During the quarter, Frontier experienced a strong rebound in demand as leisure travel strengthened ahead of spring break and Easter, leading the Company to be cash positive1 in March. The Company ended the first quarter of 2021 with $853 million of unrestricted cash and cash equivalents and liquidity available under its Treasury Loan facility. On March 31, 2021, Frontier priced an initial public offering, which closed shortly after the end of the quarter. The IPO generated $271 million of net proceeds to Frontier before an estimated $6 million in offering expenses.
“This is our first quarter reporting as a public company and we couldn’t be more pleased with what we are seeing relative to the recovery in leisure travel,” said Barry Biffle, Frontier’s president and CEO. “We believe our relative cost advantage driven by financial discipline coupled with our focus on leisure travel positions us well to be among the airline industry leaders as demand for leisure travel continues to rebound. In addition, we diligently limited the amount of debt added to our balance sheet while maintaining a strong liquidity position.” Biffle added, “We are well poised to take advantage of the recovery and expect to return to profitability in the second half of 2021.”
The following is a summary of select financial results for the first quarter of 2021, including both GAAP and adjusted (Non-GAAP) metrics.
Recent Company Highlights:
Completed a successful initial public offering and commenced trading on the Nasdaq Global Select Market on April 1, 2021 under the ticker symbol “ULCC,” an acronym for Ultra Low-Cost Carrier.
Moved from a cash burn1 position to being cash positive in the month of March as demand for leisure travel began to rebound.
Finalized a transaction to accelerate the return of the four remaining A319 aircraft from the Company’s fleet. Three aircraft will exit Frontier’s fleet during the second quarter of 2021 and the fourth aircraft will exit in the third quarter 2021. It has been a long-stated goal of the Company to replace all of its A319 aircraft with larger and more fuel efficient A320 and A321 aircraft.
Added three A320neo aircraft featuring fuel-efficient engines to the fleet during the first quarter of 2021, which were the first aircraft to feature our new 30 percent lighter-weight Recaro seats as part of Frontier’s commitment to being “America’s Greenest Airline.” In addition to the fuel efficiency provided by the engines, this move to lighter seats is part of a continuous pursuit to reduce the Company’s environmental footprint.
Frontier is also committed to highlighting endangered species on the tail of its aircraft. As an example, one of the three aircraft added during the quarter features Francie, a Piping Plover, whose name pays homage to Dr. Francie Cuthbert, a wildlife biologist dedicated to helping preserve the endangered shorebird that nests and feeds along coastal sand and gravel beaches in North America. The other two aircraft added during the quarter feature two other endangered species -- Crystal the Florida Manatee and Hudson the Bog Turtle.
Added more leisure destinations for customers for summer 2021, including Nassau, The Bahamas; San Jose, Costa Rica and St. Maarten. These additions come on the heels of new flight service to Guatemala City, Guatemala and San Salvador, El Salvador in Latin America. Frontier also added new nonstop routes in key markets that include Atlanta, Dallas, Denver, Las Vegas and Salt Lake City. New service was also announced to Alaska.
Cash and Liquidity:
Frontier ended the first quarter of 2021 with $853 million of unrestricted cash and cash equivalents and liquidity available under its Treasury Loan facility. Subsequent to the quarter, the Company received $271 million of net proceeds from its IPO before an estimated $6 million in offering expenses and $96 million of additional payroll support program funding provided by the U.S. government (consisting of $21 million from “PSP2” and $75 million from “PSP3”). Frontier also expects to receive an additional $75 million of PSP3 funding in the second quarter of 2021. Considering the net proceeds from its IPO, amounts received under PSP2 and PSP3 and the remaining PSP3 amount expected to be received, Frontier does not anticipate drawing any further funds under the Treasury Loan facility (additional funds can be drawn on the facility through May 28, 2021).
Frontier’s management expects that its current income tax receivable of $161 million will provide the Company with an opportunity, when received, to assess the repayment of the $150 million currently outstanding under its Treasury Loan facility without utilizing other existing liquidity. Repaying the outstanding amounts would consequently unencumber the Company’s co-brand credit card program and related brand assets that are currently collateralizing the facility. Management believes that the Company’s loyalty program, encompassing its co-brand credit card program and Discount Den subscription program, together with the Frontier brand, could generate substantial liquidity should the need arise.
“Frontier is in a very strong liquidity position following the successful completion of our IPO, the additional payroll support program funding (PSP2 and PSP3) provided by the U.S. government and the strengthening recovery in demand for air travel across the U.S.,” said James Dempsey, Frontier’s EVP and CFO. “This strong liquidity position will enable Frontier to quickly return to its pre-COVID-19 traffic growth trajectory.”
Revenue Performance
Total operating revenues for the first quarter of 2021 were $271 million, a decrease of 50 percent as compared to the first quarter of 2020. This decrease was due to the significant reduction in demand for air travel beginning in March 2020, caused by the COVID-19 pandemic. Frontier’s capacity, as measured by ASMs, was lower by 36 percent during the quarter and the Company’s RASM declined 22 percent compared to the same period a year ago. Although Frontier’s deployed capacity has not yet returned to pre-COVID-19 historical levels, the Company’s departures in March 2021 were 7 percent higher than the departures in March 2019 as the recovery process strengthened for leisure travel.
Cost Performance
Total operating expenses for the first quarter of 2021 were $363 million, a decrease of 44 percent from the $650 million incurred during the first quarter of 2020. This decrease was driven by the 36 percent reduction in capacity and the benefit from the recognition of payroll support program grants under the CARES Act. The Company’s adjusted total operating expenses of $495 million were 16 percent lower than the prior year. Adjusted total operating expenses exclude, among other things, the impact of CARES Act credits and early lease termination costs. These amounts were partly offset by the fixed nature of aircraft rent on a larger fleet and the effect of vendor deferrals received during 2020 but recognized into expense when repaid in 2021.
Fleet:
As of March 31, 2021, Frontier had a fleet of 107 Airbus single-aisle aircraft, consisting of 63 A320neos, 19 A320ceos, 21 A321ceos, and 4 A319ceos. All aircraft in the fleet are financed with operating leases. These leases expire between 2021 and 2033. Frontier’s fleet is the most fuel-efficient of all U.S. carriers of significant size when measured by ASMs per fuel gallon consumed. This fuel efficiency reflects Frontier’s operation of a large number of aircraft with new generation, fuel-efficient engines, lightweight seats, and an efficient seating layout.
Frontier took delivery of three A320neo aircraft during the quarter and expects to take delivery of an additional 10 A320neo aircraft during the remainder of 2021.
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