Frontier Group Holdings Inc (ULCC) 2025 Q4 法說會逐字稿

Good day, and thank you for standing by. Welcome to the Frontier Group Holdings Q4 2025 earnings conference call. (Operator Instructions) Please be advised that today's conference is being recorded.

I would now like to turn the conference over to your speaker for today, David Erdman, Senior Director, Investor Relations. Please go ahead.

Thank you, and good morning, everyone. Welcome to our fourth-quarter and year-End 2025 Earnings Call. With me this morning are Jimmy Dempsey, President and Chief Executive Officer; Bobby Schroeter, Chief Commercial Officer; and Mark Mitchell, Chief Financial Officer. On today's call, Jimmy will be providing commentary on his strategic priorities, and then we're going to jump directly to the Q&A.

However, a transcript of the prepared remarks, which would otherwise have been delivered by Bobby and Mark is available for download on our Investor Relations website. Before yielding, let me recite the customary safe harbor provisions. 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. Additional information concerning risk factors which could cause such differences are outlined in the announcement we released earlier, along with reports we filed with the Securities and Exchange Commission. Moreover, we will also be discussing non-GAAP financial measures, actual results of which are reconciled to the nearest comparable GAAP measure in the appendix of the earnings announcement. And then we'll also be referencing state-adjusted unit metrics, which are based on 1,000 miles.

So I'm going to give the floor to Jimmy to begin his prepared remarks. Jimmy?

I'd like to start by emphasizing how honored I am to be taking on the role of CEO, particularly at such a pivotal moment for Frontier. When I accepted this role, the Board gave me a clear mandate to enact change at our company. We know that we need to do better across the business and deliver increased value for all our stakeholders, employees, customers and our investors.

With this in mind, I have spent the past two-months rolling up my sleeves to build a clear strategic path designed to return Frontier to sustain profitability as the low-cost, high-value airline of choice. This plan comprises four strategic priorities. Rightsizing the fleet, strengthening our cost discipline, reducing cancellations and improving on-time performance and driving customer loyalty.

Today, I will walk you through the actions we are taking on these priorities that I expect will drive meaningful changes and improvement across our organization. First and foremost, I am focused on resetting and stabilizing the business through a comprehensive rightsizing of our fleet. Returning Frontier to profitability is about going back to our roots as an organization.

This means taking action to increase fleet productivity and efficiency. Just recently, we entered into a nonbinding agreement with AerCap, which will enable us to benefit from the early termination of 24 aircraft leases in the second-quarter. We plan to take advantage of this by increasing utilization across our remaining fleet to support our planned growth and drive efficiency.

AerCap will remain one of our largest lessors, and we look forward to expanding our partnership with an additional 10 sale-leasebacks in the future as part of this agreement. Separately, we reached a nonbinding framework agreement with Airbus, which revises the delivery profile of our order book. It supports a more measured and sustainable long-term growth rate of approximately 10%, representing a meaningful moderation versus our prior growth trajectory.

The update to our delivery profile and underlying growth rate helps to minimize the proportion of new market activity while supporting ongoing productivity and operational reliability. Our plan to right size the fleet directly contributes to my next strategic priority, strengthening our cost discipline. Cost discipline has always been a cornerstone of our business model.

We are targeting $200 million of annual run rate cost savings by 2027, largely from network optimization, productivity enhancements and other efficiencies across the business, which includes approximately $90 million of expected annual rent savings from the early termination of the 24 aircraft leases. The next strategic priority throughout 2026 is centered around improving our operational reliability by reducing cancellations and improving our on-time performance.

We're simply not satisfied with our past record in these areas. The status quo is not acceptable and every available option is on the table to improve our performance. I will give you some examples in a long list of initiatives we are working on across the business. Turn times, we are working on improvements to optimize our airport operation workflows, strengthening our head start performance and improving day of travel communications with our customers. Over 85% of our customers use our recently updated mobile app.

By leveraging digital channels, we can push timely alerts of our clear next steps during delays and ensure customers feel supported and informed throughout their journey. We are also working on improved operational planning that better integrates scheduled maintenance into the early stage of our network design process to take advantage of our enhanced maintenance footprint.

