Frontier Group Q2 2023 Earnings Call Transcript

Quartr
Provided by Quartr
August 1, 2023

There are 12 speakers on the call.

Operator

For standing by and welcome to the Frontier Group's Holdings Second Quarter Earnings Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer session. Please be advised that today's call is being recorded. I would now like to turn the call over to your host, Mr.

Operator

David Erdmann, Senior Director of Investor Relations. Please go ahead.

Speaker 1

Good afternoon, everyone, and welcome to our Q2 2023 earnings call. Today's speakers will be Barry Biffle, President and CEO Jimmy Dempsey, EVP and CFO Daniel Scherz, Senior Vice President, Commercial. Each will deliver brief prepared remarks, and then we'll get to your questions. But first, let me quickly review the customary Safe Harbor provisions. During this call, we will be making forward looking statements, which are subject to risks and uncertainties.

Speaker 1

Actual results may differ materially from those predicted in these forward looking statements. Additional information concerning risk factors, which could cause such differences are outlined in the announcement we published earlier, along with reports we file with the SEC. We will also discuss non GAAP financial measures, which are reconciled to the nearest comparable GAAP measure In the appendix of the earnings announcement. So I'll give the floor to Barry to begin his prepared remarks. Barry?

Speaker 2

Thank you, David, and good afternoon, everyone. Despite challenging operational conditions, we generated strong second quarter results with a pre tax margin of 9.1%, our highest post pandemic margin On industry leading capacity growth of 23% compared to the prior year quarter. Our continued focus on cost management helped drive a beat on our non fuel operating expense. Our total cost structure is significantly lower than the industry average, generating an advantage of more than $70 per passenger today. Our cost structure is a key Element in underpinning our growth strategy and I'm proud the organization has continued to ensure we remain the leader among our peers.

Speaker 2

Ancillary revenue continued its strong performance during the Q2, achieving $80 per passenger, dollars 5 higher than the comparable quarter Last year, we expect our industry leading ancillary platform to continue to provide us with pricing flexibility to tailor our suite of products and services to our customers' needs. It also enables us to maintain low fares and enhance engagement and loyalty with our brand. Our Go Wild All You Can Fly pass is a great example. Since the substantial number of our pass holders do not have prior travel history with Frontier, we've had the opportunity to expand brand awareness And preference along with driving incremental revenues as these customers engage with our other loyalty platforms such as DiscountDIN, our co branding credit card as well. It's a key part of our strategy to increase the contribution from loyalty and subscription related products.

Speaker 2

As we look to the Q3, we expect a moderation in fares largely due to an increase long haul international travel flows. To better understand this phenomena, we recently surveyed our Frontier customers. Survey found that 5% or more of our customers have traveled or plan to travel to Europe versus last year. We estimate this environment to be a 3 point temporary headwind on a pre tax margin basis. Encouragingly, our survey also revealed over 90% plan to travel the same or more With over half planning to travel more on a go forward basis, giving us the confidence that once the balance shifts back to domestic, We believe RASM will normalize.

Speaker 2

Turning to the operational environment, the challenging conditions experienced in June continue to cause And historically elevated level of cancellations. Weather across the United States, in particular in Florida, has produced record air traffic control delay programs, Resulting in the cancellation of over 3% of our flights in July. We are incorporating ATC constraints into our network design going forward, and we expect this environment To impact our 3rd quarter pre tax margin by approximately 3 points. Accordingly, we anticipate our 3rd quarter adjusted pre tax margin to be 4% to 7%. With the lowest cost structure of any carrier in the United States and we are focused on sustaining that advantage with ongoing induction of the high gauge Fuel efficient A321neo aircraft and by leveraging our high utilization capabilities to drive low fares and stimulate demand.

Speaker 2

With that, I'll hand the call over to Daniel for a commercial update.

Speaker 3

Thank you, Barry, and good afternoon, everyone. Total operating revenue for the Q2 of 2023 was 967,000,000 More than 6% higher than the prior year quarter. RASM was down 14%, 10% on a stage adjusted basis From a strong prior year quarter, our capacity growth of 23% over the same period and an 8% increase in stage length. Revenue per passenger was $127 9% lower than the 2022 quarter, during which time fuel prices were 40% higher And post COVID domestic travel demand surged. In May, we launched promotion on another Go Wild seasonal product, the Fall and Winter Pass, for travel from September through February.

