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DENVER (October 28, 2004) – Frontier Airlines, Inc. (Nasdaq: FRNT) today reported a net loss of $48,000, or $.01 per diluted common share, for the airline’s fiscal first quarter ended September 30, 2004 compared to a loss of $2.0 million, or $0.06 per diluted common share, for the same period last year. Included in the net loss for the three months ended September 30, 2004 were the following special items on a pre-tax basis; a write down of $1,077,000 of the carrying value of Boeing spare parts, and an unrealized gain on fuel hedges of $4,111,000. These items, net of income taxes, decreased our net loss by $.06 per share. The Company’s net income for the three months ended September 30, 2003 included the following special items on a pre-tax and profit sharing basis; write-off of deferred loan costs of $8,742,000 associated with the prepayment of all but $11,582,000 remaining principal of the government guaranteed loan; a charge for Boeing aircraft and facility lease exit costs of $4,659,000; loss of $1,721,000 on the sale of one Airbus aircraft in a sale-leaseback transaction and from the sale of a spare engine; and an unrealized derivative loss of $276,000. These items, net of income taxes and profit sharing, totaled $0.27 per diluted share.

 

 

Frontier President and CEO Jeff Potter said, “It is no surprise that we are in much the same place as an industry that we were several months ago, with record-high fuel prices that have exceeded conventional wisdom, and one of the most difficult yield environments that Frontier and the industry have ever faced.   In spite of these tremendous challenges, Frontier and its 4,500 employees continued to do what we have always done in the face of adversity—we maintained focus on the costs and environmental factors we can control, and we continued to make improvements to our product. The results of those efforts included a 9.3 percent decline in mainline unit costs excluding fuel versus the same period last year. This third straight quarter of cost declines is a tangible indicator that we are doing the right things to better insulate ourselves during what has been called the most challenging time in aviation history.” 

 

 

Mainline passenger revenue increased as mainline revenue passenger miles (RPMs) grew at a rate of 39.0 percent during the fiscal second quarter, out-pacing mainline capacity growth as measured by available seat miles (ASMs), which increased 38.5 percent from the same time last year. As a result, the airline’s mainline load factor was 72.9 percent for its fiscal second quarter of 2005, 3.7 load factor points less than the airline’s load factor of 76.6 percent during the same quarter last year. The airline’s mainline breakeven load factor for the fiscal second quarter 2005 increased 5.7 load factor points from 67.7 percent to 73.4 percent. Frontier’s breakeven load factor increased from the prior comparable period as a result of a decrease in our yield per RPM to 10.74 cents during the quarter ended September 30, 2004 from 12.09 cents, or 11.2 percent, during the quarter ended September 30, 2003, partially offset by a decrease in the airline’s mainline cost per available seat mile (CASM).

 

During the fiscal second quarter 2005, the airline’s mainline passenger revenue per available seat mile (RASM) decreased 15.3 percent to 7.84 cents from the same quarter last year. The decrease in RASM was due to the 11.2 percent mainline yield per RPM drop on a year-over-year basis partially offset by the comparative period load factor increase. Contributing to the yield decline was the introductory fares offered in six new markets started in the June 2004 quarter and a 9.8 percent increase in average length of haul on a year-over-year basis.

 

The airline’s mainline CASM for the fiscal second quarter decreased .5 percent to 8.09 cents from 8.13 cents for the same quarter last year. Mainline fuel cost per gallon during the quarter, including taxes and delivery charges, increased 34.4 percent to $1.25, compared to $.93 for the same period last year. Mainline CASM excluding fuel decreased 7.4 percent to 6.28 cents from the same period last year, when CASM excluding fuel was 6.78 cents.

 

Senior Vice President and Chief Financial Officer Paul Tate discussed the airline’s year-over-year unit cost comparatives stating, “Our fiscal second quarter generated continued improvement in our mainline CASM, both including and excluding fuel, as a result of a 14.7 percent improvement in mainline aircraft utilization and a 10.1 percent increase in average mainline stage length, despite incurring costs associated with our transition to an all-Airbus fleet.”

