Hello, and welcome to the Profoncier Group Holdings First Quarter 2021 Conference Call. My name is Sherry, and I will be moderating today's call. This call is being recorded and a replay will be available on flyfontier.com in the Investor Relations section. After today's prepared remarks, there will be an opportunity to ask questions. Phone.
It is now my pleasure to turn the conference over to Susan Donofrio, Head of Investor Relations. You may begin.
Call. Thank you, operator, and welcome, everyone, to Frontier's first earnings call as a publicly traded company. 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 call are Barry Biffle, Frontier's President and CEO Jimmy Dempsey, EVP and Chief Financial Officer and Daniel Chuz, Senior VP, Commercial as well as other members of the management team. Following our prepared remarks,
call. 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 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 call 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 comparing results today, we will be adjusting all periods to exclude special items.
Please refer to our Q1's 2021 earnings release, call, 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.
Call. Thank you, Susan, and thanks, everyone, for taking the time to attend our first earnings call as a public company. In a moment, Daniel and Jimmy will bring you through the details of the Q1 and our expectations going forward. 1st and foremost, we're pleased with what we're seeing in the demand for travel. The vaccine is truly unlocking the pent up demand everyone anticipated and bookings are getting stronger every week.
We believe our focus on leisure travel call. Coupled with our low fares done right strategy positions us as an industry leader in this recovery. While this has been a challenging year across the industry, we're very thankful to all our team Frontier members for their commitment and diligence to ensuring our successful navigation through the pandemic and they have helped us ensure we are well positioned to succeed in the recovery. I also want to thank our union leadership as they have partnered with us on a range of solutions to help keep our employees and customers safe over the past year. Call.
One thing is certain, Team Frontier is stronger than ever as we emerge from this crisis. As we position the business to maximize the rebound opportunity, We're adding routes to both new and existing cities in our domestic network and growing our near international network footprint as well. Call. As an example, we added leisure destinations for the summers that include Nassau, San Jose, Costa Rica and Saint Martin. Call.
These additions come on the heels of new service already introduced to Guatemala City, San Salvador as well in Central America. Call. We've also added new nonstop routes from Atlanta, Dallas, Denver, Las Vegas and Salt Lake City. Call. Further, our commitment to being America's Greenest Airline was enhanced by the addition of 3 new A320neo aircraft added to the fleet during the Q1 of 2021.
In addition to the fuel efficient engines, they were the 1st aircraft in our fleet to feature our new Recaro lightweight seats, call, which are 30% lighter than our existing seats and considerably more comfortable. We achieved significant milestones during the quarter, call. Including executing an IPO to enhance our liquidity, becoming cash positive in March of 2021 and getting our departures back to 2019 levels call in March of 2021. We're now focused on moving the business back to profitability in the second half of twenty twenty one and operating at full utilization next year in 2022. Overall, there's positive energy across Team Frontier as we move beyond COVID.
Our momentum aligned call with the growth trajectory of the fleet position Frontier to maximize shareholder value and the recovery ahead. I'll now turn it over to Daniel, who will provide more details on our performance for the quarter.
Thank you, Barry. And I want to join you in thanking all of Team Frontier for call. I also want to reiterate how pleased we are that our low fares done right travel model has resonated so well with our customers. We We firmly believe you shouldn't have to pay a high price to get a high quality family friendly travel experience. Our low cost model has allowed us to roll out reasonably priced unbundled and bundled options, We continue to listen to our customers and fine tune these offerings.
This condensed subscriptions, providing members with exclusive access to Frontier's lowest available fares, continue to grow. Working with our loyalty partner Barclays, we just launched some new offers to attract even more card members. The benefits offered by the Frontier Airlines World Mastercard have call. We are among the first to initiate a variety of heightened health and safety initiatives early on in the pandemic. Call.
We will continue to make our customers our foremost priority with respect to comfort, safety and operational performance. As Barry mentioned, we to increase our Caribbean and Latin America footprint. In this summer, the region is expected to account for over 13% of our capacity. We're also targeting additional near international growth over the next few years. We're also excited to be adding 5 new domestic cities to us on our 2021 schedule, including the return of Frontier service to call.
