Frontier Group Holdings Inc (ULCC) 2024 Q1 法說會逐字稿

Good day, and thank you for standing by, and welcome to the Frontier Group Holdings, Incorporated, Q1 2024 earnings call. (Operator Instructions) Please be advised that today's conference is being recorded I would now like to hand the conference over to your first speaker today, David Erdman, Senior Director of Investor Relations. David, you have the floor.

Thank you and good morning and welcome everyone to our first quarter 2024 earnings call. On the call with me this morning is Barry before Chief Executive Officer, Jimmy Dempsey, President; Mark Mitchell, Chief Financial Officer; and our new Chief Commercial Officer, Bobby Schroeder.

Before yielding, I'll recite the customary Safe Harbor provisions. During this call, we will be making forward-looking statements, which are subject to risks and uncertainties. Actual results may differ materially from those predicted in these forward-looking statements and additional information concerning risk factors which could cause such differences are outlined in the announcement we released earlier along with reports we file with the Securities and Exchange Commission. We will also discuss non-GAAP financial measures, which are reconciled to the nearest comparable GAAP measure in the appendix of this morning's earnings announcement.

So I'll give the floor to Barry to begin his prepared remarks. Barry?

Thanks, David, and good morning, everyone. First, I'd like to welcome Bobby Schroeder to the team and introduce him as our new Chief Commercial Officer. Bobby has extensive experience in the industry with nearly 25 years combined Spirit, US Airways and America West. He's in the process of relocating his family to Denver and in his new role assumed responsibility for our commercial teams reporting to Jimmy Dempsey. We're fortunate to have him on team Frontier, along with the recent additions of Alex Clark, our Senior Vice President customers, and Roger Connor, our Chief Information Officer. We now have the strongest senior leadership team we've ever had.

Turning to the quarter we reported an adjusted pretax loss margin of 2.8%, significantly better than our guidance cost and revenue performance. The adjusted pretax loss margin was within one percentage point of the prior year quarter, despite continuing to encounter far greater excess capacity in some of our key markets. As we previously highlighted, while we're not insulated from inflation, we continue to hammer on costs with the objective to maintain up and widen our relative cost advantage to the industry. To that end, we exceeded our expectations the first quarter and our cost advantage to the industry widened to 42% on a trailing 12 month basis. Cost divergent between Frontier and the industry is indeed real. We're on track to achieve our target of 80% out and back flying by June and the corresponding $200 million of annual run rate cost savings by year end. With that, we're reaffirming our guide of 1% to 3% reduction in our adjusted CASMex fuel stage adjusted to 1,000 miles. Redeployment of our capacity from oversupplied markets is on track and progressing as planned. To this end, we opened our 10th crew base in Cleveland last month, while Cincinnati and Chicago will launch later this month.

And finally, San Juan Puerto Rico in June, the addition of these crew bases supports our ability to achieve our target of Outback flying by June and drive further network efficiency. Our San Juan base will not only support demand growth from the US mainland to compete with significantly higher cost carriers. It will also serve as our gateway to other Caribbean destinations in the second quarter, a significant portion of our flying will be in new markets more than double, we would expect a normal year as these new markets mature over the next year, we expect a meaningful improvement in our system routes. Further, we have a range of revenue initiatives, including various distribution and merchandising enhancements, as well as launching loyalty and premium products, all of which diversify our revenue sources. Jimmy will go into more detail on these products as part of the commercial update, despite the immaturity of new markets, we expect to generate a 3% to 6% adjusted pretax margin in the second quarter. We're also reaffirming our full year guide of 3% to 6% despite fuel prices, which are $0.1 per gallon higher than they were in early February when we gave our guide for the year as we move to 2025, we are confident in our 10% to 14% adjusted pretax margin due to our cost tailwinds, expected network maturity and overall revenue diversity initiatives Finally, I'd like to thank every member of Team frontier. They deserve recognition for their significant effort to achieve the milestones I highlighted today and for the remaining costs, disciplined and remaining cost discipline and staying focused on our top priority of delivering a safe and reliable experience to our customers.

I'll now turn the call over to Jimmy for a commercial overview.

