Great. Let's keep the airline content going, and next up, we have Frontier Airlines CEO, Barry Biffle, with us. Barry, thanks so much for being here. Sorry for a bit of a quiet start to the day, but not quiet. We'd love to get kind of your take on the 8-K you put out this morning and kind of what you're seeing out there because it sounds like something's changed.
Yeah, look, I think we've, you know, put out what I think you've seen in a lot of public data, the ARC sales data. Airlines Reporting Corporation has kind of shown you that over the last couple weeks, things have changed-
Mm-hmm.
and sequentially gotten worse.
Mm-hmm.
You know, you've gone from industry sales being up to flat to now being down versus 2019, and that's coming at a time that capacity is going up, so-
Yep.
Then the third leg of that stool is fuel. You've got fuel, capacity and demand all heading in the wrong direction.
Interesting. So, can you unpack that a little bit more? Kind of what are you seeing in your airline, kind of, is it, A, did something slip after Labor Day? B, what do you think was the cause of that, and is it, like, broad-based, or is it in select routes in select areas?
Well, it's relatively new. I mean, look, there, there was some concern, I think, there were those, those hurricanes in the second half of August, and so, you know, I think it could have started a little sooner. It was probably masked by that.
Mm-hmm.
We continued to have ATC challenges and so forth, even as recently as last weekend. But, the truth is yes, we started seeing some close-in demand challenges, and you wonder if it's you until you see a lot of public data, right?
Yep.
We're probably more impacted than others, just simply we do have a short booking curve.
Yep.
So we're kind of the canary in the coal mine, if you will, so we're generally, we'll see this sooner rather than later. But at the end of the day, you see the overall demand picture when total sales are down and capacity is going up, this is tough. And all I would say about Frontier is that everyone's gonna be engaging in self-help, and we're gonna go to simplifying our business even more and doubling down on costs.
Mm-hmm.
Because we think that in an environment like this, this is where we thrive. I mean, history shows that, you know, post Gulf War, Southwest, post 9/11, Ryanair, post Great Recession, Spirit, where I was at before, only airline to make money in 2009. So, you know, we think that doubling down on cost is the right thing to do, and, we'll see what happens. But one of those three things will change or multiple in the fuel demand or capacity dynamic. And so meanwhile, we can control our costs, so we think we can win in this environment.
Got it. I'll come back to cost in a second, but, again, just to get a better understanding of what you're seeing in the demand picture. So you're saying this is not something that's not unique to the ULCCs or unique to a low-end flyer, if you will? You think it may start that way, but it is absolutely, you think, is likely to spread to.
Yeah. I mean, we don't have international long haul to kind of subsidize this.
Yep.
But, yes, domestic in the U.S., there is an imbalance between capacity and demand.
Got it. And again, is this something that can be rectified with pricing or kind of, is capacity the only way to fix that or kind of what do you think?
Well, so encouragingly, you know, in the last few days, we've actually seen some of the biggest record volume days that we've had in the year. But the challenge is the price points that it's taking-
Okay.
to drive that is actually very, very low.
Okay.
And so, I mean, maybe we can make these work, but I don't think the industry can. So that's why we're doubling down on the cost, because we think that that's what's gonna be necessary over the next six to 12 months to win.
Got it. I'm sorry to press this point, but kind of with some of the other kind of mainline carriers saying, you know, "Hey, we're not seeing this yet," you're saying that, you know. And we heard from Alaska yesterday saying that they had seen something change with the close-in bookings, but the forward curve is totally fine. You're saying that the close-in behavior, which you're more exposed to, is a symptom of something broader that's likely to come in the future?
Look, we don't know the makeup of... Take the ARC sales. You've got ARC sales, you've got fare data, there's plenty of public data sources. But just take the ARC sales alone. If total dollars are going down-
Yep.
It could be close-in is driving part of it, but it could also be further out.
Mm-hmm.
I don't know what everyone's advance bookings are. Maybe there's, maybe they were sitting well.
Mm-hmm.
for December, but we've been selling December for months. This change has happened in the last few weeks, so you still could be ahead for December. Why don't we ask what their sales were for the last two weeks for December?
Understood. What, what are your December sales like? So what is your forward booking curve telling you? I know you're close-in, but kind of-
Yeah, it's very early.
