Photo Frontier |
Total operating revenue for the third quarter of 2022 was $906 million, 35 percent higher than the corresponding quarter in 2019. Ancillary revenue per passenger during the quarter was a record $78, 38 percent higher than the corresponding quarter in 2019, contributing to a 26 percent increase in revenue per available seat mile ("RASM") over the same period. Operating expenses totalled $850 million or 10.57 cents of costs per available seat mile ("CASM") during the third quarter, which was 11 percent lower than the prior quarter. Comments about relative operating statistics exclude pandemic-affected quarters during 2020.
Frontier Group Holdings, Inc.
Condensed Consolidated Statements of Operations
(unaudited, in millions, except for per share data)
Three Months Ended September 30, | Percent Change | Nine Months Ended September 30, | Percent Change | |||||||||||||||||||||||||||||||||
2022 | 2021 | 2019 | 2022 vs. 2021 | 2022 vs. 2019 | 2022 | 2021 | 2019 | 2022 vs. 2021 | 2022 vs. 2019 | |||||||||||||||||||||||||||
Operating revenues: | ||||||||||||||||||||||||||||||||||||
Passenger | $ | 883 | $ | 610 | $ | 652 | 45 | % | 35 | % | $ | 2,361 | $ | 1,408 | $ | 1,807 | 68 | % | 31 | % | ||||||||||||||||
Other | 23 | 20 | 17 | 15 | % | 35 | % | 59 | 43 | 46 | 37 | % | 28 | % | ||||||||||||||||||||||
Total operating revenues | 906 | 630 | 669 | 44 | % | 35 | % | 2,420 | 1,451 | 1,853 | 67 | % | 31 | % | ||||||||||||||||||||||
Operating expenses: | ||||||||||||||||||||||||||||||||||||
Aircraft fuel | 306 | 166 | 164 | 84 | % | 87 | % | 856 | 389 | 468 | 120 | % | 83 | % | ||||||||||||||||||||||
Salaries, wages and benefits | 182 | 161 | 108 | 13 | % | 69 | % | 528 | 454 | 373 | 16 | % | 42 | % | ||||||||||||||||||||||
Aircraft rent | 140 | 128 | 96 | 9 | % | 46 | % | 401 | 399 | 270 | 1 | % | 49 | % | ||||||||||||||||||||||
Station operations | 101 | 108 | 91 | (6 | )% | 11 | % | 326 | 285 | 252 | 14 | % | 29 | % | ||||||||||||||||||||||
Sales and marketing | 42 | 33 | 36 | 27 | % | 17 | % | 120 | 80 | 96 | 50 | % | 25 | % | ||||||||||||||||||||||
Maintenance, materials and repairs | 42 | 29 | 24 | 45 | % | 75 | % | 107 | 82 | 60 | 30 | % | 78 | % | ||||||||||||||||||||||
Depreciation and amortization | 8 | 10 | 10 | (20 | )% | (20 | )% | 36 | 28 | 35 | 29 | % | 3 | % | ||||||||||||||||||||||
CARES Act credits | — | (72 | ) | — | N/M | N/M | — | (295 | ) | — | N/M | N/M | ||||||||||||||||||||||||
Transaction and merger-related costs, net | (12 | ) | — | — | N/M | N/M | 8 | — | — | N/M | N/M | |||||||||||||||||||||||||
Other operating | 41 | 24 | 31 | 71 | % | 32 | % | 128 | 60 | 58 | 113 | % | 121 | % | ||||||||||||||||||||||
Total operating expenses | 850 | 587 | 560 | 45 | % | 52 | % | 2,510 | 1,482 | 1,612 | 69 | % | 56 | % | ||||||||||||||||||||||
Operating income (loss) | 56 | 43 | 109 | 30 | % | (49 | )% | (90 | ) | (31 | ) | 241 | 190 | % | N/M | |||||||||||||||||||||
Other income (expense): | ||||||||||||||||||||||||||||||||||||
Interest expense | (4 | ) | (4 | ) | (2 | ) | — | % | 100 | % | (16 | ) | (31 | ) | (8 | ) | (48 | )% | 100 | % | ||||||||||||||||
Capitalized interest | 3 | 1 | 2 | 200 | % | 50 | % | 6 | 3 | 8 | 100 | % | (25 | )% | ||||||||||||||||||||||
Interest income and other | 3 | 1 | 4 | 200 | % | (25 | )% | 5 | 1 | 12 | 400 | % | (58 | )% | ||||||||||||||||||||||
Total other income (expense) | 2 | (2 | ) | 4 | N/M | (50 | )% | (5 | ) | (27 | ) | 12 | (81 | )% | N/M | |||||||||||||||||||||
