ULCC - NASDAQ

Thank you, and good morning, and welcome to our second quarter 2025 earnings call. On the call with me in speaking order are Barry Biffle, Chief Executive Officer; Jimmy Dempsey, President; Bobby Schroeter, Chief Commercial Officer; and Mark Mitchell, Chief Financial Officer. Each will deliver brief prepared remarks, but before they do, I'll recite the customary safe harbor provisions. During this 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. During this call, we will be discussing non-GAAP financial measures, actual results of which are reconciled to the nearest comparable GAAP measure in the appendix of the earnings announcement. We'll also be referencing stage adjusted unit metrics, which are based on 1,000 miles. With that, I'll give the floor to Barry to begin his prepared remarks. Barry?

Thanks, David. Good morning, everyone. Our second quarter results were within our guidance range, overcoming significant weather and extensive air traffic controls delay in late May and June, which we estimate to be 2 to 3 points on the quarter. Our third quarter guidance incorporates a similar impact for July. We're proud of Team Frontier for the contributions during the quarter as we navigated through this environment and for remaining focused on our top priority of delivering a safe and reliable experience to our customers. We're seeing an improvement to our forward bookings for August and beyond as the industry adjusts capacity. Encouragingly, in Frontier markets specifically, we're seeing a greater reduction in competitive capacity than the average in the industry by about 3 points, which alongside with our commercial initiatives is expected to support mid- to high single-digit RASM growth in the third quarter on a stage-adjusted basis. I'm confident in our ability to generate incremental RASM benefit from our enhanced loyalty initiatives and our additional premium product offerings. For example, our cardholder spend is up nearly 20% year-over-year. These product and loyalty enhancements, combined with our industry-leading total cost advantage are expected to provide a solid foundation for profitability in 2026. I'll now turn the call over to Jimmy for a commercial review. Jimmy?

Thanks, Barry, and good morning, everyone. Briefly recapping our revenue performance. Total revenue in the second quarter was $929 million, down 5% on 2% lower capacity versus the prior year quarter. RASM was $0.0901, while RASM stage length adjusted to 1,000 miles was $0.0874, slightly higher compared to the same period last year. As Barry mentioned earlier, our performance incorporates the revenue-related headwinds from ATC and weather-related operational challenges and the impact of weak consumer sentiment in the early part of the quarter. Total revenue per passenger was $109, flat to the prior year quarter on a 79% load factor, up 1.2 percentage points. We launched 35 new routes in the second quarter, primarily from existing crew bases, including our first-ever service to Seattle's Payne Field and Puerto Plata in the Dominican Republic. We also announced an expansion of service across the Eastern and Midwestern United States to include nonstop connections between Baltimore and Chicago O'Hare, Myrtle Beach and Trenton and 9 new routes from Atlanta. These new routes are consistent with our strategy to penetrate large markets with limited or no ULCC service that expand our revenue pool and support growth. Looking ahead, we expect stage-adjusted RASM to be up mid- to high single digits in the third quarter year-over-year, supported by an improving industry capacity backdrop and tailwinds from normalizing exposure to immature markets. Based on our current selling schedule, which extends through January 5, immature market concentration is expected to trend toward low teens over the next 6 months, roughly half the level it was in the prior year. Capacity in the third quarter is expected to be down 4% to 5% year-over-year on an average stage of approximately 915 miles, while fourth quarter capacity is expected to be relatively flat year-over-year on an average stage of approximately 900 miles. I'll now hand it over to Bobby to provide an update on our enhanced product and loyalty offering.

Thanks, Jimmy. We're pleased to have achieved an increase of over 40% year-over-year in the second quarter in our co-brand loyalty revenue per passenger, driven by greater card acquisition and spending. Our current momentum, coupled with the introduction of first- class seating, mileage burn for ancillaries and additional product features such as our companion pass give us confidence in achieving our target of $6 per passenger by the end of 2026 and $10 by the end of 2028. We're also continuing to invest in the onboard experience. Our fleet-wide installation of first-class seating remains on track for completion by next spring, expanding on the strong response to our UpFront Plus product. And shortly, we're rolling out additional rows of UpFront Plus, enabling us to serve high premium routes more effectively while maintaining flexibility elsewhere. From a digital perspective, we're making major strides across all our distribution channels. We launched our new iOS and Android mobile apps featuring an improved interface and expanded self-service tools, and we'll launch our newly redesigned website later this year. Our NDC transition accelerated this quarter with key partnerships signed with Amadeus, Fareportal and Hopper with more to come. These agreements will allow us to revenue manage in real time, deliver more relevant personalized offers and provide a seamless booking experience while also significantly reducing distribution costs. In short, we're modernizing every part of our commercial offering from digital tools and distribution to loyalty and onboard experience with a focus on premiumization, which supports a better revenue outcome. With that, I'll turn it over to Mark for the financial update.