Thanks, Barry, and good morning, everyone. I want to echo Barry's comments and welcome Bobby to the team briefly recapping the quarter, total operating revenue increased 2% to $865 million on capacity growth of 8%, both compared to the 2023 quarter, resulting in ROE of $0.092. Departures increased 14% on a 9%, shorter average stage length and total revenue per passenger was $124, down 1%, all compared to the 2023 quarter.

During the quarter, our transition to happen by client developed as planned. By March, we were operating at a 67%, adding back network and achieved 75% in April. This progression is a key driver in our ability to reduce our cancellation rate by 10% and improve on-time arrivals by over five points January through April year over year. A key milestone was the opening of our of our Cleveland crew base, which was successfully launched in mid-March and by summer will serve a total of 30 destinations from Cleveland. Our planned schedule is to achieve 80% up and back flying budget supported by the planned opening of the Cincinnati and Chicago crew bases in May and San Juan, Puerto Rico in June, bringing our crew base footprint to 13 by the end of the second quarter. One of the most significant long-term investments is in our San Juan Basin, where we see a massive opportunity for flights to the mainland United States given our cost advantage versus the competition. In addition, just the geography of Sonofon provides a logical gateway to the broader broader Caribbean region where we believe our low fare stimulation will have a dramatic effect on traffic flows within within the region. We want to thank the government of Puerto Rico and their elected officials for helping make this investment possible. Today, we fly to more destinations from San Juan Puerto Rico to mainland United States than any other airline. And by this summer, we will serve Santiago, Punta Cana and Santo Domingo in the Dominican Republic, as well as St. Thomas and Thomas Syncro, St. Martin, Barbados and Trinidad within the region.

Overall, we remain focused on maximizing total revenue as evidenced in the first quarter by our trade for yield over load factor, which resulted in total revenue exceeding our expectations. We believe that further revenue initiatives will not only diversify our revenue but improve overall demand and increased load factors as we move through the coming years. We launched our reimagined Frontier miles loyalty program late last year and have seen the highest spend on record per car cardholder because of these enhancements. It's very early in our journey to close the gap in our loyalty revenues, but we believe there are several dollars per passenger of opportunity over the next several years. Following our recent introduction of Betfair, we recently launched our upfront plus product for customers that value a premium product upfront plus as a new upgraded seating option with Extra Space and comfort in the first two rows of the aircraft customers an upfront plus will enjoy a window or IOCs with extra leg room and a guaranteed empty middle seat, providing additional personal space and comfort at an exceptional value. It's very similar to the entire European business class product. The new offering, combined with our premium seating options, expand our ability to offer choice to our customers. Later this year, we will introduce NDC a new website and a mobile app that will include improved merchandising day of travel and post travel experience for our customers. We believe the distribution and merchandising changes will increase our revenue per passenger and load factors over the next several years.

That concludes my remarks. So I'll now yield Mark to provide a finance update.

Thanks, Jimmy, and good morning, everyone. Total revenue was $865 million, 2% higher than the comparable 2023 quarter fuel expense was $263 million, 10% lower than the '23 quarter at an average cost per gallon of $2.93. The year-over-year decline in fuel expense was the result of 15% lower fuel prices and 2% greater fuel efficiency, enabling us to achieve an industry-leading 105 ASMs per gallon, partly offset by higher consumption from the 8% capacity growth during the quarter. Adjusted non-fuel operating expenses were $633 million or $0.0671 per ASM due to better than expected cost performance. On a stage adjusted basis to 1,000 miles adjusted chasm ex-fuel was down 3% compared to the '23 quarter due to three additional sale leaseback transactions in the quarter, along with our aggressive cost management across the organization that helped mitigate year-over-year inflationary impacts. As Barry mentioned, our relative cost advantage to the industry widened to 42%, and we remain on track to achieve our annual run rate cost savings target of $200 million by the end of the year.