Now onto the trends we are seeing within our quarterly results. Similar to other airlines, our January February performance reflected the 3rd COVID wave across the United States call. After Presidents' Day, we saw demand for our travel improve as we moved into the spring break and Easter booking window with a significant step up in March demand. Call. Operating revenues for the March quarter declined due to the impact of COVID causing a 36% decline in capacity year over year, which led to a 50% year over year decline in operating revenues.
Call. On a per passenger basis, we saw ticket revenue decline 30% in the quarter, while non fare and other revenue declined 19%. Call. We saw the non fare and other revenue remained strong overall at $52.55 per passenger, and our total revenue per passenger for the quarter was $83.38 call. Our capacity levels are trending at or above 2019 levels as we progress through the coming months.
We're seeing a recovery in load factors as the appetite call. With that, I will turn it over to Jimmy to provide more detail on our financials.
Call. Thank you, Daniel. I shared Barry and Daniel's optimism on the demand recovery we are seeing. I want to thank all of the Team Frontier members call. Rolled up their sleeves in challenging times during the pandemic and put Frontier at the forefront of the recovery in air travel.
Our growing confidence in the recovery enabled us to begin hiring pilot and flight attendants in February and restarted projects that were paused as we managed through COVID. In addition, our IPO strengthens our balance sheet and call. Puts Frontier in a strong liquidity position, enabling us to emerge from COVID with limited incremental debt. Now turning to the quarter. Our GAAP net loss was $91,000,000 call.
Our adjusted net loss of $173,000,000 or $0.86 per share excludes a number of special items. These include $136,000,000 CARES Act credits, a $20,000,000 mark to market related to the warrants held by the U. S. Treasury and a $4,000,000 cost associated with the early termination of our remaining A319 aircraft. With respect to our revenues and liquidity position, we timed our capacity deployment as the quarter progressed call.
To take advantage of our expectation of a recovery in air travel leading up to spring break. This enabled our revenues and cash receipts to finish the quarter on a strong note. Call. As of March 31, 2021, we had $853,000,000 of total available liquidity, inclusive of the $424,000,000 of undrawn amounts under treasury loan facility. The liquidity as of March 31, 2021, excludes the net IPO proceeds of $265,000,000 call given its April 6 closing.
Our liquidity was enhanced in April by the receipt of $96,000,000 in payroll support funding from PSP 2 and 3. We expect to receive the final payment of $75,000,000 relating to PSP3 in the Q2. This puts Frontier in a very strong liquidity position. Call. As such, we are unlikely to draw further funds under the treasury loan facility.
We have a current tax receivable of $161,000,000 That provides us with an opportunity when received to assess the repayment of the $150,000,000 currently outstanding under our treasury loan without utilizing other existing liquidity. The repayment of our treasury loan will unencumber our Co Brand Credit Card Program and related brand assets that are currently collateralizing the facility. We believe that our loyalty program encompassing our co brand credit card and discount down subscription program together with the Frontier brand could generate substantial liquidity should the need arise. Call. We ended the March quarter with 107 aircraft in our fleet after the addition of 3 new Airbus A320 new aircraft that were financed through sale and leaseback transactions.
In addition, in early May, we executed a contract with one of our lessors to accelerate the return call of 4 remaining A319 aircraft from the company's fleet. 3 of the A319 aircraft will exit Frontier's fleet during the Q2 of 2021 and the 4th aircraft related to the fleet in the Q3 of 2021. This is the completion of an early objective of the transformation of Frontier into an ultra low cost carrier call by replacing all 319 aircraft with larger and more fuel efficient A320 and 321 aircraft. We anticipate delivering 10 A320neos and 2 spare engines call. The remainder of the year with 5 aircraft delivering during the Q2 and 5 aircraft in the Q3.
As we look forward into the Q2 and reflect on the improvement in demand, call. We expect our net income margin to range between minus 10% and minus 15%, reflecting total adjusted operating expenses, Excluding fuel ranging between $480,000,000 $490,000,000 an average fuel cost per gallon of $2 and an effective tax rate of 22%. Call. Our expectations for Q2 exclude any adverse operation impacts or fuel price spikes caused by the cyber attack on the Colonial Pipeline. To close, our financial discipline and low fares run rate strategy has positioned us well as recovery strengthens and demand for travel returns.
2021 is the year that we continue to invest in the recovery of the business and position ourselves for successful growth in the coming years with the immediate focus on getting our airline call back to full utilization as we enter 2022. With that, I will hand it back to Barry for some closing remarks.
Call. Thanks, Jimmy. It's been a year of enormous change for our company and we continue to thank all of our Team Frontier members for going above and beyond what was expected of them. We've got the right team in place to navigate what's ahead, along with the right cost structure and the right low fare product. Call.
With that, operator, please open up the call for questions.
Call. Our first question comes from the line of Ravi Shanker from Morgan Stanley. Your line is now open.
Call. Thanks. Good evening, everyone. A couple of questions on the current environment as you see it. When you look at the incremental traffic that they're coming on right now.
Do you have any data on whether you are expanding the pie and the travelers you're Right now are like new to air travel, if you will, or are you just taking share from other airlines, VLCCs and legacies?
Daniel, why don't you take this one?
Thanks, Ravi. I think what we're seeing right now There's a pent up return of travel in the U. S. I think we're seeing lots of customers come back to travel. And I think as always, our low costs are allowing us to offer extremely low fares and continue to stimulate demand.
And that's a combination of new customers and also key to the ULCC model, key to our model is Customers fly more frequently because they can afford to do so because we deliver lower fares in the marketplace.
Got it. And just a follow-up to that. I mean, do you I feel like there's an environment where the ULCCs can meaningfully grow their market share and close the gap to maybe the kind of share that you have in that you also have in Europe? Or do you think it takes a little while longer for the market to
call. Well,
look, I think if you look at our share in the United States, I mean, we're just getting start, right? We're at 10%, all the ULCCs compared to approaching half over in Europe. So Yes, there's a lot more room ahead.
Great. Thank you.
Call. Thank you. Our next question comes from the line of Mike Linenberg from Deutsche Bank. Your line is now open.
Yes. Hey, Good job on the Q1 here, gentlemen. I guess a couple here. Barry, when you were on the road on call. On the deal, what, 5, 6 weeks ago, I mean, you were you had a pretty encouraging I mean, a positive outlook.
I mean, trends. Look like that they were moving in the right direction and things seem good. And yet here we are 5 or 6 weeks later, and yet you have a much higher fuel price. And I would argue a more favorable margin guide than I think what we saw as recently as 5 or 6 weeks ago. Is the right interpretation that things have maybe gotten even better than sort of what you were seeing 5, 6 weeks ago when you're on the road?
Because The guidance would suggest that it does seem like that maybe we're seeing some acceleration here. Is that the right interpretation?
I think that's right, Mike. I mean, look, I feel better today than I have probably since, I guess, last January when I first heard of coronavirus, right? And I feel better than I did yesterday and I feel better than I did last week. Call. Look, it's real, right?
You're seeing it every day. The vaccine is slowing the cases. It's slowing the hospitalizations call. And people are feeling free. I mean, this last question we were talking about stimulation, but I think what's happening is the demand is just being let loose From the vaccination.
So it just keeps getting better. And so yes, we're feeling really good about the world and couldn't be more excited about the recovery.
Call. Great. And then just my second question to Daniel. Look, I get the whole story about getting away from the A319. You'll have higher fly into some of the smaller markets.
And you do fly into a lot of smaller cities right now. You look at some of your competitors, And they have stayed with whether it's the A319s or even the 737 MAXs in the case of Southwest. Do you think that Getting out of that smaller gauge and as your gauge moves up that there's just going to be a whole slew of city pairs that either don't work or maybe it's a less than daily strategy. How do you think about that, just your response to that? Thank you.
Thanks, Mike. You're absolutely right. As we go to higher gauge, we get lower costs, and we already have a strategy of applying the right frequency to the right market. We fly low frequency markets. We fly our smaller markets in general today on the A320neo, which is the bulk of our fleet today Majority of our fleet today, and we found that works.
We find supply some small markets at low frequency on the 321 and find that works. We have the lowest costs. We are going to be a low cost leader, and that enables us to fly a lot of to fly as many markets as we can, and I think that's the right strategy
call. Thank you. Our next question comes from the line of Jamie Baker from JPMorgan. Your line is now open.
Hey, good afternoon everybody. Question on aircraft leases, I know you've engaged in sale leasebacks of various lessors, but For future deliveries, for the pipeline, do aircraft have to be sourced from the Indigo pool? I mean the order, the big order back from 2017 or if somebody like, I don't know, Pick A Name Aircap came to you With a more attractive lease rate, could you take it?