Thanks, Bobby, and good morning, everyone. Our adjusted nonfuel operating expenses in the second quarter were $774 million or $0.075 per available seat mile. The increase over the prior year quarter was largely as expected and was mainly due to a 13% reduction in average daily aircraft utilization related to our disciplined capacity deployment, fleet growth and lower sale-leaseback gains from less inductions in the prior year quarter. Fuel expense totaled $230 million, 20% lower than the '24 quarter, driven by a 17% decrease in the average fuel cost, 2% lower capacity and a 2% fuel efficiency improvement over the '24 quarter. Second quarter pre-tax loss and net loss were both $70 million, resulting in $0.31 of net loss per share with the tax benefit generated from the pre-tax loss offset by a corresponding valuation allowance. We ended the quarter with $766 million of total liquidity comprised of unrestricted cash and cash equivalents of $561 million and $205 million of availability from our undrawn revolving line of credit. We have committed financing, which is expected to boost liquidity by over $200 million by year-end. We took delivery of 3 A321neo aircraft during the quarter, all financed with sale- leaseback transactions and returned 2 A320ceos, bringing our total aircraft fleet to 164 at quarter end. As previously disclosed, most of our planned inductions for this year are scheduled to occur in the second half of the year with 13 aircraft deliveries expected in the next 6 months, including 2 A321neo aircraft in the third quarter and 11 in the fourth quarter, comprised of 7 A320neos and 4 A321neos. All remaining 2025 deliveries and all planned deliveries through the third quarter of 2026 have committed sale-leaseback financing. Turning to guidance. As provided in this morning's announcement, we expect the third quarter adjusted loss between $0.26 and $0.42 per share and fuel at an expected average all-in cost of $2.51 per gallon based on the jet fuel curve as of August 1, which is $0.15 higher than the second quarter. Third quarter nonfuel costs include some transition costs due to the timing of our capacity reductions and higher expected maintenance-related costs. Our capacity for the third quarter is expected to be down 4% to 5% to the corresponding prior year quarter, and we expect mid- to high single-digit RASM growth on a stage length adjusted basis in the third quarter. Lastly, we expect tax expense in the range of $2 million to $4 million due to the anticipated recognition of a noncash valuation allowance. Thanks for joining us this morning. Operator, we're ready to begin the Q&A segment.[ id="-1" name="Operator" /> [Operator Instructions] Our first question is from Ravi Shanker with Morgan Stanley.

So understanding that it is a pretty challenging environment out there, Barry, can you just help us with what does the path back to positive margins look like and then eventually to double digits over time? Like apart from just industry kind of tailwinds, what are some of the big moving blocks to get you there?

I think I mean one of the big moving blocks, we're already kind of in it, and this is one of those where I almost wish we would report by month rather than quarter because you don't see the kind of the trends. I think if you take a step back, let's talk about just underlying baseline, and then we can talk about the building blocks from there. So if I go back to April, we had pretty big challenges. Everybody is well aware of what happened. Things stabilized. And actually, we saw really good bookings, fares were going up and demand was really good. We -- it wasn't clear, there was some challenges. We started seeing a lot more weather ATC in late May and into early June. But then it became clear in mid-June that there was kind of a setback, kind of a slowdown, if you will. And it's hard for us to tell, was that demand or was it just oversupply in the summer. And then we went kind of negative year-over-year on sales against, in our case, flat to down capacity. And then now in the last few weeks, it's been widely reported, we've seen significant jumps. In fact, we're running double-digit sales year-over-year for all forward sales against capacity that is actually down year-over-year. So you take that trend and you roll that out, and that puts pretty good RASM trajectory for the balance of the year. So that gets you much closer to breakeven just on a sales trend basis and then you start adding all the incremental things that we're doing that are specific to Frontier. As I mentioned in my opening remarks, we see -- when we look at forward capacity, the industry capacity is getting better domestically. But in Frontier markets specifically, we're seeing about a 2 to 3 point better just in September alone, and we expect that to continue. We see a certain carrier getting out of a lot of our routes. We suspect they're going to continue to do that. So we think that's unique to Frontier. And I think in broader, it's very clear with the majority of all domestic capacity losing money at this point, I think you should expect continued capacity reductions. But we're not counting on that, and we don't need it specifically, but you're going to get several points in RASM just from kind of the competitive capacity coming out of markets. We also then, as we move into the fall, we move out of having a lot of new capacity. So I think we get that down to a much more manageable number, a little bit of redistribution. I mean we were running over 20% new flying in the fourth quarter last year. This year, it's down to 10%. I mean, so that alone, I mean, it's just math, right? Brand-new flying is about a 30% discount. If you have 10% less of it, that's 3 points right there. So you get several points from kind of the less new flying. And then you actually take -- you get several more points just from our slowing our overall growth rate. So you actually get a RASM bump there. And then lastly, you get into kind of the product side and loyalty. We've got several points, as Bobby mentioned a moment ago, we've got -- we're 40% up year-over-year. It's I know it's on a small base, but that's a huge improvement. Our credit card acquisitions are up materially. Our spend is up. People are liking the new Frontier. We're finally starting to see some maturity of that pay off. So that's another couple of points. And then lastly, I think you get into the premiumization with the first class seating that will be introduced late this year, but fully rolled out by spring. And we've also got an expansion of UpFront Plus that we're going to be continuing to do based on the success of that. And so that's another couple of points there. So you add all these things up, and we believe we're more than back to profitability and you're back on track to hit our targets.

Helpful. And maybe as a quick follow-up there. Do you have an early view on your capacity plans for '26?

We have not put that out. But I think as we have said, and I think as we have reacted, and we said this earlier in the year, we will be the first probably to react to any changes -- but we have -- we've reduced capacity. We need to wait and see what the rest of the industry does, but the trends suggest. And again, I think the overall financial situation of most of the domestic market suggests that you'll continue to see less capacity in the industry. But until we see that, it's hard to gauge what we're going to do for 2026. [ id="-1" name="Operator" /> Our next question is from Savi Syth with Raymond James.

Just on the cost side, I was kind of curious if -- what the capacity you're thinking about with flat here in the fourth quarter and kind of down still in the third quarter. What does that mean from a utilization evolution? And is there anything else that we should consider in terms of year-over-year on the CASM ex side that might drive things?