Our first quarter pretax loss margin of 2.8% was lower than anticipated due primarily to better cost and revenue performance than expected. We ended the quarter with $622 million of unrestricted cash and cash equivalents and $156 million of cash net of total debt at quarter end, slightly higher than our net cash position at year end, we had 142 aircraft in our fleet at quarter end after taking delivery of six A321neo aircraft during the quarter, we expect to take delivery of another six A321 neos in the second quarter and 11 A321 neo aircraft in the second half of '24, all of which are expected to be financed through sale leaseback transactions.

Turning to second quarter guidance. Capacity growth is anticipated to be in the range of 12% to 14% over the '23 quarter on stage length, which is expected to approximate 900 miles. We expect fuel to remain elevated at $2.80 to $2.90 per gallon based on the blended fuel curve on May first, adjusted non-fuel operating expenses are expected to be between $705 million to 720 million, driving an expected sequential decrease in our adjusted chasm ex-fuel on a stage adjusted basis to 1,000 miles. Adjusted pretax margin in the second quarter is expected to be in the range of 3% to 6%, including the impact of higher fuel prices and our network transition. As Barry mentioned, we are also reaffirming our full year 2024 adjusted pretax margin range of 3% to 6% despite the expectation of higher fuel prices. Additionally, we are also reaffirming our guidance for CASMex fuel during 2024 on a stage adjusted base of 1,000 miles to be lower by 1% to 3% versus the prior year.

With that, I'll turn the call back to Barry for closing remarks.

Thanks, Mark. I'm proud of the significant progress we're making in revenue and cost performance. The hard work and dedication of team Frontier are showing that low costs have always mattered and they will continue to matter thanks again for joining us this morning. We're ready to take the Q&A portion of the call.

Thank you. At this time we will conduct the Q&A question and answer session. (Operator Instructions) Brandon Oglenski with Barclays. Brandon, go ahead to your question.

Hey, good morning, guys. And thanks for taking the question. Barry or Jimmy, can you just talk to some of the network changes that you've made and the results that you're seeing in forward bookings, especially in second quarter here, given the improvement in the margin guide on top of a lot of capacity growth?

Yes, sure. I'll go into it. I think if you look at the changes we've made so far, they really just started in April in terms of the additions and the kind of continue to roll through the summer on. But I'll tell you, we're really excited. We've got a lot of new routes that we just started this in the last few weeks that are running nine, these load factors. So I think that our network planning team has picked well and many of these.

So we're really excited about how that's how it's shaping up. But it's very early, right. I mean, we, as I said, while ago with over double the amount of new new flying that we would normally have because of this repositioning, it's a significant we estimate 5 points to 10 points drag on Raízen with this investment. It's the right thing to do to get the network optimized.

And Barry, I guess going ahead from here, do you expect to be profitable every quarter going ahead, especially with reiterating a much higher margin target for 2025?

Yes.

Okay. Appreciate that. And then on the $200 million of cost reduction, can you give us some idea of where that's going to impact the cost line as you get more out and back fine in the network? Thank you.

Yes, Brandon, this is Mark. So on the $200 million cost savings plan. So we're on track, as we indicated in the prepared remarks and where you're going to see that. I mean, you're going to see really benefits across the operations. So you're going to see that we've talked about previously lower travel related costs. You're going to see on crew efficiency benefits. You're going to see benefits on the station operations front, you're also going to see a higher capture rate from a maintenance standpoint on what our crew bases with which is going to drive some improved favorability on the maintenance front, and then with the initiatives that we have to simplify the network, you're going to see an increase in utilization that's going to provide benefit across the P&L.

Thank you.

Pfennigwerth with Evercore ISI.

Hey, thanks. Good morning, guys. This is Jake on for Duane. So appreciate the capacity guidance, but based on what we're seeing in the schedules that are expected to be higher in 2Q than your guidance, is there just a level of conservatism there around completion? Are you still refining the schedule?

Yes. I mean, look, we always put in something that there's going to be air-traffic control and weather issues. So we continue to put in what we believe is going to be realistic our capacity.

Okay. And then just you have this load factor and yield dynamic. How would you think about that evolving over the course of the year, like would you expect yields to be positive again in 2Q? And then I guess what impact is that lower load having on ancillary performance?

