ULCC - NASDAQ

And good day, and thank you for standing by. Welcome to the Frontier Group Holdings, Inc. Q4 and full year 2024 earnings call. At this time, all participants are in a listen-only mode. Be advised that today's conference is being recorded. After the speakers' presentation, there will be a question and answer session. To withdraw your question, please press star one one again. I would now like to hand the conference over to your speaker today, David Erdman, Senior Director, Investor Relations.

Thank you, and good morning. Welcome to our fourth quarter and full year 2024 earnings call. On the call this morning are Barry Biffle, Chief Executive Officer; Jimmy Dempsey, President; Mark Mitchell, Chief Financial Officer; and Bobby Schroeter, Chief Commercial Officer. Each will deliver brief prepared remarks. But before they do, let me recite the customary Safe Harbor provisions. During the call, 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 file with the Securities and Exchange Commission. We will also discuss non-GAAP financial measures, actual results of which are reconciled to the nearest comparable GAAP measure in the appendix of the Sprint's earnings announcement. I'll now yield the floor to Barry to begin his prepared remarks. Barry?

Thanks, David, and good morning, everyone. Our fourth quarter results demonstrate the momentum of our commercial initiatives placing us on a trajectory for meaningful RASM growth and margin expansion this year, including our target of double-digit pre-tax margins in the summer. Our fourth quarter adjusted pre-tax margin was 5.1%, significantly higher than the original guidance, resulting from the culmination of our revenue and network optimization initiatives and our longstanding commitment to cost discipline. I'd like to thank Team Frontier for their contributions to achieving solid margins in the quarter and for our operational performance during the busy holiday travel season. While operating our busiest ever schedule in December, Frontier ranked second among US carriers in completion factor. We expect our industry-leading costs combined with our continued progress on our cost advantage expanded to 48% in 2024 compared to 41% in 2023 and just 39% in 2019. And we will continue to leverage this advantage to stimulate demand and generate profitable growth. I'll now turn the call over to Jimmy for a commercial review. Jimmy?

Thanks, Barry, and good morning, everyone. Briefly recapping results, total operating revenue in the fourth quarter increased 12% versus the prior year quarter to a record $1 billion on 2% lower capacity. RASM was 10.23 cents, 15% higher, with stronger than expected demand in December. Departures increased 3%, an 8% shorter average stage. Total revenue per passenger was $117, up 6% versus the prior year quarter, due to a 26% increase in fare revenue, partly offset by slightly lower ancillary revenue per passenger. We completed 2024 with a record 33 million passengers traveling with Frontier, 10% higher than 2023. We launched 22 new routes in December spanning coast to coast. Over two-thirds of these routes were launched from one of our 13 crew bases as we leverage our investments in these stations to build scale and reliability to our simplified network. The largest launch was from our Tampa base where we added service to Boston, Dallas, Chicago O'Hare, Portland, and Burlington. And we added four routes from Chicago to Fort Myers, Tampa, Palm Beach, and Sarasota. We also continue to expand at LAX, adding service to Houston, Salt Lake City, Portland, and Seattle. Moreover, we launched new service to key leisure destinations, Palm Springs and Vail Eagle, both accessible from our Denver crew base, and other key stations including DFW in San Francisco. Looking ahead, our pivot to a more balanced capacity deployment is expected to enable Frontier to outperform domestic carriers on our RASM recovery. We invested heavily in adjusting our network throughout 2024, initially reducing exposure to oversupplied markets, followed by managing our day-of-week capacity deployment to match demand patterns. This change, in addition to helping improve the margin performance of the business, has created a resilient network that enables speedy operational recovery from irregular operations. The setup of a more disciplined industry capacity deployment this year provides a positive backdrop for unit revenue improvements that meet our targets. Building on 2024, we have shaped our monthly capacity deployment to be at our highest in the peak travel periods. Capacity growth in the first quarter is expected to be up mid-single digits versus the prior year quarter. Average stage length this year will be marginally higher compared to 2024. As we finalize our schedules into the second half of the year, our expectation is that we will manage capacity to align with demand. We'll provide more details as the year progresses. I want to congratulate our network and operations teams for all the great work that's been done establishing our 13-based network over the past 18 months. We are seeing the benefit of our maturing based network benefiting our revenue performance and importantly the operations performance of the airline. As Barry noted, we finished second in the industry in completion factor in December, inclusive of the busy holiday period. Now I'll hand it over to Bobby to provide a brief overview of the next chapter of the new frontier, the innovative ways we're enhancing our customers' travel experience.

Thanks, Jimmy, and good morning, everyone. Beyond the operational improvements that Jimmy highlighted, we are also focused on enhancing additional parts of the customer experience in ways that drive demand, strengthen engagement, and create long-term financial value. As part of the new frontier, we are making targeted investments that improve how customers interact with Frontier at every stage of their journey. Premium seating is a key focus, providing customers with more choice while driving revenue growth. Upfront Plus, introduced last year, has performed very well, attracting customers willing to pay for added comfort. Building on this success, we will launch a two-by-two first-class product at an affordable price point in late 2025. This will enhance the experience for customers seeking more space while attracting higher-yielding travelers who typically book premium products on other airlines. We're also making significant upgrades to the digital experience. With more than 80% of customers using our app for check-in and airport services, we are launching a redesigned, more intuitive version to improve how customers interact with Frontier. The Android app will launch very shortly, followed by iOS with a redesigned website coming later this year. This stronger focus on customer experience coupled with our low fares will naturally foster loyalty, and we are building on that foundation by strengthening Frontier Miles to drive greater engagement and long-term value. Over the past year, we introduced free checked bags for cardholders and simplified the path to elite status, making the program more competitive. We recently announced plans to expand mileage redemption beyond airfare to include ancillary purchases. We also introduced complimentary premium seat upgrades for elite members and announced upcoming free unlimited companion travel for platinum and diamond members, both of which further enhance the appeal of elite status. Since launching free checked bags in August and rolling out our latest program update, we've seen strong early results. Co-brand card acquisitions are up 35%, and spend per cardholder increased 11% year over year in the fourth quarter. Loyalty remains a significant financial opportunity. Today, our co-brand revenue per passenger is under $3 compared to over $30 at legacy and other low-cost carriers. Even capturing a fraction of the legacy and low-cost carrier levels represents a meaningful and achievable growth opportunity over the next few years. All of these efforts, operational improvements, premium product expansion, digital enhancements, and a more rewarding frequent flyer program, all work together to create a smoother, more enjoyable travel experience while diversifying revenue and strengthening Frontier's financial position. By offering more choice, improving the travel experience, and increasing reliability, we are deepening customer engagement, strengthening our brand, and driving both near and long-term value for our customers and the company. With that, I'll turn it over to Mark for the financial update.

Thanks, Bobby, and good morning, everyone. Briefly recapping the quarter, total revenue was just over $1 billion, 12% higher than the 2023 quarter. Fuel expense totaled $229 million, 24% lower than the 2023 quarter, driven by a 22% decrease in the average fuel cost, which was $2.48 per gallon for the quarter. We also generated a record 106 PSMs per gallon during the quarter, a 1% fuel efficiency improvement over the prior year. Adjusted non-fuel operating expenses were $728 million within guidance, were 6.95 cents per ASM on a stage-adjusted basis to 1,000 miles. The increase from the prior year quarter is mainly due to a 15% reduction in average daily aircraft utilization resulting from our disciplined capacity deployment that has proven to be margin accretive. An increase in airport cost due in part to a larger proportion of high-revenue pool stations in our mix, partly offset by our cost savings program launched in the third quarter of 2023. The 2023 quarter also includes a $36 million reduction in fleet-related costs driven by the extension of four aircraft leases. On a full-year basis for 2024, adjusted CASM excluding fuel, stage adjusted to 1,000 miles, was down 1.2% versus the prior year, consistent with guidance. Fourth quarter pre-tax income was $51 million, yielding a 5.1% margin, and net income was $54 million or $0.23 per diluted share. Net income includes a $3 million income tax benefit resulting from the release of the valuation allowance related to our net operating loss deferred tax asset in conjunction with the pre-tax earnings generated during the quarter along with the impact of share-based compensation activity. We ended the year with $935 million of total liquidity, comprised of unrestricted cash and cash equivalents of $730 million and $205 million of availability from our undrawn revolving line of credit. Our total liquidity represents approximately 25% of trailing twelve-month revenue, a significant increase compared to 21% at the end of September and 17% at the end of 2023. The increase versus the prior quarter is driven by the $64 million of EBITDA generated in the fourth quarter, $40 million of proceeds received from the legal settlement we disclosed previously, other working capital benefits, and PDP-related activity, partly offset by approximately $30 million of capital expenditures. We had 159 aircraft in our fleet at quarter-end after taking delivery of six A321neo aircraft during the fourth quarter, all financed with sale-leaseback transactions. We expect to take delivery of four A321neos in the first quarter, all of which have committed sale-leaseback financing. To recap our fleet plan for the remainder of the year, we expect to take delivery of another four A321neo aircraft in the second quarter, and two in the third quarter, while the eleven deliveries expected in the fourth quarter will be split by type: three A321neos and eight A320neos. These expected deliveries also have committed sale-leaseback financing. Our first quarter and full-year guidance was published in the earnings announcement we issued this morning. We made the decision this quarter to narrow our guidance metrics to EPS, CapEx, and PDP in order to more closely align expectations with our focus on delivering bottom-line results. With that, our adjusted diluted earnings per share for the first quarter is estimated to be in the range of breakeven to $0.07 per share, a significant improvement from the loss per share of $0.12 per share in the comparable prior year quarter, driven by the continued strength expected from our revenue and network initiatives. We expect full-year 2025 adjusted diluted EPS to be at least $1 per share based on the blended jet fuel curve on February 4, 2025. We expect to maintain a cost advantage of over 40% this year based on peer consensus and our internal forecast. Capital spending, including capitalized heavy maintenance, is expected to be $175 million to $235 million, and pre-delivery payments net of refunds is expected to be $10 million to $45 million. With that, I'll turn the call back to Barry for closing remarks.