Yes, Jamie, it's Jimmy Jamsi here. Call. Yes. No, like in 2017, we were part of a joint purchasing initiative that delivered 430 aircraft into airlines in the Indigo portfolio. We contracted for our aircraft, like all the other airlines in the portfolio separately.
And so Frontier contracted for 134 aircraft. We're committed to those aircraft, and they deliver over the next kind of 7 years or so. We could look at aircraft that pop up beyond that order book like any other airline can. And if there are opportunities, we'll certainly look at it. We are looking at potentially adding 321s incremental 321s to our fleet.
They could come either directly off the manufacturer or through leasing companies. And so yes, we have absolute flexibility to do that.
Call. Okay.
All right. That helps. And also second question, do you have any ability to track how much basic economy competitors are call and United said as much on its call. I'm just wondering if you have a way to actually measure it and if you have any idea as How those trends might look?
Yes. Look, I mean, I think if you look at basic economy, I think there's a lot of confusion call. So basic economy is a product and there's price points, right? So it doesn't matter how much basic economy is out there. What matters is the prices that you're charging.
Call. But I will tell you both the product is less than it was. There's less of it out there. And the price points, as I mean Many of you report on, I mean, they're slowly moving up. I mean, the demand is coming back, ATLs are filling up, load factors going up.
It's just how revenue management work, right? The Fares are going up. And so, I think everybody is looking at this and realizes in the next few months, your demand is going to outstrip supply.
Call. And if I could just sneak in a third, we're in the middle of May now. Between now and the end of June, how much inventory Hasn't been sold and how much higher would fares have to be on that remaining inventory Trying to get a feel for how close you might actually get, but if you don't have that fingertips, I get it.
Well, it's Algeren. I'm sure we could calculate it real fast. I'm not sure we would disclose it. Okay. Fair enough.
But look, I will tell you, we said it in the opening remarks, We feel very confident with the trends that we will be profitable in the second half of the year and feel pretty good about it.
Okay. Thanks, everybody. Congrats.
Thank you. Our next question comes from the line of Hunter Keay from Wolfe Research. Your line is now open.
Hey, everybody. Congrats on the IPO. Thanks for having me on. Barry, what would you Your top 1 or 2 financial targets as you think about the next couple of years or just running the business for the long term, Would you is it just raw dollar profits? Would you trade a little bit of margin to drive more EPS?
I mean, obviously, it's a balance, So what are the top 1 or 2 that you're really going to prioritize over the next couple of years?
Profitability and costs,
Just raw yes, just like absolute raw profit dollars.
Well, I mean, I would actually expand it. I would say there 1 and 2. So profitability 1 and cost number 2, but within profit there's a 1A which margins themselves and those levels and 1B is aggregate profit, which drives EPS.
Okay. Call. And then a couple of quick ones here. When you talk about full utilization, you said in your script 2022. Are you talking about you're at one point you're going to hit 12.2 hours per day or are you actually going to average that over the course of the
We expect by the end of the year to be in a position to begin and operate all of 22 at full utilization.
Okay. So you'll be exiting 2022 at full utilization is what you're saying basically?
No, no, no, no, no, 2021. We're investing today. We're investing today And hiring and ramping everything up so that we can be ramped up to full utilization by the end of the year such that 2022 will be a full operating year.
I got you. Okay, thank you.
And then just a quick one here. What are your thoughts on potential PSP-four program? Is that something you would support?
I doubt it's going to be
call. Thank you. Our next question comes from the line of Duane Pfennigwerth from Evercore ISI. Your line is now open.
Call. Hey, thanks.
Could you characterize I'd love to hear your answer on what inning you think we're in call. From a leisure recovery perspective, domestic leisure recovery, some have suggested bookings are call. All the way back to 2019, it feels like there's more recovery still on the table here even in the U. S, call. Certainly in places here like New York.
And of course, part of that view is going to depend upon how folks are revenue managing. So maybe just to follow on relatedly to Jamie's question, How are you managing inventory now versus, say, this time in 2019? And how do you think the industry is? In other words, Is the industry opening up more future inventory now at low price points?
