Ladies and gentlemen, thank you for standing by, and welcome to the Frontier Group Holdings Q3 2021 Earnings Conference Call. At this time, all participants are in listen-only mode. Later, we will conduct a question-and-answer session, and if you would like to ask a question during that time, simply press star one on your telephone keypad. If anyone should require assistance during the conference, please press star zero. 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 Q3 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 today that today's discussion does contain 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. In comparing results today, we will be adjusting all periods to exclude special items. Please refer to our Q3 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 Q3 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 Q2 of 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 Q3 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. 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 Q3 , with our total revenue per passenger of $106 increasing 8% from the Q2 and reflecting 97% of the comparable amount during the pre-COVID quarter in 2019, with a load 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 Q3 , opening stations in St. Maarten, San José, 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. 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 waste 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 enplanement at certain airports.
Following our decision to exit LAX and San Jose, California earlier this year, in the Q1 of 2022, we will be ending service to Washington Dulles 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 have seen the start of demand recovery, with improvements in both volume and fare levels. 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 Airlines World Mastercard accounts, underpins our confidence in the planned 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 Q3 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 costs associated with the early lease termination of our remaining A319 aircraft. While the quarter was impacted by the Delta variant and rising fuel prices, we remained financially disciplined in managing the business.
We ended the Q3 with $802 million in unrestricted cash and cash equivalents, and have a $161 million current income tax receivable from our annual tax returns filed during the Q1 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 Q3 with 112 aircraft in our fleet after the addition of five new Airbus A320neo aircraft that were financed through sale and leaseback transactions, partly offset by two lease returns during the quarter, including retiring the last A319 aircraft. We have no planned deliveries in the Q4 .
Our fleet is 10% larger than the prior year and continues to be the most fuel efficient of all major U.S. carriers when measured by ASMs per gallon of fuel consumed, generating almost 100 ASMs per gallon during the quarter. 65% of our fleet is comprised of the fuel-efficient A320neo aircraft, and we will introduce the A321neo aircraft in the second half of 2022, adding another step change in efficiency to the business. We remain focused on getting the airline back to full utilization in the Q2 of 2022, while remaining flexible to address the unpredictability of COVID-19 on our bookings. As Daniel outlined, the Delta variant had a significant impact on the airline's bookings through August and September, creating a deficit in forward bookings as we entered the Q4 .
During September, we experienced the normalization of volume levels, but at discounted fares. We are currently seeing an improvement in fare levels as the holiday season approaches. However, fuel prices have continued to increase, creating a short-term cost hurdle to overcome. Our forward guidance, summarized in the earnings release, takes the lingering effect from the Delta variant into consideration, along with higher expected fuel prices. These impacts are partly offset by the improvements in booking trends that began during the latter part of the Q3 as COVID-19 cases stabilized. As a result, our guidance range for our Q4 adjusted net income margin is a loss of between 10% and 15%. More details on our forward guidance can be found in our Q3 earnings release. With that, I will hand it back to Barry for some closing remarks.
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. At this time, I would like to remind everyone, in order to ask a question, please press star one on your telephone keypad. We have your first question from Ravi Shanker with Morgan Stanley. Your line is open.
Great afternoon, everyone. 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 was 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 and for ancillary fees?
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. Whether it be levels, rules, you know, APs, restrictions. 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. As that volume has come through, our revenue management team has worked really hard to systematically continue to take advantage of that and methodically raise fares.
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 just 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. For my follow-up, the airport fees that you mentioned and kind of, you know, 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? Kind of how long does that take? Or kind of any color on the forward outlook there would be helpful.
Thanks, Ravi. It's Daniel. I think it's gonna be a combination of situations depending on the airport. We're going to see airports where absolutely, I think they realize that their costs are 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. 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. 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 and those metro regions.
If that's ultimately what we have to do for the long term, we'll do it for the long term. Yes, if costs come down, and I think some airports will see costs come down, we will be back. If costs don't come down, we will stick with lower cost airports.
Great. That's all. Thanks, guys.
We have your next question from Brandon Oglenski with Barclays. Your line's 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 on fare structure or just revenue and yields. Do you think you can be profitable by then too, or is gaining back full utilization really the key there?