Thanks, Mark. The transformational changes we've implemented during 2024 are creating a strong foundation for margin expansion in 2025, with double-digit pre-tax margins expected this summer. I'm proud of Team Frontier for their contributions to this improved outlook. And I'm excited to be working alongside them as we deliver an exceptional customer experience and the best overall value in air travel. Before we turn to Q&A, I wanted to make a brief statement to address our proposal to combine with Spirit that we disclosed last week. Our proposal offers more value than Spirit's standalone plan. This includes substantial value for equity holders, who will otherwise receive nothing through Spirit's plan with the bankruptcy court. As a combined airline, we would be positioned to provide more options and deeper savings as well as an enhanced travel experience and service for consumers. We would also be able to provide better career opportunities for team members. We stand ready to engage with Spirit regarding our proposal and note their disclosure yesterday to extend the tender deadline for their equity rights offering by a week. We obviously know Spirit very well and are prepared to move quickly to engage to make this compelling opportunity happen. With that said, today, we're here to discuss our 2024 financial results and go forward guidance. We ask that you please keep your questions focused on these topics. Thanks again for joining us this morning. Operator, we're ready to begin the Q&A segment.

Thank you. Our first question comes from Brandon Oglenski with Barclays. You may proceed.

Hey. Good morning, everyone, and thanks for taking the question. And, Barry, good to see the stock up today. You know, your guidance didn't provide a lot of details on the metrics, and I guess in some sense, that's actually refreshing. But can you give us a sense of where you're seeing some of your unit trends on revenue and cost and how you think that's gonna play out in 2025? Within the context of the guidance range?

Well, look, I mean, you can see very clearly that our revenue trends are really performing well, you know, on the heels of what we've done in the network, which mainly started last year kind of in the May, June time frame. So we'll kind of annualize that by the time we get there. So there's still a lot kind of in the tank, if you will, just from the network initiatives. And we're really just getting started on kind of the new frontier. So we made the merchandising changes, but all of the premium focus that Bobby mentioned with seating. The first class doesn't even begin until the end of this year, and the loyalty. There's just a lot of tailwinds still to come on the revenue side. On the cost side, as Mark mentioned, you know, we're planning to continue to maintain over a 40% cost advantage, which will be up versus 2019. So we have pretty much ensured that our place, even including potential labor contracts in the future, will ensure that we continue to maintain our cost advantage versus our peers.

Appreciate that, Barry. And then maybe can you elaborate a little bit more? Because you've had so many changes on the commercial side. Like, what initiatives are gaining traction right now? Because I know first class isn't gonna be for another year. Right? But are you seeing traction with some of the premium options you've already put in the market and the bundled fares you launched last year?

Yeah. Brandon, it's Jimmy here. Look, we've spent the last about 18 months trying to adjust our network to meet the demand patterns that exist in today's environment. As you move beyond the COVID recovery period, and then into normalized kind of growth in the industry. And also reflecting on the overcapacity that we saw in certain markets that we flew to kind of at the back end of 2023 and into 2024. And so what we've done is really shaped the week in a better way where we focus a lot of our flying on peak days. It goes to the expense of off-peak days of the week. And so we're obviously seeing an improved unit revenue performance as a result of that network shaping. But we've also launched over that period quite a dramatic change in the way we operate our business with an out-and-back network from 13 bases across the United States. And we suffered from immaturity throughout last year as we established our network. One of the things that you're seeing from a revenue perspective is some maturity coming into that business. Where bases that were launched in March, April, May last year are, even though they're still in the first year of operation, they're starting to mature and mature relatively quickly. And we saw that in the peak period in December. Where we outperformed our own expectations in terms of revenue performance. And we're seeing really strong demand patterns across that network. Particularly focused on the peak days of the week. I'll hand it over to Bobby to talk about some of the diversity products that we're launching and progressing through this year. To build a stronger, more diversified revenue base. Which will be foundational for the business for the next three or four years.

