Frontier Airlines, Inc. Earnings Q2 Press Release
FOR IMMEDIATE RELEASE
CONTACT: Joe Hodas
(720) 374-4504
E-mail: corpcomm@flyfrontier.com
Frontier Airlines Reports Fiscal Second Quarter 2004 Results
DENVER (Oct. 30, 2003) - Frontier Airlines (Nasdaq: FRNT) today reported fiscal second quarter
2004 net income of $2.0 million, or $0.06 per diluted common share for the three months ended
September 30, 2003, compared with a net loss of $3.1 million, or $0.10 per common share for the
airline's fiscal second quarter last year. Included in the Company's fiscal second quarter 2004
net income were the following special items on a pre-tax basis; write-off of deferred loan costs
of $8.7 million associated with the prepayment of all but $11.6 million remaining principal of the
government guaranteed loan; a charge for Boeing aircraft and facility lease exit costs of $4.6
million; loss of $1.7 million on the sale of one Airbus aircraft in a sale-leaseback transaction
and from the sale of a spare engine; and an unrealized derivative loss of $.3 million. These items,
net of income taxes and profit sharing, totaled $0.27 per diluted share.
Chief Executive Officer's Comments
Frontier President and CEO Jeff Potter said, "Our fiscal second quarter results provide further
evidence that our efforts of the previous year, including our continued shift to an all Airbus fleet,
the launch of a high-impact branding campaign and the simplicity we brought to the market with our
new pricing structure, are now paying consistent dividends. This past summer was notable as we carried
a record number of passengers, and achieved a record load factor for the fiscal second quarter 2004.
Once again our quarterly traffic growth far outpaced our capacity growth, resulting in an industry
leading year-over-year increase in passenger revenue per available seat mile (RASM) of 24.5 percent.
The culmination of each of these trends in our business, allowed us to achieve an operating margin of
13.5 percent for the quarter."
Operating Highlights
Total revenues during the airline's fiscal second quarter increased 38.9 percent to $165.8 million
from $119.4 million in the fiscal second quarter of 2003, while operating expenses during the quarter
only increased 17.0 percent to $143.5 million from $122.6 million from the same period last year.
Passenger revenue increased as revenue passenger miles (RPMs), grew at a rate of 42.8 percent during
its fiscal second quarter, while capacity growth, as measured by available seat miles (ASMs), increased
by 10.3 percent, from the same time last year. As a result, the airline's load factor was 76.6 percent
for its fiscal second quarter, 17.4 load factor points greater than the airline's load factor of 59.2
percent during the same time last year. During fiscal second quarter 2004, the airline's breakeven load
factor increased 13.1 load factor points from 61.7 percent to 74.8 percent, which includes the effect
of special items. These items, net of profit sharing, accounted for 6.2 load factor points of the break-
even load factor increase.
During fiscal second quarter 2004, the airline's passenger revenue per available seat mile (RASM)
increased 1.82 cents or 24.5 percent to 9.26 cents from 7.44 cents for the same quarter last year. The
increase in RASM was primarily due to a significant increase in load factor but was slightly offset by a
decrease in revenue per passenger mile (yield) of 3.8 percent to 12.09 cents from 12.57 cents for the same
period last year. The decline in yield can be attributed to a 3.2 percent decline in average length of
haul as well as Frontier's simplified fare structure, which was implemented in February 2003.
The year-over-year increase in total revenues also reflects contributions from other revenues associated
with Frontier's new U.S. mail contracts, LiveTV revenues and the positive operating margin contribution
from Mesa's JetExpress service.
The airline's cost per available seat mile (CASM) including fuel for the September 2003 quarter increased
5.9 percent to 8.32 cents from 7.86 cents for the same quarter last year. Fuel cost per gallon during the
quarter, including taxes and the cost of delivering fuel into the aircraft, increased 9.8 percent to $1.01
per gallon, compared to 92.0 cents for the same period last year. CASM excluding fuel increased 5.1 percent
to 6.82 cents from the same period last year when CASM excluding fuel was 6.49 cents.
Chief Financial Officer Paul Tate discussed the airline's year-over-year quarterly unit cost increase,
stating, "Our CASM ex-fuel increased .33 cents during the quarter, principally as a result of an increase
in passenger related expenses of .24 cents per ASM caused by a disproportionate increase in the number of
passengers and U.S. Mail carried compared to the year-over-year quarterly ASM growth. In addition, we
incurred an increase in general and administrative expenses of .15 cents as a result of a profit sharing
accrual associated with our return to profitability and an increase in health insurance costs. These
increases were offset by a decrease of .13 cents in maintenance expense, principally as a result of the
reduction in our older Boeing fleet, which continues to be replaced with new Airbus aircraft."
Tate also described Frontier's current cash and short-term investment position, stating, "Our cash
position of $203.3 million, which was substantially aided by our secondary offering of 5.05 million
shares of common stock in September 2003, is the highest in the Company's history. A portion of the
proceeds from the secondary offering were used to decrease our government guaranteed loan by $48.6
million and enabled us to increase our cash position by $32.5 million."
The airline's fleet in service on September 30, 2003 consisted of 12 owned Airbus A319 and A318 aircraft,
12 leased Airbus A319 aircraft and 14 leased Boeing 737 aircraft.
Business developments during the quarter included:
o Signed a Letter of Intent with Airbus for the acquisition of 15 additional Airbus A319 aircraft
with purchase rights for up to an additional 23 A319 aircraft. The company also announced its intention
to lease 14 additional A319s to be delivered over the next five years.
o Took delivery of six new aircraft including three Airbus A319 aircraft and three Airbus A318
aircraft, and retired the final two Boeing 737-200s in the Company's fleet. The initial Airbus A318
delivered to Frontier was the first in the world to be flown commercially.
o Generated net proceeds of $81.1 million via a secondary offering of 5,050,000 shares of common stock
in September 2003.
o Began service to Milwaukee and Orange County, California on August 31, 2003.
o Partnered with a new regional jet provider, Horizon Air, to begin operations as Frontier JetExpress
upon the expiration of the current agreement with Mesa Air, which ends Dec. 31, 2003. The Horizon Air
agreement calls for as many as nine 70-seat Bombardier CRJ-700 aircraft by May 30, 2004.
o Signed exclusive marketing agreements with five major Colorado universities as well as the Colorado
Avalanche (NHL), the Denver Nuggets (NBA) and the Pepsi Center, Denver's premiere sports and
entertainment venue.
o Announced service to four new destinations--St. Louis beginning November 1, 2003; and in Mexico,
Los Cabos beginning November 1, 2003, Puerto Vallarta beginning November 22, 2003, and Ixtapa/Zihuatanejo
beginning January 31, 2004.
o Expanded our codeshare agreement with Great Lakes Airlines to serve Rapid City, South Dakota and
Grand Junction Colorado.
o Significantly enhanced the ease of customer check-in with the launch of "FlexCheck," a Frontier
branded online and web-based check-in service, including FlexCheck kiosks at our Denver ticket counter.
o Partnered with Vail Resorts for a unique, industry-first ski package that offers unlimited skiing
and unlimited flying from any of Frontier's destinations into Denver and Lake Tahoe, NV.
Cash Comparisons
Cash, cash equivalents and short-term investments available for operations and investing activities on
September 30, 2003 were $203.3 million compared to $44.6 million available on September 30, 2002. The increase
in the Company's cash position is largely attributable to its net income for the period, and includes net
proceeds of $81.1 million from a secondary offering of common stock, offset by a required pre-payment of $48.6
million on the Company's government guaranteed loan. The airline reported working capital of $118.2 million as
of September 30, 2003, a substantial increase over the airline's working capital on September 30, 2002, when the
airline reported working capital of $6.0 million.