Yes. So look, I don't know what inning you're somewhere between, I guess, the second and third inning. And what I would mean by that, Duane, is we've started We started trickling bookings up in February, and they continue to accelerate through March. They're accelerated through April. We're now seeing them just continue to build.
But there were there's another factor, right? So as the demand recovers, then capacity recovers, right? Everybody talks about pent up demand, but there's also pent up capacity. The good news is now you're starting to reach pretty close to 2019 levels this summer. And You're now going to probably if the demand continues to go, you're going to see demand outstrip supply.
And so that'll move us to I don't know, inning 4 or 5 and that's what's going to cause, fares to go up and yields to go up and that's revenue management. Call. And so I think you probably don't get to inning number 7 until you get towards the end of the year And you're probably going to have pretty aggressive Thanksgiving and Christmas just because so many people missed it last year, right? So you're going to have way more demand, then you're going to have seats. As it compares to last year at this time, well, there was 0 inventory management.
Sorry, 2019. The basic point being 2019. Exactly. Like how are you managing your inventory In May of 2021 versus what you might have been doing in May of 2019?
Yes. I think we're still behind because Not everyone has reflated their booking curve completely. And I think there's also still certain segments, that aren't quite there The order may be great, but certain cities aren't quite there. But I think if you look at even today, I mean, just this recent announcement of you can Have your mask off in the last few hours from the CDC. If you're indoors, well, that's big news.
There's also now another leg of demand. You've now got 12 to 16 year olds eligible today for the vaccine. So I think there's more to come, But I think we're still a little bit soft versus where we were, because the fares aren't back to where they were in 2019. Call. But again, I think in the next few innings, if you will, call it, the next 6 to 12 weeks, you should start seeing
call. That's great. Makes a lot of sense. And then just for my follow-up, I'm sure you got asked this question a lot when you're on the road. I didn't get to hear your answer to it.
So I'm curious if You could share it now. Can you provide your views on industry consolidation, how likely that is specifically in the low cost sector?
Call. Okay. Well, look, we're focused on profitability and start to hit that in the second half And focused on shareholder value. And for that reason, obviously, we're leaders in the industry and we'll look at any opportunity that presents itself. But right now, we're focused on returning to profitability.
Call. Okay. Thank you.
Thank you. Our next question comes from the line of Brandon Oglenski from Barclays. Your line is now open.
Hey, good afternoon everyone and congrats on the first quarter here. So Barry, I guess following up from that question and the target to be at full utilization, I think by the end of this year, right? Are you managing towards reaching I mean, you do have a goal of profitability in the second half of the year, but are you managing towards a certain profit target right now or is it just that we can be in the black since 2022 is where we readjust and focus on getting margins up.
Is that the right
way to think about it?
Call. Well, I mean, yes, you got to cross over the line and move to the black first and then you start focusing on increasing that and getting back to previously expected levels, if you will, from profitability. But Like right now, we're just really excited to cross that mark and we feel like we're on the eve of it as I just kind of answered in that last question. We feel like we're on the eve of it given the way that the demand is recovering and starting to shape up. And I think that will drive it in the second half.
And And look, 2022 is still a ways away, but there's a lot of positive things to happen before then. But yes, we'll be focused on maximizing margins in 2022.
Conference.
Okay. And Jimmy, do you
mind helping us with the fleet changes that you announced? So I I think you're going to take delivery of 10 additional aircraft this year. So are you going to
end the fleet end the year with
a fleet of like 115, is that about right?
Call. No, there's no real change in the total fleet count for the year. We're just laying out that there's 5 in this quarter and 5 in the following quarter. So ten for the rest of the year. We'll end the year with about 110 aircraft.
And just to recap on what Barry said, one of the things that you got to be focused on for our business is at the end of 2019, We had 98 aircraft. At the end of 2022, we'll have 120 aircraft. So the business is significantly bigger between pre COVID and post COVID size. So I just want to point that out, but there's no change for our fleet plan right now. What we did with the 319s was effectively accelerate them from redeliveries at the end of the year Towards the early part of next year to remove them from the fleet now.
Clearly, we're removing fleet from storage and bringing them back Into service and our view at this stage was it didn't make a whole lot of sense to redeliver or to return those aircraft to full service across the summer months, suffer some of the maintenance costs associated with them. So it made sense to actually remove them from fleet early, And that's something that we did and took advantage of something that cropped up very quickly.
