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Jul 29, 2005|
Frontier Airlines Reports Fiscal First Quarter 2006 Results
DENVER (July 28, 2005) – Frontier Airlines, Inc. (Nasdaq: FRNT) today reported a net loss of $2.7 million, or $.08 per diluted common share, for the airline’s fiscal first quarter ended June 30, 2005 compared to a net loss of $6.6 million, or $0.18 per diluted common share, for the same period last year. Included in the net loss for the three months ended June 30, 2005 were the following items before the effect of income taxes: a charge of $3.3 million relating to three leased Boeing 737-300 aircraft the Company ceased using during the quarter and an unrealized loss on fuel hedges of $1.0 million. These items, net of income taxes, increased the Company’s net loss by $0.08 per share. Included in the net loss for the quarter ended June 30, 2004 were the following items before the effect of income taxes; a loss of $0.5 million on the sale of two Airbus A319 aircraft in sale-leaseback transactions and other assets, a write down of $0.3 million of the carrying value of expendable Boeing 737 inventory and an unrealized loss on fuel hedges of $0.5 million. These items, net of income taxes, increased the net loss by $0.03 per share.
Chief Executive Officer’s Comments
Frontier President and CEO Jeff Potter said, “Almost every indicator of our performance as an airline continues to show improvement with the exception of the one factor we cannot control—fuel. On a year-over-year basis, our mainline yield (revenue per revenue passenger mile) increased by 4.2 percent, our mainline revenue per available seat mile (RASM) improved by an industry leading 15.6 percent, and we carried 18.9 percent more mainline passengers than last year with only a 6.1 percent increase in mainline available seat miles (ASM). However, those percentages all pale in comparison to the 42.3 percent year-over-year increase in the average cost of fuel per gallon, excluding unrealized fuel losses, which resulted in $19.4 million of additional cost during the quarter. Despite the fuel headwind we took our operating margin into the black, improving our operating margin by 4.6 percentage points, excluding special items. We are running a great airline, carrying more passengers than ever and revenue continues to move in the right direction, but we must continue to focus on the costs that we can control as we try to mitigate the volatility of fuel. Each of our employees knows that in addition to the effort they put forth providing the best service in the industry, there must be a continued focus throughout every level of the organization on cost-containment in order to bring our airline back to solid profitability.”
Mainline passenger revenue increased 22.8 percent as mainline revenue passenger miles (RPMs) grew at a rate of 17.6 percent during the fiscal first quarter, while mainline capacity growth as measured by mainline ASMs increased 6.1 percent from the same quarter last year. As a result, the airline’s mainline load factor was 78.4 percent for its fiscal first quarter of 2006, 7.7 load factor points more than the airline’s mainline load factor of 70.7 percent during the same quarter last year. The airline’s mainline breakeven load factor for the fiscal first quarter 2006 increased 4.3 load factor points from 73.6 percent to 77.9 percent. Frontier’s mainline breakeven load factor, excluding special items, increased from the prior comparable period principally as a result of the 42.3 percent increase in fuel costs on a year-over-year basis.
During the fiscal first quarter 2006, the airline’s mainline passenger revenue per available seat mile RASM increased 15.6 percent to 8.82 cents from the same quarter last year. The increase in mainline RASM was due to the combination of a 4.2 percent mainline yield per RPM increase on a year-over-year basis and the 7.7 point load factor increase. Mainline average length of haul decreased 1.1 percent on a year-over-year basis.
Mainline fuel cost per gallon during the quarter excluding an unrealized loss on fuel hedges of $1.0 million, increased 42.3 percent to $1.75 compared to $1.23 for the same period last year. The airline's mainline cost per available seat mile (CASM) for the fiscal first quarter excluding fuel was 6.55 cents compared to 6.28 cents for the same quarter last year, an increase of 4.3 percent. Included in CASM for the quarter ended June 30, 2005, was 0.14 cents per ASM of expenses associated with the early retirement of three Boeing leased aircraft and 0.11 cents per ASM for Boeing transition costs. Included in CASM for the quarter ended June 30, 2004, was 0.03 cents per ASM of impairments and losses on sales of assets.