Potter concluded, "We began our fiscal year with several changes, including a simplified fare structure and
the launch of our new branding campaign, and in the second quarter we built upon that momentum and simultaneously
laid the foundation for future earnings growth. The result was record revenues of $165.6 million, three straight
months of record load factors including a Company-best 80.1 percent in July and most importantly, we confirmed
what started to become apparent in our first quarter--that we are stimulating air travel by offering travelers
a superior product and service at an affordable price. With our road map in place, our dedicated employees
working tirelessly to continually outperform themselves, and our operations achieving greater efficiencies each
quarter as we continue our Airbus transition. We are eager to expand our service, bringing low fares and a superior
flight experience to new customers by adding frequency in our current markets as well as new destinations in the
future."
Senior leadership will host a conference call to discuss Frontier's quarterly earnings on October 31, 2003
at 9:00 a.m. Mountain Daylight Time. The call is available via the World Wide Web on the airline's Web site
at WWW.FRONTIERAIRLINES.COM or using the following URL: http://www.vcall.com/CEPage.asp?ID=84961.
Currently in its tenth year of operations, Denver-based Frontier Airlines is the second largest jet service
carrier at Denver International Airport with a fleet of 39 aircraft and employing approximately 3,700
aviation professionals. Frontier, in conjunction with Frontier JetExpress operated by Mesa Air Group ("Mesa"),
operates routes linking our Denver hub to 38 cities in 23 states spanning the nation from coast-to-coast and
to two cities in Mexico. Frontier's maintenance and engineering department has received the Federal Aviation
Administration's highest award, the Diamond Certificate of Excellence, in recognition of 100 percent of its
maintenance and engineering employees completing advanced aircraft maintenance training programs, for four
consecutive years. In August 2003, Frontier ranked as one of the "Top 10 Domestic Airlines" as determined by
readers of Travel & Leisure magazine. Frontier provides capacity information and other operating statistics
on its Web site, which may be viewed at WWW.FRONTIERAIRLINES.COM.
Legal Notice Regarding Forward-Looking Statements
Frontier notes that this press release contains forward-looking statements and that certain information
contained in this press release involves risks and uncertainties that could result in actual results differing
materially from expected results. These statements include, but are not limited to, the ability to conserve
financial resources while operating in a highly competitive hub, the ability to increase future revenues and
the ability to achieve additional unit cost reductions. Forward-looking statements represent the Company's
expectations and beliefs concerning future events, based on information available to the Company as of the
date of this press release. Forward-looking statements are inherently subject to risks and uncertainties,
many of which cannot be predicted with accuracy and some of which might not even be anticipated. Some of the
factors that could significantly impact the forward-looking statements in this press release include, but are
not limited to: the uncertainty of leisure travel and corporate travel expenditures as we enter the historically
weak period of post-summer travel; further downward pressure on airfares; unanticipated decreases in the volume
of passenger traffic due to terrorist acts or additional incidents that could cause the public to question the
safety and/or efficiency of air travel; negative public perceptions associated with increased security wait times at
various domestic airports; the ability to secure adequate gate facilities at Denver International Airport and at
other airports where Frontier operates; weather, maintenance or other operational disruptions; air traffic
control-related difficulties; the impact of labor issues; actions of the federal and local governments; changes
in the government's policy regarding relief to the airline industry especially as it relates to war risk insurance;
and the stability of the U.S. economy and the economic environment of the airline industry. The Company undertakes
no obligation to publicly update or revise any forward-looking statements to reflect events or circumstances that
may arise after the date of this press release. Additional information regarding these and other factors may be
contained in the Company's SEC filings, including without limitation, the Company's form 10-K for its fiscal year
ended March 31, 2003, and the Company's Form 10-Q for the quarter ended June 30, 2003 and the Company's form
8-K filed September 19, 2003.
-Financial Tables To Follow-
FRONTIER AIRLINES, INC.
SELECTED BALANCE SHEET DATA
(In Thousands)
(unaudited)
September 30, September 30,
2003 2002
Balance Sheet Data:
Cash, cash equivalents and
short-term investments $ 203,332 $ 44,566
Current assets $ 271,959 $ 114,413
Total assets $ 741,615 $ 427,428
Current liabilities $ 153,770 $ 108,462
Long-term debt $ 279,379 $ 133,650
Total liabilities $ 486,161 $ 259,220
Stockholders' equity $ 255,453 $ 168,208
Working capital $ 118,189 $ 5,951
FRONTIER AIRLINES, INC.