Income (loss) before income taxes | 58 | 41 | 113 | 41 | % | (49 | )% | (95 | ) | (58 | ) | 253 | 64 | % | N/M | |||||||||||||||||||||
Income tax expense (benefit) | 27 | 18 | 26 | 50 | % | 4 | % | (18 | ) | (9 | ) | 58 | 100 | % | N/M | |||||||||||||||||||||
Net income (loss) | $ | 31 | $ | 23 | $ | 87 | 35 | % | (64 | )% | $ | (77 | ) | $ | (49 | ) | $ | 195 | 57 | % | N/M | |||||||||||||||
Earnings (loss) per share: | ||||||||||||||||||||||||||||||||||||
Basic (a) | $ | 0.13 | $ | 0.10 | $ | 0.40 | 30 | % | (68 | )% | $ | (0.36 | ) | $ | (0.23 | ) | $ | 0.93 | 57 | % | N/M | |||||||||||||||
Diluted (a) | $ | 0.13 | $ | 0.10 | $ | 0.40 | 30 | % | (68 | )% | $ | (0.36 | ) | $ | (0.23 | ) | $ | 0.93 | 57 | % | N/M | |||||||||||||||
Weighted average shares outstanding: | ||||||||||||||||||||||||||||||||||||
Basic (a) | 218 | 215 | 199 | 1 | % | 10 | % | 218 | 210 | 199 | 4 | % | 10 | % | ||||||||||||||||||||||
Diluted (a) | 220 | 218 | 200 | 1 | % | 10 | % | 218 | 210 | 200 | 4 | % | 9 | % |
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(a) | Share amounts included in the basic and diluted earnings (loss) per share calculations for 2022 and 2021, as reflected in the condensed consolidated statements of operations, include the impact of the 15 million shares issued and sold by the Company as part of its initial public offering that closed on April 6, 2021. Additionally, in periods of net income, the dilutive impact of the 3.1 million warrants outstanding relating to CARES Act funding, any non-participating options and unvested restricted stock units are included in the diluted earnings per share calculations. In addition, most of the Company's 7.5 million outstanding options are participating securities and are therefore not expected to be part of the Company's diluted share count under the two-class method until they are exercised, but, in periods of net income, are included as an adjustment to the numerator of the Company's earnings per share calculation as they are eligible to participate in the Company's earnings. The participating securities impact has been subtracted from periods presented with positive net income in the computation of basic and diluted earnings per share. |
Frontier Group Holdings, Inc. Selected Operating Statistics (unaudited) | |||||||||||||||||||||||||||||
Three Months Ended September 30, | Percent Change | Nine Months Ended September 30, | Percent Change | ||||||||||||||||||||||||||
2022 | 2021 | 2019 | 2022 vs. 2021 | 2022 vs. 2019 | 2022 | 2021 | 2019 | 2022 vs. 2021 | 2022 vs. 2019 | ||||||||||||||||||||
Available seat miles (ASMs) (millions) | 8,040 | 7,505 | 7,463 | 7 | % | 8 | % | 23,076 | 19,031 | 20,560 | 21 | % | 12 | % | |||||||||||||||
Departures | 42,627 | 40,418 | 37,432 | 5 | % | 14 | % | 122,040 | 101,953 | 100,802 | 20 | % | 21 | % | |||||||||||||||
Average stage length (statute miles) | 974 | 960 | 1,033 | 1 | % | (6 | )% | 976 | 965 | 1,055 | 1 | % | (7 | )% | |||||||||||||||
Block hours | 113,922 | 107,038 | 103,185 | 6 | % | 10 | % | 329,533 | 269,655 | 284,149 | 22 | % | 16 | % | |||||||||||||||
Average aircraft in service | 112 | 109 | 90 | 3 | % | 24 | % | 111 | 105 | 86 | 6 | % | 29 | % | |||||||||||||||
Aircraft – end of period | 115 | 112 | 93 | 3 | % | 24 | % | 115 | 112 | 93 | 3 | % | 24 | % | |||||||||||||||
