DENVER, Oct. 28 /PRNewswire-FirstCall/ -- Frontier Airlines, Inc.
(Nasdaq: FRNT) today reported a net loss of $2.1 million, or $.06 per diluted
common share, for the airline's fiscal second quarter ended September 30, 2004
compared to net income of $2.0 million, or $0.06 per diluted common share, for
the same period last year. Included in the net loss for the three months
ended September 30, 2004 were the following special items on a pre-tax basis:
a write down of $4.3 million of the carrying value of Boeing expendable
inventory, rotable parts and a spare engine offset by an unrealized gain on
fuel hedge derivatives of $4.1 million. These items, net of income taxes,
increased the airline's net loss by approximately $.01 per share. The
Company's net income for the three months ended September 30, 2003 included
the following special items on a pre-tax and profit sharing 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 $4.7 million; a
loss of $1.9 million on the sale of one Airbus aircraft in a sale-leaseback
transaction, the sale of a spare engine and other assets; and an unrealized
derivative loss of $0.3 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, "As an industry, we continue
to find ourselves in an environment with record-high fuel prices and one of
the most difficult yield environments that Frontier and the industry have ever
faced. In spite of these challenges, Frontier and its 4,500 employees
continued to do what we have always done in the face of adversity -- we
maintained focus on our costs and factors we can control, and we continue to
make improvements to our product. The results of those efforts included an
industry-leading 12.8 percent year-over-year decline in mainline unit costs
excluding fuel and special items. This third straight quarter of cost
declines excluding fuel is a tangible indicator that we are doing the right
things to better insulate ourselves during this extremely challenging time."
Operating Highlights
Mainline passenger revenue increased as mainline revenue passenger miles
(RPMs) grew at a rate of 31.9 percent during the fiscal second quarter, while
mainline capacity growth as measured by mainline available seat miles (ASMs)
increased 38.5 percent from the same quarter last year. As a result, the
airline's mainline load factor was 72.9 percent for its fiscal second quarter
of 2005, 3.7 load factor points less than the airline's mainline load factor
of 76.6 percent during the same quarter last year. The airline's mainline
breakeven load factor for the fiscal second quarter 2005 increased 5.7 load
factor points from 67.7 percent to 73.4 percent. Frontier's mainline
breakeven load factor increased from the prior comparable period as a result
of a decrease in our mainline yield per RPM to 10.74 cents during the quarter
ended September 30, 2004 from 12.09 cents, or 11.2 percent, partially offset
by a decrease in the airline's mainline cost per available seat mile (CASM).
During the fiscal second quarter 2005, the airline's mainline passenger
revenue per available seat mile (RASM) decreased 15.3 percent to 7.84 cents
from the same quarter last year. The decrease in mainline RASM was due to the
combination of a 11.2 percent mainline yield per RPM decrease on a year-over-
year basis and the 3.7 point load factor reduction. Contributing to the yield
decline were introductory fares offered in six new markets started in the
June 2004 quarter and a 9.8 percent increase in average length of haul on a
year-over-year basis.
The airline's mainline CASM for the fiscal second quarter, excluding
special items, decreased 3.8 percent to 8.02 cents from 8.35 cents for the
same quarter last year. Mainline fuel cost per gallon during the quarter,
excluding the unrealized gain on fuel hedge derivatives, but including taxes
and delivery charges, increased 39.6 percent to $1.41 compared to $1.01 for
the same period last year. Mainline CASM, excluding fuel and special items,
decreased 12.8 percent to 5.98 cents from the same period last year, when CASM
excluding fuel and special items was 6.86 cents.
Senior Vice President and Chief Financial Officer Paul Tate discussed the
airline's year-over-year unit cost comparatives stating, "Our fiscal second
quarter generated continued improvement in our mainline CASM, both including
and excluding fuel, principally driven by a 12.0 percent improvement in
mainline aircraft utilization and a 12.8 percent increase in average mainline
stage length, despite incurring costs associated with our continuing
transition to an all-Airbus fleet and a pilot salary increase in June, 2004."
The airline's current unrestricted cash and working capital position as of
September 30, 2004 was $160.1 million and $67.3 million, respectively. This
compares to the company's unrestricted cash and working capital position for
the same period last year of $201.3 million and $118.2 million, respectively.