While we remain firmly committed to cost discipline and operational excellence, our final strategic priority is pairing that discipline with smart high-return upgrades that will accelerate the maturity of our customer loyalty program. Last year, we launched a series of enhancements to our loyalty ecosystem, including changes that simplify elite benefits, enhanced redemption opportunities and create broader customer engagement.

Our simplified reward structure and easier elite status benchmarks have already begun to resonate with customers, and we are expanding on these efforts in 2026. Furthermore, we'll be modernizing every part of our commercial offering this year and into 2027 from digital tools and distribution to loyalty and onboard experience.

These initiatives include the fleet-wide rollout of first-class seating, onboard Wi-Fi, and upgraded website and mobile app and enhanced digital products and communications. These enhancements will broaden our appeal and effectively address friction points that have historically limited conversion and loyalty. We're building a product that remains incredibly affordable while delivering more value than ever before.

Our loyalty assets represent one of our strongest long-term levers for value creation in the business. We're confident our recent and planned investments in our loyalty program and product offerings will be a significant part of our revenue growth. Overall, we're pairing our unique ability to provide low fares with an increasingly elevated product and customer experience to deliver unmatched value in air travel.

The path ahead requires meaningful change and we are embracing that reality with clarity and conviction in order to capitalize on the substantial opportunity we see in front of us. We've adopted a disciplined actionable set of strategic priorities to transform our company and put Frontier on a path towards sustained profitability.

Above all, we are deeply committed to creating long-term value for our shareholders, employees and customers. Thank you for your continued support. As David noted, we'll preempt commentary from Bobby and Mark to allow sufficient time for analyst questions.

With that, operator, we're ready to begin the Q&A segment.

(Operator Instructions) Atul Maheswari, UBS.

I had a question on your long-term growth plan of 10%. So where is this growth going to be concentrated? Is it simply going to be backfilling the space vacated by Spirit? Or are there other geographies where you see an opportunity? And then related to this topic, why is 10% the right growth target for this year and for the long term? Why is it not a smaller number than that, as that would in theory, accelerate your ROIC improvement. So any thoughts there would be helpful.

Yes, sure. Thanks, Atul. Look, we'll obviously be disciplined in deploying our capacity across over a multiyear basis across the system. And what you're seeing this year is effectively infilling our network from a growth perspective. So we anticipate growth will be approximately 10%. I mean there's a long way to go from now to the end of the year to determine exactly what that rate will perfectly be.

We anticipate about half of that is filling out the existing network. And so moving capacity that was taken down on Tuesday and Wednesdays, and Saturdays and moving back into bringing capacity back into those days. And then about half is new markets. And new markets are driven by items that didn't work last year or opportunities that are presenting themselves with changes in capacity across the environment.

So you're seeing us take advantage of that in parts of the US. And you've seen us do that in a lot of airports around the states like Atlanta, Las Vegas and other places. In terms of the 10% growth rate and why that makes sense for us. Look, historically, we've grown the airline by mid- to high single-digit teens, and in some cases, well over 20%.

We think that about -- when you grow by about 5% to 7%, you don't necessarily take a significant RASM penalty to that growth. And we like the growth profile of around 10%. This drives a lot of utilization flexibility in the organization where you can manage your utilization and manage growth rates either below or above at 10% depending on market opportunities.

What we see at the moment because we're infilling a lot of productivity into the airline, we think that, that would provide real stability in the revenue performance across this year and sort of piggybacks on the benefits that we're seeing from a revenue perspective across the back end of the fourth-quarter and certainly, the run rate that we're seeing right now in terms of RASM going through this quarter and into the second-quarter.

Got it. That's helpful. And then as my follow-up, I had a question on the guidance that was issued for this year. So based on my math, it appears you will need high-single digit to maybe double-digit RASM growth over the second to the fourth-quarter to achieve the midpoint of the guidance. So a, can you confirm if that math is correct?

And then b, if it is, what's giving you the confidence that you can drive this level of RASM increase beginning in the second-quarter of this year because that's the time when your capacity growth will also accelerate to double-digit levels.

Look, a couple of things are happening, right? This is a major transition year for the airline. We will change the utilization profile of the business as you progress through into the second half of the year. And what we're seeing right now in terms of the RASM performance is meaningfully improved year-over-year. We're seeing a trend above 10% in terms of RASM improvement.