Average daily aircraft utilization (hours) | 11.1 | 10.6 | 12.5 | 5 | % | (11 | )% | 10.9 | 9.4 | 12.2 | 16 | % | (11 | )% | |||||||||||||||
Passengers (thousands) | 6,704 | 5,958 | 6,137 | 13 | % | 9 | % | 18,650 | 14,813 | 16,713 | 26 | % | 12 | % | |||||||||||||||
Average seats per departure | 193 | 193 | 192 | — | % | 1 | % | 193 | 193 | 192 | — | % | 1 | % | |||||||||||||||
Revenue passenger miles (RPMs) (millions) | 6,635 | 5,807 | 6,405 | 14 | % | 4 | % | 18,547 | 14,562 | 17,797 | 27 | % | 4 | % | |||||||||||||||
Load Factor (%) | 82.5 | % | 77.4 | % | 85.8 | % | 5.1 pts | (3.3) pts | 80.4 | % | 76.5 | % | 86.6 | % | 3.9 pts | (6.2) pts | |||||||||||||
Fare revenue per passenger ($) | 57.57 | 42.74 | 52.60 | 35 | % | 9 | % | 55.49 | 38.36 | 54.15 | 45 | % | 2 | % | |||||||||||||||
Non-fare passenger revenue per passenger ($) | 74.18 | 59.77 | 53.64 | 24 | % | 38 | % | 71.09 | 56.72 | 53.97 | 25 | % | 32 | % | |||||||||||||||
Other revenue per passenger ($) | 3.45 | 3.24 | 2.68 | 6 | % | 29 | % | 3.18 | 2.85 | 2.74 | 12 | % | 16 | % | |||||||||||||||
Total ancillary revenue per passenger ($) | 77.63 | 63.01 | 56.32 | 23 | % | 38 | % | 74.27 | 59.57 | 56.71 | 25 | % | 31 | % | |||||||||||||||
Total revenue per passenger ($) | 135.20 | 105.75 | 108.92 | 28 | % | 24 | % | 129.76 | 97.93 | 110.86 | 33 | % | 17 | % | |||||||||||||||
Total revenue per available seat mile (RASM) (¢) | 11.27 | 8.40 | 8.96 | 34 | % | 26 | % | 10.49 | 7.62 | 9.01 | 38 | % | 16 | % | |||||||||||||||
Cost per available seat mile (CASM) (¢) | 10.57 | 7.83 | 7.49 | 35 | % | 41 | % | 10.88 | 7.79 | 7.84 | 40 | % | 39 | % | |||||||||||||||
CASM (excluding fuel) (¢) | 6.76 | 5.62 | 5.29 | 20 | % | 28 | % | 7.17 | 5.74 | 5.56 | 25 | % | 29 | % | |||||||||||||||
CASM + net interest (¢) | 10.55 | 7.85 | 7.44 | 34 | % | 42 | % | 10.90 | 7.93 | 7.78 | 37 | % | 40 | % | |||||||||||||||
Adjusted CASM (¢) | 10.71 | 8.77 | 7.77 | 22 | % | 38 | % | 10.80 | 9.28 | 7.79 | 16 | % | 39 | % | |||||||||||||||
Adjusted CASM (excluding fuel) (¢) | 6.90 | 6.55 | 5.57 | 5 | % | 24 | % | 7.09 | 7.24 | 5.52 | (2 | )% | 28 | % | |||||||||||||||
Adjusted CASM + net interest (¢) | 10.68 | 8.79 | 7.72 | 22 | % | 38 | % | 10.79 | 9.31 | 7.73 | 16 | % | 40 | % | |||||||||||||||
Fuel cost per gallon ($) | 3.85 | 2.19 | 2.13 | 76 | % | 81 | % | 3.76 | 2.06 | 2.21 | 83 | % | 70 | % | |||||||||||||||
Fuel gallons consumed (thousands) | 79,566 | 75,938 | 76,898 | 5 | % | 3 | % | 227,559 | 189,003 | 211,774 | 20 | % | 7 | % | |||||||||||||||
Employees (FTE) | 6,126 | 5,405 | 4,811 | 13 | % | 27 | % | 6,126 | 5,405 | 4,811 | 13 | % | 27 | % |
Reconciliations of Non-GAAP Financial Information
The Company is providing below a reconciliation of GAAP financial information to the non-GAAP financial information provided. The non-GAAP financial information is included to provide supplemental disclosures because the Company believes they are useful additional indicators of, among other things, its operating and cost performance. These non-GAAP financial measures have limitations as analytical tools. Because of these limitations, determinations of the Company’s operating performance or CASM excluding unrealized gains and losses, special items or other items should not be considered in isolation or as a substitute for performance measures calculated in accordance with GAAP. These non-GAAP financial measures may be presented on a different basis than other companies using similarly titled non-GAAP financial measures.
