Ladies and gentlemen, thank you for standing by. And welcome to the Frontier Group Holdings Third Quarter 2021 Earnings Conference Call. At this time all participants are in a listen-only mode. Later, we will conduct a question and answer session. [Operator Instructions]. I would now like to turn the conference over to Susan Donofrio, Head of Investor Relations. Please go ahead.

Thank you, operator and welcome, everyone to Frontier's third quarter earnings call. This call is being recorded and simultaneously webcast. A replay of this call can be found on our website. On the call with me today are Barry Biffle, Frontier's President and CEO; Jimmy Dempsey, EVP and CFO; and Daniel Shurz, Senior VP, Commercial; as well as other members of the management team. Following our prepared remarks, there will be a question-and-answer session for the sell-side analysts. We also wanted to remind everyone on the call that today's discussion does contains forward-looking statements that are based on the company's current expectations and are not a guarantee of future performance. There could be significant risks and uncertainties that cause actual results to differ materially from those reflected by the forward-looking statements, including the risk factors discussed in our reports on file with the SEC. We undertake no duty to update any forward-looking statements. And in comparing results today, we will be adjusting all periods to exclude special items. Please refer to our third quarter 2021 earnings release, which is available on our website for the reconciliation of our non-GAAP measures. With that, I will turn it over to Barry for his opening remarks. Barry?

Thank you, Susan. And thank you everyone for taking the time to attend our third quarter earnings call. This quarter reflected another step in our path to recovery with the business remaining resilient in managing the dynamic nature of the pandemic. I'm very proud of the team and thank them for their continued delivery of safe and reliable service to our customers. During the quarter, we increased our capacity while also delivering a high level of operational reliability. We continue to view the delta variant as transitory and remain focused on getting the airline back to full utilization in the second quarter 2022, while being nimble to address any further impacts from COVID. We also achieved $63 in ancillary revenue per passenger, which is higher than the levels we were able to achieve pre-COVID. While the pandemic has lasted longer than any of us expected, the vaccine boosters, vaccines for children and the new therapeutic treatment expected to be approved by year end provide strong support for sustained demand recovery into 2022. More broadly, as the recovery progresses and demand returns we plan to continue the expansion of our domestic and international network while continuing to build on our ancillary performance. In a moment, Daniel will take you through our third quarter revenue performance and the opportunities we see going forward. On the cost side, we're focused on expanding our relative cost advantage by driving efficiency in all aspects of the business and offsetting inflation by being relentless in eradicating waste in our efforts to drive lower costs. And to be clear, when we reference our relative cost advantage we mean our total costs, including fuel and interest expense. I'll now turn it over to Daniel to provide a commercial update.

Thank you, Barry. I want to join you in thanking team Frontier for all of their hard work in managing the COVID pandemic, while delivering safe and reliable service to our customers. We generated $630 million of total operating revenues during the third quarter with our total revenue per passenger of $106, increasing 8% from the second quarter and reflecting 97% of the comparable amount during the pre-COVID quarter in 2019 with a low factor of 77%. We had an 8% increase in average departures per day versus the comparable period in 2019 on a 7% shorter average stage length. We generated $63 ancillary revenue per passenger during the quarter, which is 12% higher than the comparable pre-COVID quarter in 2019. On the network front, we continued our domestic and international network expansion during the third quarter. Opening stations in St. Maarten, San Jose, Costa Rica and Burbank, California, and we introduced our largest ever schedule in Las Vegas. Our expansion will continue into the balance of 2021 with new stations being added in Antigua, Belize and Costa Rica. And last week we introduced our largest ever schedule in Orlando, making it our largest station in terms of daily departures for the winter schedule. As we grow our network we are focused on doing so in a financially disciplined way ensuring as Barry mentioned that we are relentless in eradicating race and eliminating things we don't get paid for such as excessive airport costs. To that end we're taking action on the significant increase we're seeing in the cost per employment of certain airports. Following our decision to exit LAX in San Jose, California earlier this year, in the first quarter of 2022 we will be ending service to Washington Dallas and Newark. As with any airport if the fare and cost relationship improves we will revisit the decision. As we discussed on our last earnings call, the delta variant has impacted demand. Encouragingly, over the last two months as COVID case counts stabilized, we've seen the start of demand recovery with improvements in both volume and fare levels. And as we manage the post-COVID revenue environment, we see an opportunity associated with rising household incomes, which combined with our competitive fares gives us confidence in our growth potential. We've seen early indications of this in the overall strength of our ancillary performance. The recent strength and momentum of our loyalty program including both a record number of Discount Den memberships in the quarter and adding a record number of new Frontier Barclays credit card accounts underpins our confidence in the plan growth of our business and our ability to increase our 2023 ancillary revenue per passenger target to $65. With that, I'll turn it over to Jimmy to provide more details on our financials.