We're seeing that in the early booking process through March and particularly April and May. And so we're actually quite encouraged by what we see in terms of RASM trends going across the year. In terms of the long term, post adjusting our costs, like one of the focuses in the business is getting a significant saving in unit costs across this year, but largely moving into 2027.

And so you effectively have a reset year in terms of the business and its productivity, and that's where our focus lies at the moment. We're certainly seeing that stability in revenue and improvement in revenue carry forward, which gives us confidence that, that performance happens for the rest of the year.

Yes. And this is Bobby. So some of the things that we're seeing, of course, there's a good supply. demand backdrop that exists, capacity has been moderated a bit. But some of the things we've done that we're seeing unique benefits to as well. Last quarter, we moved back to a basic first product architecture that has the three clearly defined bundles that we have within there, so economy and premium and business.

And then we reinforced revenue management discipline around that structure. So that allowed us to yield up more effectively across the fare ladder. And then in addition to that, which has enhanced this, we've seen significant in the past quarter, significant NDC distribution enhancement. So that's helping to improve the conversion across third-party channels.

It's allowing us to merchandise those bundles more effectively on the OTAs and aggregators. And they're effectively, if you think about it now, they're on the shelf that they weren't before. So that's driving purchases early in the curve, allowing for improved attachment rates and better yield opportunities. And those are things that are going to continue in the future. So as Jimmy said, we're seeing that in the first-quarter, and those are on continued benefits that we'll see throughout the year, we believe.

Savi Syth, Raymond James.

I wonder if you could remind us what the delivery cadence is for 2026. And then as you look to '27 and '28, just generally how many aircraft are you kind of anticipating with this revised orders?

Yes. So the delivery cadence for this year. So we have 24 aircraft scheduled, six in the first-quarter, eight in the second-quarter and then five in both the third and fourth-quarter. And with the fleet plan that we announced, when you look at those 24 inductions, 24 early terminations, we expect to end the year with the same number of aircraft we began the year with, so 176. And then as you look across '27, we expect to be roughly by the end of '27 at a similar level to where we ended '25 and expect to end '26.

Yes. And Savi, I mean that's an important point, right? We're going to start and end the year at the same number of aircraft and actually start and end 2027 with the same number of aircraft that we started 2026 with. And so really, the growth that you're seeing in the business is bringing back that productivity in the airline that's been missing for the last couple of years.

And so that puts us on a better trajectory in terms of core operating unit costs in the business. So that gives us real confidence that this plan that we're putting in place today is very manageable across the airline. You're effectively infilling utilization into a largely already existing network. So that's where our confidence is coming from this plan from a stability of revenue perspective, but also from an ability to operate the airline at a higher utilization clip.

That makes sense. I mean I wonder like what do you think you can get to in terms of utilization as you exit this year? And what's the dispute order, like what's the new normal in utilization? And when can we get there?

We've targeted about 11.5 hours across the entire fleet. And the fleet is more complicated than it was prior to COVID, where you got closer to 12-hours because of some of the engine noise with the new engine technology that exists across the fleet. So you do have aircraft that are less productive because of that. And so we've picked 11.5 hours.

It gives us flexibility to add time to it, if we see it in certain periods and take time away from a seasonal perspective or other periods. So we think about 11.5 hours. That's our initial target to reset the business and do that between now and probably running into the summer of 2027. You get a big boost from a utilization rate of like averaging about nine hours last year when you remove the 24 aircraft and right size the fleet.

I mean that's a very, very important change that will happen quite abruptly midway through the second-quarter. So that's a really good step change as you progress into the second half of this year. And then you've got to grow into the remainder of the fleet from a pilot flight attendants perspective to operate at close to 11.5 hours probably by summer 2027.

Jamie Baker, JPMorgan Securities.

So the $200 million of run rate cost savings, I'm curious what labor assumptions underpin that. I believe at one time, Barry had at least sort of implied that revised economics were part of a longer-term plan that you would articulated. I know that there was never an official 2026 guide today. But yes, straightforward question. Is there a pilot deal in your full year guide?

There is not a pilot deal in our full year guide. We continue, Jamie, in negotiations with the pilots through the mediation process. And so look, we'll update on that if we have something to talk to you about. The $200 million of cost savings, about half of it is rent, right, which comes from the deal we've done today. About another 1/3 of it is really network shape, driving unit cost savings into the business from where we fly basically.