Reconciliation of Net Income (Loss) to Adjusted Net Income (Loss) and Adjusted Pre-tax Income (Loss)
($ in millions) (unaudited) | ||||||||||||||||||||||||
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||
2022 | 2021 | 2019 | 2022 | 2021 | 2019 | |||||||||||||||||||
Net income (loss), as reported | $ | 31 | $ | 23 | $ | 87 | $ | (77 | ) | $ | (49 | ) | $ | 195 | ||||||||||
Non-GAAP Adjustments: | ||||||||||||||||||||||||
Aircraft Rent | ||||||||||||||||||||||||
Early lease termination costs(a) | — | 1 | — | — | 10 | — | ||||||||||||||||||
Salaries, wages and benefits | ||||||||||||||||||||||||
Collective bargaining contract ratification(b) | 1 | — | — | 2 | — | 18 | ||||||||||||||||||
Pilot phantom equity(c) | — | — | (21 | ) | — | — | (13 | ) | ||||||||||||||||
Flight attendant early out program(d) | — | — | — | — | — | 5 | ||||||||||||||||||
Depreciation and amortization | ||||||||||||||||||||||||
Asset impairment(e) | — | — | — | 7 | — | — | ||||||||||||||||||
Early lease termination costs(a) | — | — | — | — | 1 | — | ||||||||||||||||||
Other operating expenses | ||||||||||||||||||||||||
Transaction and merger-related costs, net(f) | (12 | ) | — | — | 8 | — | — | |||||||||||||||||
CARES Act – grant recognition and employee retention credits(g) | — | (72 | ) | — | — | (295 | ) | — | ||||||||||||||||
Interest expense | ||||||||||||||||||||||||
CARES Act – write-off of deferred financing costs due to paydown of loan(h) | — | — | — | 7 | — | — | ||||||||||||||||||
CARES Act – mark to market impact for warrants(i) | — | — | — | — | 22 | — | ||||||||||||||||||
Pre-tax impact | (11 | ) | (71 | ) | (21 | ) | 24 | (262 | ) | 10 | ||||||||||||||
Tax benefit (expense), non-GAAP(j) | 13 | 24 | 6 | (3 | ) | 64 | (2 | ) | ||||||||||||||||
Net income (loss) impact | 2 | (47 | ) | (15 | ) | 21 | (198 | ) | 8 | |||||||||||||||
Adjusted net income (loss), non-GAAP(k) | $ | 33 | $ | (24 | ) | $ | 72 | $ | (56 | ) | $ | (247 | ) | $ | 203 | |||||||||
Income (loss) before income taxes, as reported | $ | 58 | $ | 41 | $ | 113 | $ | (95 | ) | $ | (58 | ) | $ | 253 | ||||||||||
Pre-tax impact | (11 | ) | (71 | ) | (21 | ) | 24 | (262 | ) | 10 | ||||||||||||||
Adjusted pre-tax income (loss), non-GAAP(k) | $ | 47 | $ | (30 | ) | $ | 92 | $ | (71 | ) | $ | (320 | ) | $ | 263 | |||||||||
__________________
(a) | As a result of an early termination and buyout agreement executed in May 2021 with one of the Company’s lessors, Frontier was able to accelerate the removal of the remaining four A319 aircraft from its fleet. These aircraft were originally scheduled to return in December 2021 and were instead returned during the second and third quarters of 2021. The Company incurred $1 million and $10 million in aircraft rent costs during the three and nine months ended September 30, 2021, respectively, and $1 million in depreciation costs during the nine months ended September 30, 2021 relating to the acceleration and resulting changes to its lease return obligations. |
(b) | Represents (i) $1 million and $2 million of costs related to a one-time incentive bonus and related payroll adjustments during the three and nine months ended September 30, 2022, respectively, resulting from the May 2022 contract ratification with IBT, the union representing the Company's aircraft technicians and (ii) $18 million of costs related to a one-time contract ratification incentive plus payroll-related taxes and certain other compensation and benefits-related accruals earned through March 31, 2019 and committed to by the Company as part of a tentative agreement with the union representing the Company's flight attendants that was reached in March 2019 for a contract that was ratified and became effective in May 2019. |
(c) | Represents the impact of the change in value and vesting of phantom equity units pursuant to the Pilot Phantom Equity Plan. In accordance with the amended and restated phantom equity agreement, the remaining phantom equity obligation became fixed as of December 31, 2019 and was no longer subject to valuation adjustments. |
(d) | Represents expenses associated with an early out program agreed to in 2019 with the Company's flight attendants, payable throughout 2019, 2020 and 2021. |
(e) | Represents a write-off of capitalized software development costs as a result of a termination of a vendor arrangement. |
(f) | For the three and nine months ended September 30, 2022, adjustments represent $4 million and $16 million, respectively, in transaction costs, including banking, legal and accounting fees, and $9 million and $17 million, respectively, in employee retention costs incurred in connection with the proposed merger with Spirit, offset by $25 million in reimbursements from Spirit after the termination of the Merger Agreement in each of the three and nine months ended September 30, 2022. |
(g) | Represents the recognition of $72 million and $278 million of grant funding received from the U.S. government for payroll support during the three and nine months ended September 30, 2021, respectively, in addition to $17 million in employee retention credits the Company qualified for under the CARES Act during the nine months ended September 30, 2021. |