Yeah.
I would just say it was more pronounced because we sell the majority of our sales close-in.
Yep.
The downshift has affected us more close-in. We don't sell enough further out to have seen a change.
Mm-hmm.
Yes, I was feeling good about the holidays three weeks ago. I still look at them and okay, but I worry about the builds between now and then, because the most recent close-in builds have not been strong.
Got it. And last question on this. So, from what you're seeing, you're confident it isn't just a post-summer overhang, shoulder season thing, it's gonna continue through the horizon?
Well, I'm never confident, but three weeks starts to make a trend.
Understood. So what can you do? So kind of if, if in your seat right now, kind of what would you do on the cost side to kind of offset the pressures you're seeing around you?
Well, look, this is very new, so we don't have a presentation to give today. But I will tell you that before I jumped on the plane and came out here last night, I held a meeting for close to two hours with all of our senior leadership and directors and so forth, about what we are gonna do, and we're doubling down on costs. Not only do we think that we need lower costs to thrive in this environment, but the ATC is a big issue, and it's not going away anytime soon.
Mm-hmm.
And so when we look at our business today, and look back at this summer and even back in the spring, the things that are most impacted by ATC are the multi-day trips.
Mm-hmm.
So we have about half of our flying goes out and back, the other half is two and three-day trips.
Mm-hmm.
We see the majority of the complications and those two- and three-day trips for our crew, when they get they'll end up in the wrong city, they, they strand the airplanes, they strand the crew. That's where all the disruption happened. We had, this summer, we lost almost 40% of our, of our maintenance kind of manpower planning because the airplanes just ended up in the wrong places, all because of GDP programs and so forth. So what we're gonna do is go we're gonna get as close to 100% as we can in terms of out and back, because that is gonna simplify the business. We'll look a lot more like a Wizz.
Yep.
And so you need less reserves for your pilots, your flight attendants. You need less mechanics. You need less parts, because all the planes, you know, go home every night. And so we're gonna spend a lot of time on simplifying the business, and we think it's gonna be good for liability, and we think it's gonna be good for, for our costs, and that also will unlock even more utilization. And I think, you know, the only way we see in this new ATC environment to get back to our previous utilization levels is to go to all out and back.
Mm.
That's gonna unlock it, and that's a significant amount of money.
Got it. Well, you said that, kind of, the situation is the result of an imbalance between demand and supply, right? So I think one of the more logical questions would be, you don't control the demand, you do control the supply. So-
Sure.
Would you consider taking down your capacity plans the next quarter?
Well, so we've been growing 20%-30%, you know-
Yep.
for a while now, and that was kind of putting planes to work that we took delivery of during COVID.
Yep.
We've already announced we're gonna be back in the mid-teens. But I'll spot you the answer for the industry. If industry capacity is up 10% or more, and ARC sales are down and total industry sales are down 15% or more-
Mm-hmm.
That's over 20% spread in unit revenues. At some point, that will flow through the industry. We're less than a couple % of the total capacity of the industry. We're literally a rounding error.
Yep.
We can't fix that imbalance.
Mm-hmm.
This is gonna be... The history shows that the industry will fix it. Of the three things, we don't yet know—we don't yet know the macro environment. There's some bad things out there. I mean, Dollar General, Nike, Foot Locker, some pretty bad consumer things recently. But if there is a slowdown in demand, you've got the credit card debt at the highest level, you've got student loans starting to be paid back in the next few weeks. You've got gas prices at the highest level, the pain at the pump. So if the consumer is slowing down, you probably see fuel come down.
Mm-hmm.
I don't think that alone kind of fixes things. So then the second thing that's within the industry's control is capacity.
Yep.
We can't change demand. We've all seen this movie before. This is when 737s go out, this is when the old 319s, all the gas guzzlers, the most marginal high-cost capacity will leave the market.
Got it.
The question is, how much of that do you need?
Got it.
But I can't solve that. But what I can solve is my costs.
Right. So again, it goes back to some of the network changes that you announced in the last conference call, even before all of this happened, right? So how much of that is, how much of what you're telling me right now is turbocharging of what you had already planned versus kind of new steps or, or kind of a, a completely new page that you're turning because of what's happening?