And then you've got efficiencies that come on the back of having a business that was fragmented as the week progressed. So Tuesdays and Wednesdays had lower flying. Saturday had slightly lower flying than the other four-days of the week. And so you get efficiencies from that. But back to your primary question, no, we haven't baked in the cost savings, any changes to crew other than efficiency that comes naturally across the week from flying a more stable schedule.

Well, that's a good segue into my second question. And I guess this kind of builds on what Savi was asking about. But clearly, there are two iterations of low-cost flying in the US, the high daily utilization model and the other being more of the kind of Allegiant Sun country, only fly when you can make money, low utilization model, whatever you want to call that.

So it's clear you're leaning back into the high utilization model. What is it about Frontier's structure or network that assures us that, that is the better of the two low-cost iteration operating models in the US?

Well, fundamentally, the efficiency that comes to the airline from flying a more regular schedule throughout the week is a meaningful cost saving in the business. And so this business model, the focus is always on strengthening your cost discipline across the business. And that's the appetite to do it. What we've seen in our business over the past number of months as we invest in loyalty.

Invest in the network and adapt the network to today's environment and the playing field that we're in today, we've seen real performance improvement across the week, including some of the off-peak days that you have, albeit with lower capacity deployed in those days. So we're pretty confident that the run rate RASM that we're seeing at the moment, given the structural change that's happening in the -- that has been happening in the industry.

And the capacity discipline that is in a number of carriers across the industry puts us in a really good place to take advantage of that and bring the airline back to that cost discipline place than it was prior to COVID.

Katherine Kallergis, Morgan Stanley.

This is Katherine on for Ravi. I guess just a question on the guidance range. Obviously, there's a bit of a wide range here. So can you just maybe talk us through what would push you maybe to the low end of the guidance versus the high end and what you're assuming there for the full year?

Yes. So as you look at the full year, right? I mean, as Jimmy highlighted, this is a transition year. So as we go through this year, working to reset the productivity and the efficiency of the airline. We've got cost savings that we've got line of sight to that we're targeting. And so as you look at that guidance range, it takes into account the fact that there is a transition, there's a timing element to that needs to be worked through.

And as you look at the other side of the range, we are seeing a more constructive supply-demand environment, and we do expect as we go through the year, benefits on it from a productivity standpoint and a cost savings standpoint and also further traction on the revenue initiatives that were highlighted earlier.

Got it. That's very helpful. And just as a quick follow-up. What was the catalyst for deferring some of these planes? I know you talked about how 10% is going to be the right growth for you. So is it more so figuring out what the growth rate long term would work for you guys? Or kind of what kind of kicked this off?

Yes. I mean we've been -- look, we're obviously managing over the last two-months, two deals that we've been doing to right size the fleet. The reason we picked 10% is we think it provides more stability from a revenue perspective than the airline has had historically where it's had a growth rate of 20% plus in certain years, but certainly high teens growth rate.

And so we think 10% is a good number for the business to grow at. It provides an opportunity for us to drive growth into new markets where we're offering value that is clearly a differentiator with the rest of the industry, given our low cost base. And so we think about 10% makes sense. Obviously, you can accelerate that if you choose to or decelerate it depending on how you utilize the airline.

But we think around 8%, 9%, 10% is a good number for the airline to be at over the kind of long term. We expect as the airline grows beyond 2030 and beyond, that may come down a little bit because the airline is much bigger. And so the level of growth is not necessarily as high from a percentage term basis, but may well be consistent with the ASM production that you produce each year from a growth perspective.

Duane Pfennigwerth, Evercore.

Thank you. Jimmy, I wonder if you could speak to return conditions generally on your engines. How much is an engine rebuild costing you in the current backdrop versus maybe what was contemplated in these leases 12-years ago? And if you're willing to speak to it, just remind us what your agreements sort of require at the back end? Is there a true-up mechanism in your return conditions?

Yes. I'm not going to get into the complexity of the deal that we've done in great detail. These are not 12-year-old aircraft. These are midway through their lease life. And so the opportunity that came is related to a need for more engines in the CFM engine pool. And so we have been in dialogue with multiple parties around this for the last month or so to try and put a structure in place that work for both us and them.