(h) | On February 2, 2022, the Company repaid the Treasury Loan which resulted in a one-time write-off of the remaining $7 million in debt acquisition costs. This amount is a component of interest expense. |
(i) | Represents the mark to market adjustment to the value of the warrants issued as part of the funding provided under the CARES Act. This amount is a component of interest expense. As a result of the Company's initial public offering and the resulting reclassification of warrants from liability-based awards to equity-based awards, as of April 6, 2021, the Company no longer uses mark to market accounting for the warrants. |
(j) | Represents the tax impact of the non-GAAP adjustments. For purposes of determining the tax rate applicable to adjusted (i.e., non-GAAP) net income (loss) with respect to the three and nine months ended September 30, 2022, the Company established its adjusted effective tax rate by using September 30, 2022 actual results. In contrast, for all prior interim periods, the Company determined its effective tax rate on a non-GAAP basis by using full year actual and projected results to determine the effective tax rate to calculate adjusted net income (loss). Management believes the use of September 30, 2022 actuals to calculate an adjusted tax rate for the three and nine month interim periods then ended provides a more meaningful relationship between income tax expense and adjusted pre-tax income (loss) than would be produced using the full year and projected results method due to the shift from an adjusted pre-tax loss in early 2022 to actual and forecasted profitability in the third and fourth quarters of 2022 combined with an expectation of annual adjusted pre-tax results being near break-even and the resulting impact of non-deductible items. GAAP permits the use of the actual results method under such circumstances. However, the foregoing methodology has been applied solely to the non-GAAP presentation and the Company continues to calculate income tax expense on a GAAP basis for all periods presented using the estimated annual effective tax rate method which uses an expectation of full year 2022 pre-tax income (loss) in the determination of interim effective tax rates as this method does not produce significant variations in the customary relationship between income tax expense and pre-tax accounting income. The tax impact on the 2021 adjustments takes into consideration the non-deductibility of the warrant mark to market adjustments. |
(k) | Adjusted net income (loss) and adjusted pre-tax income (loss) are included as a supplemental disclosure because they are a useful indicator of its operating performance. Derivations of net income (loss) are well-recognized performance measurements in the airline industry that are frequently used by the Company's management, as well as by investors, securities analysts and other interested parties in comparing the operating performance of companies in the airline industry. Adjusted net income (loss) and adjusted pre-tax income (loss) have limitations as an analytical tool. Adjusted net income (loss) and adjusted pre-tax income (loss) do not reflect the impact of certain cash charges resulting from matters the Company considers not to be indicative of the Company's ongoing operations and does not reflect the Company's cash expenditures, or future requirements, for capital expenditures or contractual commitments, and other companies in the industry may calculate adjusted net income (loss) and adjusted pre-tax income (loss) differently than the Company does, limiting its usefulness as a comparative measure. Because of these limitations, adjusted net income (loss) and adjusted pre-tax income (loss) should not be considered in isolation from or as a substitute for performance measures calculated in accordance with GAAP. In addition, because derivations of adjusted net income (loss) and adjusted pre-tax income (loss) are not determined in accordance with GAAP, such measures are susceptible to varying calculations and not all companies calculate the measures in the same manner. As a result, derivations of net income, including adjusted net income (loss) and adjusted pre-tax income (loss), as presented may not be directly comparable to similarly titled measures presented by other companies. For the foregoing reasons, adjusted net income (loss) and adjusted pre-tax income (loss) have significant limitations which affect its use as an indicator of the Company's profitability. Accordingly, you are cautioned not to place undue reliance on this information. |
Reconciliation of Total Operating Expenses to Adjusted Total Operating Expenses and Adjusted Total Operating Expenses (excluding fuel)
($ in millions) (unaudited) | ||||||||||||||||||||||||
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||
2022 | 2021 | 2019 | 2022 | 2021 | 2019 | |||||||||||||||||||
Total operating expenses, as reported(a) | $ | 850 | $ | 587 | $ | 560 | $ | 2,510 | $ | 1,482 | $ | 1,612 | ||||||||||||
Transaction and merger-related costs, net | 12 | — | — | (8 | ) | — | — | |||||||||||||||||
Asset impairment | — | — | — | (7 | ) | — | — | |||||||||||||||||
Collective bargaining contract ratification | (1 | ) | — | — | (2 | ) | — | (18 | ) | |||||||||||||||