 

Tate also described the airline’s current cash and working capital position stating, “As of September 30, 2004, our unrestricted cash position during the past 12 months has increased from $128.3 million to $193.6 million. In the same period, our working capital has increased from $72.9 million to $75.8 million. Our cash position remains near its all-time high.”

 

The airline’s fleet in service on September 30, 2004 consisted of 14 owned Airbus A319 and A318 aircraft, 23 leased Airbus A319 and A318 aircraft and nine leased Boeing 737 aircraft. 

 

 

 

Potter concluded, “Operationally, we ran a great airline this past quarter. We digested a 38.5 percent increase in mainline available seat miles (ASMs) on a year-over-year basis and we continued to build a loyal customer base as we exceeded one million members in our EarlyReturns frequent flyer program. Looking ahead, our future bookings continue to look very strong and we expect October to be a great start to our fiscal third quarter. However, we know that in this cutthroat environment, we can never rest on our accomplishments, which is why I thank each of our employees for their tireless efforts in keeping a keen eye our costs while maintaining the highest standard of service for our customers.”

Senior leadership will host a conference call to discuss Frontier’s quarterly earnings on October 29, 2004 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=88901.

 

Currently in its 11^th year of operations, Denver-based Frontier Airlines is the second largest jet service carrier at Denver International Airport with a fleet of 46 aircraft and employing approximately 4,500 aviation professionals. Frontier, in conjunction with Frontier JetExpress operated by Horizon Air, operates routes linking our Denver hub to 43 destinations in 24 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 five consecutive years. In July 2004, 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.

 

 

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 status risk insurance; the stability of the U.S. economy and the economic environment of the airline industry; and other factors detailed in the Company’s public filings 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, 2004. The Company’s filings are available from the Securities and Exchange Commission or may be obtained through the Company’s website, www.frontierairlines.com.

 

 

 

 

 

 

 

	Year Ended		Quarters Ended
	March 31,		June 30,		June 30,
	2004		2004		2003
Balance Sheet Data (000s):
Cash, cash equivalents and
short-term investments	$        190,609		$        193,558		$        128,267
Current assets	269,733		278,030		220,573
Total assets	769,706		793,106		624,102
Current liabilities	181,659		202,240		147,699
Long-term debt	280,001		296,258		258,757
Total liabilities	511,764		540,631		453,344
Stockholders' equity	257,942		252,475		170,758
Working capital	88,074		75,790		72,874

 

						June 30,		June 30,
						2004		2003
Revenues:
Passenger					$	169,437,481	$	139,009,546
Passenger- regional partner						19,126,445		-
Cargo						1,427,495		1,689,025
Other						2,431,649		1,667,379
Total revenues						192,423,070		142,365,950
Operating expenses:
Flight operations						31,789,164		24,973,318
Aircraft fuel expense						40,003,182		22,600,769
Aircraft lease expense						18,890,826		17,192,003
Aircraft and traffic servicing						31,692,204		23,997,510
Maintenance						19,282,232		17,877,972
Promotion and sales						19,838,676		14,719,997
General and administrative						10,294,244		8,935,636
Operating expenses - regional partner						21,293,435		-
Loss on sale-leaseback of aircraft						488,889		-
Aircraft lease and facility exit costs						-		686,295
Depreciation and amortization						6,618,439		5,187,198
Total operating expenses						200,191,291		136,170,698
Operating income (loss)						(7,768,221)		6,195,252
Nonoperating income (expense):
Interest income						570,570		413,363
Interest expense						(2,908,016)		(3,834,393)
Emergency Wartime Supplemental
Appropriations Act compensation						-		15,024,188
Other, net						(106,302)		(176,093)
Total nonoperating income (expense), net						(2,443,748)		11,427,065
Income (loss) before income tax (benefit) expense						(10,211,969)		17,622,317
Income tax (benefit) expense						(3,638,251)		6,688,627
Net income (loss)					$	(6,573,718)	$	10,933,690
Earnings (loss) per share:
Basic						$             (0.18)		$              0.37
Diluted						$             (0.18)		$              0.36
Weighted average shares of
common stock outstanding
Basic						35,603,426		29,823,179
Diluted						35,603,426		30,172,499