Maybe I'll talk about utilization, and then I can kick it off to Mark from a cost perspective. Savi, we're looking at -- we've reduced utilization quite meaningfully on Tuesday, Wednesday, Saturday, more pronounced on Tuesday, Wednesday, particularly in the off- peak periods, which is really driving the year-over-year flat capacity. That will take some time to lap, right, if we maintain this level of lower utilization on the off-peak days of the week. And as Barry mentioned, this is dependent on what we see going forward in the marketplace. Our expectation is that we stay around flat, maybe slightly positive in certain months, slightly negative in other months as you progress through the first 6 months of next year. And that's what we've put together in terms of our hiring plans and the productivity that we expect to come from the business. I'll just hand it over to Mark in terms of...

Yes. I mean I think beyond what Jimmy mentioned, I mean, with those capacity adjustments, I mean, you're naturally going to have some transition costs tied to those where you're working to best align the resources to the capacity that you're putting forward, there's just some timing nuances there. And then as we've talked about before, our inductions -- our aircraft inductions are heavily weighted, as I mentioned in my remarks, to the fourth quarter. So you have 11 aircraft planned for delivery in the fourth quarter. And so you just need to bake that nuance into your expectations.

That's helpful. And just on the -- maybe to follow up just on the capacity. I'm curious, as Barry mentioned, you want to be flexible to the environment. Just curious how much you can flex up flex down. I'm guessing a fair amount just from the aircraft availability, but perhaps maybe not from some of the other kind of staffing levels. Just curious how much you can flex that up depending on the -- or down, depending on the environment.

Yes. I mean we sit in a surplus pilot situation at the moment, given the adjustment to capacity earlier in the year. So we can move capacity in relatively quickly. I mean if you're talking about meaningful capacity increases from where we are today, you really have a 6- to 8-month lead time for that. So it will really depend on what happens in the industry as to whether we deploy that and activate a training program to support meaningful capacity increases.

Yes. And actually, I would add, in fact, I answered the question just on a RASM basis, how you get back to double-digit margin. But on the cost side, we're carrying several points just this quarter right, of cost and that translates straight to margin because of the excess pilots, because of excess flight attendants, we've got too many staff right now because we've planned to be larger close in, and this is a significant drag on our CASM at the second. To answer your question, flexing up or down, you can always flex down, but you end up in a situation like this where if you do it close in as we have done, then you carry all that extra cost. And so I can tell you that we are not going to be hiring and adding to that problem. We will bring in some aircraft, not increasing day 2 through 6, but increasing the peak days of flying and use that excess over the next year. And so you will get to the point where we will have plenty of aircraft to add capacity. But if we needed to increase capacity, the lead time on that once we get properly staffed and rightsize on the staffing is probably in the 6- to 8-month range. And the reason for that is flight attendants are much faster, but the long pole of intent on growth to increase utilization is on the pilot side. And you -- it's just a simple cycle. You have to hire a first officer. You have to bring them in, get them trained, get them on the line. That then pops a spot, if you will, to upgrade an existing first officer to a captain. And if that cycle takes between 6 and 8 months from recruiting, making the decision and so forth. So it's probably a 2-quarter decision in the future if and when we see demand come back. But we're not planning on an improvement in demand to get back to our profitability. We're planning for what it is, and we're planning for a similar utilization for right now unless we see things change. [ id="-1" name="Operator" /> One moment for our next question. And it comes from Duane Pfennigwerth with Evercore ISI.

So you talked about sales up double digits for future periods. I wonder if you could speak to book yields and if you're seeing an inflection or maybe that's not the right word, maybe acceleration in yield improvement and how you think about that in the months going forward?

Yes. Thanks, Dun. We're seeing -- and part of this is because we've -- I think we've rightsized our capacity probably more than most and probably got it nailed down. We're seeing increases in load factors. You saw that in Q2. We're seeing that materially now. We are consistently on peak days of booking to the high 80s, low 90s. And so we've seen it in load factor. But what's driving the double digit actually as we look forward, and I'm actually staring at a report for this morning and for today's sales and yesterday, it's actually the yield. The yield is what's driving the biggest part of that. So we're seeing a few points of load factor, but what's driving double digits is actually you're seeing more than double-digit jumps in revenue per passenger. And by the way, that would include fare and ancillary.

And just to put a finer point on it, is that -- I assume that's not a July comment. Is that a September comment? Is that -- like how far out are you seeing that?

Yes. So this started mid-July. We got about 3 weeks into it. This is for all future sales. So total sales for the last several weeks for all future periods. So yes, July was gone by that point. And that's why I made the comment earlier. I wish we could report by month. You would -- I think everybody would see what we're seeing, which is now that we're starting to get to fall and starting to see the benefits of all these capacity reductions, it is rightsizing demand with capacity is actually really starting to bear fruit. So yes, it's all future periods. And so in our particular case, with our capacity down for all future periods to see sales up year-over-year, that kind of number, it's meaningful. Again, it's a new trend, and it's been a challenging year, but we're cautiously optimistic when you see these kind of numbers in the last few weeks.

And then if you look at relative performance within your network, are there any themes or maybe characteristics of markets that are working better than others?

Yes. I think it's been widely reported, but Las Vegas seems to have had some challenges. And it's probably the most pronounced on a leisure basis. I think conversely, we're seeing, obviously, your VFR markets and maybe their business markets, depending upon the airline, the big guys might call the business market. We're seeing a lot of VFR traffic being very strong. So kind of tough in Vegas, and I think everywhere else is actually really, really doing well. [ id="-1" name="Operator" /> Our next question comes from Michael Linenberg with Deutsche Bank.

Barry and Mark, if you could just speak to the guidance range. It just -- it seems unusually wide. I mean July is in the bag. You probably have half of August already a good view. So we're talking about, call it, 45 days left in the quarter. And yet on a pre-tax basis, it's about 5 points of margin for the quarter. Are you just concerned that the price-sensitive traveler is not going to show up in the month of September? What's the rationale behind that wide range?

Well, July is in, but -- and the first part of August is in, but we still have a decent amount of sell in the back 2 weeks of August and a lot to sell in September. Obviously, with the trends we're seeing, that's why we said if this holds up, we could clearly be to the high end of that guidance. But to your point, like we've been burned in the last 6 months in this industry in the domestic market. And so while we're optimistic, yes, we can hit -- I mean, obviously, when we put out a range like that, we all get together. And Mark and Jimmy and Bobby and all of us look at this. And we are staring at some just big numbers, like when we look at the yield right now for August, the yields for August are up 5%. But the yields for September are up 15% right now. If that holds up, fantastic, Michael. But I mean, it's still a little early. And so that's why you get a larger range. And yes, I could have told you 5% to 7%, but I mean, I've heard in the last 6 months, I saw a dip in June, we didn't expect. And so I'd love for it to be towards the higher end, but I've got to be realistic on recent history. When we saw the Gaza and we saw in Israel and there was consumer sentiment and things changed in the middle of June, you know what, kind of corresponded with sales in June. We've seen it come back, and now it's doing great. So it's -- we're in a month-to-month consumer sentiment game, I think. But right now, consumer sentiment is good. And I think where I'm a little more optimistic even than just the demand environment is I think we're finally starting -- we're going to see the benefits of the competitive capacity coming out. I mean we're finally starting to see -- I mean I'll give you an example. I mean, South Florida, I mean, we opened a base kind of pre-COVID in Miami. And then in the middle of COVID, everyone decided Southwest Jet Blue Spirit, they all decided to all start flying in Miami. I mean we're finally now seeing that kind of little battle all unwind, and you're starting to see all of these little battles across the U.S. that kind of took place. We're seeing all these competitive dynamics, all everybody is finally realizing that things are going to get back to normal and -- but we need to get capacity rightsized with demand. So we're really encouraged. But yes, we're just giving you the actuarial range based on history in the last 6 months.

Okay. Great. That's good. And then just one other quick one. And I know you said this and it was sort of -- it may have been off the cuff, you sort of threw out the fact that with all domestic capacity losing money, is that Frontier specific? Is that low-fare carrier specific? Or are you just saying that maybe everybody has been losing money domestically this summer?

We believe, looking at everyone's numbers and unpacking that, that everyone right now is losing money domestically. There are 2 carriers that are subsidizing it significantly with international. But I think as you have seen, the domestic marketplace without international or international codeshare or other benefits, they are not trending well. So history shows that this will not continue. And that's why we look at this and we say we've got one of the cleanest balance sheets in the industry. And so we see plenty of opportunity for the carrier like Frontier to come out the other side of this because there's going to be a huge opportunity for the lowest cost provider. And I think there's going to be a lot less low-cost capacity competing with us. And I think there's going to be a lot less even legacy capacity in the United States because there is domestically too many narrowbodies in the United States, period. [ id="-1" name="Operator" /> Our next question comes from Scott Group with Wolfe Research.

I want to start just a big picture question, Barry. So capacity this year is going to be flat to down a little bit. Obviously, a big change versus your history, and it's going to be a pretty unprofitable year. And I get it's a very tough backdrop. But do you feel like are the pieces there or that you can see that we can't see in the numbers yet? Or ultimately, do you think -- does this model really need growth to work?

The model needs growth to work. I think it works a lot better with growth, obviously. The whole airline industry has shown that forever. But I think I'm going to go back to before kind of the crisis that hit the United States earlier this year, we were up 20%. Our RASM was up 20% year-over-year in January, 20%. That fell to almost flat by the time we got to -- I mean it was a precipitous drop, went negative year-over-year in March, and went negative year-over-year in April, went back, say just positive then in May and June, slightly positive in July, now wildly positive in August. And sequentially, as I just mentioned, we're looking -- we're starting up 15% yields in September right now in advanced sales. So I think once you get past kind of the economic shock that we had and the excess capacity, we think that we're going to be probably the best position in this marketplace because, again, just like the last question, we believe that the domestic flying for everyone is not producing positive margins today. You can't count the international flow. I'm talking about on domestic fares in the domestic marketplace, we believe that the entire industry is not making money. You can't -- if you take out your code share, take out your international flow, all that, the domestic is not making money. And that's because there is too much supply relative to demand. However, as we have seen, the industry keeps as it always has, it will react to this. And unless you see a meaningful jump in demand, there's going to continue to be reductions in capacity in this industry.

And maybe it's a dumb question, maybe I'm missing something, but if we're seeing this big improvement in August and September, why do we not see that in the actual earnings guidance for Q3 versus Q2?

Because July was not. Sales fell off in June for June and July, but it hit July the most. In fact, the first week or so of July, our sales were down year-over-year. July was kind of the month that didn't happen this year. Now again, unfortunately, there were plenty of things. There was a war breakout in the Middle East and all kinds of other things and consumer sentiment fell in June. It was probably the worst time ever. But this is why I said a moment ago, I'd love to report monthly instead of quarterly, but also you're looking at revenue, not sales. And I think oftentimes, I think there's not a great understanding of revenue versus sales. Revenue is what you sold maybe 6 to 12 weeks ago and what you're flying now. Sales are a predictor of the future. And so as long as the sales trends hold up as the whole industry has reported over the last several weeks, we have seen the same thing. And I said, I guess we're one of the last ones to report so we can kind of put a punctuation on it. Yes, starting in mid-July now for several weeks, sales are up materially year-over-year. If that trend were to continue, you're going to see a meaningful jump in RASM year-over-year. As I said just a moment ago, our yields for September on a forward basis are up 15%. But we haven't booked that much September yet. There's still a lot of September to go. But if these trends hold up, we're going to have a great remainder of the year.