Early lease termination costs | — | (1 | ) | — | — | (11 | ) | — | ||||||||||||||||
CARES Act – grant recognition and employee retention credits | — | 72 | — | — | 295 | — | ||||||||||||||||||
Pilot phantom equity | — | — | 21 | — | — | 13 | ||||||||||||||||||
Flight attendant early out program | — | — | — | — | — | (5 | ) | |||||||||||||||||
Adjusted total operating expenses, non-GAAP(b) | 861 | 658 | 581 | 2,493 | 1,766 | 1,602 | ||||||||||||||||||
Aircraft fuel | (306 | ) | (166 | ) | (164 | ) | (856 | ) | (389 | ) | (468 | ) | ||||||||||||
Adjusted total operating expenses (excluding fuel), non-GAAP(b) | $ | 555 | $ | 492 | $ | 417 | $ | 1,637 | $ | 1,377 | $ | 1,134 | ||||||||||||
Total operating expenses, as reported | $ | 850 | $ | 587 | $ | 560 | $ | 2,510 | $ | 1,482 | $ | 1,612 | ||||||||||||
Aircraft fuel | (306 | ) | (166 | ) | (164 | ) | (856 | ) | (389 | ) | (468 | ) | ||||||||||||
Total operating expenses (excluding fuel) | $ | 544 | $ | 421 | $ | 396 | $ | 1,654 | $ | 1,093 | $ | 1,144 |
__________________
(a) | See “Reconciliation of Net Income (Loss) to Adjusted Net Income (Loss) and Adjusted Pre-tax Income (Loss)" above for discussion on adjusting items. |
(b) | Adjusted total operating expenses and adjusted total operating expenses (excluding fuel) are included as supplemental disclosures because the Company believes they are useful indicators of its operating performance. Derivations of total operating expenses are well-recognized performance measurements in the airline industry that are frequently used by the Company's management, as well as by investors, securities analysts and other interested parties in comparing the operating performance of companies in the airline industry. Adjusted total operating expenses and adjusted total operating expenses (excluding fuel) have limitations as analytical tools and other companies in the industry may calculate adjusted total operating expenses and adjusted total operating expenses (excluding fuel) differently than the Company does, limiting their usefulness as comparative measures. Because of these limitations, adjusted total operating expenses and adjusted total operating expenses (excluding fuel) should not be considered in isolation from or as a substitute for performance measures calculated in accordance with GAAP. In addition, because derivations of adjusted total operating expenses and adjusted total operating expenses (excluding fuel) are not determined in accordance with GAAP, such measures are susceptible to varying calculations and not all companies calculate the measures in the same manner. As a result, derivations of total operating expenses, including adjusted total operating expenses and adjusted total operating expenses (excluding fuel) as presented may not be directly comparable to similarly titled measures presented by other companies. For the foregoing reasons, adjusted total operating expenses and adjusted total operating expenses (excluding fuel) have significant limitations which affect their use as an indicator of the Company's profitability. Accordingly, you are cautioned not to place undue reliance on this information. |
Reconciliation of EBITDA and EBITDAR to Adjusted EBITDA and Adjusted EBITDAR
($ in millions) (unaudited) | ||||||||||||||||||||||||
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||
2022 | 2021 | 2019 | 2022 | 2021 | 2019 | |||||||||||||||||||
EBITDA, EBITDAR, Adjusted EBITDA and Adjusted EBITDAR reconciliation (unaudited): | ||||||||||||||||||||||||
Net income (loss) | $ | 31 | $ | 23 | $ | 87 | $ | (77 | ) | $ | (49 | ) | $ | 195 | ||||||||||
Plus (minus): | ||||||||||||||||||||||||
Interest expense | 4 | 4 | 2 | 16 | 31 | 8 | ||||||||||||||||||
Capitalized interest | (3 | ) | (1 | ) | (2 | ) | (6 | ) | (3 | ) | (8 | ) | ||||||||||||
Interest income and other | (3 | ) | (1 | ) | (4 | ) | (5 | ) | (1 | ) | (12 | ) | ||||||||||||
Income tax expense (benefit) | 27 | 18 | 26 | (18 | ) | (9 | ) | 58 | ||||||||||||||||
Depreciation and amortization | 8 | 10 | 10 | 36 | 28 | 35 | ||||||||||||||||||
EBITDA | 64 | 53 | 119 | (54 | ) | (3 | ) | 276 | ||||||||||||||||
Plus: Aircraft rent | 140 | 128 | 96 | 401 | 399 | 270 | ||||||||||||||||||
EBITDAR | $ | 204 | $ | 181 | $ | 215 | $ | 347 | $ | 396 | $ | 546 | ||||||||||||
EBITDA | $ | 64 | $ | 53 | $ | 119 | $ | (54 | ) | $ | (3 | ) | $ | 276 | ||||||||||
Plus (minus)(a): | ||||||||||||||||||||||||
Transaction and merger-related costs, net | (12 | ) | — | — | 8 | — | — | |||||||||||||||||
Collective bargaining contract ratification | 1 | — | — | 2 | — | 18 | ||||||||||||||||||
Early lease termination costs | — | 1 | — | — | 10 | — | ||||||||||||||||||
CARES Act – grant recognition and employee retention credits | — | (72 | ) | — | — | (295 | ) | — | ||||||||||||||||
Pilot phantom equity | — | — | (21 | ) | — | — | (13 | ) | ||||||||||||||||
Flight attendant early out program | — | — | — | — | — | 5 | ||||||||||||||||||
Adjusted EBITDA(b) | 53 | (18 | ) | 98 | (44 | ) | (288 | ) | 286 | |||||||||||||||
Plus: Aircraft rent(c) | 140 | 127 | 96 | 401 | 389 | 270 | ||||||||||||||||||
Adjusted EBITDAR(d) | $ | 193 | $ | 109 | $ | 194 | $ | 357 | $ | 101 | $ | 556 |