 

 

	Quarters Ended June 30,
	2004	2003
Selected Operating Data:
Passenger revenue (000s)
Mainline	$     169,438	$     139,010
Regional Partner (5)	19,126	-
System Combined	188,564	139,010
Revenue passengers carried (000s)
Mainline	1,584	1,227
Regional Partner (5)	203	-
System Combined	1,787	1,227
Revenue passenger miles (RPMs) (000s)
Mainline	1,564,587	1,125,233
Regional Partner (5)	131,554	-
System Combined	1,696,141	1,125,233
Available seat miles (ASMs) (000s)
Mainline	2,211,652	1,675,050
Regional Partner (5)	177,578	-
System Combined	2,389,230	1,675,050
Passenger load factor
Mainline	70.7%	67.2%
Regional Partner (5)	74.1%	-
System Combined	71.0%	67.2%
Mainline break-even load factor (1)	73.5%	65.4%
Mainline block hours	43,974	33,127
Mainline departures	17,650	14,610
Mainline average seats per departure	131	132
Mainline average stage length	957	869
Mainline average length of haul	988	917
Mainline average daily block hour utilization	11.7	10.2
Yield per RPM (cents) (2) (3)
Mainline	10.79	12.30
Regional Partner (5)	14.54	-
System Combined	11.08	12.30
Total yield per RPM (cents)
Mainline	11.08	12.65
Regional Partner (5)	14.54	-
System Combined	11.34	12.65
Yield per ASM (cents) (3)
Mainline	7.63	8.26
Regional Partner (5)	10.77	-
System Combined	7.86	8.26
Total yield per ASM (cents)
Mainline	7.84	8.50
Regional Partner (5)	10.77	-
System Combined	8.05	8.50

 

 

 

 

 

	Quarters Ended June 30,
	2004	2003
Selected Operating Data (continued):
Cost per ASM (cents)
Mainline	8.09	8.13
Regional Partner (5)	11.99	-
System Combined	8.38	8.13
Mainline fuel expense per ASM (cents) (4)	1.81	1.35
Mainline cost per ASM excluding
fuel (cents)	6.28	6.78
Mainline average fare	$             100	$             105
Mainline average aircraft in service	41.4	35.6
Mainline aircraft in service at end of period	46	36
Mainline average age of aircraft at end of period	3.1	6.7

 

 