And so we've got to a very creative place. There is no liquidity penalty on Frontier in 2026 in relation to this deal. We have to work through the redelivery conditions of the engines over the coming months. But we think that the cost of this is relatively minor in the context of our fleet. And actually, what it does, Duane, is it gives you a meaningful improvement in expected maintenance costs in the next three to five-years from removing these aircraft from the fleet.

So this is a very positive deal both in the short term and to reset the productivity of the airline, but over the medium term in terms of the maintenance profile of the business in the next three to five-years. And so we're really happy with the deal that's been struck.

Okay. How will you measure -- should we view this as this is a one and done or this is one of perhaps several of these? How will you measure if 24 aircraft is sufficient to get you back to where you need to be?

I mean, look, they're -- I don't know that there's another opportunity that is -- that can mirror this opportunity that we put in place to remove 24 aircraft. There may well be an opportunity. It would just accelerate the productivity of the airline. You would just move back to an 11.5 hour utilization rate at a faster pace. We've been very focused on this deal and separately fixing the medium- to long-term growth rate of the airline.

So that we could have a measured growth profile of the airline. If another deal comes along, we'll certainly look at it, but we'll be disciplined in terms of how we assess whether it's the right thing to do for the airline or not.

Michael Linenberg, Deutsche Bank.

Yes. Just maybe touching back on Duane's question, Jimmy. Obviously, the return of 24 airplanes, normally, there's a sizable upfront cash component tied to redelivery costs. I think you said that there was no liquidity penalty. So presumably, no cash goes out the door when they return. And I think you mentioned also that the P&L impact, it seemed like it would be modest.

Is that reflected like when I look at the range for the year, the loss of $0.40 for the profit of $0.50, does that include any sort of P&L impact that would be associated with any sort of redelivery costs on the airplane?

Yes. So there will be a one-time expense for non-cash one-time expense that occurs when we execute the final agreements. But there -- and look, that onetime expense is likely to be non-GAAP out. The guidance range puts -- takes into account any real costs linked to this deal that we have from a return condition perspective.

So those onetime costs that we expect to be non-GAAP out would not be part of that range.

Yes. Okay. Great. And then just on my second question, I saw that you did increase the size of the revolver and as I recall, I believe you had collateral pledged against that revolver, you could correct me if I'm wrong. But if you could just give us a sense where does your sort of unencumbered collateral position stand?

Yes. So the revolver is backed by our loyalty assets. And so as we have in the script and as we've talked about before, those cash flows continue to perform well. We just had in Q4, our third consecutive quarter of double-digit growth. Q4 was up over 30%. So those are the assets that back the revolver. And yes, you're right. In December, one of the banks that supports the facility, increase their position, providing a vote of confidence for the revolver.

Yes. And just to add to what Mark has said, like one of the byproducts of deferring aircraft with Airbus is that you have less PDP payments that are required in the near term because you're effectively taking a pause on deliveries during 2027. And so you end up actually with less because we finance some of our PDP, you end up with less drawn debt in our PDP structure. So you actually end up in a lower net debt position.

Yes. And to Jimmy's point, so you'll see in the guidance that we put forward an expectation of net PDP deposit returns. So lower PDP balance at the end of the year of $170 million to $210 million. And with that deposit level going down, the corresponding debt levels would go down as well, so helping the leverage ratios.

Ryan Capozzi, Wolfe Research.

This is Ryan Capozzi on for Scott. Maybe first, so we saw a pretty big divergence in fare revenue versus ancillary revenue trends this quarter. What were some of the drivers here? And how should we think about the growth of both segments going forward?

Yes. So I kind of talked about this a little bit earlier. One of the things that we've done in the past quarter was migrate back to a basic first product. And what that means is people go in, they're deciding whether they want to take the basic product and purchase ancillary -- purchase whatever ancillary products they want from that or they can choose a bundle of which we have three bundles there and can choose that.

So that has had good upward movement around ancillary itself in addition to NDC, the new distribution capability, which is you have -- it's effectively a direct connect. We've been scaling that up more broadly in the past quarter. And not only does that help conversion overall but the products, the bundled products are actually on the shelf, which they hadn't been previously.