Good, actually, I'll just answer the second part of the question first, actually, the lower load factor actually had a positive impact on non-ticket performance in the quarter. And you saw some recovery in the non-ticket through through January, February and March. And look, we obviously focus on the total revenue output that's coming from the business than we are seeking to optimize that total revenue output and in the quarter, we saw an opportunity to trade some load factor for yield, particularly in the off-peak months. And so it actually worked out very well for us and it exceeded our expectations in terms of revenue outlook, but like going forward, and we'll always optimize it. So it'll depend on the situation and the environment that we're in and certainly in peak periods, we'll be pushing for very high load factors.

Okay.

Thank you.

Ravi Shanker with Morgan Stanley.

Good morning. This is Katherine on for Robbie. So thank you for taking my question. As you guys had mentioned in your opening remarks, you recently introduced the upfront Plus seating option and premiums obviously been a large focus. So how is that kind of been trending since introducing it? And what do you guys think the non-corporate premium domestic opportunity for frontiers like and do you think that gets more competitive amongst peers?

And look, we introduced the upfront plus just recently. It's been in place for a few weeks now. We're actually quite encouraged by its performance is really exceeding our expectations. It's giving our customers an opportunity to buy effectively more space at the front of the aircraft. We think that's really really helpful to our to our customer base. And so we're quite excited about it that plus the business fairer option that we gave to customers earlier in the year, and we think is a nice complement to the business that we have today. Clearly, we're still focused very much on unit costs and delivering very, very strong unit cost. But these options, we think will be helpful to giving choice to our customers.

And just as a quick follow-up, with domestic yields down in the first quarter and some harder comps coming up, what are you guys seeing in the domestic space as we move into 2Q and maybe in the back half of the year as well?

Look, I think you see overall capacity going up. I think Frontier is probably leading the charge in probably bucking the system because we've pivoted away were six, eight months now into this pivoting away from the oversupply in Florida. So for us. We see a really good landscape setting up for the markets we're in. We see the fares in the markets that we're going into higher than than the existing system. And so we see a lot more kind of ripe opportunities for market stimulation where we're headed. I can't really speak for the rest of the industry, but we see good demand for summer, and we're excited about the network changes and what that can do as these things mature for our revenue over the next year.

Savi Syth with Raymond James.

Hey, good morning, everyone. And you mentioned the ability with San Jose to kind of expand into kind of connecting into from the Caribbean markets. I was curious if you could talk about what you're seeing in that and short haul leisure, given that some of your competitors have talked about a lot of kind of overcapacity in that market and kind of why why you find this kind of an attractive place to add capacity?

We see a really attractive opportunity in Puerto Rico Saudi, our cost base gives us a real opportunity to stimulate that market where there's been very high fares for a long period of time. So we see great opportunity there. And it's very early days in terms of the investment in Puerto Rico and the base opens in next month. And so but the early results, as Barry mentioned, across the network changes and look promising for our business given our cost base.

And so we're quite excited about opening up in Puerto Rico, especially Mesa is.

The national segment then beyond just maybe Puerto Rico, that is international segment doing fairly well, despite some of the comments by the industry we've done well.

We've done really well on our intra San Juan up until now, just because it's relatively small. I think some of that commentary. I mean, look, I don't know what they're talking about. We're not seeing that. I think it's months. There could be some other destinations in the region, but not necessarily where we're starting service to.

If that's helpful. And if I might just with the comment there that you mentioned about in the new markets being double what they normally are. And although it probably and I would guess I'm surprised that it's having a 5 points to 10 point drag on resin, given that I would think that's the reason you're going into these are because they are better. So I just kind of could you add a little bit more color on like what the percentages and how you think that should kind of progress?

Yes, sure.

So here's the thing we are chasing higher yield opportunities, right? So if we fast forward to a year from now, we're going to love these markets because once they're mature, they're likely in many cases to produce a higher resin than our existing system. However, when they're brand new, literally like some of them still starting in the next week or two of doing an inaugural in another week like they're brand-new. And so they'll they're likely to produce a third or even half the revenue that a mature market will when they're brand new. And so all we're saying is that when you have double the amount you would normally have in brand new markets that is a bigger drag than normal. And there and we have calculated this, we believe this to be in the high single digits of a drag on the on the rig companies rather and it flows straight through to margin and because of this much new capacity, but it will mature as we move through the year, especially when we get towards the fourth quarter and into the first quarter, we expect significant improvement and you should see a natural kind of seven in that case, kind of a natural seven, eight point improvement in our resins over the next year as these markets mature.