Thanks Daniel. I also want to thank all of our team Frontier members for their hard work and dedication as we manage the airline through the pandemic, while staying financially disciplined. We were profitable in the third quarter on a GAAP basis recognizing $23 million of net income. Our adjusted net loss of $24 million or $0.11 per share excludes a number of special items. These include $72 million of CARES Act credits and $1 million of cost associated with the early lease termination of our remaining 319 aircraft. While the quarter was impacted by the delta variant and rising fuel prices, we remain financially disciplined in managing the business. We ended the third quarter with $802 million of unrestricted cash and cash equivalents and have a $161 million current income tax receivable from our annual tax returns filed during the first quarter of 2021. We continue to be focused on repaying the $150 million of outstanding loan under the treasury facility at the appropriate time. As previously highlighted, this will enable us to unencumber our co-branded credit card program and related brand assets that are currently collateralizing the treasury loan and make that collateral available to access liquidity if needed. While the company has adequate liquidity on its balance sheet with the strength of our loyalty programs as highlighted by Daniel, including our co-branded credit card program Discount Den subscription program and our related brand assets. We believe we have approximately $1 billion of potential untapped liquidity based on debt financing secured by other airlines. We ended the third quarter with 112 aircraft in our fleet after the addition of five new airbus A320neo aircraft that were financed through sale and expect transactions partly offset by two lease returns during the quarter including retiring the last 319 aircraft. We…

Thank you, Jimmy. While COVID has lasted longer than any of us expected and the delta variant has created a delay in the recovery, we're in a strong financial position and we're seeing improvement in demand. We have a proven and resilient business model that is poised to take advantage of the future growth opportunity of our business and we couldn't be more excited about the future. With that, operator, please open up the call for questions,

Thank you. [Operator Instructions] We have your first question from Ravi Shanker with Morgan Stanley. Your lines open.

Great. Barry, you said at a conference a few months ago that industry pricing discipline that we saw earlier this year was one of your kind of biggest positive takeaways during the pandemic. You mentioned in your release that there were some discounting of fares to get volumes back up in September. Can you just describe the competitive pricing environment right now? And kind of how you see that evolving into 2022 both for base fares than of ancillary [ph], please?

Sure. If I recall the conversation, it was talking about prior to the delta variant starting. We had seen more pricing discipline across the industry than we had seen honestly since probably 2013. And so whether it be levels, rules, APs restrictions and so obviously that was kind of washed away when the delta variant hit. I'm pleased to say now though we have seen kind of the depths of the delta variant from a demand perspective was in September. We've seen demand continue to recover and as that volume has come through our revenue management team has worked really hard and to systematically continue to take advantage of that and methodically raise fares. And we continue to see strengthening to the point now where yesterday we reached the highest sales level on a daily basis that we've seen since July, which gives us the confidence as we look forward that by spring break if you kind of roll through the booking curve what that would look like. We believe that from a demand and revenue environment we should be back to 2019 levels by the time we get to spring.

Got it. That's great. And for my follow-up, the airport fees that you mentioned and kind of that's kind of changing your decision to fly to certain airports kind of obviously that's understandable, it's something that's been flagged by all the airlines. What's the long-term sustainable solution to that? I mean, do you just kind of sit out those airports for a while and kind of go back to it when things come back to normal and kind of how long does that take. Or kind of any color on the forward outlook there would be helpful?

Thanks Ravi. This is Daniel. I think it's going to be a combination of situations depending on the airport. We're going to see airports where absolutely, I think they realize with their costs to driving service away and they'll try and figure out ways to make it more cost effective. And we'll absolutely look at that and potentially come back to those airports. And we have so many growth opportunities as we said multiple times this year. We have lots of places to put our aircraft and so we're finding more cost-effective places in the short term. And look, a number of the airports we've made decisions on are in multi-airport cities. And there are much more cost-effective airports for us to fly from in those cities than those metro regions. And if that's ultimately what we have to do for the long term, we'll do it for the long term. So yes, if costs come down and I think some airports will see costs come down we will be back. But if costs don't come down we will stick with lower cost airports.

Very helpful. Thanks guys.

We have your next question from Brandon Oglenski with Barclays. Your line is open.

Hey. Good afternoon everyone and thanks for taking my question. I guess, Barry, in your response to that one from Ravi, you talked about by spring break hopefully getting back to normal. I think unfair structure on just revenue and yields. Do you think you can be profitable by then too? Or does getting back full utilization really the key there?

