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Oct 28, 2005|
Frontier Airlines Reports Fiscal Second Quarter 2006 Results
DENVER (October 27, 2005) – Frontier Airlines, Inc. (Nasdaq: FRNT) today reported a net income of $6.9 million, or $.18 per diluted common share, for the airline’s second fiscal quarter ended September 30, 2005 compared to a net loss of $2.1 million, or $0.06 per diluted common share, for the same period last year. Included in the net income for the three months ended September 30, 2005 were the following items before the effect of income taxes: unrealized gains on fuel hedges of $0.3 million and net gains of $0.6 million related primarily to the sale of Boeing assets held for sale. These items, net of income taxes, increased net income by $0.02 per diluted share. Included in the net loss for the quarter ended September 30, 2004 were the following items before the effect of income taxes: a loss of $74,000 on the sale of other assets; a write-down of $4.2 million of the carrying value of expendable Boeing 737 inventory; and an unrealized gain on fuel hedges of $4.1 million. These items, net of income taxes, decreased the airline’s net loss by approximately $.01 per diluted share.
Chief Executive Officer’s Comments
Frontier President and CEO Jeff Potter said, “While we can point to numbers and speak to yields and revenue as the heroes of this quarter’s solid performance, there is no doubt in my mind that our return to profitability is a direct reflection of the hard work, dedication and sheer excellence of our employees. Our on-time performance this quarter was one of the best in the industry, and across the board we are providing a customer service experience second to none. The end result is that customers are responding in growing numbers, and not just in Denver, but across all of our markets. We generated a significant 16 percent year-over-year increase in the number of mainline passengers we carried, and quite simply, we are running as good an airline as we ever have in our history.
“Although a quarter as strong as this is certainly cause to celebrate and for our employees to congratulate each other on a job well done, we recognize that the ills that continue to plague this industry haven’t disappeared. Fuel remains at historic highs and the market still suffers from overcapacity leading to general weakness in fares. We don’t anticipate a solution to these issues in the coming quarter, and we expect that high fuel costs and weak fares will adversely affect earnings for our fiscal third quarter 2006.”
Mainline passenger revenue increased 21.9 percent as mainline revenue passenger miles (RPMs) grew at a rate of 11.6 percent during the fiscal second quarter, while mainline capacity growth as measured by mainline ASMs increased 5.7 percent from the same quarter last year. As a result, the airline’s mainline load factor was 77.1 percent for its fiscal second quarter of 2006, 4.2 load factor points more than the airline’s mainline load factor of 72.9 percent during the same quarter last year. The airline’s mainline breakeven load factor, excluding special items, for the fiscal second quarter 2006 decreased 0.6 load factor points from 73.4 percent to 72.8 percent. Frontier’s mainline breakeven load factor, excluding special items, decreased from the prior comparable period principally as a result of an 8.8 percent increase in mainline passenger yield and a 29.5 percent increase in mainline other revenue partially offset by an 8.1 percent increase in mainline cost per available seat mile (CASM).
During the fiscal second quarter 2006, the airline’s mainline passenger revenue per available seat mile (RASM) increased 14.9 percent to 9.01 cents from the same quarter last year. The increase in mainline RASM was due to the combination of the 8.8 percent increase in mainline yield per RPM and the 4.2 point load factor increase. Mainline average length of haul decreased 3.7 percent on a year-over-year basis, primarily because the prior year included traffic from the Company’s focus city, Los Angeles, which the Company subsequently discontinued.
Mainline fuel cost per gallon, excluding unrealized hedging gains, was $1.95 during the quarter ended September 30, 2005, compared to $1.41 during the quarter ended September 30, 2004, an increase of 38.3 percent.
The airline's mainline CASM for the fiscal second quarter, excluding fuel, was 5.86 cents compared to 6.16 cents for the same quarter last year, a decrease of 4.9 percent. Included in CASM, excluding fuel, for the quarter ended September 30, 2005 was a reduction of sales and promotion expense of $3.6 million or 0.14 cents per ASM, due to a favorable sales and use tax credit on the taxation of ticketing services and $0.6 million, or 0.02 cents per ASM, in net gains related to the sale of Boeing assets held for sale. Included in CASM excluding fuel, for the quarter ended September 30, 2004 was .18 cents per ASM of impairments and losses on sales of Boeing assets.