Yeah. So you talk about the new frontier and we're using that as a general umbrella statement around a variety of different topics, some of those of which have customer experience benefits and have near and long-term revenue benefits. So of course, we've talked before about the premium seating that we put in place. We're seeing revenue benefit right now from what we implemented last year with Upfront Plus. Very good load factors within that. Still some upside opportunity that exists there and upside opportunity that exists when we think about how do we make that more flexible within the cabin as well when we introduce what's coming later in the year with the two-by-two first-class product. So quite a bit of opportunity there just in terms of direct sales, but some of the things that we've started tying these experiences into and really what's a big focus on us in the near term in terms of transforming, but something that we think is a very large level of value, but will take some time to achieve that value is the loyalty program. And so, you know, we made a variety of changes within the loyalty program over the past year and more recently, you know, some of the big things that we introduced there are tying in some of these premium products. So we think about this as this ecosystem that we can play into and utilize, provide a better experience, create more appeal around the elite side. And, frankly, with that better experience overall, that'll create more loyalty that'll want people to engage more on the loyalty program itself. So we saw recent benefits. I already talked about that in the initial comments. But we anticipate that growing as we move through and people start to understand and see those benefits. You know, other carriers, one of the things that they have are a tremendous amount of folks who have status, but aren't able to actually capture value within that status, we're gonna be able to provide value to folks like that. So we're excited about what that is. Like I said, we're under $3 frankly, per passenger. Other carriers are $30 and over. We're not sitting there saying that we're gonna absolutely get to that level, but even a fraction of that is a massive opportunity for us that we're moving towards very quickly. And we anticipate, again, seeing some near-term value, but the biggest amount of value is gonna come over the course of a few years. Within that.

Appreciate the detailed response. Thank you.

Thank you. Our next question comes from Michael Linenberg with Deutsche Bank. You may proceed.

Yeah. Hey, good morning, everybody. Can you talk about the month of December looked exceptionally strong from a RASM perspective. And I get the sense that that's going to carry through into the first quarter. But then how much of an Easter effect is gonna impact you if anything?

Yeah. Michael, I can start. Look. I think December was very strong. We finally got a lot of our changes in kind of the day of week changes as well as we're starting to see a little bit of the maturity start to come into the markets as Jimmy mentioned. The Easter effect is gonna be a drag on Q1. It's always difficult to tell, and I don't think we've had it quite late kind of post-pandemic in this full recovery. But it's at least one to two points on the quarter. And we see pretty strong March as a result. Generally speaking, and we've talked about this a lot and looked back, it's generally good for the front half even though it's a drag on Q1. Right? So even if you get it up to two-point hit, overall for the first half will actually be better because Q2 is gonna be that much stronger.

Yeah. And I would just add, I mean, on the spring break period, which obviously goes in that, seeing good demand there. Some of the big bases we have actually the spring break in the March time period and our network planning team, of course, considers that when we're thinking about capacity planning. So there is a drag in that regard. There's also, you know, from a spring break period perspective, some of that actually cuts into March itself. Yeah. And just to add to what the guys have said, you know, Michael, you look at this closely, right, in terms of the capacity deployment by month across the industry. If you look at our capacity deployment within the month for March and April, you'll see that there's significantly more capacity deployed in the peak travel weeks of March and the peak weeks that we see in April. And so that's one of the things that we're doing that's a little bit different than what we previously did when we deployed capacity. We're trying to match as best we can the assets that we have in the business, like pilots and obviously aircraft, to outperform in peak weeks of the year, and then manage the business through the off-peak periods. And I think that's one big change that's happened in the business in the last twelve months. And you can see has been quite positive in terms of performance in the fourth quarter. Which really was the first full quarter that we deployed this network. Of managing off-peak days and peak days of the week, off-peak periods and peak periods of the quarter in a better fashion.

Thanks. And just my follow-up, I guess, to Mark, when we think about where you're headed from a profitability perspective, you know, we're gonna start seeing taxes, you know, feature more prominently and yet we could see that in this quarter, you know, you're getting benefits. How should we think about your NOL position, which I think is actually pretty sizable and what that, you know, from a cash taxpayer perspective, are we not gonna see you paying any cash taxes until maybe late this decade? How should we think about it? As we're modeling your cash flows out over the next few years? Thanks for taking my question.

Yeah. No problem, Michael. Yeah. So from a high level, when you look at, you know, number one, from a rate perspective, the valuation allowance that is remaining, you know, that, you know, as that valuation allowance is released, as we generate earnings, it will impact our rate. There's roughly $19 million of that allowance remaining as you look into, you know, this year. And then when you think about the cash tax opportunity, so beyond, you know, the shield that is tied to that, you know, valuation allowance, there's another, you know, roughly $30 million or so, you know, of cash opportunity. And so, you know, based upon the earnings we expect to generate this year, you know, we certainly think we'll be able to, you know, take advantage of that NOL benefit. But this isn't gonna be a multi-year item.

Okay. Thanks for the clarifying.

Thank you. Our next question comes from Duane Pfennigwerth with Evercore ISI. You may proceed.

Hey. Good morning. This is Jake Gunning on for Duane. Just given all the network changes that you had in 2024, I know you're keeping it high level. Can you just maybe speak to the network priorities for 2025?

I mean, it's really to build on the structural change that we made in the business in 2024. I mean, as the airline grows in the next two, three years, you'd expect to see us advance from 13 bases to more bases. I'm not gonna pre-announce where they are. But as we see a benefit both from a revenue and commercial perspective. But importantly, also from an operational perspective. Bases or airports performing well for the business. And we'll move to have more than 13 bases as we deliver the aircraft from Airbus. Grow the airline. We like the shape of the 13 bases across this year. We may seed some bases going into 2026 and 2027. That advances the network. But it'll be similar to what we've done in the last year and a half, just maybe not as aggressively as we changed through 2024. So more modest immaturity in the business. And getting the benefit then of maturity coming into the business from stabilization in these base airports and also the airports that we fly to from those locations. And look, our maturity profile in our business is far, far stronger particularly in Q2 and Q3 this year than it was in Q2 and Q3 last year where we tried to push the airline back to a full utilization basis and grow seat capacity quite aggressively. That led to quite an immature network that is lapping them. Which is a good thing. And you're starting to see that in the results of the business.

Okay. And then just to clarify on the cost advantage spread to competitors, is that total CASM plus net interest? And then you're targeting 40% on that, but are there any quarters in the year where you would expect that to expand or contract just given any lumpiness in your costs?

Yeah. So first of all, yeah, that is the total CASM plus net interest. So it's, I mean, as we think about cost, it's important to us that we're looking at cost overall. So anytime we've given that metric, we're looking at it, you know, in total. And we've got a footnote in the release that speaks to, you know, the specific calculation. But then beyond that, you know, we're not getting into specifics for the quarter. I mean, we have worked very hard to remain cost disciplined, obviously, have increased that advantage and as we progress through this year, what we think is important is that we remain committed to being cost disciplined. And, you know, we remain committed to, you know, having that advantage be over 40%.

Thank you. Our next question comes from Savi Syth with Raymond James. You may proceed.

Hey, good morning, everyone. If I look at your kind of taking a step back, if I look at one core first quarter, it looks like you're seeing, you know, three to five points of year-over-year improvement in margin. And to get to kind of double digits by the summer, that kind of requires seven to ten points. So maybe you're halfway there. I'm guessing most of that kind of comes from the revenue side. But I was wondering if you can talk a little bit about, you know, how much of that comes from maybe your market maturity of, you know, being higher than it is today or maybe the premium product's doing better than today. I'm just trying to understand what drives that kind of incremental, you know, three to five points of margin improvement versus what you're already seeing in the first quarter.

Yeah. Oh, you go. Yeah. Thanks, Savi. So I think first, remember, that three to five points is kind of including Easter. So it's really more like five to seven I think. So then the bridge then just seasonality alone, pretty much what should get you to your ten points by summer. But in addition to that, you've got the market maturity that we've talked about. Coming in as well as the other revenue initiatives. So you just look at those kind of trajectory, it's becoming pretty clear to us. And I think the other thing you can do is you can just look historically kind of relationships. Just look at the sequential, you know, 4Q to 1Q, minus Easter. Seasonality, I think you just get there. But, yeah, on top of just seasonality, you've got plenty coming in from network maturity and from revenue initiatives.

Because and I know you mentioned just not giving further color on capacity. Later on. I'm just wondering if you could kind of help guardrail that for us and to kind of add a final point to the maturity comment. Like, where are you in terms of and I'm guessing that that applies to, like, percentage of new markets. Like, how do you see that progressing over the next few quarters? And like, where is it today and how do you see it progressing?

We have flexibility in our capacity. And so as you can see, I mean, we just closed in the near term, but, you know, we don't see a whole lot of growth in the first half for sure. We're looking at the second half and we're monitoring it. But we're not gonna commit to a capacity growth number. Until we see where things are at. We have flexibility with utilization and other things we can do. And we're committed to an earnings number. And so if we see the RASM not coming in, we're gonna dial back capacity. See, getting significantly ahead. We have the opportunity to play with several points there in capacity. We're not going to commit to that yet until we see how the summer starts to shape up and we'll know that probably in the next few months.

And on the maturity side, I'm sorry. Just how many like, what's the percentage of new markets today versus, like, where it will be in the next couple of quarters?

It will continue to go down as a result of the maturity.

Yeah. I would say we get closer to more historical norms. I mean, it's been high, of course, as you've seen over the past really six months plus. So that'll shrink as Barry said, as we progress through.

I mean, to put numbers on it, Savi, it's, you know, we had immature markets of well over 20% last year. I mean, that's at least half of that, if not less than that in certain periods of the year. And so you're seeing maturity. These are still relatively young, in terms of, you know, haven't actually performed for more than a year yet, but they are maturing and maturing rather quickly. And so I think the network team has deployed the aircraft in a way that allows us to manage the business this year without carrying a significant portion of immaturity. And so having less than half immature network that we had last year is really helpful to us.

All very helpful, Carla. Thank you.

Thank you. Our next question comes from Ravi Shanker with Morgan Stanley. You may proceed.

Great. Thanks. So great to see the improvement kind of as you had said last year, kind of actually coming through with double-digit margins, etcetera. So over $1 of earnings in 2025. You know, how do you think about that kind of in terms of a normal EPS and the out here sort of where is the ultimate destination here? You're not asking me for 2026 guidance, but kind of what do you think you can achieve kind of when this is fully normalized?

Look. I think if we get to ten percent margins, you can do the math. I mean, we're trending to, you know, call it a $5 billion airline by next year. We've actually got some filings out there. You could go look where we think this is headed.

Got it. And just in terms of the premium traction here, kind of I think there's, you know, some debate as to kind of, you know, ultra-low-cost carriers putting in premium products on their plane, kind of what the reception is going to be. So and have you guys commissioned the customer survey? I mean, what's the initial reaction on the customer feedback to the potential for you guys putting in a first-class product and, in our co-brand and kind of trying to launch somewhat of a more premium product here.

Well, I'm glad you asked that. So the feedback was good. We surveyed but we got something better than that. We actually launched our upfront plus product, which is just a blocked middle seat European style business class and we achieved over 70% sold load factors in the fourth quarter. And that's within six months of launching it. So we're pretty jazzed about our customers looking for a premium experience, and we're not attracting we're not stealing share or anything. This is just customers that were already on board willing to pay for a better experience. So with their ten they but we're focused on the data. And the data says that the consumers have changed and they're willing to pay for product, and we're excited to deliver it to them.

And I just had I mean, look, we can deliver this at a lower cost. Than others. So when you talk about, you know, the affordability of these products, that to us combined with the survey and the data we have from Upfront Plus says that this is a really good product for us that should be accretive.

Understood. Thank you.

Thank you. Our next question comes from Scott Group with Wolfe Research. You may proceed.

Hey. Good morning. This is Ryan Kaposi on for Scott. So last year, about 5% capacity growth, load factors were down 4.5 points, but yields were up double digits. Just curious how you see this load factor yield dynamic playing out this year given, you know, another year of COVID roughly mid-single-digit growth.

Yeah. One thing I would point out is that we report flown, not booked. So, you know, we tend to trend between 7% to 9% no-show, which is up significantly since pre-COVID. So I think you need to add a few points to kind of normalize. But the biggest issue has been, you know, we continue to see it. Tuesday, Wednesday, Saturdays are just not in demand like they were pre-COVID, and that's why we've reshaped the capacity to that demand. And so I think you're gonna see load factors improve because of that shaping. As we get through the year. Now, work from home or to go back and kind of shift and people go back to more normal patterns, then I think Tuesday, Wednesday, might improve again. But right now, we're not making that change. To increase utilization on Tuesday, Wednesday till we see it. I know there's a lot of discussion now recently. About how much more, you know, people going back to the office will start to improve Tuesday, Wednesday for the industry, but I think that's gonna be something that we ourselves, and I would suspect the whole industry will watch this year. And I think it's probably a benefit to 2026 and beyond, but not yet.

Got it. Helpful color. And then just within revenue last year, you know, average fares were up modestly. But ancillary revenue per passenger was down high single digits. Just curious how you see these two segments sort of unfolding this year and maybe even into next year.

Yeah. Don't underestimate the impact that stage has on unit per passenger or unit revenue performance or per passenger performance. I mean, we shrunk the stage quite dramatically last year. As we deployed the new network. And so it drives more sectors per day per aircraft. More passengers, but slightly less revenue on a unit basis from an ancillary perspective. In the business. We like the shape of the network. You can see the results that are coming. And so got a balance. The way we've shortened stage a little bit with, you know, the unit performance of ancillary products. I mean, we're really focused if you can listen to what everybody is saying on this call, we're very focused on the bottom line and performance to hit the bottom line. And we feel a shorter stage with more departures per aircraft per day is a good place for the airline to be in today's environment. And that drives a metric like you're seeing in terms of non-ticket being selected out.

Great. Thanks, guys.

Thank you. Our next question comes from Christopher Stathoulopoulos with Susquehanna International Group. You may proceed.

Morning. Thanks for seeing my question. So I just want a lot of detail given on capacity or how we think about it, different data points here. So your selling schedule, as I see it now, is 5% in 1Q. 3% in 2Q, I guess that's still maturing. You said you don't see a lot of growth in the first half. New markets are lower. If you just want to better understand the composition here of capacity for the year. Right? Because not all capacity is created equal, etcetera. But maybe if you could speak to how you're thinking about frequencies, peak versus off-peak, stage gauge, and then markets where we would expect to see meaningful growth versus deceleration. Just want to kind of tie up all the points here you've given us on capacity for this year. Thanks.

Yeah. We've brought back our growth dramatically, and we've said that we will continue to moderate growth until capacity and demand come in balance, and we're solidly back to double-digit margins. And that's gonna mean that we continue to focus on peak periods. As Jimmy mentioned earlier, but most importantly, peak days a week. And so we are looking to run maximum utilization on your kind of Thursday, Friday, Sunday, Monday. And do more maintenance and get the fleet back ready on those other days. And so I think that's where you're gonna see us concentrate. We're gonna fly on the days and periods people want to go. And we're not gonna chase utilization. What we've seen looking across the industry, and I think this is globally, you know, the aircraft rent is important, but the variable costs are real. And you've seen some of your largest variable increases as a percentage terms on the airport side. And as well as fuel is considerably higher versus, say, 2018. So you have to be very conscious of that last seat. It may impact your CASM negatively. But as you've seen, we're doing lower utilization, higher CASM, higher margin as a result. And as I always joke, the way to stop losing money is to stop doing things that lose money. And last year, flying on Tuesday, Wednesday, losing money. And so we're fixing that by reducing the capacity, and we expect to continue to do that. And we remain fluid on the future kind of second half. We will continue to focus on kind of the you'll see a lot more for the first half. If things don't change, if they were improved a little bit, if we saw a little bit Tuesday, Wednesday, there's the ability to add. But we're not planning on it at this moment.

Okay. That's it for me. Thank you.

Thank you. Next question comes from Jamie Baker with JPMorgan. You may proceed.

Hey. Good morning. This is James on for Jamie. Appreciate the fleet comments in the prepared remarks. Is there any reason to think that the level of sale-leaseback premiums realized in 2025 will deviate materially from ones realized in 2024?

I mean, from a sale-leaseback perspective, you know, so the key change year over year is just, you know, tied to the number of inductions. So we had 23 in 2024. We'll have 21 as we highlighted for 2025. And not only the numbers, it's down to, but then the mix. It was all 321s in 2024. And you'll have eight of the 21 in 2025 that are 320s. So relative to the premium tied to each of those, there's no issue. But that, you know, there will be a difference tied to the number and the mix.

Got it. That's helpful. And for my second question, there's been a lot of calls for air traffic control reform in recent days. And I think you guys have been vocal on that in previous quarters. Have you ever done internal modeling in terms of how much incremental capacity successful ATC reform could generate for you guys holding pilots and aircraft consistent?

Yeah. So, yes, I've been vocal, and I know I guess it was repeated again in some of the things I've said last year here recently. Look, first, our hearts go out to those folks that were impacted. That was a horrible incident. And hopefully, we can stop any of that kind of thing happening in the future. But the truth is that we are understaffed. And there's, you know, some pretty long lead times to training someone new. I was excited to hear last night, the Secretary of Transportation, talking about some things that we've talked about for a while, which is potentially extending the age from 56 to higher. As I understand it, there's a significant amount of trained capable folks, very seasoned that I think could be added quickly so you could increase the supply and get back staffed pretty quickly by increasing the age. I mean, quite honestly, we allow you to fly as a pilot to 65 but we cap you at 56 for an air traffic controller. Which one of these numbers is wrong? And I would argue that in a kind of ATC environment, there's likely someone down the chain. You know, if you're worried about a health issue, there's probably someone who could step in a lot quicker than if you're at 36,000 feet. So I think that is a practical approach that really exciting to me to hear them talking about that and I'm really excited for them to be focused on safety and getting the numbers there. The second part of your question though with regard to modernization, I've seen a lot of different studies on this. We don't necessarily have the capacity ourselves to model this, but I've seen multiple studies, and it ranges somewhere between 18 and 22 minutes I've seen. In terms of savings per flight. In the United States, and that would come from kind of two areas. One is just more efficient flight planning solutions, but also what happens on IROP days, all of the different holds and so forth. So that's a significant amount of savings in terms of flying fuel and so forth. But I think it's two-part. The preplanned flight part could add incremental utilization and actually save consumers more money because there could be more flights, etcetera. The second piece is that it would improve the overall experience. Because you simply would be able to get rid of inefficiencies related to IROP events. So I think you'd get a little bit of efficiency, but you would also get a better experience for consumers. And quite honestly, above all, getting back to the original component, which is safety, I think you'd have a much safer system. So I'm really excited about them getting the staffing fixed, and secondly, working on the modernization of air traffic control. It's been far too long, and I'm glad that this is now finally a focus.

Got it. Thanks for the color, Barry.

Thank you. Our next question comes from Thomas Wadewitz with UBS. You may proceed.

Good morning. This is Atul Maheshwari on from Tom Wadewitz. Thanks a lot for taking our questions. So just circling back on the new market maturity topic, can you provide some perspective on how much are RASM's profit margins in those immature markets below that of the mature ones? Just any color there that can help us to eventualize what's possible as those markets mature.