We would expect to be profitable if we get back to 2019 revenue per passenger levels. And look, I think to be clear, I think what happens and there's confusion especially during a pandemic I think a lot of people have gotten an education about the difference between sales and revenue. And normally, there's not this much volatility week-to-week, month-to-month and definitely not quarter-to-quarter, but you see this. And so, when we talk about sales today we're talking about all future sales for all travel periods, which you need to look over the next three to six months. And so, even if you're getting back to 2019 revenue per passenger levels, it takes a full flow through of the booking curve in order for those revenues to materialize from a flown perspective. So we're not immune to the dent that was put in all of our load factors and fares caused by the delta variant. But what we're telling you is that we're moving out of that and we're climbing towards what we believe is spring and we're seeing really good things from an overall fare perspective in total dollars, which leads us to believe that we will see revenues that should be back to 2019 levels and obviously to cover fuel we'll need a little bit more than that. But we're pretty optimistic about the future? Yes. We will be profitable at the current trajectories.

Okay. Appreciate that. And I guess, jimmy or Daniel, you guys talking about getting back to full utilization by 2Q. I think you will be taking deliveries in the front half of next year right? So should we be thinking full utilization means capacity growth north of 30% versus where you were in 2019?

Yes, Brandon. We're still working through what we think Q1 should look like. We think it's probably up to about 10% lower capacity than what we had originally planned. We haven't finalized it yet. The issue that's happening at the moment, we think there'll be a sustained recovery post around spring break. But we think the off-peak period still need work. And so, it's focusing on the off-peak periods and the capacity deployed in those periods that we're doing at the moment. And so, we think our capacity to be a little bit lower than what we previously thought where it was up about 30% in ASMs year-over-year.

Go ahead.

We haven't set a final number.

Right. Thank you.

Thanks Brandon.

Thank you. We have your next question from Helane Becker with Cowen. Your lines open.

Thanks very much, operator. Hi everybody and thank you very much for the time. I just have a couple of questions. The first one is on Costa Rica specifically. I know this is getting like greedy. But I've seen that demand in the market hasn't been that strong and yet you guys are going in opening I think a second -- I think you just said a second station there. So obviously, you're seeing something that the peer group isn't seeing. Can you just talk about like that market opportunity? And I know it's kind of weedy, but I was just interested in that?

So Helane, no, it's a good question. I think, I'll talk about two things. One we have much lower feds. What we're bringing into the Costa Rica market. We're adding Liberia to our to San Jose which opened in the summer. We're bringing much lower fares and we're following the leisure demand that exists. There's incredibly strong leisure demand in these near shore destinations and that's what we've seen in our expansion internationally. And I would also point out again that we fly -- we're looking at digital nomads. We know Costa Rica is interesting for people to go what, go stay there for a few weeks and work. We're also differentiated from other islands. We fly a lower frequency level. We fly the right frequency level for the right market and that's a consistent part of our network deployment strategy. And it's just the same in Costa Rica as it is across our network.

That's really helpful. Thanks Daniel. And then, my other question is this with respect to capacity growth in 2022. It seems like and it's kind of subpart A and B. So subpart A is Barry earlier in the year on one of the earnings calls you talked about demand would be strong for the holidays. And I think jimmy just said that, you expect strong demand for spring break next year with the off peaks still needing trouble. So the demand that you thought you would see for Thanksgiving and Christmas, are you seeing that level of demand or is it better or worse? And then subpart B of the question is with respect to capacity, I know you have aircraft coming in. And you've got bigger aircraft replacing smaller aircraft, which is a good thing. I'm assuming that means that you won't need to hire quite as many pilots. And is that a gating factor on capacity not even getting back to 2019 levels, I'm talking about the ability to grow beyond those levels to kind of as GDP grows and as we kind of get out of this pandemic and get back to whatever our next normal is. So maybe a lot in there, but pick two questions?

Sure. Thanks Helane. Look, I mean, I remain as confident today as ever that the holidays are going to be big. I think what happened though for the last three months since we last spoke to you on the last call. What's happened is the delta variant put a damper on demand. And so, it hurt -- obviously, it hurts August, September, October and even the front end of November. We're seeing everybody now like Thanksgivings really booking. The Christmas holidays are really booking. I think the biggest challenge though to the quarter while well, I think I can say that we're going to have one of the best Thanksgiving and Christmas periods, we've had in a long time or if ever. The periods around it are still soft. And I think that's driven by a couple things. One, the delta variant caused the return to office to get delayed and a lot of people have moved that to January. If they're not in the office then they're largely not traveling. So I think that hurts business travel, which isn't direct to us, but it's indirect in that that it hurts the whole travel ecosystem. And then the second thing is the wide bodies are just now being unleashed to go back to their proper homes in the international. So, as we see that capacity go out, I suspect that you'll start to see things improve. The other reality is that that you don't have the full vaccines, right? So the kids just now children 5 to 11 just now got approved. They're just now getting their shots. They're not fully vaccinated yet. So I think that slows down. But yes the Holiday periods look good. The shoulder period's still a little bit soft but I think when you flow that through once everybody's back in the office, once you have the boosters in place. And I think probably most importantly we're underestimating the power of this therapeutic pill that eliminates death by like 90% that will be available by the year end. That I think you'll start to see those off-peak periods start to fill in. And that's why we're confident by spring and beyond everything will be good.