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 the mainline break-even load factor is as follows:
		Quarters Ended June 30,
		2004		2003
		(In thousands)
Net (income) loss		$     6,574		$ (10,934)
Income tax (expense) benefit		3,638		(6,689)
Passenger revenue		169,437		139,010
Revenue - regional partner		19,126		-
Charter revenue		(656)		(614)
Operating expenses - regional partner		(21,293)		-
Passenger revenue - mainline (excluding charter and regional partner revenue)
required to break even (based on GAAP amounts)		$ 176,826		$ 120,773
Non-GAAP adujstments:
Emergency Wartime Supplemental Appropriations
Act compensation, net of bonuses		-		13,842
Aircraft and facility lease exit costs, net of bonuses		-		(632)
Early retirement of debt costs, net of bonuses		-		-
Loss on sale-leaseback of aircraft, net of bonuses		(489)		-
Loss on sale of aircraft engine, net of bonuses		-		-
Impairment of Boeing engine and rotable parts, net of bonuses		-		-
Provision for Boeing spare parts inventory, net of bonuses		(388)		-
Horizon start-up costs, net of bonuses		-		-
Unrealized derivative gain (loss), net of bonuses		(477)		693
Passenger revenue - mainline (excluding charter and regional partner revenue)
required to break-even (based on adjusted amounts)		$ 175,472		$ 134,676
The calculation of the break-even load factor follows:
		Quarters Ended June 30,
		2004		2003
Calculation of mainline break-even load factor using GAAP amounts:
Passenger revenue - mainline (excluding charter and regional partner revenue)
required to break even (based on GAAP amounts) ($000s)		$ 176,826		$ 120,773
Mainline yield per RPM (cents)		10.79		12.30
Mainline revenue passenger miles (000s) to break even assuming
constant yield per RPM		1,638,795		981,894
Mainline available seat miles (000s)		2,211,652		1,675,050
Mainline break-even load factor using GAAP amounts		74.1%		58.6%
Calculation of mainline break-even load factor using Non-GAAP amounts:
Passenger revenue (excluding charter and regional partner revenue) required
to break even (based on adjusted amounts) ($000s)		$ 175,472		$ 134,676
Mainline yield per RPM (cents)		10.79		12.30
Mainline revenue passenger miles (000s) to break even assuming
constant yield per RPM		1,626,247		1,094,926
Mainline available seat miles (000s)		2,211,652		1,675,050
Mainline break-even load factor using non-GAAP amounts		73.5%		65.4%

 

 

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:

 

		Quarters Ended June 30,
		2004		2003
Passenger revenues - mainline, as reported		$ 169,437		$ 139,010
Less: charter revenue		656		614
Passenger revenues - mainline excluding charter		168,781		138,396
Add: Passenger revenues - regional partner		19,126		-
Passenger revenues, system combined		$ 187,907		$ 138,396

 

 

4.        This may be deemed a non-GAAP financial measure under regulations issued by the Securities and Exchange Commission. We believe the presentation of financial information excluding fuel expense is useful to investors because we believe that fuel expense tends to fluctuate more than other operating expenses, it facilitates comparison of results of operations between current and past periods and enables investors to better forecast future trends in our operations. Furthermore, in preparing operating plans and forecasts, we rely, in part, on trends in our historical results of operations excluding fuel expense. However, our presentation of non-GAAP financial measures should not be viewed as a substitute for our financial results determined in accordance with GAAP.

5.        In September 2003, we signed a 12-year agreement with Horizon, under which Horizon operates up to nine 70-seat CRJ 700 aircraft under our Frontier JetExpress brand. The service began on January 1, 2004 and replaced our codeshare with Mesa Airlines which terminated on December 31, 2003. In accordance with Emerging Issues Task Force No. 01-08, “Determining Whether an Arrangement Contains a Lease” (“EITF 01-08”), we have concluded that the Horizon agreement contains leases as the agreement conveys the right to use a specific number and specific type of aircraft over a stated period of time. Therefore, we began recording revenues and expenses related to the Horizon agreement gross. Under the Mesa agreement, we recorded JetExpress revenues reduced by related expenses net in other revenues. JetExpress operations under the Mesa agreement from April 1, 2003 to December 31, 2003 are not included in regional partner statistics in 2003 as the Mesa arrangement was effective prior to May 28, 2003, the effective date of EITF 01-08.

Amounts included in other revenues for Mesa for the year ended March 31, 2004, and for the three months ended June 30, 2004 and 2003 were as follows:

					Quarters Ended June 30,
				2004		2003
Mesa revenues (000s)				$       -		$     7,847
Mesa expenses (000s)				-		(7,775)
Net amount included in other revenues				$       -		$          72

 

Mesa’s revenue passenger miles (RPMs) and available seat miles (ASMs) for the year ended March 31, 2004 and for the three months ended June 30, 2004 and 2003 were as follows:

 

 

			Quarters Ended June 30,
				2004	2003
Mesa RPMs (000s)				-	47,773
Mesa ASMs (000s)				-	68,642