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(a) | See “Reconciliation of Net Income (Loss) to Adjusted Net Income (Loss) and Adjusted Pre-tax Income (Loss)” above for discussion on adjusting items. |
(b) | EBITDA and adjusted EBITDA are included as supplemental disclosures because the Company believes they are useful indicators of its operating performance. Derivations of EBITDA are well-recognized performance measurements in the airline industry that are frequently used by the Company's management, as well as by investors, securities analysts and other interested parties in comparing the operating performance of companies in the industry. EBITDA and adjusted EBITDA do not reflect the impact of certain cash charges resulting from matters the Company considers not to be indicative of its ongoing operations; EBITDA and adjusted EBITDA do not reflect the Company's cash expenditures, or future requirements, for capital expenditures or contractual commitments; EBITDA and adjusted EBITDA do not reflect changes in, or cash requirements for, the Company's working capital needs; EBITDA and adjusted EBITDA do not reflect the interest expense, or the cash requirements necessary to service interest or principal payments, on the Company's indebtedness or possible cash requirements related to its warrants; although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and EBITDA and adjusted EBITDA do not reflect any cash requirements for such replacements; and other companies in the airline industry may calculate EBITDA and adjusted EBITDA differently than the Company does, limiting its usefulness as a comparative measure. Because of these limitations, EBITDA and adjusted EBITDA should not be considered in isolation from or as a substitute for performance measures calculated in accordance with GAAP. In addition, because derivations of EBITDA and adjusted EBITDA are not determined in accordance with GAAP, such measures are susceptible to varying calculations and not all companies calculate the measures in the same manner. As a result, derivations of EBITDA, including adjusted EBITDA, as presented may not be directly comparable to similarly titled measures presented by other companies. For the foregoing reasons, each of EBITDA and adjusted EBITDA have significant limitations which affect its use as an indicator of the Company's profitability. Accordingly, you are cautioned not to place undue reliance on this information. |
(c) | Represents aircraft rent expense included in adjusted EBITDA. Excludes aircraft rent expense of $1 million and $10 million for the three and nine months ended September 30, 2021, respectively, for costs incurred due to the early termination of the Company's A319 leased aircraft. See footnote (a) under the caption “Reconciliation of Net Income (Loss) to Adjusted Net Income (Loss) and Adjusted Pre-tax Income (Loss)”. |
(d) | EBITDAR and adjusted EBITDAR are included as supplemental disclosures because the Company believes they are useful solely as valuation metrics for airlines as their calculations isolates the effects of financing in general, the accounting effects of capital spending and acquisitions (primarily aircraft, which may be acquired directly, directly subject to acquisition debt, by capital lease or by operating lease, each of which is presented differently for accounting purposes), and income taxes, which may vary significantly between periods and for different airlines for reasons unrelated to the underlying value of a particular airline. However, EBITDAR and adjusted EBITDAR are not determined in accordance with GAAP, are susceptible to varying calculations and not all companies calculate the measures in the same manner. As a result, EBITDAR and adjusted EBITDAR, as presented, may not be directly comparable to similarly titled measures presented by other companies. In addition, EBITDAR and adjusted EBITDAR should not be viewed as a measure of overall performance since they exclude aircraft rent, which is a normal, recurring cash operating expense that is necessary to operate the business. Accordingly, you are cautioned not to place undue reliance on this information. |
Reconciliation of CASM to Adjusted CASM (excluding fuel), Adjusted CASM and Adjusted CASM including net interest
(unaudited) | |||||||||||||||||
Three Months Ended September 30, | |||||||||||||||||
2022 | 2021 | 2019 | |||||||||||||||
($ in millions) | Per ASM (¢) | ($ in millions) | Per ASM (¢) | ($ in millions) | Per ASM (¢) | ||||||||||||
CASM(a)(b) | 10.57 | 7.83 | 7.49 | ||||||||||||||
Aircraft fuel | (306 | ) | (3.81 | ) | (166 | ) | (2.21 | ) | (164 | ) | (2.20 | ) | |||||
CASM (excluding fuel) | 6.76 | 5.62 | 5.29 | ||||||||||||||
Transaction and merger-related costs, net | 12 | 0.15 | — | — | — | — | |||||||||||
Collective bargaining contract ratification | (1 | ) | (0.01 | ) | — | — | — | — | |||||||||
Early lease termination costs | — | — | (1 | ) | (0.02 | ) | — | — | |||||||||
CARES Act – grant recognition | — | — | 72 | 0.95 | — | — | |||||||||||
Pilot phantom equity | — | — | — | — | 21 | 0.28 | |||||||||||
Adjusted CASM (excluding fuel)(c) | 6.90 | 6.55 | 5.57 | ||||||||||||||
Aircraft fuel | 306 | 3.81 | 166 | 2.22 | 164 | 2.20 | |||||||||||
Adjusted CASM(d) | 10.71 | 8.77 | 7.77 | ||||||||||||||
Net interest expense (income) | (2 | ) | (0.03 | ) | 2 | 0.02 | (4 | ) | (0.05 | ) | |||||||