So this is completely new because this is further simplifying the out and back type of structure.
Okay.
We've talked about, you know, yes, the midweek being a challenge, but this is, this is different. This is about the structure of the schedules of the airline and simplifying our business.
Got it. Where do you think this takes you? Kind of, obviously, kind of it, it puts you in a... All everybody's gonna be in a hole in the near term, maybe, but kind of your margins now are kind of negative, low single digits or mid single digits. What's the path to profitability, let alone the high standards and margins you had before the pandemic?
I think with what's in our control, I think, obviously dropping the costs will give us some amount. We're not ready to talk about the amount, the margin that we get from there.
Mm-hmm.
That's gonna be a big factor. I think, I think the overall industry capacity will, will likely change. History shows it does, or fuel is gonna come down. I think one of those two are gonna be the, the second kind of piece to the puzzle for us.
Got it. So yeah, so let's see how this evolves. Obviously, kind of, we are all digesting this into the news, and maybe you kind of take, take a step back and look at your overall business, kind of. Again, you say that you obviously are rounding error, kind of, you won't be able to fix the capacity problem. It's absolutely true. But when you think of the dots that you're adding to the map, right, kind of, is that something that you're potentially looking to slow down? Or kind of, is that expansion actually gonna help you reduce the costs in 2024?
Yes. I don't know that we're gonna be adding that many more dots. We have a really good, robust kind of footprint of dots on the map. We need to connect more of the dots, and that's very inefficient, you know, up until today, to have a lot of dots and not a lot of flights from it.
Right.
But so we can get further scale. So no, I mean, we're excited about it. I mean, look, I think... Look, this is new, and I know it's tough on everybody that invests in the industry and maybe works in the industry. But I can just tell you at Frontier, you know, we run to a fire, and so we thrive on this, and we see this as a huge opportunity for us because lowest costs win, and if we continue to double down, then that—we're gonna win through this environment. And not to mention, I know a lot of the people that we've been talking to today, people keep asking about: What does this mean for JetBlue and Spirit?
I think it probably suggests, based on what we're seeing, that the probability goes up because their financial wherewithal is dependent upon this merger now.
Yep.
So it improves that odds. Well, so if that happens, we're even better positioned. We become the lone, you know, national ULCC. So I think the story for, for Frontier is really, really good.
Got it. And the story for ULCCs overall, kind of, you guys are obviously making the case that, you know, the share of ULCC carriers in general should be higher. Again, it doesn't sound like you're saying that this is a function of a low-end flyer kind of falling out of bed. It feels like something broader than that. But kind of over time, as macro comes back, do you think ULCCs can get a bigger share of that market?
Well, look, I think it's. Look, I've only been in this space, like, 28 years, so I haven't seen all. You know, I'm not that, not that old, so I've only seen a few of these times. But in the late 1990s. And again, in the late 2000s, I heard this story about how the leisure affluent customer, this time's different, and they'll buck the trend and all that. I've heard this story before. If there's a slowdown, there's a slowdown, and it impacts everything. And people are going to stop going to Europe if they're stopping to travel overall.
Yeah.
These things come home to roost. I mean, at the end of the day, we've seen this movie before, and lowest cost win.
Got it. Just kind of shifting gears and kind of going back to the ATC issues, kind of, you spoke of. What's the solution to that? Kind of, is that something that the industry just needs to kind of build into their plans and build into their capacity and know that every summer you're going to have the ATC always in play?
Well, there's how do you fix it? And then there's what can I do about it?
Yep.
So what Frontier can do about it is, it's very limited. Let's talk about what needs to be done, right? They need to be hiring more than they're losing in attrition.
Yep.
There's ways to solve both of those. One, they should look at the retirement age.
Mm-hmm.
Right? They should also look at people that are qualified, that are sitting in back office positions. So how many do they have that they could bring to the floor right now? And what incentives could they do to change that? So they could change the attrition makeup. They should. They could change bringing people on the floor, and they need to do a massive amount of hiring and training, right? And we should be demanding that as an industry, and I think investors should be demanding it, and Americans should be demanding it. I mean, the FAA reauthorization, I find it ironic, we're talking about things like consumer things for the airline. Let's talk about basic blocking and tackling within the FAA. Providing air traffic control services should be one of those things. And I think that...