That's clear. That's very helpful. And just to clarify, Barry, what's the percentage of markets under development in 2Q.

for our we believe it's over 20% is in new markets.

That's helpful. Thank you. And bye for our next question.

Our next question comes from Michael Linenberg of Deutsche Bank.

Michael, go ahead with your question, Tyler, this is actually Shannon dirty on for Mike. For my first question, Barry, how many aircraft are you planning to take this year? Presumably maybe getting impacted just like every other carrier by delivery delays, even Airbus rate. So I'm just trying to understand the capacity growth in the back half of the year and corresponding CASMex strength.

Yes. So real fast. I'll let Mark answer the actual numbers, but some of the aircraft delayed from our original order. Yes, however, are the delays known and have they been known now for over six months? And the answer is yes. So so there we're not seeing the disruption that we were seeing before. So yes, they're late, but that was really just a problem call it a year ago when everything got moved to the right, we're now at a point where, yes, we have airplanes that are delayed from now that we're maybe just what we deliver now, but I'm now catching a delivery that was delayed that was supposed to be here three, four months ago if that makes sense. So it's not as impactful to the business anymore.

We've seen this really smooth out and mark that you have from it from a number standpoint, I mean, we're still at '23 deliveries for this year, all three 21 neos on fixed expected in the second quarter, 11 in the back half of the year.

Very helpful. Thank you, guys. And then my second question, you know what drove the 6% decline in aircraft utilization, are you still pursuing to get to 12 plus hours with the network changes?

Now we're getting to the 80% out and back flying it sounds like you got to 75% already. I thought that we would have had much better aircraft utilization by now. But maybe to your earlier point because the markets are so ramping? Any color here would be helpful.

Yes, Shannon, we're as we're still managing the oversupply that we saw in the back six months of last year, particularly in the January February period. And so managing that we took utilization down, like we've done previously in the January February are off peak periods, but we're expecting utilization to be up in the high elevens twelves for the rest of the year.

Okay.

Standby for our next question.

Our next question comes from Helene Becker with TD. Cohen. Colin, go ahead with your question and

thanks very much, operator.

Hi, team. Thanks for the time on two questions. One, at one point, your flight attendants were and objecting to the new schedule because they would earn less was issue ever resolved?

Yes. Thanks linked. So So we actually negotiated on this very issue. They had wanted to guarantee of a minimum amount of multi-day trips in in past negotiations. And we did not agree to that. So it's not it's not really a dispute. It's been settled on. We do know that there are flight attendants that prefer multi-day trips right and that that prefer to get the per diem and saying hotels, this is a challenge for some of them. However, when you look at our growth as we grow, if you think about it every day, even though it's only 20% call it multi-day trips versus, call it, 45% maybe six months ago. We cut that in half but every day we grow the percentage of the total gross and within a year or so will likely be close to have the number of people that want multi-day trips will be able to happen. And when you look at the fact of what we've done in our hiring for the last six months, we have targeted specifically into bases, especially as you get these out and back with Cleveland is a great example. Like almost every one in Cleveland, we hired locally and they are doing out and back from that city. So so it's I know it's a challenge first for small minority, it's still want the outbacks. But as we continue to grow, we expect those that want it within a year and all of them should be able to get it. So we don't see it being a major account.

Okay. That's really helpful. Thanks for explaining that. And then my other question is on can you guys talk a lot about your cost advantage relative to the peer group? And I'm just wondering how much does that advantage matter anymore given everybody's changes in the way there are bringing their route network?