The airline's fleet in service on September 30, 2004 consisted of 14 owned
Airbus A319 and A318 aircraft, 24 leased Airbus A319 and A318 aircraft and six
leased Boeing 737 aircraft. Given the current yield environment combined with
on-going high fuel prices, the company has elected to accelerate its
transition to an all Airbus fleet by approximately four months to April 11,
2005. As a result, the company will discontinue operation of its last three
Boeing aircraft between two and 14 months prior to the original lease return
dates.
Business developments during the quarter included:
* Celebrated 10 years of service on July 5, 2004.
* Celebrated 25 million passenger enplanements.
* Took delivery of two new Airbus A319 and retired three Boeing 737
aircraft, for a net decrease of one aircraft and a fleet total of
45 available for revenue service by quarter's end.
* Announced plans to serve Little Rock, Arkansas with two daily
round-trip flights.
* Received authorization to fly from Austin and Nashville to Cancun,
Mexico, bringing the only scheduled non-stop service to those markets.
* Entered into a three-year agreement as the official airline of the
University of Wyoming's Athletic Department.
* Received Federal Aviation Administration approval to begin
Category II/III certification, which allows the airline's pilots
to land in reduced visibility.
* Kicked off W!LD Blue Yonder Magazine and programming, an enhancement
to the airline's on-board DIRECTV offering.
Potter concluded, "Operationally, we continued to run a great airline this
past quarter. With a 31.9 percent increase in mainline RPM, we continued to
build a loyal customer base as we exceeded one million members in our
EarlyReturns frequent flyer program. Looking ahead, our future bookings appear
strong and we remain hopeful that we'll continue to see the positive customer
response to our product as we head into the holiday period. However, we know
that in this challenging environment, we can never rest on our
accomplishments, which is why I thank each of our employees for their ongoing
efforts in lowering our costs while maintaining the highest standard of
service for our customers."
Senior leadership will host a conference call to discuss Frontier's
quarterly earnings on October 29, 2004 at 9:00 a.m. Mountain Standard 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=89680.
Currently in its 11th year of operations, Denver-based Frontier Airlines
is the second largest jet service carrier at Denver International Airport with
a fleet of 47 aircraft and employing approximately 4,500 aviation
professionals. Frontier, in conjunction with Frontier JetExpress operated by
Horizon Air, operates routes linking our Denver hub to 43 destinations in
27 states spanning the nation from coast-to-coast and to five cities in Mexico
and seasonal service to Anchorage, Alaska. 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 five consecutive years. In
July 2004, 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
Statements contained in this press release that are not historical facts
may be considered forward-looking statements as that item is defined in the
Private Securities Litigation Reform Act of 1995. Forward-looking statements
are inherently subject to risks and uncertainties that could cause actual
results to differ materially from these forward looking statements. Many of
these risks and uncertainties cannot be predicted with accuracy and some 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: further downward pressure on airfares due to competition, demand
or other factors; continuing adverse effects of high fuel costs; increased
prices for fuel and the inability to recover these higher fuel costs in
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 inability 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 status risk insurance; the stability of the
U.S. economy and the economic environment of the airline industry; and other
factors detailed in the Company's public filings with the Securities and
Exchange Commission. Any forward-looking statement is qualified by reference
to these risks and factors. These risks and factors are not exclusive, and
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, 2004.
The Company's filings are available from the Securities and Exchange
Commission or may be obtained through the Company's website,
www.frontierairlines.com.
FRONTIER AIRLINES, INC.
SELECTED BALANCE SHEET DATA
(unaudited)
Quarter Ended Quarter Ended
September 30, September 30,
2004 2003
Balance Sheet Data (In thousands):
Cash, cash equivalents and
short-term investments $160,053 $203,332
Current assets 265,019 271,959
Total assets 784,122 741,615
Current liabilities 197,702 153,770
Long-term debt 292,049 279,379
Total liabilities 533,038 486,161
Stockholders' equity 251,084 255,453
Working capital 67,317 118,189
FRONTIER AIRLINES, INC.
STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED SEPTEMBER 30, 2004 AND 2003
(unaudited)
Three Months Ended Six Months Ended
September 30, September 30, September 30, September 30,
2004 2003 2004 2003
Revenues:
Passenger $188,173,402 $159,946,008 $357,610,883 $298,955,554
Passenger-
regional
partner 21,909,768 -- 41,036,213 --
Cargo 1,246,009 2,369,222 2,673,504 4,058,247
Other 3,105,595 3,305,382 5,537,244 4,972,761
Total
revenues 214,434,774 165,620,612 406,857,844 307,986,562
Operating
expenses:
Flight
operations 31,772,649 24,347,276 63,561,813 49,320,594
Aircraft fuel
expense 44,715,069 25,900,551 84,718,251 48,501,320
Aircraft lease
expense 22,307,400 17,920,718 41,198,226 35,112,721
Aircraft and
traffic
servicing 31,229,011 26,077,456 62,921,215 50,074,966
Maintenance 19,261,318 17,120,004 38,155,915 34,997,976
Promotion and
sales 19,250,304 16,269,951 39,088,980 30,989,948
General and
administr-
ative 12,033,531 9,784,376 22,327,775 18,720,012
Operating
expenses
- regional
partner 23,568,339 -- 44,861,774 --
Aircraft lease
and facility
exit costs -- 4,659,058 -- 5,345,353
Losses on
sales of
assets, net 74,404 1,883,466 604,231 1,902,055
Impairment and
other related
charges 4,213,565 -- 4,601,200 --
Depreciation
and
amortization 6,606,142 5,870,300 13,224,581 11,057,498
Total
operating
expenses 215,031,732 149,833,156 415,263,961 286,022,443
Operating
income
(loss) (596,958) 15,787,456 (8,406,117) 21,964,119
Nonoperating
income (expense):
Interest
income 785,699 524,468 1,356,269 937,831
Interest
expense (3,112,843) (4,034,387) (6,020,859) (7,868,780)
Early
Extinguishment
of debt -- (8,742,489) -- (8,742,489)
Emergency
Wartime
Supplemental
Appropriations
Act
compensation -- -- -- 15,024,188
Other, net (103,353) (30,470) (168,717) (187,974)
Total
nonoperating
income
(expense),
net (2,430,497) (12,282,878) (4,833,307) (837,224)
Income (loss)
before income
tax (benefit)
expense (3,027,455) 3,504,578 (13,239,424) 21,126,895
Income tax
(benefit)
expense (945,485) 1,506,855 (4,583,736) 8,195,482
Net income
(loss) $(2,081,970) $1,997,723 $(8,655,688) $12,931,413
Earnings (loss)
per share:
Basic $(0.06) $0.07 $(0.24) $0.43
Diluted $(0.06) $0.06 $(0.24) $0.40
Weighted average
shares of
common stock
outstanding
Basic 35,609,942 30,440,589 35,606,702 30,133,571
Diluted 35,609,942 33,620,352 35,606,702 32,514,599
FRONTIER AIRLINES, INC.