I hope our representatives demand, through this FAA reauthorization, accountability that they're going to get it staffed and so forth. The second piece they can do, which is a little bit longer, but they do need to revamp the United States air traffic control system.
Yep.
We are behind Canada, we're behind Europe. And if we care about being green and we care about fuel burn, then you could eliminate significant minutes off every flight in America by having much more direct modernized routing. And so we need to, we need to tackle that as well. So I would really support, you know, the FAA reauthorization having two things in it. One, getting a real plan about the controller shortage, and long term, what are we doing about the modernization? Now, what can we do in Frontier? We're going to schedule around it because it is clear, and I became galvanized in this view over the weekend because we had storms, not even storms, this was rain. I think it's wrong to call it rain.
In the East Coast—I mean, you're laughing because you know what I'm about to tell you.
I know, exactly. Yeah, yeah.
You know what I'm about to tell you. We were shocked, shocked that rain is causing, like, hurricane proportion type cancellations. We had 1,500 cancellations on Thursday or Friday.
Yep.
I mean, it took us till Monday to clean this up.
Yep.
Yesterday, I was in Denver. We had some little puffy, white clouds, blue skies, though, behind it, and there was a little thunderstorm about 35-40 miles south of Denver, and we put in a ground delay program. We never had an issue. Now, they eventually turned it off, but this has got to stop.
Mm-hmm.
So we are going to be working with them to stop some of these, like, a kind of knee-jerk reactions. But ultimately, what we've got to do is schedule around it. So we are not going to have high risk routings that go through congested areas that are prone to having these issues. I'll take Orlando as an example. You know, we are going to put much bigger buffers in the afternoon when they have propensity for more thunderstorms, to make sure this doesn't happen.
Mm-hmm.
We made a bunch of changes and became more out and back last year. The challenge is we still have a lot of our out and backs is in the morning, and in the evenings it's more the multi-days.
Mm-hmm.
The multi-days keep getting hit.
Yep.
If we make everything out and back, you may get hit by ATC, but you can clean cancel that out if it's this afternoon, and it doesn't impact tomorrow. And so that's what we're going to do to simplify our business. And so I know you can't do that if you run a hub and spoke system, and you've got to have things in outstations and so forth, but for our business, it makes sense, and we're just going to schedule around it.
Is there a mixed impact or a yield impact of going to same day, back and forth, versus multi-day?
Is there a what?
Is there a yield or mixed impact from going to same day?
So it depends, right? So if you're in an origin point or in a point that has real good both direction traffic, no. If you're in a destination-
Mm-hmm.
This is like Vegas, for example. Vegas, it's a little harder because people don't want to arrive at 12:00 A.M. and leave at 6:00 A.M., right? They want to get in as early as possible and leave later, possibly. So whereas if you're coming from Philadelphia-
Mm-hmm.
You know, there's more people that go from Philly to Miami than go from Miami to Philly.
Yep.
It's a strange phenomenon, right? So, in that case, a Philly base, in our case, makes sense. I don't take a penalty, but from a destination, it does. But we're looking at that, too, and I think you'll see, for example, the next few bases we open are very origin-centric as a result. So, no, you do not take a hit. And we'll probably run later flights, but not red-eyes. So I suspect we'll probably be reducing our red-eyes, which have a heavy reserve cost on the pilot side. And our pilots, nobody likes flying them anyway. So...
That's, that's fair. Just kind of switching gears a little bit, kind of your, your competitor kind of may potentially have an issue next year with the GTFs kind of potentially grounding part of their fleet. Is that an opportunity? Kind of, is that... You know, what do you think that does for capacity across the industry?
Well, look, I don't know their numbers. I mean, we have some GTF, but we just got them in the last year, and so we don't have any of the impacted engines. They were earlier series. I don't know what it does to them, so I don't know their exact numbers. I think what's better for us than the GTF is the fact that if they're going to merge with JetBlue, which is looking more and more likely based on, you know, news out today, that I think that's the bigger opportunity for Frontier.
Got it. Sounds good. Any questions in the audience? Anil?