Okay. If I can just ask one more. In my freight world, we've got the biggest rail merger announcement ever, and I think there's a chance we could go from 4 rails in the U.S. to 2. And that's at least how maybe the rails are thinking about maybe what's going on with the change in administration. What does this mean? Is it the time to be revisiting airline M&A? Does the administration more supportive? What are your thoughts?

Look, I don't know. I haven't followed the M&A across industries. I have to believe there from what I understand, more accepting than the last administration. Setting that aside just in our industry, yes, I think if you look in history, there's going to be and continue to -- there already is and there's going to continue to be reductions in capacity. And one of the mechanisms that helps make that easier to do is consolidation. [ id="-1" name="Operator" /> Our next question comes from Atul Maheswari with UBS.

Barry, last quarter, you talked about a profitable back half. That's not something you reiterated today. So I assume that's no longer an expectation. A, could you confirm that? And B, if that's no longer an expectation, why is that the case? Like what has changed versus 3 months back that's driving this lower expectation? Because on the outside, it would appear that the demand is probably in a better place today than where it was 3 months ago.

It is. It's absolutely. I'm going to repeat kind of what I said a moment ago. If I look at the sales trends through the year and the revenue trends, we started off the year fantastic. We had the kind of the episode in the spring, then it recovered kind of late April into kind of the end of May, early June, then kind of around -- pretty much -- I think it was around the June 10 or so to kind of the 10th of July, really that 30-day period, we saw a significant sales slump. And that hit July, which is -- I don't know the exact number, 36%, 37%, it's over 1/3 of our quarter. And on a capacity basis and then on a revenue basis, it's closer to half. So we took a significant hit to sales in one of our best months of the year. And I'm not ruling out making money in the second half, but when that happened, while we now are seeing huge improvements in sales. And as I mentioned, I mean, these are staggering numbers to be -- for our yields to be up 15% in September, these are big numbers. If that -- obviously, if that trend goes through the fourth quarter, we are going to make money through the second half, but we're just cautiously optimistic. As I said a while ago, we gave a 4-point range because if I actually look at this year and the volatility we've seen, that is a more accurate range. If I had to give you a range for the full balance of the year, it will be even wider than that because of the variations. But again, I'll say this, I agree with you, given the current trends, barring any other major exogenous event or kind of economic slowdown that we're not -- hadn't already seen and continuing to see a favorable capacity backdrop, yes, it's still on the table. We're just not guiding the fourth quarter yet.

Okay. That's fair. And then just a quick follow-up on the third quarter RASM guidance, mid- to high single-digit state adjusted. Could you maybe give us a number that's not adjusted or maybe give a stage so that we can back into a non-adjusted RASM?

Yes. The stage, as we highlighted in the remarks for the third quarter, I believe, was $0.0915. [ id="-1" name="Operator" /> Our next question is from Andrew Didora with Bank of America.

I kind of want to go back to your load factor. I mean second quarter obviously continued to trend higher here. Just curious, if you look at that monthly, did you see steady progression throughout the quarter? Or was it more like back half weighted? Just curious like especially given after a big competitor changed its bad fee policy. I'm just curious what you saw around that.

Yes, it continued to improve through the whole quarter. In fact, one of my directors in revenue management one day, I was walking through there, and he was just so -- he was glowing. I think this is early June -- late May, early June. And so what's going on, I think it was the Sunday after Memorial Day. So it wasn't even a great period. It's like we booked a 94%. We haven't booked to a 94% on a non-holiday in a long time. So yes, we're seeing really good momentum and traction for our product. I mean if I take out kind of the slump for July, yes, we're seeing good results. I mean we said this earlier, but in the year, when it happened, but one of the largest carriers in the United States is now charging for bags on its primary -- on a check bag basis on its primary product. So now the new Frontier in our product lineup of how we sell of having a basic product, an economy product and some premium options, we're on a level playing field and customers are figuring that out. And so we're seeing greater demand for our product as our product mix and what we charge for those relative products is the best value in the industry.

And just curious, as you head into kind of 4Q and peak holiday, Obviously, you're going from kind of down, call it, mid-single-digit capacity to flat in your guidance. I think your schedules are up a little bit. Just curious, Barry, how you're -- what you are assuming for demand over that period given that inflection in capacity?

Yes. So I think one of the things that we have is a tailwind for us, I mean, that shape of capacity, even flat capacity is actually better seats. So what you have to remember, we're using lower utilization with more flying on the peak days. So what that enables us to do is to command a lot better load and a lot better yield. And so that's why I think we will be an outlier on a performance basis because of what we've done and the actions we've taken to get rid of our own excess capacity. [ id="-1" name="Operator" /> Our next question is from Brandon Oglenski with Barclays.

And Barry, I ask this with the most respect. But I guess it's been 2 or 3 years now where we've seen a clear divergence in profitability between those that maybe have transatlantic routes and those that don't. But there's a narrative that there's a structural shift happening. I guess what's going to change looking forward? Because you guys have a huge order book, you're taking deliveries, but yet shrinking capacity. So how do we reconcile the outlook here versus an order book and an industry that needs to shrink? And I guess, where do you fit into that? And how do we hit that ever elusive double-digit pre-tax margin? And I mean that with respect, Barry, I know you guys are working hard.

Yes. Look, listen, I don't take offense. I mean, I didn't buy wide-bodies 10 years ago, and maybe I'd love to have them, but I think history shows that there's periods of time where international is really good. If I go back to the late '90s, the legacies were minting money on international, it really helped. Their corporate was really good and low cost actually underperformed. You flipped a few years later and well, those fortunes change. I think what's become clear, and we actually think the model is now vindicated, is this is not a model issue. If you go look under the hood, this is a domestic oversupply issue, period. And what we now see is that these larger carriers and small, in some cases, competitors will be reducing capacity in the United States. full stop. And we then with the lowest costs and one of the cleanest balance sheets will be a huge beneficiary of that. So I think it's always darkest before the dawn. It's been a very difficult year, but it's starting to become clear that Frontier will be the winner when we move into 2026. And there's no one in the ultra-low-cost space that is going to be our size, scale, our cost structure and our relative cost advantage, there's going to be no one that can win in the domestic like us. And I'm just telling you, history shows you will not see this oversupply for a long time, and we'll want every one of those airplanes when it starts to become our turn.

Barry, I appreciate that answer. I mean, do you think the market is still stimulative though? Or have we reached more maturity of travel demand in the U.S. is that a possibility? And I guess, looking forward, are there any strategic actions that you think you can make to help drive outcomes in this direction?

Yes, I think I answered what you're hinting at on the last one a moment ago. But look, I think there are strategic things that others may do. I think there's been moves by some others, the kind of precursor for some potential consolidation opportunities. But ultimately, I think this is a situation where supply is going to come out. Are we fully stimulated? It's funny. I mean we went through all the places we're not flying, and we're kind of filtering through today places we're not flying. We're not chasing places that have ultra-low-cost carriers in them, where we can stimulate. And yes, there is a significant part of the United States and near international that is still kind of untapped, if you will. And so there's more than enough, we believe, for our growth. And we don't think that anyone else in our space is going to be growing to fill that void. And I think it's going to be, again, against a backdrop where fares are going to go up across the industry because everyone is going to be chasing margins, and that is going to give us more room to move our fares up as well. [ id="-1" name="Operator" /> One moment for our next question that comes from Jamie Baker with JPMorgan Securities.

So Barry, one of the themes that emerged on some of the aircraft leasing conference calls this earnings season was that the sale- leaseback market right now is -- it's pretty competitive. There's not a huge number of transactions. There's a lot of capital chasing the space. And therefore, the economics of sale leasebacks have been skewed in favor of the airlines. So first, I'm curious if you happen to agree. But more importantly, the view articulated by some of the lessors is that as production rates gradually rise from here and there are potentially more transactions to get done, that could actually drive economics to move in favor of the lessors. I know it sounds a little counterintuitive, more supply leading to better pricing. But just wondering if there's any sort of read through to Frontier in this regard.

Yes. So thanks. Good question. Look, there are plenty of other airlines, one based in Dallas, there's one based in Atlanta and ourselves that probably buy airplanes probably one of the best in the United States. And components and engines and all the things go with them, and we tend to probably be on the tighter end of what we pay. And that's what drives the sale leaseback gain, okay? And in other cases, other airlines, it's embedded in a lower cost of ownership. We have spent a significant amount of time illustrating this that whether we did sale leasebacks or whether we did debt finance, we would have an advantage because we buy everything lower than we believe on a benchmark basis. And so I don't believe because we didn't see in recent years the ability to raise that because of -- I mean the market prices haven't gone up that much. So I don't know -- I mean, I would take exception of that comment. We are, however, having said that, we are always concerned about things in the future, and that's why Mark made a point to explain how far out we are now in committed sale-leaseback transactions. We tend to stay 12 to 24 months way ahead of the airline. So we have firm commitments on all of those. So we don't see a challenge in that regard. And so if there's any kind of slump, I think we've got committed financing to it. And then quite honestly, there might be a bank, possibly yours, Jamie, that if the market wasn't there, we could flip to a financing world. So if that were to happen, we would potentially go the other way. We're going to have the lowest cost of aircraft ownership on a per seat basis of anybody in the industry, period. And we will achieve that through whatever financing is available in the marketplace, but we do kind of hedge, if you will, by staying ahead way in advance on committed transactions.

And Jamie, this is Jimmy here. Like one of the things that the leasing companies watch, obviously, in their market is the cross currency to the dollar and the interest rate world, right? And as I say, the yen gets stronger against the dollar, that hurts them, right? And so we have seen over time, pockets of financing ability in various different parts of the world dependent on exchange rates and obviously, the core dollar interest rate. And so I mean, we're pretty calm about what's happening in the leasing world. We've had no problem financing our fleet for a long period of time. And our aircraft -- the appetite for exposure to Frontier assets and through sale and leasebacks has been really, really strong, continues to be so. So we're not concerned about it at all.

Yes. The only thing I would say on the aircraft, I mean, Jamie, what we've seen in the past, right, when these kind of situations and we can't -- we don't have to debate which one of us has been around longer in this industry. But what typically happens is that -- and one of your competitors puts out a chart every now and then that shows, I think it's 17 -- the value of a 17-year-old aircraft. That's where the market -- if you want to say something has gotten frothy, I think that's where it's frothy, right, is these end-of-life -- the end-of-life -- the values of these end-of-life aircraft has gotten very high. I do think you're going to see a lot of those parked or parted out or moved out. And I think if there's a change in residual value or financing abilities, it's probably on that end, not on the new stuff because typically, what happens is when people are skinny down, they're going to want the most fuel-efficient stuff. And so if you've got the latest next generation, that's what people want.