Okay. Appreciate that. And then I guess the last one from me. You guys did announce a couple of new international destinations. Is that looking more lucrative in the future here?
Or is domestic and international kind of an equal opportunity at this point?
Call. Yes, look, I mean, if you look at international versus domestic over the last several years, let's go prior to the pandemic call. And we had seen that yields were considerably higher and we had begun investing and going back in the 2018, 2019 period. In the international, so as we recover, we are looking back again at making that happen. And we think the dynamics will actually be even better than pre COVID just because of the competitive landscape and our relative cost advantage In the near international, but also just the fact that the international is being delayed, if you will, from a recovery compared to the domestic.
And so when it does come back from a demand perspective, we think it's going to come back with a vengeance. So we're positioning ourselves so that we can exploit this in 2022 and 2023, And we think that that really does a lot to position our revenue backdrop to be a lot stronger than even what it was before.
Call. Thanks, Barry.
Thank you. Our next question comes from the line of Helen Baker from Cowen. Call.
Thanks very much, operator. Hi, everybody, and thank you very much for the time. Call. Let's see. When you talked about cash burn being positive in March, did that did you say that, that continued at that same rate in April May.
Or is it continuing at that same rate or is it accelerating?
Call. Thanks, Elaine. It's Jimmy here. Yes, look, we turned cash positive just as we turned into March. Really, bookings started to improve, A big change post Presidents' Day.
The airline performed reasonably well through March and the A tail started to fill out for forward bookings. That's continued. Our anticipation is that we're cash positive through the quarter and really moving on from a liquidity discussion And back into really getting the airline back up to full utilization. Perfect.
Is there my next question is, is there A choice or is there a time when you would when it would make sense for you to switch from a fully leased fleet to a partially leased fleet and a partially owned fleet. Would you consider that?
Yes, we would. We talked about this a lot when We're doing the IPO. It's something that we can look at as we develop. Like this year, we've chosen to use operating leases All the way across this year. We've actually one aircraft left to finance at the end of Q3.
We can look at it in terms of how It's really a commercial decision around tax, whether you have to put any equity into the aircraft And what the cash position is at the point of delivery of the aircraft. And for us commercially, we haven't found anything that makes commercial sense On an NPV basis like an operating lease sale leaseback transaction for us. And so we'll continue to do it and benchmark against other forms of financing. But at the moment operating leases make a lot of sense, particularly when you're growing the business quite dramatically like we are and not burdening the cash flow in the business We're funding that growth. We have been funding a big portion of the business in our PDPs into delivering And so that's the focus of some of our cash flow that's over the last like 5 or 6 years Has been to manage our pre delivery payments to Airbus as opposed to managing the actual delivery itself.
And so it's been quite successful for us.
Right. Right. I'm not sure it ever makes sense to own an aircraft, question. That question does come up now. The other my last question is, are your aircraft ETOPS certified?
Call. And is Hawaii a realistic option for you at some point in your future?
Hello, Daniel. Yes.
Sorry, it's Daniel. No, our current aircraft are not capable of flying to Hawaii with a full passenger load, and therefore, we don't and we're not ETOPS certified results. There's no need to be and it would add cost to business. We do have A321 XLRs on order. And when they join the fleet in a few years, we will look Hawaii, amongst other opportunities for deployment of that aircraft.
And it may become part of the network at that time, but it's not a short term possibility for the airline.
Gotcha. Okay. Well, thanks, gentlemen. Thanks for the answers.
Thanks,
call. Thank you. Our next question comes from the line of Andrew Didora from Bank of America. Your line is now open.
Call. Hey, good afternoon everyone and congrats on the IPO. I guess, first question, Barry, where do you think your 15% or so. Is this a mid to high teens business or are you at some level below that? What are your thoughts there?
Call. Well, look, I mean, when we get back to 2019 levels, we will then focus if we can make it bigger. But I think our focus right now is to just get back to 2019. And we feel good about our cost relative advantage And where that's headed, and we think that expands over the next year to 2 years. And so we feel good about getting it.
And once we get to 2019, then we can probably talk about if we can
call. Okay. Fair enough. And then, look, I guess, when you think about the leisure recovery, call. Clearly, you see kind of this pent up demand environment extending into the holiday period.
