses that happen across the system. What we are seeing is just broad based improvement in the business and how we run the business. And so, I mean, I am not gonna pick specific markets that are outperforming versus other markets. I mean, if you can read into some of the language that we are using around structural change, we have certainly seen an improvement in markets where there was a significant overlap with Spirit and we positioned the airline for that. But outside of that, we are really seeing broad based improvement in overall revenues. Thank you.

Operator: Your next question comes from the line of Ravi Shanker With Morgan Stanley. Your line is open. Please go ahead.

Analyst: Hi. This is Madison on for Ravi. Thanks for taking the question. First, just wondering any thoughts on what larger carriers focusing on yields over load means for you guys in terms of spillover traffic and if you are seeing any opportunities there moving into the next year?

James G. Dempsey: Hi, Madison. Look, what we are what we are certainly doing in the airline at the moment is adapting to the environment that exists in front of us. Right? And so we do not control other airlines and their behaviorisms around pricing. We certainly look at our pricing and pricing tools with the objective of maximizing the revenue output that we get. And certainly, if other airlines are chasing yield over volume, that is something that. that is their prerequisite. We like volume. We typically chase volume. As a business. There have been periods in the past we have managed the airline for yield over volume. Then there is periods where we manage the airline for volume over yield.

It really depends on the environment that is there. And the ability to maximize the overall revenue base of the airline. At the moment, we have a nice balance between yield and volume in our business, given the supply demand dynamic that exists in the environment. We feel pretty good about it, and we feel pretty good about the stickiness of that going forward. Got it. Thank you for that color. Just wondering how you guys are viewing the jet fuel recovery participation across the industry and do you think you can get to a 100% recovery? And if so, when are you guys targeting that for?

Well, if you look at the last quarter, we got there in the last quarter. Obviously, oil prices are significantly higher than they were the last quarter. Right now, we will look. We will we will we will see how we perform across this quarter. But I mean, I think Frontier has performed phenomenally well. In offsetting high oil prices. With the revenue performance in the airline. Got it. Thanks so much for the color.

Operator: Your next question comes from the line of Andrew Didora with Bank of America. Your line is open. Please go ahead.

Andrew Didora: Hey. Good morning, everyone. I guess, Jimmy or Bobby, just you have guided over 20% RASM on the last couple of calls and have ultimately produced 28%, 30% RASM growth? You are guiding to that again. I guess, should we just view that as just a fairly broad view of the revenue outlook because you do sound very constructive on the environment, or is there anything that you are seeing in your business today that suggests the underlying momentum has slowed a little bit or any specific headwinds that would cause a RASM decel, particularly on much lower capacity growth?

James G. Dempsey: Look. We have seen we have seen progress on RASM. Pretty successfully across, you know, the last whatever, 9, 10 months. So we do have some of the changes that we started a year ago in revenue management. Starting to really lap as you progress through the end of December. But what I see in the revenue environment at the moment is really constructive. And so we anticipate, you know, the industry is certainly has a strong appetite to pass on higher fuel with higher fares. We are participating in that clearly. And seeing how the business can perform within that environment. And we continue to see that. So we are quite comfortable about the outlook on RASM.

Mean, for us to deliver double-digit RASM improvements, pretty much in every quarter of this year. I mean, it is testament to the improvements we have had in revenue management. And some of the structural changes that have happened across the industry. And we do not see that changing.

Andrew Didora: Got it. Understood. And then I guess, as we are exiting 2026 here, obviously, you are sale leaseback gains will be behind you. Seems like the fleet will be in the spot where you want it to be. Any kind of underlying CASM framework you could provide into next year, particularly as you are basically utilization driven and, you know, maybe in that framework, you know, and kind of speak to it in that mid single digits capacity framework that you outlined earlier. Thanks.

James G. Dempsey: Yeah. I mean, it is hard to guide you at the moment. I mean, we will come back in the new year with a with a guide for next year. But just broadly, I would say we are. You know, the productivity of building in the airline largely offsets the sale and leaseback gains. Year over year. And so you are seeing some productivity come in at the airline, like we got a 2.5% improvement in cost when you take out sale leaseback gains, and that gives you an insight into the direction that the airline is going heading into next year.