Speaker 3

The pass includes access to more than 85 U. S. And international destinations. Furthermore, last week, we put the new Go All Monthly Pass on sale, giving even more customers Turning to a brief network update. In the Q2, we launched 26 new routes originating from Atlanta, Baltimore, Chicago, Midway, Cleveland, Detroit, Houston, Orlando, San Juan, St.

Speaker 3

Thomas and Tampa. These new routes were all added to existing Frontier Airports, which increases our customer appeal in That concludes my remarks, and I'll now yield the call to Jimmy.

Speaker 4

Thank you, Daniel. 2nd quarter results reflect a pretax margin of 9.1%, A post COVID record. The results reflect strong demand throughout the quarter and diligent management of our cost base. Revenue increased 6% on a 23% increase in capacity, While fuel expense was in line with guidance, an average cost per gallon of $2.69 Adjusted nonfuel operating expenses were 644,000,000 Leading guidance or $0.069 on a unit basis, 5% lower than the 2022 quarter. We ended the quarter with $780,000,000 of Unrestricted cash and cash equivalents were $350,000,000 net of total debt.

Speaker 4

In addition to our cash balance, we also have access to substantial liquidity Through our unencumbered loyalty and brand related assets. We had 126 aircraft in our fleet at June 30 after taking delivery of 3 A321neo aircraft during the quarter, 2 of which were financed with direct leases. Having already experienced significant aircraft delivery delays across the first half of the year, Airbus has informed us that any further delays should be modest. As such, we expect to end the year with 136 aircraft. Turning to guidance.

Speaker 4

3rd quarter capacity growth is anticipated to be in the range of 21% to 23% over the 2022 quarter, While full year 2023 capacity is expected to reflect growth of between 90% to 21% over the prior year. Fuel costs are expected between $2.80 $2.90 per gallon in the 3rd quarter and $2.90 to $3 per gallon for full year 2023 Based on the blended fuel curve on July 24, adjusted nonfuel operating expenses in the 3rd quarter are expected to be between $650,000,000 to $665,000,000 and $2,535,000,000 to $2,585,000,000 for the full year. This range incorporates the costs related to challenging operating conditions. Finally, reflecting Barry's earlier comments on the operating environment, Adjusted pretax margin in the 3rd quarter is expected in the range of 4% to 7% and 4% to 6% for the full year. With that, I'll turn the call back to Barry for his closing remarks.

Speaker 2

Thanks, Jimmy. I want to personally thank Team Frontier for their dedicated service during the quarter in the difficult operating environment and for delivering low fares done right. We remain focused on controlling the things we can control to run a sound operation despite challenges posed by extraneous factors. Our competitive edge lies in sustaining our cost advantage over the industry, and we intend to utilize this advantage to stimulate leisure travel demand and maximize shareholder value. I want to be clear.

Speaker 2

While we're disappointed in our projected results, I strongly believe the company will return to double digit margins given that most of the headwinds are temporary. I want to thank everyone again for joining this afternoon, and we're ready to begin the Q and A portion of the call.

Operator

Thank you. Our first question comes from Brandon Oglenski Barclays, your line is open.

Speaker 5

Hey, good afternoon and thanks for taking my question. So Barry, I guess can you expand on that a little bit because Had been guiding, I think, for like 10% to 12% or 10% to 13% pretax margin in the back half of the year. This seems like you're pulling that back Somewhere around 4% to 6% at the midpoint. But I think you did mention 3 points from restructuring operations around Florida and ATC. So can you maybe dive deeper into that please?

Speaker 2

Yes, sure. It's pretty simple math we laid out. We've put out a 10 to 13 Expectation for the second half and we are seeing roughly 3 points in the operational challenges as we discussed, ATC ground delay programs and so forth. And we're seeing those additional three points in the revenue environment, which is Primarily driven by the shift to European travel. So that pretty much explains the 6 points.

Speaker 2

I think there might be a little bit more fuel in there as well, But that explains it

Speaker 5

all. Well, I guess, Barry, can you talk about the changes around those operational challenges because it looks like Your capacity guidance maybe didn't move all that much. So does this go beyond just capacity?