Got you. Okay. Thank you.

We have your next question from Hunter Keay with Wolfe Research. Your line is open.

Hey, everybody. Jimmy, what are you expecting for say at least back gains in 4Q?

Yes. We've no aircraft deliveries in the fourth quarter. So we don't expect any suddenly spec gains related to aircraft deliveries this quarter.

Okay. Got it. Thank you. And then on the 4Q CASM number please, just to feel that back which is the ultimate nature of the first question. What is driving that pressure? If you could just help me understand the specific line items in the P&L. How much this is transient? How much of this is sticky? How much or maybe you spending a little bit to ensure good operational integrity. Just help me understand that CASM guide for 4Q please? Thanks.

Yes. We entered into if you trace all the way back this year, our objective was to get the airline back to full utilization as you got towards the end of the fourth quarter. And so, we've been hiring pilots and flight attendants in order to satisfy that. And since the delta variant came about we've been close in canceling flights. And if you look through September, October we've taken anywhere between 7% and 9% of the plan capacity out of the business. So you're carrying a bit of cost in relation to crew through the quarter. And the biggest differential is really the sale lease back gains that you referred to. And then also we're probably about 3% to 4% higher in capacity. And there's a little bit of inflation. We certainly are not immune to it like every other airline. We've seen some inflation occur through the summer. But it's less than about $5 million in terms of the quarter. So relatively small in the context of our overall cost base. But there is an element of inflation particularly around stations and airport costs and like other airlines have mentioned on the on their calls and we're certainly seeing some disjointed airport costs coming in largely linked to uneven capacity across the industry as the industry starts to move through the pandemic. And so that's really what's happening. And sequentially it's a little bit higher than Q3 than we'd expected but largely because of the items that I just laid out.

Thank you.

We have your next question from Savi Syth with Raymond James. Your lines open.

Hey, good afternoon everyone. Maybe first just to follow up a little bit on Helane's question. Just -- I was wondering in terms of your kind of what your hiring plans are for 2022 mainly I'm kind of curious if you're confident about being able to meet those targets. It seems like from an training infrastructure standpoint, it seems like the industry as a whole is doing a lot of hiring and training just to get to summer capacity. And I know there's kind of fleet changes and things like that. So just curious what your views are on kind of supply and training capabilities across like pilots, flight attendants and mechanics?

Well, let's just go by work group. So starting with pilots, we're extremely confident. We plan out the airline a long ways in advance as Hunter's question just a moment ago pointed out however when plans change like the delta variant we get stuck with the cost. But right now we have significant excess crew just simply because we over hired to when we plan to fly a larger airline right now. But if you just flow this out and you go through the training from recruitment to hiring to training to getting on the line and being a pilot in the first officer seat. That then frees up someone to move from the first officer's seat to the captain's seat. And that whole process can take six to eight months. And so, my confidence on the front half of next year and even into Q2 is like close to 100% because we've almost all these people are already on property that we need in order to satisfy that. Flight attendants can be managed a little bit closer in. There isn't the upgrade cycle with the captains and so forth. But when we look today at the people that we're getting through the door for training and continuing to fill classes. We feel really good. And in fact, we've seen now that once we got past the unemployment incentives and so forth back in September, we've seen in all parts of our business, the places that we did have shortages. We've been able to satisfy that. So, feel really good about the flight attendants. The airport staff probably is one of the most dramatic recoveries. Probably the most hit by many of the unemployment incentives, but probably the quickest to snap back as well. So we feel very good about…

No. That's extremely helpful. Thank you Barry. And then, if I might ask just on the moving the amply revenue target up from I think 63 to 65 here for about for 2023. Just you've heard a lot of airlines talking about demand for premium products being strong. It was already kind of a secular trend that may be strengthening. Is that, do you think driving some customer behavior or even a Frontier to just buy more ancillary and kind of treat themselves to kind of a better overall experience? Or is your kind of bullishness really driven by just what you're seeing on the credit card and loyalty sign-up standpoint?

Well, Savi, its a great question. It's Daniel. I think look, we've seen both. But we've seen a really strong ancillary performance for the quarter. And our core products led notably what I -- by what we do think of color with sort of the buy-up when you've got the money to pay for products. So of seats and bundles. And absolutely there we're seeing strength there that's our that's our premium. That's our equivalent for the premium products that some of the other airlines have been talking about. But it's also tied and I think it's the same thing. The credit card -- the strongest credit card applications, the strongest credit card approvals in the quarter. I think you're seeing all of these products working in long step in this sort of in this stronger market. And we've got our own premium products and yes that's part of what's driving this target. With it we've got lots of ideas in the pipeline for other things we can sell to customers as well. And when we think -- we think both discounts and the credit card product are going to continue to perform extremely well.