Senior Vice President and Chief Financial Officer Paul Tate discussed the airline's year-over-year unit cost comparatives stating, "While we saw a year-over-year increase in mainline CASM excluding fuel but including Boeing early retirement and transition costs, it came as no surprise that CASM excluding fuel increased 4.3 percent particularly with the increase in expenses associated with a 15.6 percent increase in RASM. The increase in CASM was partially offset by an estimated $2.3 million in credits expected as a result of the 2004 Denver International Airport landing fee and facilities calendar 2004 cost reconciliation. Fortunately, we believe we will experience far less additional Boeing retirement expenses in the September quarter, only the benefits associated with operating a single, more fuel efficient fleet type."
The airline’s current unrestricted cash and working capital position as of June 30, 2005 was $174.3 million and $36.7 million, respectively. This compares to the Company’s unrestricted cash and working capital position for the same period last year of $193.6 million and $75.8 million, respectively.
The airline’s fleet in service on June 30, 2005 consisted of 15 owned Airbus A319 and A318 aircraft and 33 leased Airbus A319 and A318 aircraft.
Business developments during the quarter included:
· Took delivery of four new Airbus A319 aircraft and retired the final three Boeing 737-300 aircraft from scheduled service, culminating in Frontier’s transition to an all-Airbus fleet on April 11, 2005.
· Began mainline service to Detroit, Michigan; Akron/Canton, Ohio; San Antonio, Texas; and Frontier JetExpress service to Tulsa, Oklahoma.
· Announced new Frontier JetExpress service from Denver to Dayton, Ohio and Fresno, California, each to begin August 31, 2005.
· Applied to the Department of Transportation (DOT) for permission tofly non-stop to Puerto Vallarta from Salt Lake City and Kansas City, and non-stop from Denver to Cozumel.
· Expanded seasonal service to all five existing Mexico destinations from Denver.
· Expanded a previously announced pre-purchase agreement with Apple Vacations to include scheduled charter service between Chicago and Cancun, which began in June, 2005.
· Resumed and expanded seasonal service to Anchorage, Alaska and expanded mainline service to eight destinations as well as regional jet (RJ) service via Frontier JetExpress to one destination.
· The More Store was unveiled (www.frontiermorestore.com), which is an online miles shopping experience designed to provide Ascent and Summit level EarlyReturn® members with the ability to purchase merchandise online with frequent flyer miles in an auction-style bidding process or with a stated amount of miles.
Potter concluded, “While we remain optimistic that positive year-over-year RASM trends will continue throughout the September quarter, the ever-rising cost of fuel leads us to believe that September’s financial results may improve only slightly over our June quarterly results.
“Cost-containment and efficiency will be the hallmarks of success for Frontier in the year to come and no stone can be left unturned. The other half of the equation, which is attracting and retaining customers by running a quality airline, is already in very capable hands. There is no doubt in my mind that each of our employees is giving 100-plus percent, generating loyalty with our passengers by giving them an experience that is ‘a whole different animal’. It is my sincere desire that we can attain profitability in the current fiscal year so they can see that their hard work is rewarded beyond the self-satisfaction of knowing they are the best in the industry.”
Senior leadership will host a conference call to discuss Frontier’s quarterly earnings on July 29, 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.vcall.com/CEPage.asp?ID=92860.
Currently in its 12th year of operations, Denver-based Frontier Airlines is the second largest jet service carrier at Denver International Airport, employing approximately 4,550 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 46 destinations in 29 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: further downward pressure on airfares due to competition, demand or other factors; continuing adverse effects of high fuel costs; increased prices for fuel and the inability to recover these higher fuel costs in airfares; unanticipated decreases in the volume of passenger traffic due to terrorist acts or additional incidents that could cause the public to question the safety and/or efficiency of air travel; negative public perceptions associated with increased security wait times at various domestic airports; the inability to secure adequate gate facilities at Denver International Airport and at other airports where Frontier operates; weather, maintenance or other operational disruptions; air traffic control-related difficulties; the impact of labor issues; actions of the federal and local governments; changes in the government’s policy regarding relief to the airline industry, especially as it relates to war risk insurance; the stability of the U.S. economy and the economic environment of the airline industry; and, unforeseen costs of satisfying the return conditions imposed by lessors of Boeing aircraft. 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 ENDED JUNE 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: