Frontier Airlines reports $973 million in second quarter revenue and swaps Airbus A321XLRs for A321neos

Summary

• Despite overcapacity in the market, Frontier Airlines made a small profit in the second quarter and the first half of the year, according to its CEO.
• Revenue performance deteriorated during the quarter as load factors, average fare revenue and revenue per available seat mile (RASM) declined compared to the second quarter of 2023.
• The airline also postponed aircraft deliveries and cancelled an order for 18 A321XLR aircraft.

Border airlines has announced its Q2 2024, with the low-cost carrier making a small profit. At the same time, the airline postponed some aircraft deliveries while it Airbus A321XLR for A321neos.

Frontiers small win

During the quarter, Frontier Airlines increased its revenue by 1% and closed the period with revenue of $973 million.

The airline also highlighted that it was able to achieve annual cost savings of more than $100 million. In the second quarter, costs amounted to $948 million, while the airline’s expenses in the same quarter of 2023 were $888 million.

However, the cost per available seat mile (CASM) was 8.89 cents, while it was 9.51 cents in the second quarter of 2023. This means that Frontier Airlines has managed to significantly reduce its cost of transporting a seat per mile.

The results were mixed. Average occupancy fell by 7.2% year-on-year, reaching 78.1% in the second quarter.

Overall, Frontier Airlines’ fleet comprised an average of 145 aircraft, and at the end of the reporting period it had 148 aircraft. The low-cost airline carried 8.8 million passengers, an increase of 17% over the previous year.

Thus, the airline closed the quarter with a net profit of US$31 million and the first half of the year with a net profit of US$5 million.

In the second quarter and first half of the year, Frontier Airlines generated $77 million and $148 million, respectively, from sale and leaseback (SLB) transactions.

Since they were locked in “as part of other operating expenses”, Proceeds from the SLBs of $148 million helped the airline offset depreciation and amortization, stock-based compensation and deferred income tax expense.

As a result, Frontier Airlines was able to generate a profit of $5 million in the first half of the year.

Deterioration in sales development

While Frontier Airlines’ total revenue increased slightly year-over-year, in addition to load factors, fare revenue, total revenue per passenger and revenue per available seat mile (RASM) also deteriorated year-over-year.

Average fare revenue was $39.91 (-16% year-over-year), total revenue per passenger was $109.25 (-14% year-over-year), and RASM was 9.12 cents (-11% year-over-year).

“RASM was also impacted by the above-average concentration of capacity in new markets and the launch of ‘The New Frontier’ during the quarter, which, among other things, eliminates rebooking fees for certain product packages, provides more transparent pricing and significantly expands customer benefits and support.”

Barry Biffle, CEO of Frontier Airlines, acknowledged that there is an oversupply of capacity in the US .

Biffle added that the airline performed well in the quarter thanks in part to its network and revenue diversification, combined with its industry-leading and ever-improving cost advantage.

The CEO acknowledged that while travel demand has remained stable on peak days of the week, post-pandemic travel patterns have forced Frontier Airlines to focus on peak-day flights.

“Coupled with the maturity of new revenue initiatives and our cost advantage, we believe we will drive margin improvement and be the clear winner in the low-cost segment in 2025 and beyond.”

Frontier Airlines’ forecast detailed that capacity should increase 4 to 6 percent in the third quarter, with a negative adjusted pretax margin of 3 to 6 percent.

Capacity is expected to increase by 5 to 7 percent for the full year, and the adjusted pre-tax margin could be between -1.5 and 1.5 percent.

Postponement of aircraft deliveries

In the second quarter, Frontier Airlines took delivery of six A321neo aircraft financed through SLB transactions, increasing the proportion of A320neo Family aircraft in its fleet to 80%.

As of June 30, the airline had delivery commitments for 198 A320neo family aircraft, with deliveries scheduled through 2029.

However, in August, Frontier Airlines entered into an agreement with Airbus to postpone delivery of aircraft scheduled for delivery between 2025 and 2028 to between 2029 and 2031.

In addition, the airline cancelled its A321XLR order, which was completed in June 2019 when the airline purchased 18 A321XLRs. In addition, it converted 18 A320neo aircraft into A321neos, further expanding its fleet.

As a result, the low-cost airline will introduce fewer aircraft over the next four years, thereby reducing its financing needs and prepayment obligations.

The airline joined JetBlue and Spirit Airlines, two other low-cost carriers that struggled to manage their financial situation in the second quarter and also postponed deliveries of Airbus aircraft.