Yes. All right. And just a quick follow-up. You mentioned, I think, 3 or 4 times that you wish you could report by month. Is there anything to preclude you from disclosing monthly RASM? I mean it used to be a thing.

Yes, it did actually -- yes, I mean, it could cause other volatile craziness. But yes, we thought about it. Yes, I think what's happened this year, we've talked about it. We don't want to overreaction up or down. I think it's -- again, I'm going to say it again, probably the best way to say this, we are cautiously optimistic. Jamie, the numbers -- I mean, I just -- we just gave you the facts, interpret them how you want. But we're staring at these massive double-digit yields over the next 30 days or so, and we're like, wow, if that holds up, we're starting to see a change. I think the other thing that's happened, too, Jamie, I mean just to kind of put a footnote to this, is what we're finally seeing, and there was kind of a question about stimulation a moment ago. What we're finally seeing, I think the industry has figured out that 79 is the new 49 and 99 is the new 79. I mean there's really no need. I mean we've seen the data on this. In fact, we ran a sale, I think it was about a month or so ago, maybe 6 weeks ago, and we dropped the fare and the total dollars stayed the same. Yes, you got some more volume, but it's just -- you get so low. And I think that's what happened over the last few years. I'm not going to name names, but I think the levels have just gotten silly. I mean when you've got a $29 fare, by the time I take out PFCs and I take out taxes, that's only $15 to the airline. I mean you don't make it up in volume, right? You don't make it up on $49 fares. And so when the big airlines are running $49 sales every week, I think you've seen those slow down because I think they've discovered the same thing as us is they're not actually accretive. You just -- you can't make it up in volume. And so that's why you've seen -- I mean you go out and look, I mean, on a year-over-year basis, for those of you that kind of watch scrapes and so forth, that's why you've seen the fares come up because you don't make it up in volume, and that's one of the big things that I think is benefiting the industry. And I think as you clean up the capacity, then you clean up the pricing, and that's how this works. [ id="-1" name="Operator" /> Our next question comes from the line of Chris Stathoulopoulos with Susquehanna.

Barry, I appreciate all the color on the U.S. domestic market as it relates to profitability, particularly ex code share and international benefit, certainly a point of debate here. But the first question here, 3 parts on the capacity piece. You mentioned in your prepared remarks, there are certain markets where there's -- you're seeing a 3-point reduction in competitive capacity. I wonder if you could elaborate on that. And then how you're thinking about peak versus off-peak capacity for the second half? And on next year, I realize you're not ready to give an explicit guide, but you have your order book out there. You've given us stage numbers for the second half. Maybe if you could help us think about stage engage for next year. I realize you're keeping the departures piece sort of optionality there as you look to respond to demand.

Yes. So a couple of questions there, I guess. So first, on the 3 points, it wasn't certain markets. That is all of our markets. So if you go look and you do a capacity weighted industry capacity in Frontier markets. So I recognize that the industry is closer to flat or slightly down. Our markets, it's actually down almost 3 points going into the fall. And we expect that to accelerate as we get into winter with kind of the tea leaves of what kind of we've seen, if you will, from the competitors that are making those changes and so forth. As far as the shape of the capacity, we are flying down -- we are now down on Tuesday, Wednesdays going into the fall. We're only going to be flying around 3 or 4 hours on Tuesday, Wednesdays. And that's not all the way down to maybe an Allegiant level. But at the end of the day, the best way to stop losing money is stop doing things that lose money. And the things that we've been doing to lose money is, quite honestly, is flying on Tuesday, Wednesdays and not covering our variable cost. And this has gone on for a while, and we kind of keep chasing it. But we finally think we've gotten to that level. I'm sitting here today, I mean, on a Tuesday, and I look at the report this morning, we're booked to 88. So did we go a little too far? Maybe, I don't know. But a year ago, we were at 7 or 8 hours. And all I know about picking the forecast, I know you're going to be wrong, 3 or 4 hours may be too low. Maybe the answer needs to be closer to 5, maybe 6. I don't know. But as I've joked with everybody, when you show you can fill up airplanes on a Tuesday, I'll let you add some more. And so if we continue to run in the mid- to upper 80s on Tuesdays, we might add a little bit more. But my commitment, as I've said before, is we are going to match capacity to demand, and we're going to get back to profitability. And that right now means flying maximum on the peak days and on the off-peak days less. And we've got to figure out. We've got to dial in what that is because when you go too low, it's probably going to impact our CASM too much. If we can cover the variable on Tuesday, Wednesday, we probably should do it. So I think it will probably take us a quarter or 2 to keep that dial in, if you will, and what the number is going to be, but it's probably north of where we are now, but still south of 7 or 8 hours. So I'm guessing the real answer is probably going to be in the 5 to 7 hours. But as far as next year, again, it's too early to say on next year.

Any color at all to gauge these.

Sorry, Chris. I think it's reason to assume that given the fleet order that we will grow, but the growth will be on peak days of the week or peak periods of the year as opposed to the off-peak days of the week. And we'll manage that capacity, as Barry mentioned, on the off-peak days of the week to ensure that it's cash positive for the business.

Yes. On the fleet, it's -- Mark, we've got...

Yes, yes, on the fleet, I mean when you look at our remaining order book, right, I mean most of what's coming are 321s. And so as you look at that mix playing forward, and so you're going to see just a continued steady increase as you progress year-to-year in the gauge.

