s31lqanm scaled
Alaska Airlines mentioned it last week, JetBlue did it on Tuesday, and so has Frontier Airlines later on the day: US airlines are feeling stiff competition from the strong demand for international air travel. The US low-cost says that international air travel “skews very, very heavily to Europe” to the detriment of US domestic travel. Frontier’s customers like to go to Europe this summer.
Five percent of Frontier customers have traveled or plan to travel to Europe versus last year, the airline found in a recent survey among its customers. “We estimate this environment to be a three-point headwind on our pre-tax margin basis,” Frontier CEO Barry Biffle said during the earnings call.
The survey also showed that ninety percent of Frontier customers plan to travel the same or more, with half to travel more on a going-forward basis. This gives Biffle the confidence that revenues per available seat miles (RASM) will normalize, once domestic travel will normalize. JetBlue said on Tuesday it expects this normalization to happen in Q4, but Biffle is not sure:
“From our survey, we know many customers continue to travel through this fall. What it appears to us is that the summer did get very expensive. We expect a lot of 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. Once we get to January/February, it is a heck of a lot better in Florida than it is in most parts of Europe,” said Biffle. “The question is: is it three more months or six more months? But it will moderate.”
Q2 profit improves to 71 million
Frontier produced a $71 million Q2 profit versus $13 million last year. Revenues improved to $967 million from $909 million, with passenger revenues up to $945 million from $890 million. Ancillary revenues per passenger were $80, up $5 over last year. The carrier launched 26 new routes during the quarter. But as one analyst observed during the earnings call, these new routes require price stimulation that hurt Frontier’s basic fares. Biffle is not concerned about that, as normalizing growth in 2024 will help get the airline to double-digit margins.
Expenses were slightly lower to $888 million from $902 million, with fuel costs down $91 million to $244 million. Salary costs were $37 million higher to $211 million. Still, Frontier’s costs per available seat mile (CASM) excluding fuel were the lowest of all US airlines at $6.90 cents, eight percent lower than in Q2 2022. The operating profit was $79 million compared to just $7 million last year.
Severe weather across the country caused a historic-high level of cancelations in June, but Florida was the worst off in July with weather and ATC restrictions resulting in three percent flight cancelations. As ATC restrictions continue, Frontier has gone more conservative for Q3 and has trimmed its pre-tax margin by three percentage points.
In HY1, Frontier reports a $58 million net profit compared to a $-108 million loss. Total revenues were up by twenty percent to $1.815 billion from $1.514 billion, of which $1.775 billion is from tickets. Expenses were up six percent to $1.761 billion, with fuel costs three percent down to $536 million but staffing costs up twenty percent to $414 million. The HY1 operating profit was $54 million versus $-146 million in the first six months of 2022.
Further aircraft delays will be modest
The airline took delivery of three Airbus A321neo’s during Q2, of which two were financed through direct leases. This has brought the fleet to 126 aircraft, of which 75 percent are A320neo family aircraft. “Having already experienced significant aircraft delays in 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,” said Chief Financial Officer Jimmy Dempsey. According to June data from Airbus, Frontier had taken delivery of 82 out of 129 A320neo’s and thirteen out of 176 on order for delivery through 2029.
Dempsey said that Frontier is not exposed to the recent Pratt & Whitney GTF powder metal contamination issue. “We don’t have any of the engines. The ones that are impacted were manufactured through September 2021. We didn’t take a GTF until a year later and received engines that were manufactured in May 2022.”
Although it tweaked the schedule to improve operations, notably for September, Frontier still expects to grow capacity in Q3 by 21 to 23 percent year on year or between nineteen and 21 percent for the full year. Booking curves are closer in but remain strong. This is a trend seen since the end of the pandemic.
Adjusted operating expenses excluding fuel are guided at $650 to $665 million for Q3 and at $2.535 to $2.585 billion for the full year. Pre-tax margins are guided at between four and seven percent for Q3 and between four to six percent for FY23. The airline ended June with $780 million in unrestricted cash and cash equivalents and $350 million in net debt.
Views: 2