Can I add to it. Let me just add too. I think we as an industry and I don't know probably spend 89 of our time on it over the last couple months on the negative bit. But people keep talking about inflation. And the positive or silver lining in this is the incomes. You just look at the latest reports that they're up more than they've been in a long, long time and we're seeing that extra money flow through to these extra products. You're seeing in all types of other industries. And so, while we're being relentless about eradicating waste and making sure that we manage down the cost side of inflation, the revenue opportunity is real. And so. we're going to make sure that we get our fair share of that as we move forward and more buying power translates to more pricing power for us. So we're really excited about it.

Thanks. All right. Thank you.

We have your next question from Duane Pfennigwerth with Evercore ISI. Your line's open.

Hey thanks. So I guess drawn on a lot of the previous questions as you think about the 4Q you know starting weak and finishing strong. Can you just comment on the opportunity to improve RASM sequentially, because it just feels like the peak is very strong. I mean northeast of Florida and maybe I'm just whining here a little bit. I don't know that I've ever seen it like this. So, can you just say like again you got decent momentum on ancillary. And we're going to finish strong here. So is sequential improvement in RASM off the table?

Duane, its Daniel. No, absolutely not. We believe we can see sequential improvement. The challenges jimmy alluded to earlier is that we went into the quarter with a lot of bookings driven in the bottom of the deck and so the bad part of the delta spike. But we are seeing improvement. So overall, we expect to see the trajectory continue. It's going to probably be slight because of the impact of the delta variant. Because of how that impacted impact at the beginning of the quarter, but yes it's continuing to improve and we expect and as Barry said, we expect a lot of that is for future sales, future travel. And so we expect that improvement as the quarter goes on. And we expect to have that improvement to continue into 2022 as Barry was highlighting.

Yep. That's helpful. And then on, again, given just the timing and the rhythm of how we started the quarter, maybe this is a little bit hard to measure. But you made a bit of a push on international. Can you talk high-level how the unit revenue profile of the international new markets compares to domestic new markets?

Look, we're starting a lot of our new international ones for the fourth quarter right around now. So they're just starting. And as in any market there is ramp. But what we are seeing is demand is built demand is building each week for these international markets. We're seeing strong leisure demand for the peaks. And what we've saw is continued strength obviously in Cancun led us to announce more Cancun service for winter, which starts in December and January and we're seeing good early trends on those new markets as well. We're very comfortable with how we've deployed our international capacity this winter.

Okay. And then, certainly appreciate some of the inflationary commentary and airports et cetera which we can't call it a dead horse at this point across the industry, but we've certainly had a lot of questions around that. Just to come at it maybe a little bit differently. As you look across your groups and your vendors, are you seeing any relief on labor availability yet any changes on that front to the better?

Yes. I think that we've definitely seen that. I'm actually going to ask Jake Filene to talk a little bit. He's responsible for our airports where we had the most acute challenges, but Jake wanted to talk a little bit about what we're seeing now.

Yeah. We've had - we've seen a material change in our retention attrition rates, if you look at year-to-date through June and then year-to-date through September, October, we've seen across the network, really improvement across the board in attrition rates coming down. A lot of that is due to we've done targeted, wage increases at the city level and those have been very effective.

Okay. Thank you.

Thanks Duane.

We have your next question from Jamie Baker with JP Morgan. Your lines open.

Hey, good afternoon everybody. Most of my questions have been addressed, but try this one on. So in response to higher fuel, the levers one normally thinks about or tightening up capacity. Trying to push up yield just stating the obvious. I'm curious though, you know as a smaller entity and specific to recapturing fuel, is it possible to think outside of the box? I mean, do you ever sit around and throw around, I don't know, different pricing ideas internally maybe reducing the booking window something like a fuel club or selling advanced tickets without fuel included. And then re-running the car down the road. I'm only asking, because you're small, you're nimble and it seems like most of the industry evolution has come from smaller airlines, a simple no will suffice to be thick it's too goofy have a question?

Well I couldn't answer no. That would be incorrect. We spend a lot of time on this. In fact we're sitting here laughing because there's a white board that has some notes from a week or two ago laying there talking about some of these various things in the room we're in. So look, here's the deal. First of all we get 100 miles per gallon per seat. And if you just do the math on that roughly a 1,000 miles, maybe about 12 gallons in your 80 percentile load factors. 12 gallons fuel. So just do the math at two and a half bucks, 30 bucks in fuel, We think about this all the time. But when you look at the broader industry especially the big four, they need like 35%, 40% more I think on average. So you just do the math. They need about 20 gallons. So right out of the gate, we've got eight gallons times, $2.5, that is the differential in the cost advantage that we have versus them. The industry needs that full amount of money. And we only need a portion of it. So that gives us a unique position where we're kind of structurally hedged against them. But we're not immune to economic pressures. And I'll tell you we have, like I said earlier, our revenue management team is acutely aware of the price of gas. They fill up their cars too. So we've been watching it. And I will start with we're at 63 on the non-ticket moving to 65 by 2023. If you do the math on that and you look at the increase versus what we paid in 2019 that will largely cover the fuel. We're looking at other ways to make sure that the non-ticket plus other fair initiatives brings our total revenue per passenger and ultimately our RASM to ensure that at some point in the very near future if these fuel prices stay at these elevated levels that we can cover it.

Okay. Very thorough. Thank you, Barry. And then second and it's just, because it feels like the call is winding down. But I understood in May given the IPO timing, but is there any internal consideration to pulling the reporting date forward a little bit. I'm just thinking about the periods when investors are most focused on the airlines. And it just doesn't feel like the second week of November is that period, small net?

Yes. Jamie, Jimmy here. I hope you're doing. Our anticipation is that we report at least a week earlier all the way through next year. There were some internal reasons why we were reporting this late and the previous quarter I think we were around the 3rd of August. And so we'd expect to report at least a week earlier than this going forward. Yeah, it's just -- we just have an anomaly this quarter.

Got it. Understood. Thank you for the thorough answers. Appreciate it guys. Take care.

Thanks Jamie. Sorry if it messed up your travel schedule

No, no. Not at all. I'm thinking about the attention that I want Frontier to get and it's just -- it can be tough to break through on people's calendars a lot of outsiders are knee deep in other sectors right now and it's just sometimes getting hard again to see now.

I was teasing you Jamie. We'll get it. We'll sort it out.

No, worries. Take care.

We have your next question from Myles Walton with UBS. Your line is open.

Thanks. Good evening. Let's maybe pick up a little bit on detail of the fuel efficiency that you've been talking about the 100 gallons, excuse me, 100 ASMs per gallon. That's down about 4% year-on-year largely because of stage length I would guess, the 321neo comes in second half of next year. What should we be thinking about for fuel efficiency gains as you look into 2022 versus 2021, and is that a trend we can use going forward as the fleets more even leveled?

So I'm not looking at the actual. I think you may be comparing to when we had some of the 321s parked possibly last year. Yes. Maybe some of the CEOs [ph]. So I think, look, our run rate for our fleet if we've got it fully operational is right around 100 miles per gallon. So it's -- I think there could have been a mix when we were looking at some of the historical through the pandemic. In fact, for example, in the heart of the pandemic we had all the 21s actually parked, which are very efficient in addition to the neo. So you go to the next year is that a couple of points.

Myles, just to add to what Barry's saying. Like if you looked at Frontier pre-COVID we were doing about 97 miles per gallon. We're close to 100 now obviously it's hotter in the summer, so sequentially it's a little bit lower than what it was earlier in the year. And you expect to see somewhere between 1% and 2%. 1% largely over the next three or four years inefficiency that comes into the [Indiscernible]. And so that's really what you see. It's not going to be 2%, 3%, 4%. You've got two-thirds of the fleet now operated as a320neos. You then see the introduction of the 321neo, which gives you an improved efficiency. But it's in the kind of just above 1% zone.

And to give you specific, Myles, the 321neo when we bring that in next year with our configuration, it's going to have approximately 110 miles per gallon per seat. So it's a pretty good step function change. And as we flow those through the business that's why Jimmy's talking about gaining 1% to 2% a year. It's just math, because you're bringing in again the most efficient aircraft we've ever had.

Got it. And then the other thing that I should maybe just poke on a little bit to ask the question. It sounds like you're pointing more to the corporate reopening as sort of the next leg of recovery. And I'm curious if we -- can we completely separated from case counts. That sounds and vaccination levels and the magic pill coming through and really that the next leg is going back to the office somehow spurring your network as well as everyone else's?

Well, it's not just that, right? When people are sitting around their house when they're not in their office they don't travel as much in general even further on their own dime. But I'm just saying in general you need -- for midweek travel for obviously you need business travel to take place. But I think it's a convergence of many issues. That's a structural one when people are not back in their offices. These are a lot of the same people who travel. And so that is a drag on the industry. The international has been a drag. There is still some drags and there's more and more positive announcements on this every day. But getting a PCR test to go to an international destination is not only kind of a pain and time consuming, it's expensive. And if you've got a family of four and you're spending a couple hundred bucks each to do that that's a drag on international leisure travel. So you've got that. You've got the pills. You've got just several things, the whole litany of it that points to you're going to have a lot better demand as we turn the clock and the calendar into next year. On top of we're already seeing, right? So that's additive.

Thanks.

We have your next question from Mike Linenberg with Deutsche Bank. Your line is open.

Hey. Good afternoon everyone. Hey just a counter point on Jamie's comment. I actually appreciate the fact that you guys go this late in the quarter. Because it's like a mid-quarter update and I think sort of last quarter, Barry when you're out kind of giving us an update and how things had materially worsened since everybody else had reported. So it was nice to kind of get that information in real time. So, definitely the counterpoint there, but at the end of the day I guess you got to do what's right for you guys?

Just jumping over to a question here. When I look about at how you've done operationally, you've definitely outperformed your peer group despite the fact that you guys have been adding back a decent amount of capacity. And maybe some of it is that you got out in front of the whole vaccine mandate. I mean I think that's somewhat of an untold story. You guys were early with United and I believe Hawaiian. But as you think about growing the business what's the right number? Like how many domiciles do you have now? How do you think about pilots flight attendants aircraft per domicile. What's the appropriate number that will allow you to continue to put up these good numbers?

So a lot in that. So operational design is a big thing that what we do. In fact, our head of network is -- his title is not just network, but his title is the VP of Network and Operational Design. And we spend a lot of time looking through what drives reliability. I mean our mission is low fares done right. And so, we look at things that cause challenges to reliability. We look at things that have caused controllable cancellations in the past and we've looked at the maintenance that it takes to support that, the crew that it takes to support that and then the actual schedule construction. And so the first thing that's probably and it was almost a requirement to be nimble through COVID. We had been working for years to move to a more modular network. And what we mean by that is that we are largely out and back with the majority of our trips being less than two days from a crew perspective having three and four day trips especially during thunderstorm seasons or snow seasons it's nearly impossible for them to not run into some kind of weather and trip up a multi-day sequence. So, we have moved to preferring out and backs. That has then necessitated the need to have eight operational crew bases across our system, which is a little more than many other carriers maybe our size would have, but we've made that investment effectively in excess reserve costs. Because you have to have reserves in each a minimum amount of reserves in those bases. But we believe that resiliency pays off in strong reliability. And then when you think about the maintenance that footprint we constantly debate this a lot and we're looking through right now what…

Great. And just like that's super helpful, Barry. If I could just fit in a quick one here to Daniel, and maybe this is just sort of a little bit of a follow-up on Savi's question. I mean, again I look at the stats and your ancillary is up 11 on a year over two-year basis. Your departures though - excuse me, your stage length is down 7%, so when I usually think about stickiness of ancillary usually the longer the haul the more likely you're going to get that people to buy up for the extra comforts. And I'm just curious as you move into international and I realize it's early. Are you anticipating a higher take rate on ancillary as you move into some of these international markets. Any thoughts on that? And thanks for taking the questions.

Absolutely. I'll very quickly answer the first part. There's a lot less relationship but overall between state -- between stage length and I'm sorry the nodes between stage length and fare, there are different things that impact that. But if we look at international we do have experience in international markets. Obviously, we have long experience in both Cancun and Punta Cana. And yes we do see more of that sort of premium leisure trade up behavior. That's exactly the behavior we're describing for the overall system. This summer we tend to see more of that premium, that premium trade up. We do see our ancillary products performing better. It's a slightly different customer mix. It's a slightly different purpose of travel, Mike, and it does tend to work well.

Okay. Very good. Thanks Daniel. Thanks Barry. Thanks everyone.

Next one we have your next question from Stephen Trent with Citi. Your lines open.

Thank you operator and good afternoon Jensen [ph]. Thanks very much for taking my question. Most of my questions also answered and Mr. Linenberg beat me to it to ask about your crew stations. But just curious, when you think about Frontiers really had very little incremental debt addition during the pandemic versus most of your U.S. peers. When you think about coming out of the other side as many of your competitors are paying down debt. What do you see in terms of the opportunity to push the envelope on in terms of being a green airline? I think a lot of people love your otters and animal symbols on the planes and what have you. I know you guys thinking high level about sustainable aviation, fuel more aggressively or taking the next step in cutting the climate footprint with the wiggle room you guys will have versus others? Thank you.

A lot going on there, maybe we'll follow up. I think you got a debt question there. Let me start with the green. Look, we're Americas greatest airline, we got 100 miles per gallon per seat and we've got a really good lead. We've got the youngest fleet in America highest concentration of new generation A320neo family aircraft, really proud of our position and I know there's a lot to talk about sustainable aviation fuels and we are interested and intrigued by it. But a lot of people talk about 2050. And if you're really excited even about 2030. If you get really excited about a 30% to 50% reduction in CO2, then great news. You can fly Frontier today. You don't have to wait 10 to 20 years to get it from a lot of the green washing people across this industry around this globe. And so, sustainable aviation fuel is an excuse to not reduce. Remember, it's reduce, reuse and recycle. And where we are today is we're in the unique position that we offer consumers the ability to save the planet and save money at the same time, which gives you kind of ESG without compromise. Now as far as the debt, I'm not sure I understood what you were talking about the debt versus everybody else. But jimmy is intrigued and staring at the phone.

Yes, Stephen. I hope you're keeping well. Look, we're very proud of the fact that we've managed through COVID without adding substantial debt to the business. And we talked about this in the IPO and I've talked about it since. And we added about a dollar a passenger debt whereas the rest of the industry out of approximately $20 per passenger when you amortize their debt and then they have to service that over the next five years or so. Our objective at the moment is to actually clear out the government loan and pay it down. And that puts us in a very, very good and unique position across the industry. And then, one of the things that we've learned through the COVID process is the value that's inherent in the loyalty program that we have in our brand assets. And that puts us in a really, really strong position from a balance sheet perspective in the airline. As you emerge from COVID not having tap that liquidity and to bolster your balance sheet and operate through the pandemic. And so, our anticipation is you get to sustained recovery, get back to cash flow, strong cash flow generation as you progress through 2022. And that puts us in a really strong position to grow this business.

It's super helpful. Really appreciate the color guys. Thank you.

Sure.

We have your next question from Andrew Didora with Bank of America. Your line is open.

Hey, good afternoon everyone. Just two quick ones from me. I guess first, Barry, do you have a sense of what percentage of your passengers connected onto you from an international destination pre-pandemic? I'm just trying to get a sense. What the easing of these international restrictions could mean for you?

So internet -- I'm sorry international from other metal, another airline or international on us?

From another airline.

This is Daniel. It's a tiny it's a tiny number of customers. On balance is it marginally helpful? Its very marginally helpful, but it's not meaningful to us in any way.

Got it. Makes sense.

I would just add on international. The average consumer, I mean, we all follow it every day. But getting rid of these restrictions across the board is good for all international whether it be near international, wide body, long haul ,when people are confused especially less sophisticated leisure travelers they just stay away. So getting all these restrictions removed is good for all types of air travel.

Nice. I hear you. Barry, just clarification from your earlier commentary around revenues getting back to 2019 levels by the spring. Did you mean total company revenues backed by the spring or were you talking about unit revenue or revenue per passenger metric? Thanks.

I'm done by RASM, unit revenue run.

Okay. Thank you.

We have your next question from Chris Stathoulopoulos with Susquehanna. Your lines open.

Good evening. Thanks for taking my question. So two questions both around RASM. The first, so the comment that you expect to be profitable by the spring assuming the current trajectory of demand continues. Curious, what are you assuming with respect to U.S. domestic capacity for the industry? Because it sounds like based on your prepared remarks from the COVID data with the vaccination data and new therapeutics that this sort of next bucket at capacity certainly with respect to long haul capacity going back to their natural markets. And it sounds like you're optimistic around business. Curious, what gives you the confidence at this point that fares will be strong enough to offset what will likely be a meaningful step up in domestic U.S. capacity into the first half?

I think we're basing that off. What we've seen the last week, last two weeks and that what we've seen build up over the last couple months. And then adding on to that further acceleration in overall volume. And if we -- if the -- we're now touching 2019 fares and ancillary combined. So total revenue per passenger is starting to touch 2019 levels. So if that holds up, I think you can cover it. Then the difference becomes fuel effectively. And so, we think there's several more shoes to drop from a positive perspective when we look between now and spring break. And as I mentioned getting the five to 11 year olds vaccinated they're just now starting to get there. They're not off over fully vaccinated. The boosters are just now being rolled out. But the therapeutic pill is again additive and then you throw on that that you've got the return to office in January. You've got the wide bodies leaving going back to their natural international markets. And so, all of these should be constructive for domestic demand and capacity balance.

Okay. And then the second question also a RASM question. Your decision to at least temporarily walk away from some of these higher cost airports. Obviously, that should help in terms of a per trip and I'm guessing a network CASM. But is there any impact with respect to network RASM. And I'm going to guess no, because you're more of a point-to-point carrier. But should we think about that being a positive or negative as we think about system RASM into 2022? Thank you.

So, this is Daniel. We think about this on a margin basis. So these cost -- the airports that we're pulling out of the costs are so far above our system averages, we believe it's margin accretive to move the flight to other airports. That's how we're making these decisions. And that's our opportunity. That's a significant lower cost airport, even if there's a slight RASM penalty in the process, the margin benefit is there.

Okay. Thank you.

I'm showing no further questions at this time. I would like to turn the conference back to Mr. Barry Biffle, President and CEO for any closing remarks.

Thanks everyone for joining the call today. If you have any further questions please reach out to Susan and the team. And we look forward to talking with you again soon.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.