Well, I think it matters a lot. I think we have clearly shown a lane. I know that there's been this thought of bifurcation that the network carriers are are somehow in a different place than that. Low-cost carriers are now in trouble. I think I think number one, the capacity deployment and the oversupply and the imbalances of that across the network is very clear and well understood now, which which had a greater impact of low-cost carriers. But I think more materially, I think when you look at those that call themselves low-cost carriers, but yet their costs have been going up five, 10% a year. And in terms of margins that each and the margins and the fact that we're hell-bent to be number one and continue to widen. Our cost advantage is why we're starting to outperform why we have the three to six guide for Q2 despite a 5% to 10% drag of new markets and why we're confident with the cost tailwinds that we're going to have from completing the Outback, the $200 million that that market I've talked about over and over and over plus the things that cost advantage is what's going to deliver us and get us back to 10% to 14% margins in our target next year. So cohort better, and they always will highlight.

And I know that's really fair. I appreciate it's just one quick one for Mark. How do we model the sale that's for the rest of the year.

Yes.

So from an overall perspective, and I think if you just follow the fleet profile that we've outlined, so 23 deliveries this year, all sale leaseback financed six expected in the second quarter, 11 in the back half of the year. So I think that's the way to look at it.

Okay.

All right.

So divide that 11 by two ish?

Yes.

I mean, we haven't guided specifically, but I mean, I think it's not a bad approximation.

Okay.

All right.

Thanks.

Team standby for our next question.

Our next question comes from J.B. Jamie Baker of JPMorgan.

Jamie, go ahead with your question and good morning. So a follow up on that. It looks like you had $71 million of sale leaseback proceeds in the first quarter that you used to offset chasm. I mean, it feels like the business model is becoming increasingly dependent on aircraft financing decisions as opposed to the widening chasm stuff that we're all kind of accustomed to. So I guess my first question is when sale leaseback proceeds begin to fade, have you given any thoughts on how you might manage the business differently?

Thanks, Jamie. This this horse has been pretty deep feet and pretty dead. We covered this significantly. I think a few months ago but the bottom line is this if you buy aircraft and you're able to deliver them at likely below market rates, you're going to get a gain. And we have illustrated that whether you do this through a sale leaseback or whether you do it through debt finance, the economics and the net income is the same. So your gain that we're calling out is simply because of the accounting rules that changed a few years ago. But if you actually are EBIT, if you're being fair, you would give the same gains to America and United Southwest and back those out and to your point of when they fade away will that's not happening anytime near in the near term with 200 aircraft on order, we have a clear, clear path. This needs to stop being talked about as a negative Jamie and talked about as an asset and a positive to the business, you need to look at the guaranteed cash flows that come from this over the next decade. This will not change and we don't plan on changing this unless the financing market changes. It's a core part of the business, the cash is real. The earnings are real and it's the same as if we had debt finance.

Well, I guess the question though, if you had debt financed, wouldn't that be more similar to amortizing the gain over the life of the lease? So I guess put differently, if you would amortize the gain over whatever leases you struck in the first quarter wouldn't be a $71 million benefit. Do you know what the approximate benefit would have been? Because it's I mean, it's obviously going to be much smaller number we'll sell those aircraft would be a much smaller number.

But then you would have been brought in the gains from all the other aircraft that you've delivered over the last 10 years. This is why we keep saying it and we've there's a really good presentation we put out on this.

And I know I remember Okay.

Well, that's why we did it. If you go back and look, we showed you whether you did this over the old accounting, whether you did it through debt finance or whether you do it the way it's being done now, which we're just following proper accounting. It's the economic answer. The net income answer is the same.

Okay.

I appreciate the color.

Whether I think, Jamie, just to add to what Barry said, the market value for aircraft, particularly the three 21 neo, is really, really strong. The issues that have been happening with the manufacturers in terms of delays in aircraft. The market price for selling an aircraft into the into the leasing community is higher than it's ever been. It isn't diminishing Sure. The financing costs associated with us are going up with higher interest rates, but that market price of the aircraft is very, very strong. And we happen to buy aircraft at a material discount to the market and so that's where we're getting the benefit. There is a real asset value intrinsic in our aircraft order. And you see that every quarter.

I think look, let's get back to focusing on what's important. I mean, what we're excited about is we gave you a guide for Q1 that included it. There's nothing changed with that. And we had really great performance and that is leading us to where we are now with what we believe is a solid guide for Q2 and the year, even despite a high single digit resin hit and margin hit, which gives you the confidence to get back to the 10 points to 14 points that we've labeled as our target next year that.