But we do take a step back a little bit shortly because we're taking a higher mix of 320s over the next

In the very short term, yes. In the fourth quarter -- yes, in the fourth quarter, the 11 aircraft we're taking delivery of 7 of those are 320s and then the balance are 321s. But I think broad strokes, you've got more 321s coming than 320s.

But in the near term, that will be accretive for load factors as we kind of take our foot off the gas a little bit on the gauge, continue to drive the loads higher and higher with the other commercial things that we've done. So -- but yes, in the out years, it will be more 321.

That was actually a good segue into my second question. So I just wanted to understand, there was a question earlier around, I guess, the dynamic between load factors and yields. You mentioned the double-digit bookings. I'm guessing in April, May and perhaps part of June, you were more load factor focused here. For the second half here, given with what you're seeing with respect to demand and the oversupply here, is it fair to assume that you're emphasizing yields over load factors? Are there any markets where that dynamic is in flipped? And I think you also mentioned that there's a certain carrier. I think we can all figure out who that is, who's continuing to retreat from certain markets you serve. So I just want to understand that dynamic in the second half.

Yes. Look, I mean, if you've got higher cost than us and you're in a similar business model, that's probably -- Kmart didn't do itself any favors opening stores next door to Walmart, right? So that's not a really good strategy. So I suspect that we'll continue to see that improve. But yes, on the revenue management side, I think it's very clear, right? Classic PRM you got to get full to drive yields generally. There's examples and there's markets that do well at a 60% to 70% load and really high yield and so forth. But those are, in our business, very small percentage, I mean, less than 5% of the system. The majority of the time in our business, we tend to find that we stimulate enough to get full. And then once you're full, start to work on the yield. And the challenge we ran into in April is we ran some of the lowest load factors in -- I think, since COVID, actually. And so it took a few months to kind of repair that. By the time we got to early June, we had done that. And in fact, we're running some of the highest loads, as I mentioned earlier, some of the highest loads we've run in years. We then were able to start translating that into yield, saw, again, as widely reported by everyone, saw a little bit of slump in sales in mid- June to mid-July. That has now reversed and actually come back even higher than we were on a trend basis before. But when you look at the RASM benefit that we're seeing, and we put out a guide that is up to high single digits, that is a couple of points in load, but the majority of that is yield. And in this particular moment, what we're seeing is a couple of points in load. And as I mentioned a while ago, the August yields are up 5% year-over-year, September forward yields are up 15%. And by the way, I think that's going to roll through to the fourth quarter. But in the fourth quarter, you'll get kind of the full benefit of it, right? Because we didn't change the capacity meaningfully until kind of actually next week. So the back half of this quarter is finally seeing the benefit and the fourth quarter will get all that benefit. [ id="-1" name="Operator" /> Our final question comes from the line of Tom Fitzgerald with TD Cowen.

Quick one here just on other revenue. Is that -- $31 million, is that a good run rate to use for the rest of the year? Or do you expect another step-up with the growth in the loyalty program?

So we -- so when we get to other revenue, I mean, Barry talked about this earlier, there are a lot of initiatives that we have that we believe create steps up in terms of where we're headed on this. So loyalty, one of the things that we discussed, we've already got that up 40% year-over-year, and we anticipate seeing continued growth on that, similar growth percentage-wise as we cut through to even next year. The seat side of things on the product side, there's a lot of opportunity there that we have that will be incremental. One of those is the first class seats coming in early next year. We'll obviously start selling that earlier than that as the schedule is out for that. But beyond that, we have flexibility that we're providing and actually is launched from a sales side perspective, but it will be -- the flights will be taken off with that where we're able to increase our upfront plus rows compared to what we have today. So that will allow us to have flexibility within that, that will also add to the revenue side of things. Other than that, there's also some PRM initiatives, but also, frankly, on the MDC side, some opportunity when we fully cut over to that. So we talked about some of the things that we've done in that space as it pertains to some of the OTAs that we've already connected with and launched. When we get a -- over the course of the next month, 2 months, we'll have much more capacity going through or much more sales going through NDC as we add more OTA partners. And that actually creates another benefit from a revenue perspective as well. So quite a few things as we get into how we are projecting in our initiatives, our commercial initiatives, some of which go into other revenue, some are on the fare side as well, but a lot of opportunity there that exists that ties to what Barry brought up earlier around not only are the opportunities in the environment and capacity reductions, but a lot of the initiatives that we have that we have already seen good results and expect to continue those and add incremental revenue throughout this year and into next.

Okay. Great. That's really helpful. And then just, look, I get the confidence on '26, I get the thesis on the competitive dynamic. But just in the event that it takes longer to play out than you'd ideally like and we're in -- we have d j vu again next spring and there's another glut of domestic leisure capacity. How do you think about managing through that and just the risk of another year with significant cash from operations burn?

Look, I mean, we're always -- we're paranoid people. We're always looking at the downside. I think you almost have to think about it as a flow chart. If this happens, then what if this happens, then what? What we're excited about is that, that could happen. Let's say that does. Do you realize how much domestic capacity is then going to come out? And so I'll just point out again, we've got one of the cleanest balance sheets in the industry. We are going to be last man standing in the low-cost space when you get to next year. No one is going to have our cost structure. No one's going to have our balance sheet, and we see that the capacity -- it may not come out by next spring, but it's coming out. And history shows it actually will be out by next spring, maybe it goes a little further, but I can't imagine that. I just don't believe that the balance of the industry is going to accept money losing flying for a full another year. [ id="-1" name="Operator" /> And this concludes our Q&A session. I will turn the call back to Barry Beffel for closing remarks.