Speaker 2

No, no. This is just simply it started a little bit in May, but really took effect in kind of your mid June timeframe And it's continued for the last 6 weeks pretty heavily. We see maybe even a similar storm event. We'll see ground delay programs start Hours and hours before, with significantly longer with lots more minutes. And so, we planned our airline in the past.

Speaker 2

We had roughly 3 hours of buffer built in and we're seeing consistently with these kind of ground and delay programs we need around 4 hours. So We've made some tweaks to it, but there's no real immediate fixes that will fix this in the near term until but when we look forward to next year And beyond, we will start factoring this into our plan. The reality is that ATC is just issuing more ground delay programs and they're at lasting considerably longer Than we've seen in the past. And so we've got a plan for that. But in the meantime, it's a drag until we can kind of schedule around it, if you will.

Speaker 5

Okay. Appreciate that, Barry. And then Daniel, maybe can you expand on the European comment overseas travel, because it's not the first time we've heard it this quarter. Should we be thinking that folks have more propensity to travel internationally this year than they will next year?

Speaker 3

Look, what we know Brandon is that, as Barry said, our customers, we surveyed our customers, they're traveling to Europe. This comment obviously from others, there seems to be this clearly pent up demand for long haul international travel and from a U. S. Point of origin perspective That skews very, very heavily to Europe. We don't know what what we don't obviously know exactly what's going to happen in the But what we've seen in pent up demand generally is the first time you see that pent up demand, that's when it's strongest and it tends to ease off as you go forward.

Speaker 5

Okay, guys. Thank you.

Operator

Thank you. One moment, please. Our next question comes from the line of Duane Pfennigwerth of Evercore ISI. Your line is open.

Speaker 6

Hey, thanks. Just on network development, a couple of questions. On your Our planning horizon and how that relates to the booking curve, we're a little surprised to see large changes to October Here in early August or late July, granted they were capacity adds or they're not deletes. But can you just talk a little bit about how your Network planning process has changed, and how you see it evolving over time. What prevents you From planning, with stability kind of further out, were you waiting to see aircraft availability, etcetera?

Speaker 6

And I guess most importantly, do you think this costs you at all from a sort of long term bookings curve perspective? Or is all the action Kind of close in.

Speaker 3

Okay, Joanne. I'll unpack that. Look, I think part we have made tweaks To our schedule and some of our schedule rules and schedule design rules to try and address What we've seen in the operational environment we're going through at the moment, we made those changes as close in as we Sure. That did cause us to be somewhat to get somewhat behind on actually loading all of our schedules that particularly affected us No, it is actually September that had the most significant effect. Now we're expecting that to be sort of a relatively one off.

Speaker 3

We're We're actually moving forward adding the capacity we want to add earlier, but we did want to make sure that We did make adjustments that we needed to make. We need to see improvements obviously in this and we made some improvements. We made some changes that we think will improve operations. From the booking curve perspective, It's a very minor impact. We are seeing we see most of our volume closer and much closer in than that.

Speaker 3

There's a small impact, but it truly is small. And going forward, as we get schedules on sale further out, we've just Just extended our schedule through New Year and that impact will go away altogether.

Speaker 6

Okay. Thank you. And then Just with respect to the booking curve, at least one carrier in the U. S. Talked about kind of the surprising strength close in, but That they basically didn't assume that going forward for the rest of the quarter.

Speaker 6

Does that ring true to you? And what assumptions have you made With respect to kind of close in bookings for the balance of the quarter?

Speaker 3

We have a value proposition that works very well from a close end perspective. And we've seen continued, as I mentioned we've seen a continued trend since the pandemic recovery in 2022 of strong close end demand. Our anticipation broadly speaking is that that will maintain relatively similar to the way we've seen it over the last number of months.

Speaker 6

Okay. Appreciate the time.

Operator

Thank you. One moment, please. Our next question comes from the line of Michael Linenberg of Deutsche Bank. Your line is open. Again, Michael Linenberg, your line is open.