Obviously, that exists across the United States so we have got to be conscious of and understand in the coming months. But my objective is to try and get the airline in a place where you effectively, not perfectly, effectively replace the sale and leaseback gains with better unit costs overall.

Analyst: You know?

Mark C. Mitchell: Mark, if you want to give some No. I mean, I think you hit the nail on the head. You, Jimmy. Thanks, Andrew.

Operator: Your next question comes from the line of Michael Linenberg with Deutsche Bank. Your line is open. Please go ahead.

Michael Linenberg: Oh, yeah. Hey. Good morning, everyone. Nice earnings beat this quarter, team. I guess my first 1 out to Bobby. Just on the premium product, when does first class start I guess you said it starts rolling out. When do you start selling it? If you are already selling it, what are you seeing sort of, you know, fares upfront as a multiple of maybe fares in the back? And as a related piece, the Starlink, which rolls out next year, most airlines what we hear, you know, have to offer it for free. Part of the contract.

I think a few out there have been able to negotiate the ability to sell the Starlink product in addition to offer to. You know, free to their customers who may have the credit card or be part of a certain loyalty tier. But what sort of a, you know, structure there do you have? Are you able to sell it And then I have a second 1.

Robert A. Schroeter: Yeah. So, I will I will I will hit on the first class question first. So I think Jimmy talked about this a bit earlier around Upfront Plus and what gives us the confidence around this product and what we think it will provide to our customers and to us in terms of revenue benefit, that is upfront plus. We have been hitting about 80% paid load factor on that. So first class has been delayed a bit, for a variety of reasons, but it is gonna be starting to install imminently.

And what we will do is we will start selling for the time period with which we believe all of that will be in So that is gonna be, sometime in the first quarter toward the end of the first quarter, we will actually have it for sale. So it has not gone on sale yet, but it will go on sale, we believe, again, imminently, as we start rolling the product out itself. On Starlink, we obviously announced that from a commercial perspective, We are not ready to roll out and talk about what that means from a commercial perspective or how we are going to-- you know, okay.

James G. Dempsey: Roll that out that way. But what we will say is again, I will reiterate what Jimmy said. This is something that is a game changer for us and our customers. We are putting on a product that we do not have today with WiFi itself, and we are going from nothing to a product that is best in class, and is the best Wi-Fi in the sky. If you have not tried it, go out there and try it. It is as good as your home, Wi Fi service, yet you are in the sky. So we are we are quite excited to be able to roll that out in conjunction with First Class.

Starlink is gonna start installing in the first quarter, and we will roll that out aircraft by aircraft throughout 2027.

Michael Linenberg: Great. Thanks, Bobby. Yeah. No. I agree. Sterling is pretty awesome. Just my second question is for Mark. Mark, this is more of a modeling question. So the third quarter is your last quarter, I believe, of sale leaseback gains. And then I do think we have 3 quarters of aircraft gains from the sale. Right? But I thought I heard you say that you were going to exclude them from your non GAAP results. And so I was curious why you would exclude them. Maybe you are not taking gains on them. Can you just explain maybe the discrepancy there? And thanks for taking my question.

Mark C. Mitchell: Yeah. So just a couple quick items. So we do have 2 order book deliveries you know, in the fourth quarter. So those were supposed to be in the third. They got moved to the fourth. So, know, that is number 1. And then specific to, you know, the tails that we are selling, that was part of our fleet rightsizing and consistent with the rest you know, that fleet rightsizing dynamic. You know, we are adjusting those for non GAAP purposes. And, you know, we, you know, are expecting gains you know, on those, you know, sales. But just as part of the entire fleet rightsizing, that is why we are excluding those for non GAAP purposes. Okay.

Thank you.

Operator: Your next question comes from the line of Jamie Baker with JPMorgan Securities LLC. Your line is open. Please go ahead.

Jamie Baker: Hey. Good morning, everybody. So when demand started to recover after COVID and, you know, the financial pressures and the industry began to abate, 1 unintended consequence that you know, we call now is the likelihood that unions would want to reengage and, you know, come back to the negotiating table and labor costs would rise and that is what happened. So I am wondering if that is how you are thinking about things for Frontier. I mean, the revenue momentum is impressive. We are assuming fuel declines at some point next year. Would it be prudent for analysts to pull forward the timing of a potential pilot contract? Hi, James.