STATEMENTS OF OPERATIONS
(unaudited)
Three Months Ended Six Months Ended
September 30, September 30, September 30, September 30,
2003 2002 2003 2002
Revenues:
Passenger $ 159,964,675 $ 116,709,640 $ 298,855,237 $ 226,001,522
Cargo 2,369,222 1,366,251 4,058,247 2,946,187
Other 3,487,275 1,278,633 5,273,638 2,219,222
Total revenues 165,821,172 119,354,524 308,187,122 231,166,931
Operating expenses:
Flight operations 42,267,994 38,236,779 84,433,315 75,320,183
Aircraft fuel expense 25,900,551 21,332,131 48,501,320 38,728,122
Aircraft and traffic servicing 26,077,456 21,274,015 50,074,966 40,623,124
Maintenance 17,120,004 17,500,920 34,997,976 33,942,991
Promotion and sales 16,470,511 13,505,113 31,190,508 28,224,421
General and administrative 9,784,376 6,574,920 18,720,012 12,696,791
Depreciation and amortization 5,870,300 4,133,227 11,057,498 7,931,639
Total operating expenses 143,491,192 122,557,105 278,975,595 237,467,271
Operating income (loss) 22,329,980 (3,202,581) 29,211,527 (6,300,340)
Nonoperating income (expense):
Interest income 524,468 487,798 937,831 1,194,760
Interest expense (4,034,387) (1,895,668) (7,868,780) (3,154,979)
Emergency Wartime Supplemental
Appropriations Act compensation - - 15,024,188 -
Early extinguishment of debt (8,742,489) - (8,742,489) -
Aircraft lease and facility exit costs (4,659,058) - (5,345,353) -
Loss on sale-leaseback of aircraft (1,237,718) - (1,237,718) -
Other, net (676,218) (286,772) (852,311) (438,322)
Total nonoperating income
expense, net (18,825,402) (1,694,642) (8,084,632) (2,398,541)
Income (loss) before income tax expense
(benefit) and cumulative effect of change
in method of accounting for maintenance 3,504,578 (4,897,223) 21,126,895 (8,698,881)
Income tax expense (benefit) 1,506,855 (1,842,729) 8,195,482 (3,171,966)
Income (loss) before cumulative effect of
change in method of accounting for maintenance 1,997,723 (3,054,494) 12,931,413 (5,526,915)
Cumulative effect of change in method of
accounting for maintenance, net of tax - - - 2,010,672
Net income (loss) $ 1,997,723 $ (3,054,494) $ 12,931,413 $ (3,516,243)
================ ================ ================ ================
(Continued)
FRONTIER AIRLINES, INC.
Statements of Operations
(Unaudited)
September 30, September 30, September 30, September 30,
2003 2002 2003 2002
Earnings (loss) per share:
Basic:
Income (loss) before cumulative effect
of a change in accounting principle $0.07 ($0.10) $0.43 ($0.19)
Cumulative effect of change in method of
accounting for maintenance checks - - - 0.07
Net income (loss) $0.07 ($0.10) $0.43 ($0.12)
================ ================ ================ ================
Diluted:
Income (loss) before cumulative effect
of a change in accounting princip $0.06 ($0.10) $0.40 ($0.18)
Cumulative effect of change in method of
accounting for maintenance checks - - - 0.07
Net income (loss) $0.06 ($0.10) $0.40 ($0.11)
================ ================ ================ ================
Weighted average shares of
common stock outstanding:
Basic 30,440,589 29,632,898 30,133,571 29,583,870
================ ================ ================ ================
Diluted 33,620,352 29,632,898 32,514,599 29,583,870
================ ================ ================ ================
FRONTIER AIRLINES, INC.