We would expect to be profitable if we get back to 2019 revenue per passenger levels. 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. Normally, there's not this much volatility, you know, week to week, month to month, and definitely not quarter to quarter, but you see this. 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. 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.
We're not immune to the dent that was put in in all of our load factors and fares caused by the Delta variant. What we're telling you is that we're moving out of that, and we're climbing towards what we believe is strong, and we're seeing really good things from an overall fare perspective and total dollars, which leads us to believe that we will see revenues that should be back to 2019 levels. Obviously, to cover fuel, we'll need a little bit more than that. We're pretty optimistic about the future. Yes, we will be profitable at the current trajectories.
Okay. Appreciate that. I guess Jimmy or Daniel, you guys, you know, are talking about getting back to full utilization by Q2, I think. You will be taking deliveries in the front half of next year, right? Should we be thinking, you know, full utilization means capacity growth north of 30% versus where you were in 2019?
Yeah, 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 periods still need work. It's focusing on the off-peak periods and the capacity deployed in those periods that we're doing at the moment. We think our capacity will be a little bit lower than what we previously thought, where it was up about 30% in ASMs year over year. We haven't set an exact-
Okay.
Yeah, go ahead.
Okay.
No, he was just saying we had.
We haven't set a final number. That's all I was saying.
All right. Thank you.
Thanks, Brandon.
Thank you. We have your next question from Helane Becker with Cowen. Your line's 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, weedy, but I've seen that demand in the market hasn't been that strong, and yet you guys are going and opening, I think, a second station there. 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? I know it's kinda weedy, but I was just interested in that.
Helane, it's a good question. I think I'll talk about two things. One, we have much lower fares. What we're bringing to the Costa Rica market, we're adding Liberia to San José, which we opened in the summer. We're bringing much lower fares, and we're looking at digital nomads. We know Costa Rica is interesting for people to go work, to stay there for a few weeks and work.
We're also differentiated from other airlines. 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.
Got that. That's really helpful. Thanks, Daniel. Then my other question is this with respect to capacity growth in 2022. It seems like it's kind of sub-part A and B. Sub-part A is, Barry, earlier in the year on one of the earnings calls, you talked about demand would be strong for the holidays. I think Jimmy just said that, you know, you expect strong demand for spring break next year with the off-peak still needing travel. 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? 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. 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 you know, GDP grows and as we kind of get out of this pandemic and get back to whatever our next normal is. Maybe a lot in there, but pick two questions right now.
Sure. Sure. Thanks, Helane. Look, I mean, I remain as confident today as ever that the holidays are gonna 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, you know, put a damper on demand. It hurt obviously, you know, August, September, October, and even the front end of November. We're seeing everybody now, like Thanksgiving's really booking, the Christmas holidays are really booking.
I think the biggest challenge, though, to the quarter, while I think I can say that we're gonna 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 it hurts the whole travel ecosystem.
The second thing is the wide bodies are just now being unleashed to go back to their proper homes in the international. As we see that capacity go out, I suspect that you'll start to see things improve. The other reality is that you don't have the full vaccines, right? The kids just now, children five to 11, just now got approved. They're just now getting their shots. They're not fully vaccinated yet. I think that slowed us down. Yes, the holiday periods look good. The shoulder period's still a little bit soft, but I think when you flow that through, you know, once everybody's back in the office, once you have the boosters in place.
I think probably most importantly, you know, we're underestimating the power of this therapeutic pill that eliminates death by like 90%. It will be available by the year-end. I think you'll start to see those off-peak periods start to fill in. That's why we're confident by spring and beyond, everything will be good.
Gotcha. Okay. Thank you.
We have your next question from Hunter Keay with Wolfe Research. Your line's open.
Hey, everybody. Jimmy, what are you expecting for sale leaseback gains in Q4?
Yeah, we have no aircraft deliveries in the Q4, so we don't expect any sale and leaseback gains related to aircraft deliveries this quarter.
Well, okay, got it. Thank you. On the Q4 CASM number, please, just to peel that back, which is the ultimate nature of the first question. You know, what is driving that pressure? If you could just help me understand the specific line items in the P&L, how much of this is transient, how much of this is sticky, you know, how much are maybe you spending a little bit to ensure good operational integrity? You know, just help me understand that CASM guide for Q4, please. Thanks.
Yeah. We, you know, 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 Q4. We've been hiring pilots and flight attendants in order to satisfy that. Since the Delta variant came about, we've been closely monitoring and canceling flights. You know, if you look through September, October, we've taken anywhere between 7%-9% of the planned capacity out of the business. You're carrying a bit of cost in relation to crew through the quarter. The biggest differential is really the sale and leaseback gains that you referred to. Then also we're probably about 3%-4% higher in capacity.
There's a little bit of inflation. You know, 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, airport costs. Like other airlines have mentioned on their calls, 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. That's really what's happening. 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 line's 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 kind of 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, you know, training infrastructure standpoint, it seems like the industry as a whole is doing a lot of hiring and training, you know, just to get to summer capacity. I know there's kind of fleet changes and things like that. Just curious, what your views are on kind of supply and training capabilities across like pilots, you know, flight attendants and mechanics.
Well, let's just go by work groups. Start 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. Right now we have significant excess crew, just simply because we overhired than we plan to fly a larger airline right now. If you just follow 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 seat to the captain seat, and that whole process can take 6-8 months.
My confidence on the front half of next year and even into Q2 is like close to 100% because almost all of 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. In fact, we've seen now that, you know, 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 to satisfy that.
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. We feel very good about that. I think the one area, and we've highlighted this before, that there is a shortage in the United States, and that's one area of maintenance. There are qualified technicians at a premium today, and we continue to work with our business partners to make sure that we have the right number of folks out there.
I'll tell you from an efficiency perspective, we've looked at it, and you start saying, "Well, how many hours do I have of mechanics that are sitting around not working?" We're trying to figure out how we can be much more efficient and make sure that they've got a wrench in their hand and working on airplanes if we're gonna be paying them. We feel pretty good overall about the situation. While we're not immune to the workforce challenges that people have had, I think we're managing it pretty well and feel good about the pipeline. I think we have probably as good a better handle on the costs. We have modeled those out.
I would say that, you know, unless something materially changes that further increases the trajectory, we incorporate that into our thinking for our 2023 guidance that we gave that we would be sub $0.06 ex fuel, including the inflation we know today. If that answers your question.
No, that's extremely helpful. Thank you, Barry. Then if I might ask just on, you know, the moving the ancillary revenue target up from, I think $63-$ 65 here for about, for 2023. Just, you've heard a lot of airlines, you know, talking about demand for premium products being strong. You know, it was already kind of a secular trend and maybe strengthening. Is that, you know, do you think driving some customer behavior or even on Frontier to just buy more ancillary and kinda treat themselves to kind of a better overall experience? Or is your kind of bullishness really driven by, you know, just what you're seeing on the credit card and loyalty sign up standpoint?
Well, Savi, it's a great question. It's Daniel. Look, we've seen both. We've seen a really strong ancillary performance for the quarter in our core products, led notably by what we do think of as the sort of the buy up when you've got the money to pay for it products of seats and bundles. Absolutely, there, we're seeing strength there. That's our premium. That's our equivalent to the premium products that some of the other airlines have been talking about. 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 lockstep in this sort of stronger market. We've got our own premium products, and yes, that's part of what's driving this target. We've got lots of ideas in the pipeline for other things we can sell to customers as well. We think both Discount Den and the Frontier Airlines World Mastercard are gonna continue to perform extremely well.
Can I just add to that?
You can-
Let me just add, too. I think, you know, we as an industry and I don't know, we probably spend 80%-90% of our time on it over the last couple of months on the negative bit, but people keep talking about inflation. The positive or silver lining in this is that incomes, you just look at the latest reports, they're up more than they've been in a long time. We're seeing that extra money flow through to these extra products. You're seeing it in all types of other industries. 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. We're gonna make sure that we get our fair share of that as we move forward.
More buying power translates to more pricing power for us, so we're really excited about it.
Makes sense. All right. Thank you.
We have your next question from Duane Pfennigwerth with Evercore ISI. Your line's open.
Hey, thanks. So I guess drawing on a lot of the previous questions, as you think about the Q4, 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, the Northeast to 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 gonna finish strong here. So is sequential improvement in RASM off the table?
No, Duane, it's Daniel. No, absolutely not. We believe we can see sequential improvement. The challenge, as Jimmy alluded to earlier, is that we went into the quarter with a lot of bookings driven in the bottom of the sort of bad part of the Delta spike. We are seeing improvement. Overall, we expect to see the trajectory continue. It's gonna probably be slight because of the impact of the Delta variant, because of how that impacted the beginning of the quarter. Yes, it's continuing to improve.
We expect... As Barry said, we expect a lot of that is for future sales, future travel. 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. Again, given just the timing and the rhythm of how we started the quarter, maybe this is a little bit hard to measure. You know, you made a bit of a push on international. Can you talk, you know, 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 markets for the Q4 right around now. They're just starting, and there is ramp, as in any market. But what we are seeing is demand is building each week for these international markets. We're seeing strong leisure demand for the peaks. What we've saw is continued strength, obviously, in Cancún led us to announce more Cancún 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. You know, certainly appreciate some of the inflationary commentary and airports, et cetera, which, you know, 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?
Yeah. Yeah, I think that we've definitely seen that. I'm actually gonna ask Jake Filene to talk a little bit. He's responsible for our airports where we had the most acute challenges. Jake, why don't you talk a little bit about what we're seeing now?
Yeah. 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, you know, 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 line's open.
Hey, good afternoon, everybody. Most of my questions have been addressed, but try this one on. In response to higher fuel, the levers one normally thinks about are, you know, 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, you know, selling advanced tickets without fuel included and then, you know, rerunning the card 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 if you think it's too goofy of 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 whiteboard 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. Look, here's the deal. First of all, we get 100 MPG per seat. If you just do the math on that, roughly 1,000 mi, need about 12 gallons in, you know, in your 80 percentile of load factors. We need 12 gallons of fuel. Just do the math at $2.50, $30 in fuel. We think about this all the time.
When you look at the broader industry, especially the Big Four, they need like 35%-40% more, I think, on average. You just do the math. They need about 20 gallons. Right out of the gate, right, we've got 8 gallons x $2.5. That's the differential and the cost advantage that we have versus them. The industry needs that full amount of money, and we only need a portion of it. That gives us a unique position where we're kind of structurally hedged against them. We're not immune to economic pressures. I'll tell you, like I said earlier, our revenue management team is acutely aware of the price of gas. They fill up their cars, too.
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 fare 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. Second, and it's just 'cause it feels like the call is winding down, but you know, I understood it 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, you know, the periods when investors are most focused on the airlines, and you know, it just doesn't feel like the second week of November is that period. Small nit.
Yeah, Jamie. Jimmy here. I hope you're doing well. Yeah, 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. The previous quarter, I think we were around the third of August. 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. Thanks 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, you know, it can be tough to break through on people's calendars. A lot of outsiders are, you know, knee-deep in other sectors right now, and it's just, you know, sometimes.
No, we-
Tough to get an audience. You know?
I was teasing you, Jamie. We'll get it sorted out in-
No worries. Take care.
We have your next question from Myles Walton with UBS. Your line's open.
Thanks. Good evening. Just maybe pick up a little bit on the detail of the fuel efficiency that you've been talking about, the hundred cents per gallon. That's down about 4% year-over-year, largely because of stage length, I would guess. The A321neo comes in second half of next year. What should we be thinking about for fuel efficiency gains as you look into 2022 versus 2021? Is that a trend we can use going forward as, you know, the fleet's more even-leveled?
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.
A320ceos.
Yeah, maybe some of the ceos. I think, look, our run rate for our fleet, if we've got it fully operational, is right around 100 MPG. 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, when in the heart of the pandemic, we had all the twenty-ones actually parked, which are very efficient in addition to the neos. Yeah.
You go to next year, is it a couple points?
Myles, yeah, just to add to what Barry's saying, like if you looked at Frontier pre-COVID, we were doing about 97 MPG. We're close to 100 MPG now. Obviously it's hotter in the summer, so sequentially it's a little bit lower than what it was earlier in the year. You expect to see somewhere between 1%-2%, 1% largely over the next three or four years in efficiency that comes into the building each year. 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 A321neo, which gives you an improved efficiency, but it's in the kinda just above 1% zone.