James G. Dempsey: I do not, quite frankly, I do not have a good answer to that question. We are continuing a process with the NMB With the. In relation to mediating a pilot contract. Our own MEC. Or sorry, our own pilot ALPA-- Frontier ALPA has been, changing some leadership. And so they are going through that process at the moment. We just do not have clarity at the moment as to when we will get into really active negotiations with them. I would suspect it happens in the New Year. And we can give you more insight into that as next year progresses. But I really.

I truly do not have a good answer as to when we will actually have a contract it is something that we want as a company. To progress and get through in the next 12 months. But I am dependent on the NMB process, and how fast or slow that goes. No. that is that is still very helpful. I appreciate it.

Analyst: And then, you know, no liquidity issues at the moment, but kind of building on Brandon's question from earlier in the call, can you speak to what conventional capital raising options you have? And I emphasize conventional because, you know, I am not asking about equity or for forward mileage sales or anything like that. Just traditional incremental debt capacity, unencumbered asset pools. That sort of thing? Thanks.

Mark C. Mitchell: Yep. Thank you, James. Yeah. So the primary unencumbered asset that we have, you know, is the loyalty pool of assets that we have got. And as we have talked about, you know, those assets are continuing to gain in strength with the loyalty revenue up 37%, you know, this quarter. And so that portfolio does provide us, opportunity as we look forward, in the capital market. Alright. Great. Thanks, everybody. Thank you.

Operator: Your next question comes from the line of Christopher Stathoulopoulos with SIG. Your line is open. Please go ahead.

Chris Datholopoulos: Morning, everyone. Going back to the earlier questions around capacity for next year, I realized the 6% to 7%. 6%, 7%, or 8% is a soft guide fuel dependent here, but if you could help frame the stage and stage-- excuse me, engage component of that. And then also, as we think about the deployment, what I heard was not much change, but maybe if you could contextualize the opportunity set or the inning that you believe that you are in markets like MCO, Atlanta, then on the West Coast -- more low-yield or loyalty there. Just want to understand how you are thinking about those key markets under that kind of mid single digit capacity growth. Thanks.

James G. Dempsey: Maybe I will answer the second part. first. Look, I mean, obviously, the-- your network evolves. But, look, we are primarily a leisure airline. And so if you look at all the big leisure locations around The United States, we are pretty large in a lot of these locations. We will continue to add to that footprint. as we go. And so if you look at Orlando or Las Vegas, and connecting those types of locations with the rest of The United States, is kind of a fundamental part of our business. We are clearly looking at some of the stuff that spirit exited. This year. And replacing some of that capacity. not all of it.

You know, we are we are certainly replacing the stuff that we think are accretive to Frontier. And that is something that we will continue to do. We are looking at our network in relation to how it how it behaves and linked to the loyalty program, And so bringing back flying on Tuesdays and Wednesdays actually has been quite accretive to the loyalty program and improving the customer retention. That we have in the business. I think that is quite important, and that has been largely a fundamental portion of the growth that we have put in place, particularly in the last in the last quarter.

Like, 25, on off peak days of the week, we were flying a couple hundred flights a day. When we were flying, you know, 700 flights a day on the peak days of the week. And so bringing that up to, like, 500, 550 flights a day infills into a network that already exists, and it helps the customer base that we have in the airline have more choices throughout the week. And so we have seen a really positive response to our existing customer base to those changes. And so we will continue to do that across the network as we build out next year.

And, obviously, we can be quite selective because the level of growth is quite low. it is like 6%, 7%. Comparison to years when we have done, you know, 20%, 25% new capacity growth. Plus a redeployment of capacity that did not work. So you are dealing with immature markets in the 30% to 35% zone. Creating that instability in revenue. And so I am not gonna guide you on exactly where we are going to deploy our network next year, but you can see the direction that the airline is going in. it is primarily leisure, maybe, attaching to some small business, opportunities that exist. And then focusing on markets that drive some loyalty into the business.

Chris Datholopoulos: Okay. And then I guess as a segue, so you mentioned on the day of the week shift, and the uplift from loyalty. I do not think you mentioned what the delta looks like on peak versus off peak RASM. I know you spoke about utilization, but if you could give any color around what that looks like on unit revenues.