Thank you. You described some blocking and tackling and operations to fix the issues. But I have a broader question. If you look at your performance this year, about $0.30 in earnings, and compare that to what we thought you could do when you came public, well over $1, $1.50. And then I look at the issues you're having. You're cutting fares by 20%. You're adding 20% more capacity, but you still don't have utilization under control. You mentioned cost control. You had $0.06 as a target, but that's nowhere in sight. So the broader question I'm asking is, is your bus- Do you need to step back and rethink your business model? Is this the right direction to go?
So I don't think we need to rethink our business model. We've been. This is something that has bothered us long before this most recent last couple weeks of demand change. We've been hell-bent on getting the cost back down for some time, and you know this very well. We have been impeded, though, by this ATC environment. That has changed. This is a material difference in the operating environment today than what we saw in 2019. To the point of, like, 10,000% more GDP minutes that we're dealing with. They're simply in a high-utilization world. The way that we have scheduled in the past, there's not an ability to do that.
So we've been looking at this for a while, I mean, several months now, and what we need to do, and the ATC is impeding us from hitting our utilization targets, and that's what's impeding us from hitting our cost targets. And so that's why we're doubling down on simplification. And I think what's happened to us in the last 10 days, looking at this demand picture, is we've become galvanized in this view. And the answer is no, our business models aren't broken. No, this time isn't different, and the world is not flat. The lowest cost will win, and we're doubling down on it.
The number one question I've got is, you know, do the low-cost carriers need to take their foot off the gas in terms of capacity growth? Not just you, obviously, all your peers, all of them are doing it, including Southwest, right? So does that mean-
So... and we have.
Yes.
Look, I mean, to his point, part of the thing that kind of held back our margins was ATC. The other thing is that we continued to take airplanes during COVID.
Mm-hmm.
We did not have them in full utilization. We absorbed a lot of capacity.
Mm-hmm.
Right? I mean, when you think... Let's just, for simplicity's sake, if we've historically grown at a 15% rate, which was we were kind of a mid-teens, and we've been knocking on 30%, even higher in some quarters, especially some months. If you take that difference, so new flying is typically 30%-40% lower RASM than mature. So if I multiply 35% times 15%, well, this is a 5-point drag on your RASM, and it's a 5-point drag on your margin.
Mm-hmm.
We are moderating it back down. We are already planning. Before this current environment, we'd already planned on moderating our capacity back down into the teens. We are focused on that. We are focused on getting back, and we're hell-bent on getting back to our old costs and our old margins.
When can we expect a roadmap from you? Kind of, is that something we get in the next call, kind of what that plan looks like?
Well, look, I mean, I think, you know, it's nothing like a change in the demand environment to focus the mind.
Yep.
I think, you know, I think we're very early.
Mm-hmm.
We held some meetings yesterday. I'm flying back tonight. We're holding more meetings tomorrow. We're gonna be pretty darn busy the next couple weeks. I'd like to be able to update at some point this fall, but yes, you're gonna see changes come out of Frontier. We will be doubling down and getting back to cost. The other reality is I think overall, I think this isn't just a Frontier thing, this is a society-wide. We got lazy in COVID. I mean, seriously, people are still allowing people to work from home, all this silliness, right? I mean, all that's out the window, right? So when you get people back in the office, our overhead, when we look at overhead versus 2019, adjusted for capacity, it's up dramatically.
Mm-hmm.
Dramatically. Why is that? Why do I have more people per plane in overhead than I had in 2019? It's because they're not as productive. And so we're just looking at it. And look, we're not alone in this. I mean, you hear every company out there talking about the productivity challenges, but enough. Enough. And so we're gonna focus on it. So I don't have all that. I don't have a presentation to give you. I don't have a target to give you.
Yep.
But, yes, we will have, we will have more to talk to you in the weeks and months to come.
On the inflation side of it, kind of, do you think you have visibility on that and that's under control?
Based on everything I'm seeing, the pressures are off, right? I mean, let's take... Pick a work group. So take flight attendants. I've seen this now a couple times in my career. I've only been doing this for 28 years, so I'm not that old yet. But, every time flight attendant attrition goes down, it's usually your canary in the coal mine, and that just started happening.
Mm-hmm.
It's real simple. It happens because they don't have the opportunities that they were looking for outside.
Mm-hmm.