To give you specific, Myles, the 321neo, when we bring that in next year, with our configuration, it's gonna have approximately 110 MPG per seat. It's a pretty good step function change. As we flow those through the business, that's why Jimmy's talking about gaining 1%-2% a year. It's just math because you're bringing in, again, the most efficient aircraft we've ever had.
Got it. The other thing that I've maybe just poke on a little bit to ask the question, sounds like you're pointing more to the corporate reopening as sort of the next leg of recovery. I'm curious if we can completely separate it from case counts, death counts, and, you know, vaccination levels and the magic pill coming through, and really the next leg is going back to the office, somehow spurring, you know, your network as well as everyone else's?
Well, it's not just that, right? It's when people are sitting around their house, when they're not in their office, they don't travel as much in general, even for their own dime. I'm just saying in general, you need, you know, forget, you know, for midweek travel. Obviously you need business travel to take place. 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 drag and there's more and more positive announcements on this every day.
Getting a PCR test to go to an international destination is not only kind of a pain and time-consuming, it's expensive. If you've got a family of four and you're spending $200 each to do that's a drag on international leisure travel. You've got that, you've got the pills, you've got just several things, a whole litany of it that points to you're gonna have a lot better demand as we turn the clock and the calendar into next year.
Okay. All right. Thank you.
That's on top of what we're already seeing, right? That's additive.
Got it. Thanks again.
We have your next question from Mike Linenberg with Deutsche Bank. Your line's open.
Oh, yeah. Hey, good afternoon, everyone. Hey, just a counterpoint 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 were out kinda giving us an update on how things had materially worsened since everybody else had reported, so it was, you know, nice to kinda get that information in real time. Definitely, the counterpoint there, but at the end of the day, I guess, you know, you gotta 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, you know, your peer group, despite the fact that, you know, you guys have been adding back a decent amount of capacity. You know, maybe some of it is that you got out in front of the whole vaccine mandate. I mean, you know, I think that that's somewhat of an untold story. You guys were early with United and, I believe, Hawaiian. As you think about growing the business, you know, 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?
A lot in that. Operational design is a big thing that we do. In fact, our head of network. His title is not just network, but his title is the VP of Network and Operational Design. We spend a lot of time looking through what drives reliability. I mean, our mission is low fares done right.
Mm-hmm.
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. 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. 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...
Mm-hmm
...Trip up a multi-day sequence. We have moved to preferring out and backs. That has then necessitated the need to have eight operational crew bases across our system.
Mm-hmm
which is a little more than many other carriers maybe our size would have. 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. We believe that resiliency pays off in strong reliability. Then when you think about the maintenance, that footprint, we constantly debate this a lot, and we're looking through right now, what is the best way to make that efficient as we continue to grow? We've looked at more mechanics and more parts in more places, or do you do the work in more concentrated places? We'll see how that sorts out.
We're trying to make sure that we offer the safe, reliable operation at the lowest cost possible. While we're not perfect, I think we've put together a pretty good recipe. I think this year we were probably paranoid early on about the labor shortages, and I think we did a fantastic job. If you go kind of March, April, May, and I think we were ahead of the curve. What we didn't realize is the entire rest of the country, not just airlines, but restaurants and everybody was gonna try to hire everybody in the month of June. And so kind of probably that last 10%-15% of hiring was a challenge.
Now I think the vaccine mandate that you have today, that OSHA just put out the final one. You've got some that are required to be vaccinated, and then you have large employers, 100+ that are vaccinate or test, which we fall in the second category because we are not a government contractor. We're working through that. There's 400 and some odd pages of rules. We're gonna make sure that we're compliant with that. That goes into effect, I think, 4 January . We are working through the process right now to make sure that we are fully compliant. We run a safe and reliable operation, and we'll do everything we can to do it in a smart and compliant way.
Great. 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, you know, your ancillary is up 11% on a year-over-year basis. Your departures, though, are, or excuse me, your stage length is down 7%. When I usually think about stickiness of ancillary, usually the longer the haul, you know, the more likely you're gonna get that, you know, people to buy up for the extra comforts. I'm just curious if, 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? Thanks for taking the questions.