So that again helps move things back in the curve, helps you yield up and helps bundle attachment as well. So there's a variety of things that are unique to us again that have helped from that perspective. On the fare side, additionally, as we move back to basic first, a lot of that -- we're disciplined in how we handle that from a revenue management perspective.

And that has helped, along with, of course, the environment, the macro environment has helped solidify an outsized benefit on that side as well. So you're seeing fare improvements, you're seeing ancillary improvements. And again, we anticipate based on some of those things being very structural to see that benefit move forward as well.

And Ryan, just to add to what Bobby you said, like, one of the benefits we're getting from having -- we went through this about two-years ago with the new Frontier in our website, and we played around with different structures during last year. We got to a much more disciplined place from October on in terms of the way we price as he mentioned.

But don't underestimate the impact that moving to NDC and giving clarity to someone who's booking through an online travel agent, exactly the total cost of their trip with Frontier. And so what you're seeing today is an ability for a customer to look at the value that they can get from Frontier by adding a bundle, economy bundle or other bundles to their booking. And so they know the all-in price.

Historically, a customer would book through a GDS or through an OTA linked to GDS, and they wouldn't have that clarity. They just see the fare and then they typically come to our site at management booking or at check-in and add either on an a la carte basis or through a bundle, the incremental products that they want to buy.

And so what we're seeing is an earlier conversion of bundles in the booking curve at the point of booking of the customer, but also clarity for the customer where they actually see the real value that's created by booking with us in comparison to the competition. And so that is having a unique benefit into Frontier. And other airlines have obviously had NDC for quite some time. We were late to the game.

But since we launched it, we've seen a really good attachment rate and conversion rate across that distribution channel, where it's adding to the improvement in unit revenues that we're seeing in the business.

Got it. That's helpful there. And then could you maybe just talk specifically about your strategy in Atlanta this year and maybe why you're growing so aggressively there this year?

Yes. I mean you've seen Southwest and Spirit reduced capacity in Atlanta. And we have, for a long time, had an operation in Atlanta, and we've seen an opportunity to enhance that in terms of the volume of traffic flows that we are flying from Atlanta. And we're really happy with the performance of the base. We had about 60 daily departures in Atlanta through the peak last summer.

And obviously, we're encouraged by the commercial performance that we're adding more departures this year to Atlanta. So we're very happy with the performance.

Andrew Didora, Bank of America.

Actually, just another question on your growth this year. So you talked about 50-50, kind of 50% new markets. You just touched on Atlanta. I guess in the 50% that you kind of dub the infilling, adding in Tuesday, Wednesday, Saturday flying. But

RASM is improving now, I know these off-peak days have been highlighted as sort of the weakest RASM days.

So why are you adding these back?

Largely because, Andrew, we see a real improvement in the revenue environment from more disciplined capacity deployment across the industry. You've seen significant reduction in capacity that's come from Spirit Airlines, particularly in the West of the United States. And so if you look historically, like two-years ago, the overlap between Frontier and Spirit was close to 50%.

It's now meaningfully lower than that and meaningfully lower than that in the West of the United States. And so we see opportunities that are coming on the back of their changes in capacity that we think allows us to move more flights to off-peak days of the week and do it successfully and contribute to the overall airline. And so that's really one of the reasons behind us.

We're also seeing some discipline across other airlines in terms of their capacity deployment. And then we're really encouraged by the performance in terms of our revenue generation with the changes that we made that we discussed earlier around the disciplined pricing strategy together with actually the new distribution capability that we have across all our OTAs now.

So we feel pretty confident that the revenue environment is moving in a very, very good place. And I mean, fundamentally, this business model is built on higher utilization and really strong cost discipline and that higher utilization gets you to a really good unit cost place that we think gets the airline back to -- on a path to sustain profitability.

Got it. Understood. And then I guess I'll ask the question. Given you're backfilling a lot of Spirits markets, does that mean you're no longer would have interest kind of going forward in terms of combining with Spirit in the future?

Sure. Look, I'm not going to speculate on what happens next with Spirit. Look, both the Board and I are solely focused on putting Frontier on a path back to sustainable profitability. And that's really been the focus and high attention for the last two-months.

Daniel McKenzie, Seaport Global.