Adjusted CASM + net interest(e) | 10.68 | 8.79 | 7.72 | ||||||||||||||
CASM | 10.57 | 7.83 | 7.49 | ||||||||||||||
Net interest expense (income) | (2 | ) | (0.02 | ) | 2 | 0.02 | (4 | ) | (0.05 | ) | |||||||
CASM + net interest | 10.55 | 7.85 | 7.44 |
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(a) | Cost per ASM figures may not recalculate due to rounding |
(b) | See “Reconciliation of Net Income (Loss) to Adjusted Net Income (Loss) and Adjusted Pre-tax Income (Loss)" above for discussion on adjusting items. |
(c) | Adjusted CASM (excluding fuel) is included as a supplemental disclosure because the Company believes that excluding aircraft fuel is useful to investors as it provides an additional measure of management’s performance excluding the effects of a significant cost item over which management has limited influence. The price of fuel, over which the Company has limited control, impacts the comparability of period-to-period financial performance, and excluding allows management an additional tool to understand and analyze the Company's non-fuel costs and core operating performance, and increases comparability with other airlines that also provide a similar metric. Adjusted CASM (excluding fuel) is not determined in accordance with GAAP and should not be considered in isolation or as a substitute for performance measures calculated in accordance with GAAP. |
(d) | Adjusted CASM is included as supplemental disclosure because the Company believes it is a useful metric to properly compare the Company’s cost management and performance to other peers, as derivations of adjusted CASM are well-recognized performance measurements in the airline industry that are frequently used by the Company's management, as well as by investors, securities analysts and other interested parties in comparing the operating performance of companies in the airline industry. Additionally, the Company believes this metric is useful because it removes certain items that may not be indicative of base operating performance or future results. Adjusted CASM is not determined in accordance with GAAP, may not be comparable across all carriers and should not be considered in isolation or as a substitute for performance measures calculated in accordance with GAAP. |
(e) | Adjusted CASM including net interest is included as a supplemental disclosure because the Company believes it is a useful metric to properly compare the Company's cost management and performance to other peers that may have different capital structures and financing strategies, particularly as it relates to financing primary operating assets such as aircraft and engines. Additionally, the Company believes this metric is useful because it removes certain items that may not be indicative of base operating performance or future results. Adjusted CASM including net interest is not determined in accordance with GAAP, may not be comparable across all carriers and should not be considered in isolation or as a substitute for performance measures calculated in accordance with GAAP. |
Reconciliation of CASM to Adjusted CASM (excluding fuel), Adjusted CASM and Adjusted CASM including net interest
(unaudited) | |||||||||||||||||
Nine Months Ended September 30, | |||||||||||||||||
2022 | 2021 | 2019 | |||||||||||||||
($ in millions) | Per ASM (¢) | ($ in millions) | Per ASM (¢) | ($ in millions) | Per ASM (¢) | ||||||||||||
CASM(a)(b) | 10.88 | 7.79 | 7.84 | ||||||||||||||
Aircraft fuel | (856 | ) | (3.71 | ) | (389 | ) | (2.05 | ) | (468 | ) | (2.28 | ) | |||||
CASM (excluding fuel) | 7.17 | 5.74 | 5.56 | ||||||||||||||
Transaction and merger-related costs, net | (8 | ) | (0.04 | ) | — | — | — | — | |||||||||
Asset impairment | (7 | ) | (0.03 | ) | — | — | — | — | |||||||||
Collective bargaining contract ratification | (2 | ) | (0.01 | ) | — | — | (18 | ) | (0.09 | ) | |||||||
Early lease termination costs | — | — | (11 | ) | (0.05 | ) | — | — | |||||||||
Cares Act – grant recognition and employee retention credits | — | — | 295 | 1.55 | — | — | |||||||||||
Pilot phantom equity | — | — | — | — | 13 | 0.07 | |||||||||||
Flight attendant early out program | — | — | — | — | (5 | ) | (0.02 | ) | |||||||||
Adjusted CASM (excluding fuel) | 7.09 | 7.24 | 5.52 | ||||||||||||||
Aircraft fuel | 856 | 3.71 | 389 | 2.04 | 468 | 2.27 | |||||||||||
Adjusted CASM | 10.80 | 9.28 | 7.79 | ||||||||||||||
Net interest expense (income) | 5 | 0.02 | 27 | 0.14 | (12 | ) | (0.06 | ) | |||||||||
CARES Act – write-off of deferred financing costs due to paydown of loan | (7 | ) | (0.03 | ) | — | — | — | — | |||||||||
CARES Act – mark to market impact for warrants | — | — | (22 | ) | (0.11 | ) | — | — | |||||||||
Adjusted CASM + net interest | 10.79 | 9.31 | 7.73 | ||||||||||||||
CASM | 10.88 | 7.79 | 7.84 | ||||||||||||||
Net interest expense (income) | 5 | 0.02 | 27 | 0.14 | (12 | ) | (0.06 | ) | |||||||||
CASM + net interest | 10.90 | 7.93 | 7.78 |
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(a) | Cost per ASM figures may not recalculate due to rounding. |
(b) | See “Reconciliation of Net Income (Loss) to Adjusted Net Income (Loss) and Adjusted Pre-tax Income (Loss)” above for discussion on adjusting items. |