COMPARATIVE OPERATING STATISTICS
(unaudited)
Three Months Ended Six Months Ended
September 30, September 30,
2004 2003 2004 2003
Selected Operating Data:
Passenger revenue (000s)
Mainline $188,173 $159,946 $357,611 $298,956
Regional Partner (5) 21,910 -- 41,036 --
System Combined 210,083 $159,946 398,647 $298,956
Revenue passengers
carried (000s)
Mainline 1,750 1,457 3,334 2,684
Regional Partner (5) 233 -- 436 --
System Combined 1,983 1,457 3,770 2,684
Revenue passenger miles
(RPMs) (000s)
Mainline 1,738,682 1,318,020 3,303,269 2,443,253
Regional Partner (5) 142,157 -- 273,711 --
System Combined 1,880,839 1,318,020 3,576,980 2,443,253
Available seat miles
(ASMs) (000s)
Mainline 2,383,573 1,721,397 4,595,225 3,396,447
Regional Partner (5) 190,771 -- 368,349 --
System Combined 2,574,344 1,721,397 4,963,574 3,396,447
Passenger load factor
Mainline 72.9% 76.6% 71.9% 71.9%
Regional Partner (5) 74.5% -- 74.3% --
System Combined 73.1% 76.6% 72.1% 71.9%
Mainline break-even
load factor (1) 73.4% 67.7% 73.5% 66.6%
Mainline block hours 47,086 33,908 91,060 67,035
Mainline departures 18,937 15,078 36,587 29,688
Mainline average seats
per departure 130 133 130 133
Mainline average stage
length 968 858 966 860
Mainline average length
of haul 994 905 991 910
Mainline average daily
block hour utilization 11.2 10.0 11.4 10.1
Yield per RPM
(cents) (2) (3)
Mainline 10.74 12.09 10.76 12.19
Regional Partner (5) 15.41 -- 14.99 --
System Combined 11.10 12.09 11.09 12.19
Total yield per
RPM (cents)
Mainline 11.07 12.57 11.07 12.61
Regional Partner (5) 15.41 -- 14.99 --
System Combined 11.40 12.57 11.37 12.61
Yield per ASM (cents) (3)
Mainline 7.84 9.26 7.74 8.77
Regional Partner (5) 11.48 -- 11.14 --
System Combined 8.11 9.26 7.99 8.77
Total yield per
ASM (cents)
Mainline 8.08 9.62 7.96 9.07
Regional Partner (5) 11.48 -- 11.14 --
System Combined 8.33 9.62 8.20 9.07
FRONTIER AIRLINES, INC.
Comparative operating statistics, unaudited
Continued
Three Months Ended Six Months Ended
September 30, September 30,
2004 2003 2004 2003
Selected Operating Data
(continued):
Cost per ASM (cents)
Mainline 8.03 8.70 8.06 8.42
Regional Partner (5) 12.35 -- 12.18 --
System Combined 8.35 8.70 8.37 8.42
Mainline fuel expense
per ASM (cents) (4) 1.87 1.50 1.84 1.43
Mainline cost per ASM
excluding fuel (cents) 6.16 7.20 6.22 6.99
Mainline average fare $100.05 $103.40 $100.26 $103.98
Mainline average aircraft
in service 45.5 37.0 43.5 36.3
Mainline aircraft in
service at end of period 44.0 38.0 44.0 38.0
Mainline average age of
aircraft at end of period 2.7 4.6 2.7 4.6
(1) "Break-even load factor" is the passenger load factor that will result
in operating revenues being equal to operating expenses, net of
certain adjustments, assuming constant yield per RPM and no change
in ASMs. Break-even load factor as presented above may be deemed a
non-GAAP financial measure under regulations issued by the Securities
and Exchange Commission. We believe that presentation of break-even
load factor calculated after certain adjustments is useful to
investors because the elimination of special or unusual items allows
a meaningful period-to-period comparison. Furthermore, in preparing
operating plans and forecasts we rely on an analysis of break-even
load factor exclusive of these special and unusual items. Our
presentation of non-GAAP results should not be viewed as a substitute
for our financial or statistical results based on GAAP, and other
airlines may not necessarily compute break-even load factor in a
manner that is consistent with our computation.