Jimmy, I guess, first, congrats on your new role. And I guess my first question really is just putting on the hat of a longer-term investor, getting that capital into your stock. Is the Board holding you to any specific profit metrics, so either return on invested capital, operating margin or however, I guess you're measuring the success of the business.

Look, for the last two-months, Dan, as you can see from what we've announced today, we are very focused on bringing the airline back to sustained profitability. I've been given a clear mandate to change the business and bring that back. And like I've been very focused on rightsizing -- initially rightsizing the fleet and getting a cost plan that makes sense for the airline over the medium-term.

Our job now is really to fix some of the other things in the business, such as like reducing cancellations and improving our on-time performance, that is the considerable effort that we have. A series of projects around to build customer loyalty into the business and a good customer experience that drives repeat traffic flows. And really, the outcome of that will be determined by how we perform on loyalty, right?

And also the metrics that we have every day in terms of our operational performance. That's where the focus of the business is at the moment. Clearly from a long-term incentive perspective, there are multiple different metrics that exist in all of our teams in long-term incentives around shareholder performance and then the performance of Frontier within that world. And so we are very aligned with our shareholders with a real focus on returning the airline to sustain profitability.

Yes, very good. My next question really is, I guess, for Bobby. A couple of points here. Just going back to that point of loyalty. What was the redeemed revenue per passenger in 2025? And how would you see Frontier exiting 2026 on that metric? And then just related to this is sort of the K-shaped economic recovery that we have seen here.

I'm just curious, what percent of your passengers and/or revenue has been permanently lost from this uneven economic recovery, sort of among the low to middle income workers? And is that part of the missing revenue story today that potentially could come back at some point? Or how are you thinking about that?

Yes. I mean rather than talk about sort of the specific revenue around loyalty. I'll just talk about it in components of what we drive through revenue or through loyalty. So we have the co-brand card. Of course, that is a cornerstone of the loyalty program in terms of how we profit from that, but also provide value to our customers overall. That has seen tremendous amount of engagement.

The overall loyalty revenue is up over 30% as we stated. And a lot of that -- a large part of that is the co-brand card set up. And again, that's because of the changes that we've made throughout the organization, not just in terms of what we provide from a product perspective, but also what we're providing in the loyalty program itself.

And so you've seen engagement, not just in terms of new customers and acquisitions within that, but the spend has gone up tremendously as well within that, showcasing that people want to engage with us as an airline more than they had in the past. We also have two other subscription programs, of course, Discount Den and Go Wild, which have been very beneficial to us.

Go Wild has seen a tremendous amount of upside in the revenue year-over-year as well. In large part because of the product that we provide, it's -- you're able to fly for free for a year and in some cases, more than a year based on when we rolled this out. And people have been seeing that value and transacting and we've been acquiring more Go Wild customers than we had historically within that.

On the K-shape scenario, the way I'd say that is, look, we have a cost structure that provides opportunity for really multiple segments and create flexibility within that. We have people who want to have the lowest price possible. We have that. We also have been putting in a variety of options and premium products that people can engage with. UpFront Plus is one of those.

Historically, we talked about the paid load factor there. That's up over 80% now. So -- and we have first class coming in a variety of other things. So we actually have the ability to profit in a wide range of setups and how people want to engage that other airlines don't have the ability to do as much. So we're focused on making sure that we have the cost structure set where we can continue to engage on that and provide the lowest fare but also providing premium products that people can engage with and if they so choose, be able to do that as well.

So we have that spectrum. And so we haven't seen that. In fact, we've actually seen people engaging at a higher rate with us as we talked about some of the unique things that we have going for us, those actually will help in the future as well.

In terms of -- just to complete the K-shaped economy comment, like we are seeing an improvement -- a meaningful improvement in unit revenues. Like our unit revenues are going to be 10% plus up in the quarter. We'll see how March finally books in the coming weeks, but the trends are very, very favorable to the business.

Bobby mentioned that we've obviously added some premium products into the business. But one of the benefits that we're getting is people booking earlier with clarity and booking their non-ticket items earlier in the process. And so our booking curve is actually extending out further than it previously was, which is a really good sign for our business and the product that we're selling and merchandising to our customers.

Chris Stathoulopoulos, Susquehanna International Group.