Absolutely. There's a lot less relationship overall between stage length and ancillary than there is between stage length and fare. There are different things that impact that. If we look at international, we do have experience in international markets. Obviously, we have long experience in both Cancun and Punta Cana.
Mm-hmm.
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 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 mix, and it does tend to work well.
Okay. Very good. Thanks, Daniel. Thanks, Barry. Thanks, everyone.
Thanks, Mike.
We have your next question from Stephen Trent with Citi. Your line's open.
Thank you, operator, and good afternoon, gents, and 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. Just curious, when you think about, you know, Frontier's really had very little incremental debt addition during the pandemic versus, you know, 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. You know, what do you see in terms of the opportunity to push the envelope on, in terms of being a green airline? You know, I think a lot of people, you know, love your otters and animal symbols on the planes and what have you.
You know, are you guys thinking high level about sustainable aviation fuel more aggressively or taking the next step, you know, in cutting the climate footprint with the wiggle room you guys will have versus others? Thank you.
Well, a lot going on there. Maybe we'll follow up. I think you had a debt question there. Let me start with the green. Look, we're America's greenest airline. We got 100 MPG 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. I know there's a lot to talk about sustainable aviation fuels, and we are interested and intrigued by it. But, you know, a lot of people talk about 2050, and if you're really excited even about 2030, if you get really excited about a 30%-50% reduction in CO2, then great news. You could fly Frontier today.
You don't have to wait 10-20 years to get it from a lot of the greenwashing people across this industry around this globe. Sustainable aviation fuel is an excuse to not reduce. Remember, it's reduce, reuse, and recycle. 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.
Yeah, 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. You know, we've talked about this in the IPO and have talked about it since. You know, we added about $1 per passenger of debt, whereas the rest of the industry added, you know, 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. That puts us in a very good and unique position across the industry.
You know, 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 and our brand assets. That puts us in a really strong position from a balance sheet perspective in the airline as you emerge from COVID not having tapped that liquidity to bolster your balance sheet and operate through the pandemic. 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.
Oh, that'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's 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? You know, I'm just trying to get a sense, you know, what the easing of these international restrictions could mean for you.
I'm sorry, international from other metal, another airline or international on us?
From another airline.
This is Daniel. It's a tiny number of customers. Yeah. On balance, is it marginally helpful? It's very marginally helpful, but it's not meaningful to us in any way.
Got it. Makes sense. My second question is more of a clarification.
I would just add, though, on the 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. Getting all these restrictions removed is good for all types of air travel.
Right. 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 back by the spring, or were you talking about unit revenue or revenue per passenger metric? Thanks.
I'm talking about RASM, unit revenue.
RASM. Okay, thank you.
We have your next question from Christopher Stathoulopoulos with Susquehanna. Your line is open.
Good evening. Thanks for taking my question. Two questions, both around RASM. The first, the comment that you expect to be profitable by the spring, assuming the current trajectory of demand continues. I'm curious, what are you assuming with respect to U.S. domestic capacity for the industry? Because it sounds like based on your prepared remarks and the COVID data or the vaccination data and new therapeutics, that this sort of next bucket of capacity, certainly with respect to long-haul capacity going back to their natural markets, and it sounds like you're optimistic around business. Curious, you know, 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 in the last week, last two weeks, and what we've seen build up over the last couple of months, and then adding on to that further acceleration in overall volume. If we're now touching 2019 fares and ancillary combined. Total revenue per passenger is starting to touch 2019 levels. If that holds up, I think you can cover it, then the difference becomes fuel, effectively. We think there's several more shoes to drop from a positive perspective, when we look between now and spring break. As I mentioned, getting the 5- 11 year olds vaccinated, they're just now starting to get there. They're not all fully vaccinated.
The boosters are just now being rolled out, but the therapeutic pill is again additive. Then you throw on that you've got the return to office in January. You've got the wide-bodies leaving and going back to their natural international markets. So all of these should be constructive for domestic demand and capacity balance.
Okay. 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? I'm gonna 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.
This is Daniel. We think about this on a margin basis. These costs, 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. That's our opportunity. We move to significantly lower cost airports. 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 now 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.