But when you think about call. Kind of beyond that, do you think leisure reverts to the growth rates we're seeing, say, pre pandemic or There's something that you're seeing or you believe in that you think there's some maybe more positive structural change going forward here from the leisure passenger? We'd love to Your thoughts on that and thank you for the questions.
Yes, thanks. So look, listen, we talk about this all the time and all we have are a bunch of anecdotes at this point, but people are starting to point informed judgments and views. And look, I mentioned I think Thanksgiving is going to be the best Thanksgiving we've ever had in the industry, same thing for Christmas and same thing for New Year's and I think you're going to see the same thing for Presidents' Day and even spring break. By the time we get to spring break next year, There will be there will have been some people that didn't go on spring break for basically they missed 2 in a row, it's almost 3 years. So I think you're going to see the surge continue for at least 12 to 18 months until people get caught up on vacation, people get caught up seeing family and friends.
And So I feel very good about it. And then when you think about getting past kind of the pent up demand component that I think the last 12 18 months, call. Then you get to this new phenomenon of all this work from home that's going on and which is really translates to work from anywhere. And we're seeing more and more people traveling midweek, changing cities and working off their parents' couch in North Carolina this week and Next week, they're in California. And so that's just a whole new travel segment that we didn't have.
Plus with the additional flexibility, people can travel more. And Jimmy and I, we've debated this in the past. And when we look at carriers in Europe like Ryanair and Easyjet and Wizz and all those, When you look at the vacation that the average European has, how many days off they have per year and you compare that to the average American how much we have, They literally have double more than double the vacation days. And so I look at what that does for us in terms of all this additional flexibility that people are going to have, That's just going to create much more leisure travel. So I think this can last for several years.
Great. Thank you for the thoughts.
Call. Thank you. Our next question comes from the line of Savi Syth from Raymond James. Your line is now open.
Call. Hey, good afternoon everybody and congrats on the IPO. First question for me is actually a math question. Are you implying the revenue for 2Q is down call maybe around 16% on a year over 2 year basis, if I'm doing that math correctly.
Call. Sorry, Savi. We'll have to come back to you on the exact math on that. Like we gave you a range of outcomes of net income of minus 10% to 15% and gave you the operational costs associated with that. No, we're not guiding the exact revenue numbers at this stage.
Okay. Understood. And then just on the comment about getting back to utilization by the end of this year, that's faster than I had anticipated. What does that mean from your ability to kind of get back 2 maybe pre crisis trends on unit costs and how should we think about that unit cost trend?
Call. Yes. Look, our view hasn't changed since we talked about the or during the IPO when we talked about unit costs. There is some inflation across the industry that we've had to deal with. We're very focused on our total costs and so our CASM plus net interest.
We continue to invest very heavily in the fleet and we're very different to other airlines in terms of how we finance The airline through 100 percent operating leases, and so therefore our CASM ex fuel gets slightly inflated by the fact that we pay rent as opposed to having some of the ownership costs down in the next slide. And then we get a huge benefit from the fuel efficiency that the neo aircraft is delivering into the fleet. And by the time you get to midyear next year, We start delivering 321s again. And so a change in the business that has happened in the last 2 years or 3 years or so The fact that 321s have become less than 20% of our fleet. They will actually start moving back up in terms of the percentage of the fleet As you progress beyond 2022 and into 2023 2024 and we get to about half the fleet operated as 321s by the time you get to about 25 or 20 25, 20 26.
Our anticipation is that our unit costs are similar to where we talked about them a few weeks ago. Call. There's no real change in our utilization that went into our thoughts during the IPO process. So we think we'll be on track for that.
Call. Okay. Appreciate that.
And if I might ask one last question, just on I know business demand is not a big component, but you do carry some business and it tends to be SME, where I think the recovery is faster. Just curious what you're seeing on that front and if you're seeing any improvement along with the improvement you're seeing with leisure here near term?
Yes, Savi, it's a very small portion of our traffic. We've seen from the data we've got, we've seen a little bit of an improvement In the last couple of months, yes, it definitely seems to be recovering a bit. We obviously don't have a lot of data on the rest of trends in the industry. So I don't know if our recovery is any better than anyone else's. But it is a small portion of what we take.
And obviously, the much bigger story as how much the leisure demand is recovering.
Great. Thanks, Dan. All right. Thank you.