A reconciliation of the components of the calculation of the mainline
break-even load factor is as follows:
Three Months Six Months
Ended September 30, Ended September 30,
2004 2003 2004 2003
(In thousands) (In thousands)
Net (income) loss $2,082 $(1,998) $8,656 $(12,931)
Income tax (expense)
benefit 945 (1,507) 4,584 (8,195)
Passenger revenue 188,173 159,946 357,611 298,956
Revenue - regional
partner 21,910 -- 41,036 --
Charter revenue (1,384) (580) (2,040) (1,194)
Operating expenses
- regional partner (23,568) -- (44,862) --
Passenger revenue
- mainline
(excluding charter
and regional partner
revenue) required to
break even (based on
GAAP amounts) $188,158 $155,861 $364,985 $276,636
Non-GAAP adjustments:
Emergency Wartime
Supplemental
Appropriations
Act compensation,
net of bonuses -- -- -- 13,842
Aircraft and facility
lease exit costs,
net of bonuses -- (4,292) -- (4,924)
Early retirement of
debt costs, net of
bonuses -- (8,624) -- (8,624)
Losses on sales of
assets, net of
bonuses (74) (1,735) (604) (1,752)
Impairment and other
related charges (4,214) -- (4,601) --
Unrealized derivative
gain (loss), net of
bonuses 4,111 (254) 3,634 438
Passenger revenue-
mainline (excluding
charter and regional
partner revenue)
required to break-even
(based on adjusted
amounts) $187,981 $140,956 $363,414 $275,616
The calculation of the break-even load factor follows:
Three Months Six Months
Ended September 30, Ended September 30,
2004 2003 2004 2003
(In thousands) (In thousands)
Calculation of mainline
break-even load factor
using GAAP amounts:
Passenger revenue-
mainline (excluding
charter and regional
partner revenue)
required to break
even (based on
GAAP amounts)
($000s) $188,158 $155,861 $364,985 $276,636
Mainline yield
per RPM (cents) 10.74 12.09 10.76 12.19
Mainline revenue
passenger miles
(000s) to break
even assuming
constant yield
per RPM 1,751,937 1,289,173 3,392,054 2,269,368
Mainline available
seat miles
(000's) 2,383,573 1,721,397 4,595,225 3,396,447
Mainline break-even
load factor using
GAAP amounts 73.5% 74.9% 73.8% 66.8%
Calculation of mainline
break-even load factor
using Non-GAAP amounts:
Passenger revenue
(excluding charter
and regional partner
revenue) required to
break even (based on
adjusted amounts)
($000s) $187,981 $140,956 $363,414 $275,615
Mainline yield
per RPM (cents) 10.74 12.09 10.76 12.19
Mainline revenue
passenger miles
(000s) to break
even assuming
constant yield
per RPM 1,750,289 1,165,889 3,377,454 2,260,993
Mainline available
seat miles
(000's) 2,383,573 1,721,397 4,595,225 3,396,447
Mainline break-even
load factor using
non-GAAP amounts 73.4% 67.7% 73.5% 66.6%
(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:
Quarters Ended Six Months Ended
September 30, September 30,
2004 2003 2004 2003
Passenger revenues
- mainline, as
reported $188,173 $159,946 $357,611 $298,956
Less: charter
revenue 1,384 580 2,040 1,194
Passenger revenues
- mainline excluding
charter 186,789 159,366 355,571 297,762
Add: Passenger
revenues
- regional
partner 21,910 -- 41,036 --
Passenger revenues,
system combined $208,699 $159,366 $396,607 $297,762
(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
determined in accordance with GAAP.
(5) In September 2003, we signed a 12-year agreement with Horizon, under
which Horizon operates up to nine 70-seat CRJ 700 aircraft under our
Frontier JetExpress brand. The service began on January 1, 2004 and
replaced our codeshare with Mesa Airlines which terminated on
December 31, 2003. In accordance with Emerging Issues Task Force
No. 01-08, "Determining Whether an Arrangement Contains a Lease"
("EITF 01-08"), we have concluded that the Horizon agreement contains
leases as the agreement conveys the right to use a specific number and
specific type of aircraft over a stated period of time. Therefore, we
began recording revenues and expenses related to the Horizon agreement
gross. Under the Mesa agreement, we recorded JetExpress revenues
reduced by related expenses net in other revenues. JetExpress
operations under the Mesa agreement from April 1, 2003 to December 31,
2003 are not included in regional partner statistics in 2003 as the
Mesa arrangement was effective prior to May 28, 2003, the effective
date of EITF 01-08.
Three Months Ended Six Months Ended
September 30, September 30,
2004 2003 2004 2003
Mesa revenues (000s) $-- $9,795 $-- $17,642
Mesa expenses (000s) -- (8,261) -- (16,036)
Net amount included
in other revenues $-- $1,534 $-- $1,606
Mesa's revenue passenger miles (RPMs) and available seat miles (ASMs)
for the three months ended September 30, 2004 and 2003 were as
follows:
Three Months Ended Six Months Ended
September 30, September 30,
2004 2003 2004 2003
Mesa RPMs (000s) -- 56,756 -- 104,529
Mesa ASMs (000s) -- 69,660 -- 138,302