Yeah. Look. So when you put in new capacity, you're gonna take a 30% to 35% hit on RASM versus the average in the first year. And so, you know, if you just do the math, right, if you had 20% incremental growth versus kind of your baseline from before, 20% times 30, 35%, that's 6 to 7% on the system. And so it's just mechanical the maturity that takes place once you get to year over year. That's why, you know, when you say where we're at now, you just take Q4 and kind of roll that forward both seasonally as well as just market maturity, you solidly get in the double-digit margins by summer.

And just to add to what Barry said, you know, we're pretty aggressive in how we manage the network. You've seen that over the last few years. If we're not seeing a mature, we're and move beyond, like, a, you know, 70% of what the RASM should be on that route and start to creep up to 100% over time. We will call. And so part of our immaturity in our business is replacing immature routes that are not performing with new routes. In addition to immature activity that comes from aircraft deliveries and growth of the business. And so we are very, very focused on that in here. We watch the performance of the immature markets. And are not shy to remove them if they're not performing. We don't hold on to things for very long. So you can take comfort in the fact that the stuff that we're holding on year over year is performing and is heading on a trajectory to get to either a network average or above the network average. And then the stuff that's taken out, may not have worked for us for a variety of different reasons. We're not gonna hang on to it. And so that's a good component of how we manage the network here. And you saw that actually quite aggressively throughout last year as we redeployed assets. And now you're starting to see that redeployment work and some maturities develop as a result of that.

Got it. That's very helpful. And as my follow-up, just for this year, it would seem like there are some cost pressures in the business either from, you know, maybe lower sale-leaseback gains, higher rent, or other cost pressures. But will next year, that is 2026, will that be a cleaner cost year, or does a potential pilot deal mean 2026 is gonna be an inflation year as well?

Yes. I mean, as we've continued to prove, I mean, we are on cost, remain cost disciplined. We've grown our cost advantage. And so that will continue to be a focus. As you look at 2025, you know, as, you know, we've mentioned, you've got a number of commercial initiatives that are going to drive some movement, you know, in the CASM, you know, but any, you know, any of those decisions are tied to disciplined capacity deployment driving, you know, the maximum margin. Then beyond that, you know, we touched on the fleet impact, but you also have the, you know, the full-year benefit as cost savings program we talked about. So there are a number of pieces in parts, but at the end of the day, we're focused on driving the lowest cost number possible. And as you look to 2026, and think about, you know, a potential, you know, labor deal, you know, what we highlighted is being over 40%, that's inclusive of, you know, a deal. So I mean, we're very focused on, you know, keeping that above 40%.

Great. Thank you very much.

Thank you. Our next question comes from Tom Fitzgerald with TD Cowen. You may proceed.

Hi. Thanks so much for the time. Jimmy, just on your last answer, how many months of data do you need to see before determining if a route is working or if you need to cut it? Is that, like, a six-month thing, a little bit less, a little bit longer?

I mean, typically, six to twelve months. But, like, I mean, we can all we also watch how it's performing in the run-in to operating the route. So between announcing it and actually the first departure, and we can see the trends that are coming. And, obviously, we have a significant history in managing immaturity in our business. And so but typically, nine, twelve months is the point with which you know, you're very confident that it's maturing in a very strong fashion. But it can happen at any point after you put it on sale. Where you actually see actual activity that's happening in the business. And so we have cut routes relatively shortly after launching them. Because the market isn't there that we thought maybe was there. You see a competitive dynamic that crops up that we want to deploy the capacity somewhere else. And an opportunity exists somewhere else, we move it because of an underperforming immature market.

Yeah. So it's very fluid.

Okay. It's the best way to put it. Yeah. Yeah. Yeah.

That's very helpful. And then just as a follow-up, you mind just providing an update on your customer demographics given all the changes in the business and all the product changes you're announcing both within the cabin and on the loyalty side, I just love to hear what you're seeing by age cohort and then income cohort. Thanks again for the time.

Yeah. So some of the changes that we've completed over the past year have created benefit in terms of what we're seeing on the demographic side. We've seen an increase actually on the business side in terms of the travelers there. Incomes have gone up. Specifically, you know, I talked earlier about credit card applications and the things that we're seeing as it pertains to the frequent flyer program. Those in terms of incomes and FICO scores have gone up fairly dramatically. So the things that we're doing, we're excited about the folks that we're providing premium products to. These are, you know, the demographics are moving in the right direction that'll be able to purchase that and engage with that. So overall, good movement we've seen there.

Thank you. Now I'd like to turn the call back over to Barry Biffle for any closing remarks.

Just want to thank everybody for joining. We're really excited about 2025. It's and what we have in store, all the hard work that our team has done in 2024 is really paying off, and we're excited about the future. Again for joining, and we'll talk to you next week.