COMPARATIVE OPERATING STATISTICS
Three Months Ended Sept. 30 Six Months Ended Sept. 30
2003 2002 2003 2002
Selected Operating Data:
Passenger revenue (000s) $ 159,965 $ 116,710 $ 298,855 $ 226,002
Revenue passengers carried (000s) 1,457 987 2,684 1,916
Revenue passenger miles (RPMs) (000s) 1,318,020 922,817 2,443,253 1,782,421
Available seat miles (ASMs) (000s) 1,721,397 1,559,879 3,396,447 2,929,278
Passenger load factor 76.6% 59.2% 71.9% 60.8%
Break-even load factor (1) 74.9% 61.7% 65.0% 63.2%
Block hours 33,908 30,875 67,035 58,554
Departures 15,078 13,583 29,688 25,767
Average aircraft stage length 858 870 860 861
Average passenger length of haul 905 935 910 930
Average daily fleet block hour utilization 10.0 9.9 10.1 9.9
Yield per RPM (cents) 12.09 12.57 12.18 12.64
Yield per ASM (cents) (2) (3) 9.26 7.44 8.76 7.69
Total yield per ASM (cents) (3) 9.63 7.65 9.07 7.89
Cost per ASM (cents) 8.32 7.86 8.23 8.11
Fuel cost per ASM (cents) 1.50 1.37 1.43 1.32
Cost per ASM excluding fuel (cents) (4) 6.82 6.49 6.80 6.78
Average fare $ 103 $ 109 $ 104 $ 108
Average aircraft in fleet 37.0 33.8 36.3 32.2
Aircraft in fleet at end of period 38.0 35.0 38.0 35.0
Average age of aircraft at end of period 4.6 9.3 4.6 9.3
1. "Break-even load factor" is the passenger load factor that will result in operating revenues being equal to
operating expenses, assuming constant revenue per passenger mile and expenses. The break-even load factor for
the three months ended September 30, 2003 includes the following special items net of profit-sharing; write-off
of deferred loan costs of $8,624,000 associated with the prepayment of the guaranteed loan; a charge for Boeing
aircraft and facility lease exit costs of $4,292,000; loss of $1,586,000 on the sale of one Airbus aircraft in
a sale-leaseback transaction and from the sale of a spare engine; and an unrealized derivative loss of $254,000.
The break-even load factor for the six months ended September 30, 2003 includes the following special items net of
profit-sharing; compensation received under the Appropriations Act of $13,842,000; write-off of deferred loan
costs of $8,624,000 associated with the prepayment of the guaranteed loan; a charge for Boeing aircraft and facility
lease exit costs of $4,924,000; loss of $1,586,000 on the sale of one Airbus aircraft in a sale-leaseback transaction
and from the sale of a spare engine; and an unrealized derivative gain of $438,000.
2. "Yield per RPM" is determined by dividing passenger revenues (excluding charter revenue) by revenue passenger
miles.
3. For purposes of these yield calculations, charter revenue is excluded from passenger revenue. These figures may
be deemed non-GAAP financial measures under regulations issued by the Securities and Exchange Commission. We believe
that presentation of yield excluding charter revenue is useful to investors because charter flights are not included
in RPMs or ASMs. Furthermore, in preparing operating plans and forecasts, we rely on an analysis of yield exclusive
of charter revenue. Our presentation of non-GAAP financial measures should not be viewed as a substitute for our
financial or statistical results based on GAAP. The calculation of passenger revenue excluding charter revenue is as
follows:
(in thousands) Three Months Ended Sept. 30, Six Months Ended Sept. 30,
2003 2002 2003 2002
Passenger revenues, as reported $159,965 $ 116,710 $ 298,855 $ 226,002
Charter revenue 580 721 1,194 779
Passenger revenues, excluding charter
revenue $159,385 $ 115,989 $ 297,661 $ 225,223
4. This may be deemed a non-GAAP financial measure under regulations issued by the Securities and Exchange
Commission. We believe the presentation of financial information excluding fuel expense is useful to investors
because we believe that fuel expense tends to fluctuate more than other operating expenses, it facilitates
comparison of results of operations between current and past periods and enables investors to better forecast
future trends in our operations. Furthermore, in preparing operating plans and forecasts, we rely, in part, on
trends in our historical results of operations excluding fuel expense. However, our presentation of non-GAAP
financial measures should not be viewed as a substitute for our financial results determine in accordance with GAAP.
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