James G. Dempsey: Actually, pretty consistent across the week with the improvement year over year. Okay. Thank you. We are seeing improvement both on peak and off-peak. Thank you. Okay.

Operator: Your last question comes from the line of Daniel McKenzie with Seaport Group. Seaport Global, Your line is open. Please go ahead.

Daniel McKenzie: Yeah. Thanks guys for squeezing me in here. Couple of questions here. First is if that is very-- you can help us understand the character of the growth and, you know, what I am getting at is you are adding a bunch of premium seats. And so is that 6% to 8% primarily all premium seats? Or is it 6% to 8%-- so mainline you know, main line cabin inventory flat? If you can just help us or at least, you know, give us some perspective on what the nature kind of that premium versus mainline mix looks like.

Analyst: Or even how it looks today and how that should trend into next year.

Robert A. Schroeter: Well, look. What we what we have talked about on premium is first class. And so when we talk about that, you have currently in those slots, you have upfront plus, and that blocks the middle seat. So from a revenue base, perspective, that actually does not take away a seat in that regard. We are looking at how we could flex on upfront plus with the cabin we have, so we are looking at that. That does play into it. But, otherwise, from a from a growth perspective, that. that is what we have announced, and we are we are we are looking toward is the first class introduction.

Daniel McKenzie: Yeah. Understood. Okay. And then, you know, I guess just second question here is just to reconcile the scheduled data with the guide that you are giving for the fourth quarter. It looks like scheduled data is a little a little higher than what you are guiding to, so I am just wondering if you can reconcile that. And then can I guess just the second sort of house cleaning question is just the modern? The reference to modernize the systems of the airline. I am just wondering if you can help us understand where you have invested and what that IT journey looks like over the coming year. Is there more.

Is there some incremental benefit that will either drive cost or revenue savings as you roll out yeah, upgrades or new systems over the coming year.

James G. Dempsey: Let me deal with the capacity Yeah. We. We are probably a little bit behind in terms of inducting aircraft. In this quarter, and so there is some capacity's come out that we have on sale at the moment that will come out in coming days. And then we will progress through the next few weeks or so and see what the timing on inducting those aircraft are. So there is a little bit of noise in our in our schedule that is sale versus what we are actually going to achieve and so we could. We you will see that update over the coming days and weeks. On modernizing the architecture of the airline, we are.

You know, we are modernizing the operation center, quite considerably. And really the maintenance planning, side of the business. And then secondarily to that, you know, modernizing or improving you know, the customer interfaces that we have in the airline that will create much faster solutions to passengers. When they are disrupted. And so there is a significant amount of work going on across all of those teams in both running to day to day operation and also changing how we operate the airline. And I am pretty excited about it. It will probably take mostly through 2027. To get this into a place where we are you know, we are very comfortable with it.

But the initial stages of it are quite interesting. We are using. We are obviously building better databases and platforms. And then layering tools on top of that. To get better decision making into the airline. And that is some AI improvements that are happening within the business, but also just you know, pure blocking and tackling, planning improvements that we are making in the airline. That are making a significant difference to the output that the airline has every day. And the cost the cost savings associated with that, can you provide some perspective around that? Yeah. I do not. I mean, like, clearly, a better operation delivers lower costs. Right? And actually, better revenue output.

And so, I do not have that quantified for you. At the moment. But, you know, if we can bring our completion factor up by half a point, that is a significant revenue boost to the airline. And obviously, there is a cost of displacement that happens with customers. That we would avoid. And so, yeah, there is there is there is there is real meaningful improvements that will come into the airline as a result of that. I just. it is very difficult to quantify it right now because the timing of getting these right is dependent also on things that are outside of our control. Right?

What I am trying to get the airline to is recovering from, you know, weather and ATC issues. In a in a in a in a quicker way in order to have more stability in the operation as you recover. And that is something that we are very focused on. And that will improve the overall performance and the overall completion factor of the airline, obviously delivers lower cost but enhanced revenue. Well, thanks for the time you guys. Alright. Thanks, Don.

Operator: We have reached the end of the Q&A session. This concludes today's call. Thank you for attending. You may now disconnect.

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