Speaker 7

Great. Hey, good afternoon, everyone. Hey, I guess one part one question here, but sort of 2 parts. When we think about your network and we sort of think about what percent is under development, I'm trying to get a sense of What percent can we look at a same stores basis and then what would be new? There's obviously I know you're in a lot of seasonal markets And so they go away and they come back.

Speaker 7

How should we think about like if I were to look at your market today, take a snapshot, like what percentage is under development Our relatively new markets, maybe something that's been added in the last 12 months and something that's not seasonal, That comes in and out every 6 months out of the year, it's in 6 months out. Can you give us a better sense on that? I guess that would be to you, Daniel. And then I have sort of a follow-up tied to that.

Speaker 3

So, well, first thing I want to mention with regard to this is we are obviously Rolling at the moment faster than our intended medium term trend line growth. We've committed to mid teens growth being our standard medium term trend line. And as we come out of COVID, we're continuing to recover capacity and we're continuing to grow this year At a rate in the 20s percent. So That's tended to push this up on rapidly scrambling to get you an actual number because I'm ready. But We are but look, we're always going to have we are going to tend to have a higher sense of the network and development broadly because we are growing We have we are always looking to add we're always looking to add new capacity.

Speaker 3

And it's and the key thing at the moment is we're not adding new airports to the network. We're adding join the dots service around the country. I'll get back to you on the exact current percentage in development.

Speaker 2

This is Barry. Hey Barry.

Operator

My first

Speaker 2

thing that I would say is, look, if you're in the 20s on growth, that just tells you right there, that is all new. And then at every given moment, you've got anywhere from 15% to 35% of your flying that you did the year before that Didn't work, so you redeploy it. That's kind of how growth airlines work. And so that's going to push you, I'm just You know, say 20% up 25% from last year, 30% actually. So you're in the over 30% is immature.

Speaker 8

Okay.

Speaker 2

And so yes, we have a significant amount. I think this is an underappreciated part of Frontier. I mean, we've people have picked on us about Underperforming our historical margins, but I think what people don't grasp is that when you're growing at 10 plus points higher Then your target rate and you take a 20% to 30% discount on that, that's just a flat out 3 point drag On margin and it could likely be even more just simply because you're also still coming out of COVID. So, but that's a long way of telling you, yes, it is Over 30% in the immature stage and that will come down as our growth moderates into 20 24, we're now expected to be in the mid teens, mid to upper

Speaker 7

teens. Okay. And the reason I was asking, Barry and Daniel is that, Look, you've done a nice job on ancillary, right? I mean, you're up year over year, dollars 5 moving you're at $80 now. But when I look at the base fares, you're down almost $20 And so the question is, what you're making up on So Larry, you're losing on base and presumably you're a growth carrier and demand stimulation, but we're also in a Pretty high inflationary environment and we are seeing average fares for a lot of carriers, they're flat to up and now they're moderating as we move forward.

Speaker 7

But to see that down as much as it is in the June quarter, presumably that's because they're like you said, you're in a lot of relatively new markets, call it a third, And so you're engaging in demand stimulation, which is your model, I guess. And maybe I'm answering your question or maybe I'm missing If there's anything you can add on that, because that's a pretty meaningful drop on the base fare.

Speaker 2

Look, Mike, we're very aware, Mike, and That is why we're extremely focused on getting back to double digit margins and a big part of that is getting our growth rate normalized And we're largely back to a normal growth rate once we get to 2024. Yes, we have swallowed a lot of capacity To get the utilization back and we're finally almost through that. And yes, it has a corresponding impact to fares and we need that to stimulate. The good news is we're growing everything, whether it be your emails, your frequent flyers, your discounting members, your go wild. So the good news is that those things are keeping up With our growth and so as that moderates, we expect to see the benefit of that as we move into 2024.

Speaker 7

Okay. Okay, very good. Thanks everyone.

Operator

Thank you. One moment please. Our next question comes from the line of Jamie Baker Of JPMorgan, your line is open.

Speaker 2

Hey, good afternoon, gentlemen. So appreciate the Airbus commentary before. Just wondering if you have any specific GTF related assumptions embedded in the forward 6 month guide, or if it's just business as usual? So thanks, Jamie. We don't have any of the engines.

Speaker 2

In fact, the ones that were impacted were manufactured Through September of 2021, we did not take an aircraft we didn't take a GTF until Actually a year later and that actual engine was manufactured, both those engines were manufactured in May of 2022. So we are about 6 It's 8 months past the risk profile of those. Okay. Good, good. And looking forward later this year, when you give us Some color on 2024 costs.

Speaker 2

Any updated thoughts on whether you may choose to accrue for New pilot economics or are you still debating this internally? And I suppose more importantly, when you think about Your earnings profile once pilot costs are mark to market, do you think about the network any differently? I mean, basically, do you envision Flying any differently or is it just as simple as hopefully raising fares in hopes of preserving margins? Yes. Look, so I think there's a couple of things.

Speaker 2

One, we're very early. I know

Speaker 8

There was a group

Speaker 2

of you asking another airline about whether they should include it. And their contract, I think, had been open for several We're not in that situation. So it's very early. We had our first meeting. So I don't think I think we're a little premature on that.

Speaker 2

But let's just talk about, yes, we are going to pay our pilots more at some point. We're going to pay all of our work groups more at some point. And so that's why we're constantly innovating and looking for ways to improve our situation. So I'll go back to the previous question about moderating growth. That's going to be worth several points right there just in RASM to help pay for it.

Speaker 2

We can get past the current operational environment or at least I don't know that we'll get past the operational environment because I believe the forecast is that ATC staffing stays low for a few years. But we can plan around it much better. And so I expect that by 2024, we made some close in tweaks. But when Like any plan and you're an airline geek. So I know you know how the network works.

Speaker 2

The more The sooner you know the inputs to putting together a plan, the better and the more optimized it is. So as we think about 2024 and probably really our spring and beyond, Which is most impacted just simply because of the weather related impacts. We are going to build from the ground up completely different firebreak assumptions and buffers. So you would expect that we would get the majority of this benefit back by planning around the operational impact. Got it.

Speaker 2

And then as you well know and I think we've probably been the leaders in ancillary and revenue related pipeline. So we've got it kind of A robust pipeline there. So I believe that we will have by the time we get new labor contracts, we will have ample Capacity to pay for it with all the things that we have in the tank to expand our margins.

Speaker 6

Okay, very helpful. Thank you.

Operator

Thank you. One moment for our next question. Our next question comes from the line of Savi Syth of Raymond James. Your line is open.

Speaker 9

Hey, good afternoon. Can I ask, so with getting to kind of mid to upper teens in 20 24 in terms of capacity growth and making some of The growth and making some of these changes to ATC, I'm guessing you'll have some improvements in kind of IRAP costs and things like that? But like putting all that together, what's your kind of Revised view on what CASM what you can get CASM ex to be in 2024? I know it's really early stages, Generally, kind of what's your revised view on CASM next year?

Speaker 4

Look, it's Avi. It's Jimmy here. We haven't published a view on CASM going into next At the moment, we're just putting together our capacity plans so that we can get an idea over the next couple of months on where we think directionally It's going given some of the changes that we have. What we're really focused on is sustaining the differential we have to all of our competitors. In the last quarter, we're comfortably $70 per passenger, lower cost than all of our competitors across the average of the aviation space here in the States.

Speaker 4

And we would anticipate that we sustain that going through next year. This year, our CASM is probably slightly above 0 $0.65 We would anticipate them going into next year, it will be in that area code. And one of the things that's benefiting us going into next year It is the more normalization profile of Airbus deliveries that we expect across 2024 in comparison to 2023. So that will help us.

Speaker 9

Thanks for that. And then last quarter, you talked about kind of reshaping capacity. I was wondering if you can provide an update on if How that's playing out? I realized kind of the overall pricing environment is a bit softer, but generally how has kind of the capacity reshaping been playing out?

Speaker 3

Well, so the 1st month where we see an actual significant amount of that Half de shaping, Savi is actually going to be the month of September. That's the 1st month With a more significant discussion, we're continuing to see in the same travel demand, Pat and so on. And we continue as we look at what's happening with September bookings, we do absolutely see the day of week patterns that we described when we announced these changes. And so we're confident that we're It's the right approach to take and we're continuing to roll it out as we roll out schedules into 2024.