Okay.

We need to focus on.

Yes, and I don't disagree as to the strength of the aircraft market, and we're not looking for that to reverse anytime soon. I mean on that, on that point, we are in full agreement.

So thank you, standby for our next question.

Next question comes from Conor Cunningham of Melius Research content. Go ahead of everyone.

Thank you. Are more on the 13 new crew versus what your inventories are, I guess, 13 crew bases that you have in the couple of as you're introducing now? I'm just trying to understand the cost mismatch that that is currently kind of happening in 2020 for like as you open up Cleveland, for example. And then you kind of move more to this out back network. Is there a cost mismatch where you're actually holding too many costs too much cost this year before it starts to kind of become a good guide next year. I'm just trying to understand the dynamic on the cost side as you open up new bases? Thank you.

I don't I'm sorry, I forgot if you don't have.

Yes. I mean, I don't think there is a cost mismatch. I mean, I think the $200 million of cost savings target that we have that run rate that we expect to get to by the end of the year. It is underpinned by this, yes, network simplification and the shift to over 80% out and back that simplifies the operation that provides efficiency across the operation. And so we think it goes, it goes hand in hand and we don't think that there is a minimum.

And just to add to what Mark said, the actual cost of opening the base there are dollars involved, but they're relatively small in the context of moving really valuable assets around the network. And I'm putting them in places where we're actually they're making real real money. And so the in the upfront investment in a base opening and is relatively small from a cost perspective. So there isn't a material cost drag from the exit from the opening event itself, our goal is actually cause our cost savings that come quite quickly after you open the base that are kind of like on our protocol amendment.

Just on on your pilots that fix the markets obviously moved a lot. You have some airlines that are shedding pilots now or furloughing pilots. Can you just talk about on where you are in terms of your negotiation would have been the sticking raising new that's kind of happening there. I mean, I obviously don't want you to negotiate an aisle, but just curious on what's what's kind of going on right now and what our expectations around when that could potentially get rectified? Thank you.

Of the landscape is completely changed frightening because airlines have canceled classes attrition rates have completely dried up. And if you want the canary in the coal mine, you actually saw this a while back the fact that the regional airlines have been able to get staff and hiring again tells you everything you need, though, and there's not the shortage. So yes, there's not the pressure that there was was building as far as our negotiations. It is it is very early. It is up. I mean, we just started and so on and we're in mediation. And the history of these things are one to two years, most of them are kind of center around the two year timeframe. So I wouldn't expect us anytime soon to be able to get through that process is just a process once you sign up remediation, you're kind of locked into it. So it's going to take a while.

Appreciate it.

Thank you, standby for our next question.

The next question comes from Stephen Trent with Citi. Steven, go ahead with your question.

Good morning, guys, and thanks for taking my question. I had two quick ones for you on one. As you look at these new products, you know that you mentioned with the upfront plus I think you said it was called and you look at this new route network, what sort of competitive response are you seeing from the Network Airlines or others as you launch on these new ramps?

Thanks.

Yes.

So look, I think we're seeing what you normally see. I mean, one person's a great opportunity for high revenue opportunities with under underserved or high-priced markets is another airline's definition of incursions. So we see normal reactions out there. But I think the truth is that the industry is focused on margins. And so I think, you know any irrational things that you see. I think generally over time, I think most rational carriers will will respond with different pricing and capacity as a result. But yes, we're not seeing anything out of the normal.

Great. Appreciate that, Barry. And just one other question from a regulatory standpoint and I have an even 100% seen all the details around this myself. But I guess the DOT made some rule changes about airlines having to compensate customers for delayed flights and lost bags and this kind of thing on do you sort of have any color on what's the latest on that and to what extent the industry might push back on that?

Yes.