I would just add one other thing too just on this business discussion. I look at my calendar and I'm traveling almost every week for the next 6 weeks.
And I'm
starting to hear more and more of this. And as offices reopen, I've joked about this a lot, but do you really think people are going to be sitting in a cube or do you think they'll go back to Marriott? And I think you will see business travel return. But in our case, it's going to be small business. It's not corporate managed.
Call. Our next question comes from the line of Myles Walton from UBS. Your line is now open.
Thanks, Amy. I was wondering if you could maybe touch on The ATL performance in the quarter and when you talk about the recovery to a normal working curve, should we expect that to expand towards Sort of where you were in 2019 from an ATL perspective, maybe adjusted upward given the larger fleet towards $300,000,000 by the end of the year?
Call. Yes, Miles, Jimmy here. Look, our ATL has recovering. At the end of December, it hit its lowest point given the seasonality, but also the effect of COVID. And it's been slowly and gradually improving.
It certainly accelerated in March and the run into spring break, and you'd expect it to recover across the year. Really predicting where our ATL At the end of the year, it's difficult to do at this stage, but you would expect it to somewhat normalize as the year progresses And there's still a ways to go on that.
Okay.
Okay. And then, Barry, I guess in the I don't know who asked the question around innings, but I think 7th inning was when you Put the line towards pricing as normalized to 2019. Is that sometime towards the end of the year Where yields have fully baked in and recovered?
Yes. I mean, I think in the United States domestically for sure, The international will obviously, I think, lag that. I think it's going to take you till probably mid-twenty 2 or even to 2023 for certain regions just Depending upon how they're able to control the coronavirus. But, I think domestically, I think you should be by the end of the year. And I'll even go back to Your earlier question about ATL, in the back of my mind, I'm looking towards the next few holidays and peak periods.
And I think there's a risk for the consumer that they're going to get shut out of where they wanted to go or they may have to fly a day or 2 earlier or later for Thanksgiving, and that's going to cause them to book further out when they get burnt. And so look, when they're not able to it's one thing To say fares are likely to rise is another thing to say, well, they may not even get a fare because there's going to be more demand than there is supply. So if you're thinking about traveling, You're going to want to do it sooner rather than later. And I think when that happens this summer, they're going to start booking the holidays and then when they get burned at the holidays, they're going to start book in the next summer and spring break. So I think you could see ATLs across the industry go up just from that phenomena.
But as far as pricing firming up, Look, you got to be full before you can focus on price. And I think that takes to for the industry, I think that takes to the latter part of the year For all the industry.
Got it. Thanks, guys. Okay.
Thank you.
Call.
Thank you. Our next question comes from the line of Stephen Trent from Citigroup. Your line is now open.
Call. Good afternoon, everybody, and thanks for taking my question. Just two quick ones from me. I know you guys don't Have a massive exposure to the Southeast, but given the disruption we saw with the gasoline supply in parts of the country, Did you guys feel any of that in any of your operations or was it not really an issue for you?
Call. Yes. So we had some challenges. We did some tankering, But we didn't have to do any tech stops and we think it's largely it looks like it's going to be largely resolved now.
Call. Okay, great news. And just very quickly, during the IPO, a number of investors were intrigued call by how high your ancillary revenues are. And when we go forward, you mentioned the Barclays co branded card and what have you. Call.
Do you see kind of additional opportunities to kind of push the envelope even further than you have?
Call. This is Daniel. We look, we see we do see continued opportunity, and we're focused on salary on the highest profit margin within our ancillary offerings. And as the airline gets bigger, the relevance of our The relevance of both our credit card program with Barclaycard and our discount then continue to get Better, the more customers, more routes, more opportunity to take advantage of the benefits. We're focused on continuing to work with Barclays, as we said in the opening remarks, on improving offers.
And on the discount then, we're looking to continue making enhancements to the program to increase the value it offers, To increase the number of customers who sign up for it. It's a paid loyalty program, and it's a very good program as a result, and there's a lot of opportunity to continue to build it.
Call. Okay. That's very helpful. I'll leave it at that. Thanks, guys, and congrats.
Call. Thank you. At this time, I'm showing no further questions. I would like
to turn the call back over
to Barry Stifel for closing remarks.
Call. I just want to thank everybody for joining us today and we look forward to updating you on our next quarter. Thanks everyone.