So I want to go back to -- and apologies upfront for another capacity question here, but I'm trying to reconcile, so the sustained profitability as part of your four, I guess, four-pronged plan here, 8% to 9% to 10% you said longer term here. Maybe if you could help understand -- and part of that, I heard in so far as the market, 50% in new markets.

In the past, it's been about competing in some of these larger markets which are also typically more expensive to compete in and not sure how that also squares with the sustained profitability. But I guess maybe a more granular approach to how you're thinking about holistically whether it's the 10%, the 8% or 9% to 10%, you can frame that departure stage, engage, those tend to obviously have different margin profiles.

How you're thinking about macro scenarios under that and also all the things that we're seeing from competitors here with their re-banking and connectivity efforts? It's just not entirely clear how that level of growth at this point is sort of, I guess, really squares with the plan that you've outlined and perhaps the best path forward, if you will, into this transition year into longer term?

Yes. I mean, most of the growth that's coming, I mentioned this earlier in the call, is coming from infilling the network that already exists, right? And so it's not a charge for 10% growth over the next two-years where you're adding substantially new markets into the airline. So you already have clearly with a 10% improvement in RASM in this quarter, revenue stability in that network.

And so we're really encouraged by the performance that we're seeing in the business in that network. We're obviously then looking at the opportunities that exist across the entire US where capacity is changing across airports. And so we'll take advantage of capacity opportunities that exist at our cost base. And so our cost base is very, very important to how we deploy assets and how we move the airline back to a path to profitability.

And getting more productivity and efficiency into the airline is foundational to that cost base and giving us the ability to offer real value to customers and that they now see it very clearly that real value, and they're able to attach to it and convert. And so that's where our business is. That's why we have confidence in growing the airline by 10% a year. We think it's very, very good for the unit cost in the business.

And look, we have a value proposition to the customer that really is unmatched across the United States in a lot of the major markets that exist out there. And so we consistently provide the lowest fares and the lowest all-in pricing for customers. And we should be very proud of that as an airline. And why wouldn't we grow?

Okay. My second question, I just want to follow up on the point Jamie made earlier. So it sounds like you're betting on or you're anchoring to this high utilization model, if you will. And I know you described this as a transition year. But as we think about Frontier exiting this year or end of decade, and you're able to achieve these initiatives here.

In this environment, brand loyal, premium tech focused, however you want to describe it, could you help frame and I'm not asking for guidance here, but a high level assuming this all plays out and this environment is the new norm, if you will, how we should think about margins, free cash flow, return on -- anything at a high level that we should think about, assuming this all falls in place here and this high utilization model, as you said, you're anchoring yourself to is successful.

Sure. Look, we're very focused on moving the airline back to free cash flow generation business model. That is a core tenet of the modeling that's been put in place and the drive to right size the fleet this year. We use this year as a transition. I'm not going to start guiding three, four-years out but our expectation is that the airline gets back to sustained profitability and free cash flow generation over the next number of years, which puts the airline in a very, very strong position.

Savi Syth, Raymond James.

I just was curious as you kind of go through these changes and some of your kind of sister organizations have kind of thought about financing aircraft recently. And curious what your views are on kind of continuing to use sale-leaseback versus some other avenues for financing?

Yes. I mean we're largely financed Savi this year through sale and leasebacks. I mean over the medium term, I think the airline will probably diversify somewhat from sale and leaseback financing. But I mean in the immediate near term, we've largely financed most of the fleet that's coming this year. And so I don't see any near-term change.

But I can obviously over time, see navigating to kind of a more balanced financing structures across the airline where you continue to have a high proportion of your fleet financed with sale and leasebacks or financing, but you bring some other forms of financing into the business. That makes sense. If it commercially makes sense, we should do it.

Jimmy Dempsey for brief remarks. Please go ahead.

Thank you. I just wanted to quickly say thank you to all the analysts that are on the call. We're happy to take follow-up calls if you have any further questions today or in the coming days. And look, we look forward to seeing you in person over the next couple of months. Appreciate your time, and thank you very much. We have a lot of work to do here.

We're going to roll up our sleeves now and move the airline back to a sustainable profitability path. I think that's fundamentally important for the airline. And I think today's plan that we've laid out to you puts us in a really good place and path to bring the airline back to that location. So thanks very much, and enjoy your day.

This concludes today's conference call. Thank you so much for joining. You may now disconnect.