Senior Vice President and Chief Financial Officer Paul Tate discussed the airline's quarter ended September 30, 2005 unit costs stating, "Even when one excludes these large cost credits discussed above, our CASM ex-fuel further demonstrates our classification as one of the industry’s low cost producers, particularly in light of the 14.9 percent year-over-year passenger unit revenue increase and 3.7 percent length of haul decrease.”
The airline’s current unrestricted cash and short term investments and working capital as of September 30, 2005 was $144.1 million and $41.8 million, respectively. This compares to the Company’s unrestricted cash and working capital for the same period last year of 160.1 million and $67.3 million, respectively.
The airline’s fleet in service on September 30, 2005 consisted of 16 owned Airbus A319 and A318 aircraft and 33 leased Airbus A319 and A318 aircraft.
Business developments during the quarter included:
· Took delivery of one new owned Airbus A319 aircraft.
· Began Frontier JetExpress service to Dayton, Ohio and Fresno, California.
· Filed a “shelf” registration statement with the Securities and Exchange Commission (SEC), which can be used to periodically sell up to $250,000,000 in preferred and common stock, debt and other securities.
· Requested approval from the Department of Transportation (DOT) to offer service between Denver and Acapulco and Indianapolis and Cancun. Subsequently, approval was granted for service between Denver and Acapulco, with service to begin December 17, 2005.
· Frontier’s flight attendants voted down the Association of Flight Attendants union for the fourth time.
· Announced the hiring of John Happ as Senior Vice President of Marketing and Planning.
Potter concluded, “We anticipate that as we enter new markets and add frequencies to our existing markets, consumers will continue to recognize the value of Frontier’s low fares and superior product with DirecTV, new aircraft, more legroom, assigned seating and superior customer service.
“However, regardless of what is our best financial performance in seven quarters, we know that the battles in the airline industry will be won and lost on cost, and that will continue to be our focus moving forward. We have a daunting task in this year’s December quarter particularly to offset the enormous fuel price increases we have incurred since the first of two devastating hurricanes hit the Gulf Coast refineries in late August that, by our estimates, will increase our fuel cost per gallon by 20 percent in the December quarter 2005 compared to this year’s September quarter. This is in addition to the negative revenue impact caused by the disruption to our scheduled service to Cancun, Mexico. As a result, we anticipate a December quarterly loss that likely will exceed our September quarter profit in magnitude.”
Senior leadership will host a conference call to discuss Frontier’s quarterly earnings on October 28, 2005, at 9:00 a.m. Mountain Standard Time. The call is available via the World Wide Web on the airline’s Web site at www.frontierairlines.com or using the following URL: http://www.investorcalendar.com/IC/CEPage.asp?ID=96274..
Currently in its 12th year of operations, Denver-based Frontier Airlines is the second largest jet service carrier at Denver International Airport, employing approximately 4,600 aviation professionals. With 49 aircraft and the youngest Airbus fleet in North America, Frontier offers 24 channels of DIRECTV® service in every seatback along with 33 inches of legroom in an all coach configuration. In conjunction with Frontier JetExpress operated by Horizon Air, Frontier operates routes linking its Denver hub to 47 destinations in 28 states spanning the nation from coast to coast and to five cities in Mexico. Frontier's maintenance and engineering department has received the Federal Aviation Administration's highest award, the Diamond Certificate of Excellence, in recognition of 100 percent of its maintenance and engineering employees completing advanced aircraft maintenance training programs, for six consecutive years. In July 2005, Frontier ranked as one of the "Top 10 Domestic Airlines” as determined by readers of Travel & Leisure magazine. Frontier provides capacity information and other operating statistics on its Web site, which may be viewed at www.frontierairlines.com.