Speaker 9

Appreciate it. Thank you.

Operator

Thank you. One moment, please. Our next question comes from the line of Ravi Shanker of Morgan Stanley. Your line is open.

Speaker 10

Hi, good afternoon, everyone. This is Catherine Klargis on for Ravi. So thank you for taking my question. I wanted to just quickly follow-up on a previous question asked About international travel pressuring the shorter haul that you are guiding towards in 3Q. Just curious your thoughts around whether or not this might 1st in Q4 as the holidays are typically more favored towards visiting friends and family, and whether or not that's something you're baking in for the full year assumptions?

Speaker 10

Thank you.

Speaker 2

Sure. We don't know. We surveyed customers and we know that Many of them continue to plan travel this fall. What it appears to us is that the summer did Get very expensive relative to some people's expectations. And so we actually believe a lot of the demand is going to spill Into the fall and therefore we have not made an assumption that this environment changes before we get into the heart of winter.

Speaker 2

Although I do know that once we get to January, February, it's a heck of a lot better to be in Florida than it is in most parts of Europe.

Operator

Thank you. One moment please. Our next question comes from the line of Stephen Trent of Citi. Mr. Trench, your line is open.

Speaker 8

Good afternoon, gentlemen, and thanks very much for taking my question. Just one or 2 for me. So the first one is, definitely appreciate what you guys have mentioned about weather. Did you see sort of any episodes in July where, let's say, extreme heat in places like Vegas Maybe it led you to bump some daytime capacity into the evening, for example, or It's kind of we're primarily talking about thunderstorms with a main headache.

Speaker 2

The biggest challenge It's simply that we are seeing more ground delay programs and we're seeing them put on much sooner and for much longer duration Than we've seen in the past. I mean, we've seen upwards of 5 to 10 times the amount of ground delay program minutes That we've seen in the system versus years past. So that's the big challenge. As far as heat goes, Yes, I've seen some of those and I know there was a plane stuck with another carrier that was stuck and everything got hot. The only Specific thing that we've had is there have been the normal challenges with more tires that are damaged as a result of heat.

Speaker 2

And in particular, we did have one day where the temperatures were so high in Las Vegas that it caused temperature warnings To cause the fuel in the aircraft to exceed a temperature warning, which actually had made us cancel flights. We Actually been tankering fuel now in there to mitigate this. But we've had I think it's probably less than a dozen or 2 just related Specifically the heat, everything is mainly air traffic control, ground delay programs.

Speaker 8

Okay. No, that's great. I definitely appreciate that. And thank you, Barry. And one other Quick thing.

Speaker 8

I appreciate what you've mentioned about long haul demand and what have you. When we think about Florida, over the last kind of 2 to 3 years for a lot of the time that was kind of the only place that was open. Are you seeing any specific Sort of nuances in demand trend aside from more people flying long haul, you're hearing 1 or 2 organizations want to boycott the state, etcetera, etcetera. But I'm not sure if you're seeing anything like that in your data. Thank you.

Speaker 2

No. We have not seen anything quite like that. There is some theories around temperature, Like when it's really hot, you don't necessarily want to go to Phoenix right now, and some other places. And it doesn't help when those Destinations are actually in the news for being very, very hot. And when you talk to certain hotels, I think They have actually experienced it.

Speaker 2

But in our data, we haven't really seen anything in particular that points to State or specific destination outperforming or underperforming. In fact, I think if you go back, The COVID recovery and the pent up demand was very uneven, really benefited the Floridas, as you mentioned. It benefited Even some of the kind of secondary destinations in their off seasons. And then it's taken a little longer for the coasts, the New Yorks, the Californias to come back. But in our business, we've now seen California bounce back as an example.

Speaker 2

And so we see a pretty even recovery Forming, this is the big shift to go to Europe this summer and into the fall is look, it takes money. I mean, There's so many consumer dollars. When we look at just our customers, we surveyed our customers, not the whole traveling public. And when we lose 5% of our people to go to Europe, that's a lot of customers. And so and they're spending a lot of money to go on those So that is a pretty big dent.

Speaker 2

But we think that it will normalize just like we saw huge spikes to Florida and other places when the pent up demand hit. I think that we're going to see this moderate. The question is, is it 3 more months or is it 6 more months, but it will moderate at some point.

Speaker 8

Okay. Really appreciate that, Barry. Thank you very much.

Operator

Thank you. One moment, please. Our next question comes from the line of Connor Cunningham of Melius Research. Your line is open.

Speaker 11

Hi, everyone. Thank you. Just on this network reshaping debate, you guys had actually started it last Quarter now, it seems like there's been a bunch following you. As their adjustments are made to Tuesdays Wednesdays And the capacity is added to the peak days. There's some fear around just potential impacts to fares there.

Speaker 11

I know that you don't want to talk about forward fares, If you could just provide any expectation around how much are you spilling during peak days? Or how much do you think You should be getting from a fair share standpoint on the peak days that you're not right now. Thanks.

Speaker 3

Well, I'm Carla thanks for the question. It's Daniel. I'm not sure there's a huge amount of change coming on peak days. We were low fare demand stimulating airline, right? But what you're seeing what you're hearing mainly and what will certainly what I've heard mainly as other airlines This is really they're taking capacity out of the days where the revenue isn't strong enough to justify flying.

Speaker 3

We're all generally speaking as an industry flying Our capacity intensely on peak days because that's why the revenue is highest, that's why the demand is highest. So we think The general trend and certainly the one thing that helps, the more capacity comes out to mid week, the more it stabilizes What stabilizes mid week fares and the more it helps the demand level on peak days. But that's all we can really say from looking from here.

Speaker 2

I would just add too, look, dayality and how revenue has spread across the days of the week is not a new phenomena. What we were just the first ones to point out, maybe controversial at the time. And yes, as you point out, it seems like just about everyone has followed Once we've laid the groundwork for them. But what you see even pre today and Go back 10 years, 20 years, is that the midweek capacity, as an example, your Tuesday, Wednesday, that's when your lowest fares exist traditionally. And so what it does actually pulls people from the peak days over to those days because there's a lower fare option.

Speaker 2

What's going to happen not only with our changes and now that somebody have followed us, there's just going to be a lot less Tuesday, Wednesday seats. So there's going to be a lot less discounting. So it generally benefits those days, but you also find that it makes your peak days even better as well. You typically will see a RASM benefit when you make those trims across every day of week, just simply because you remove the most marginal capacity.

Speaker 11

That's helpful. And then, you actually faced a fair bit of weather this quarter and I know you made the The modular network. I'm just curious on I realize a lot of the stuff is out of your control from ATC, but just how you held up from a recoverability standpoint, Given the changes to that module network? Thank you.

Speaker 2

Well, I think there's 2 things I'd say. 1, We often see it as a positive that we're diversified and actually very spread across the United States With multiple bases in multiple jurisdictions and we pretty much follow all the major travel flows in the United States. Said another way, there's really no way that we're not impacted by weather. Some airlines that maybe operate in the West or Northwestern United States, they've escaped It's weather this year. But if you're in if you like us are in Denver, Central Time Zones, Florida, Northeast Capacity, we've gotten hit by that.

Speaker 2

So we are exposed. In terms of the modularity, what we're learning We don't have we typically don't have the 3, 4, 5, up to 7 day rolling event Because we only we mainly only have 1 and 2 day crew pairings. But what we have found is that we're likely to be more impacted On the day of. So if an airplane goes out and back and has to go through the same weather system twice or in some cases three times, If you catch a 2 hour delay, every time you go through by the 3rd leg that aircraft, I can just guarantee you there's not a crew planning world That, that crew hasn't timed out. So while it makes us easy to not have these like catastrophic multi day Week long events, we are more susceptible on the day that you do have a weather event, if that makes sense.

Speaker 11

It does. Thank you.

Operator

Thank you. One moment please. Thank you. I'm showing no further questions at this time. I'd like to turn the call back over to Barry Biffle for any closing remarks.

Speaker 2

Thank you, everyone, for joining our call today. We appreciate all the questions and we look forward to talking to you next quarter. Thank you.

Operator

Thank you. Ladies and gentlemen, this does conclude today's conference. Thank you all for participating. You may now disconnect. Have a great

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Earnings Conference Call
Frontier Group Q2 2023
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