Look, I know there's there's there's some pushback on it, and a lot of it has to do with. I think there's concern about the technology that's available, especially with third party to be compliant with the transparency on the refund side, I would say that some look, we refunded over $300 million last year. All in these same categories we believe largely in compliant with what they're looking for out of. We don't see any financial impact from this analysis dovetail on the transparency. We've got some big changes this year. We've got a new website coming out. We've got a new new app coming out and we've also got some kind of improved merchandising that we think will not only be good for us from a revenue perspective, but I think it will really address much of these transparency issues and make it very clean and upfront. I'm so I think we can hit the spirit of what they're looking for. But I think the way they Britain and I think the reason why some of the industry is having a challenge is because I think there's not a Technolog technology in place today to do exactly what they're looking for, but hopefully we can all get there. But again, we see no financial impact from this.

Okay. Appreciate it.

Thanks, Matt.

And sir, next question, next question comes from Christopher staff anomalous with Sequenom Financial Group. Christopher, go ahead with your question.

Thank you, operator. Good morning, everyone. From our we want to go back to your comments or your prepared comments around palm supply dynamic. If you could put a finer point on that as it relates to key pieces of your network, a lot has changed here. You've been very clear about how you're thinking about optimizing the network going forward, but also looking at Alaska, I don't know a few weeks of sales pro promos here, coincidentally or not, they seem to be overlapping with a larger network peer and should kind of we interpret that, that you're having confidence here with your product, particularly as it relates to these revenue initiatives, business, reworked loyalty and things like that.

You can look at it. I said a while ago low cost I've always matter and the cost divergence is real. And at the end of the day, this enables us to sell to customers that can afford possibly a network carrier. And we are in a different business in that regard. And we think that we peacefully coexist in many places with the big with the big airlines because they offer a different product and they cater to a different clientele. Yes, we have some new products, but I think it probably appeal to your more fluid travelers and those that want a little more comfort with the upfront plus or the premium products. But the truth is, is that we don't have a frequent flyer program that gets you to Dubai. We don't have eight frequencies a day in route. So so we're not really for the corporates that they chase. But yes, I think I think we serve a different market and I think most of the more sophisticated our legacy carriers have actually figured that out.

Okay. And then your comments before I didn't think there was an earlier question on this yield and load factor dynamic. And if you could speak to how that's progressing if it's sort of a consistent system wide? Or is it perhaps more market-specific? And is that kind of a dynamic that we should expect to slowly shift as we get through the balance of the year?

Well, look, we always look to optimize revenue. I mean, we have teams that this is their this is their big thing, right? I mean, this is this is what they do. They optimize revenue every day. And we found that in Q1 that a greater focus on yield and less on load was a better outcome for us, and we've seen that we had a pretty good beat. And so obviously it worked. However, it's not good long term to have that kind of deficit to the load factors. And I think you're seeing that as a symptom of we still had too much capacity that was impacted by the oversupply in Florida as an example. And so as we move through the year, we would expect to regain all of that load factor. And I think by the time we get to Q1 next year, I think we will largely close that that gap back because of the changes we're making to the network and getting out of the oversupplied areas.

Okay.

Thank you, standby for our next question.

Our next question comes from David Feaster with Raymond James. Savi, go ahead with your question.

Hey, thanks for the follow-up. Just you brought up a good point earlier that your 1Q perform cost performance was was quite commendable and kind of better than expected. Just curious as to why your full year outlook hasn't changed and any thoughts on like. But Joe, the 1Q up performance, I can maybe continue.

Yes. Yes.

I mean, yes, it's as we look from a cost outperformance standpoint in the first quarter versus our expectations as we continue to target and work towards that $200 million cost savings plan, which we're on target for. And we started to see some of the early benefits we have in the first quarter come through across the business. And so that's what you saw in the first quarter. As you look on a full year basis, I mean, we still are holding to that 1% to 3% given that the strategy that we put forward, I mean that is what we're still holding to. And so yes, at this point, that guide still holds.

Okay, thank you.

And showing no further questions, I'd like to turn it back over to Barry.

Before for closing remarks, I'd like to thank everybody for joining us today, and we're really excited about data about our about our trajectory on costs as well as revenue and how we're improving operations. I want to thank all the team Frontier, and we look forward to hosting you on our next call.

Patricia, thank you for your participation in today's conference. This does conclude the program. You may now disconnect.