Legal Notice Regarding Forward-Looking Statements
Statements contained in this press release that are not historical facts may be considered forward-looking statements as that item is defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements are inherently subject to risks and uncertainties that could cause actual results to differ materially from these forward looking statements. Many of these risks and uncertainties cannot be predicted with accuracy and some might not even be anticipated. Some of the factors that could significantly impact the forward-looking statements in this press release include, but are not limited to: the timing of, and expense associated with, expansion and modification of our operations in accordance with our business strategy or in response to competitive pressures or other factors; failure of our new markets to perform as anticipated; the inability to achieve a level of revenue through fares sufficient to obtain profitability due to competition from other air carriers and excess capacity in the markets we serve; the inability to obtain sufficient gates at Denver International Airport to accommodate the expansion of our operations; general economic factors and behavior of the fare-paying public and its potential impact on our liquidity; terrorist attacks or other incidents that could cause the public to question the safety and/or efficiency of air travel; hurricanes and their impact on oil production, operational disruptions, including weather; industry consolidation; the impact of labor disputes; enhanced security requirements; changes in the government’s policy regarding relief or assistance to the airline industry; the economic environment of the airline industry generally; increased federal scrutiny of low-fare carriers generally that may increase our operating costs or otherwise adversely affect us; actions of competing airlines, such as increasing capacity and pricing actions of United Airlines (“United”), Southwest Airlines, and other competitors, particularly in some of our Mexico destinations due to the increase in the number of domestic airlines authorized to serve Mexico markets from the United States of America under recent changes to the bilateral agreement in place between the two countries; the availability of suitable aircraft, which may inhibit our ability to achieve operating economies and implement our business strategy; the unavailability of, or inability to secure upon acceptable terms, debt or operating lease financing necessary to acquire aircraft which we have ordered; uncertainties regarding aviation fuel prices, and various risk factors to our business discussed in our reports filed with the Securities and Exchange Commission. Any forward-looking statement is qualified by reference to these risks and factors. These risks and factors are not exclusive, and the Company undertakes no obligation to publicly update or revise any forward-looking statements to reflect events or circumstances that may arise after the date of this press release. Additional information regarding these and other factors may be contained in the Company’s SEC filings, including without limitation, the Company’s Form 10-K for its fiscal year ended March 31, 2005. The Company’s filings are available from the Securities and Exchange Commission or may be obtained through the Company’s website, www.frontierairlines.com.
-Financial Tables To Follow-
FRONTIER AIRLINES, INC.
SELECTED BALANCE SHEET DATA
FRONTIER AIRLINES, INC.
STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS AND SIX MONTHS ENDED SEPTEMBER 30, 2005 AND 2004
FRONTIER AIRLINES, INC.
COMPARATIVE OPERATING STATISTICS
FRONTIER AIRLINES, INC.
Comparative operating statistics, unaudited
1. “Break-even load factor” is the passenger load factor that will result in operating revenues being equal to operating expenses, net of certain adjustments, assuming constant yield per RPM and no change in ASMs. Break-even load factor as presented above may be deemed a non-GAAP financial measure under regulations issued by the Securities and Exchange Commission. We believe that presentation of break-even load factor calculated after certain adjustments is useful to investors because the elimination of special or unusual items allows a meaningful period-to-period comparison. Furthermore, in preparing operating plans and forecasts we rely on an analysis of break-even load factor exclusive of these special and unusual items. Our presentation of non-GAAP results should not be viewed as a substitute for our financial or statistical results based on GAAP, and other airlines may not necessarily compute break-even load factor in a manner that is consistent with our computation.
A reconciliation of the components of the calculation of break-even load factor is as follows:
2. “Yield per RPM” is determined by dividing passenger revenues (excluding charter revenue) by revenue passenger miles.
3. For purposes of these yield calculations, charter revenue is excluded from passenger revenue. These figures may be deemed non-GAAP financial measures under regulations issued by the Securities and Exchange Commission. We believe that presentation of yield excluding charter revenue is useful to investors because charter flights are not included in RPMs or ASMs. Furthermore, in preparing operating plans and forecasts, we rely on an analysis of yield exclusive of charter revenue. Our presentation of non-GAAP financial measures should not be viewed as a substitute for our financial or statistical results based on GAAP. The calculation of passenger revenue excluding charter revenue is as follows: