I found myself paying close attention to Frontier’s Q3 earnings report last week. This isn’t something that I’d normally do, but I was particularly interested in seeing how the “New Frontier” bundled offerings were playing out. So far, there’s a lot of promising that better days are coming, but Q3 surely didn’t show it.
The whole new bundling effort was rolled out in May, so Q3 (July, August, September) would have been the first month that travelers could have realistically purchased a bundle for a significant chunk of the total passenger count. That being said, there’s no doubt that a good bit of July travel would have been booked before the bundles came out. So this is certainly not displaying the full power of the new model.
Let’s start with the bad news.
In Q3 2024, the airline’s total revenue per passenger declined to $105.83 versus $114.71 in last year’s Q3. Load factor also dropped from 80 percent to a particularly-weak 78 percent. This is despite all of the network changes, especially those at the end of summer when off-peak flights were slashed. That, by the way, led aircraft utilization to drop from 11.3 to 10.2 hours per aircraft per day. These numbers are not good, and it resulted in an adjusted pre-tax loss of 1.1 percent.
Again, this isn’t good, but there are some things to consider. First, Frontier’s average stage length absolutely plunged 14 percent from 996 miles to 856 miles. If you’re flying 14 percent less, you don’t mind the 8 percent decline in fare quite as much. Still, unit revenue adjusted to account for that difference in stage length still dropped 5 points vs last year.
Cost performance, however, improved. The adjusted unit costs excluding fuel went down 4 points. Fuel prices also dropped 13 percent, giving the airline some additional cover. Still, this is not a result that anyone should consider ok.
Despite the numbers for Q3, CEO Barry Biffle still said that the airline will be producing double digit margins by next summer. So, how is that going to happen?
Barry talked a great deal about maturing markets, and how the enormous upheaval in the airline’s network has hurt revenues in the near term. The change is pretty staggering. I looked at September over September, and according to Cirium data, a full third of the airline’s more than 300 markets this year did not operate last September. There were more than 60 markets from last year that did not operate this year. That is, indeed, a lot of change.
According to Barry, a full 20 percent of total capacity was considered “outsized redeployment,” meaning a significant shift. He expects a 20 to 30 percent bump on revenue as those markets mature in 2025. And he seems bullish on nearly every network change the airline made with one exception. Apparently, New Orleans performed terribly. Go figure.
He also says that more broadly, capacity didn’t really start to fall off enough from an industry perspective until the middle of Q3. In fact, he repeatedly mentioned how this was a tale of two halves. The second half was much better, but we don’t have any details to corroborate that. The only thing we do know thanks to T100 data is that Frontier’s load factor in July (the last month released) was just above 81 percent. So things got worse after that.
Overall, Barry struck a very positive tone on the call, as you’d expect. This man can sell his airline, and it’s not just the part that flies airplanes. He has high hopes for making more money on the airline’s loyalty program. Today the airline makes closer to $2 per passenger, far below what other airlines can generate. He thinks Frontier can be at $5 to $7 per passenger within a few years. That would still be well below the network carriers, but it would add a nice revenue bump.
Barry also crowed about the operation, saying “excluding the impact from the hurricane and the Microsoft CrowdStrike outage, our operation delivered year-over-year improvements across nearly every operational metric.”
Improvement? I’ll give the airline that. But listen, we aren’t talking about a very high bar here.
Frontier Operational Performance Metrics by Month
Data via Anuvu
This is still not acceptable performance, but it is indeed better that last year. And really, we could say that for the airline’s financial performance as well. There’s still a lot in here that concerns me, including the low load factor and big drop in aircraft utilization. I know the latter was by design, but it isn’t sustainable with all those new, expensive airplanes.
The airline continues to be a work in progress.