Right? We've seen the same thing in airport staff attrition. It's fallen like a rock just in the last few weeks. Right? We're seeing, I mean, did you see on the pilot side? I mean, you got UPS doing early retirements.
Yes.
My understanding is FedEx is right behind them.
Mm-hmm.
Right? Your pilot starts were up 40% last month versus 2019. So I think you're gonna have all the supplies of all these things. So I think the pressures on labor inflation is going down, and you'll see those things flow through to other things that you buy. So, yeah, I think, I think the inflation pressure is over.
Got it. Any more questions from the audience?
... Except for fuel, by the way, which is hurting consumers as well.
Well, that's supply. You see all the headwinds?
Can you talk about some of your ancillary revenue opportunities and, maybe what you see through the remainder of the year, in that segment, and just what opportunities will be?
Yeah, look, we've been the ancillary leader for a while now, and we spend a lot of time on this. We have said this for, I guess, a couple years now. Our main focus now is people like to talk about dollars. We like to look at profit, right? And so we're really focused on less dollars, but more high-margin products. So subscription loyalty businesses, like our credit card, you know, we're really focused on how do we grow the credit card. We just launched the Go Wild product this year, so that's another kind of subscription business. And so these are high-margin products, and we're going to spend more time on that. I mean, even onboard sales. You take a drink mini. You can buy a drink mini for $0.50 and sell it for $7.
Like, you know, a bag, you don't have any kind of margin on a bag or a seat like that, right? So, so we're looking at the products that you can get high margin on. So I'm much more focused on getting a few more dollars that is 50%-70% margin, versus just trading a dollar in the fare for, for, for ancillary.
Kind of, what's your relationship with the, not you as an industry, your relationship with the, the regulators are like? Because there's been a lot of focus on airlines as a concentrated industry that's kind of beating up the consumer. And obviously, this industry has been struggling to make money for a very long period of time. That may not, you know, be true, but kind of do you feel like your efforts to have a more transparent fare, kind of increase that disclosure and give people more choice, is being recognized by the DOT?
I think consumers have started to see it. I think there's still, there's still some people that maybe don't understand how transparent it now is.
Mm-hmm.
We've had rules for a long time. You have to... I mean, in fact, we're so transparent that we even hide taxes from the consumer. I said, the only thing that we're not transparent on anymore is the full fare rule that hid the taxes. Everything else is completely disclosed before you purchase.
Mm-hmm.
And by the way, there's a movement to get rid of the, what they call the full fare rule, so that, so the people can see the taxes broken out. And I, I think the American consumer should see what their PFCs and taxes cost. Got it.
So maybe just to kind of, you know, wind up here, obviously, it's going to be a pretty tough end to 3Q. If things don't materially improve, kind of how quickly can you put in place these cost actions? Is that something that can kind of salvage 4Q, or do you think you're going to breakeven negative?
I think it takes more than just 4Q . I mean, you're largely... I mean, look, we're already about to crew November, so you're a little close in.
Mm-hmm.
But I think you could start to see things by the first of the year that start to materialize, and by spring, for sure.
Got it.
We move, I mean, that may sound like a long time. We move fast-
Right.
for an airline, right?
Barry, I kind of appreciate you coming here and kind of sharing this with us again. As you pointed out, which is absolutely true, you're the first one to kind of call out the impact of Delta variant, kind of, you know, two years ago. You're the first one to... You're basically the canary in the coal mine, right? So, so, kind of, I hope you're wrong. I hope you're very wrong.
I, I hope we're wrong, and I hope we wake up and go, "That three weeks, I don't know why-
Yeah, what happened? Yeah.
I don't know why consumers stopped spending. But it's one week you say, "Oh, is this a hurricane hangover? Is this two weeks? Is this just Labor Day?
Yeah.
Your point of-
COVID was an interesting one. There has been a mini resurgence, right? So maybe that's it.
Yeah, maybe, I don't know. That is also... Look, we've racked our brains-
Right
For the last 10 days on what are all the things causing this. But, you know, 16% drop in overall industry sales is a big number.
Yep.
I mean, this is not down from basically flat three weeks ago.
Got it.
That's, that's a lot.
We will closely track this and see what happens, so thank you for being here.
No, thanks for having us.
Thank you.