Hello, everyone. Thank you for joining us, and welcome to Frontier Group Holdings' Q3 2026 earnings call. After today's prepared remarks, we will host a question-and-answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. I will now hand the conference over to David Erdman, Senior Director of Investor Relations. David, please go ahead.
Thank you, and good morning. Welcome to our Frontier Group Holdings third quarter 2026 earnings call. Joining me today in speaking order are Jimmy Dempsey, President and Chief Executive Officer, Bobby Schroeter, Chief Commercial Officer, and Mark Mitchell, Chief Financial Officer. Each will deliver brief prepared remarks, and then we'll open the call for questions. However, before we begin, I'll remind you that today's discussion will include forward-looking statements subject to risks and uncertainties, and we will be referring to certain non-GAAP financial measures during the call. Reconciliations can be found in the earnings release issued earlier today and on our investor relations website. We'll also be referencing stage-adjusted unit metrics, which are based on a conversion to 1,000 mi. I'll give the call over to Jimmy to begin his prepared remarks. Jimmy?
Thanks, David, and good morning, everyone. Our third quarter results represent another meaningful step forward in Frontier's transformation. The team delivered record revenue, exceptional unit revenue performance, and adjusted profitability in a high fuel price environment. This performance demonstrates that the changes we are making across the business are positioning the business for sustained profitability. I want to begin by thanking Team Frontier for all their efforts in helping us to make progress and execute on our transformation plan. Their focus on safety, operational execution, and customer experience is fundamental to our success. We are moving with urgency, but we are doing so with the discipline required to build a stronger and more durable airline. Third quarter revenue of $1.4 billion was a company record, up 53% year-over-year, with RASM growth of 30% on an 18% increase in capacity.
Adjusted diluted earnings per share was $0.18, above the high end of our guidance range, as our revenue performance more than absorbed the incremental fuel headwind. Adjusted pre-tax margin improved nearly 12 percentage points year-over-year to 3%, despite absorbing a 56% increase in fuel price. Our fleet rightsizing work is now substantially complete. During the quarter, we finalized agreements to early return 13 A320neo aircraft and replace that capacity with direct leases for 10 newer, larger and more cost-efficient A321neo aircraft. Our fleet rightsizing transactions ensure measured growth, considerably lower future maintenance obligations, lower financial leverage, and better gauge dynamics for the business. On cost discipline, we remained on track to deliver $200 million of annual run rate cost savings by 2027, including the benefits from a more productive fleet.
To this end, our adjusted unit costs, excluding fuel and sale and leaseback gains, are down approximately 2.5% year-over-year. Operationally, we are making meaningful progress to build a more reliable airline through improved maintenance planning, stronger station capabilities, and more consistent execution. Following volatile weather in most of July and August, our completion factor in September and through October to date ranked third among domestic carriers. While this demonstrates significant progress, we are focused on improving the level of consistency in the delivery of the operation. The results we announced today also demonstrate the continued progress we are making with revenue management and customer loyalty, including the strong response to our premium offerings. First Class seat installation begins this quarter, with Starlink Wi-Fi installation beginning in the first quarter, diversifying the revenue base and enhancing our value proposition. Looking ahead, we expect the commercial momentum to continue.
RASM for the fourth quarter is expected to be up over 20% on capacity growth of 5%-6%, which will be our fourth consecutive quarter of double-digit unit revenue growth, helping us mitigate the elevated fuel costs expected during the fourth quarter. Our performance reflects the successful progression of the company's strategic initiatives set out earlier this year, and it gives us confidence in our ability to translate our momentum into sustained profitability. With that, I will turn the call over to Bobby.
Thanks, Jimmy. Third quarter RASM increased 30% year-over-year to $0.1187 on capacity growth of 18%. Total revenue per passenger also rose 30% to approximately $138, while load factor declined modestly by 2 percentage points, highlighting our focus on proactively adjusting our strategy to maximize results in the current environment. Importantly, the strength in RASM extended across the week as we reintroduced off-peak capacity. The positioning of our network has enabled us to take advantage of a more favourable supply-demand dynamic in our markets, and in conjunction with our continued revenue management discipline, is leading to an outsized revenue improvement. Importantly, we are delivering these results ahead of the First Class and Starlink rollouts Jimmy mentioned. Those investments will build on the progress we are already making, giving customers more choice and broadening our appeal to leisure and small business travelers.
We see further opportunities to increase revenue per passenger and build loyalty while maintaining the cost discipline that supports our low fares. Contributing to our revenue performance is a 37% year-over-year improvement in loyalty-related revenue, supported by growth in our co-brand card and membership programs, along with higher engagement and spending. These programs give customers more reason to choose Frontier and return more often, and they provide recurring revenue streams that diversify our revenue mix and support more resilient earnings.
Looking ahead, we expect our commercial momentum to continue into the fourth quarter with RASM increasing more than 20% year-over-year on capacity growth of 5%-6%. With that, I'll turn it over to Mark.
Thanks, Bobby. Adjusted net income was $40 million during the third quarter or $0.18 per diluted share, meaningfully above our previously issued guidance. Fuel expense was $425 million at an average cost of $3.96 per gallon. The average cost per gallon reflects an increase of 56% versus the corresponding 2025 quarter, or approximately $150 million of incremental expense on current quarter fuel consumption. Adjusted operating expenses excluding fuel were $896 million, 7.4 cents stage adjusted, 3% higher year-over-year. However, as Jimmy mentioned, excluding sale leaseback gains, adjusted CASM ex fuel declined approximately 2.5% on a stage adjusted basis, driven by efficiencies from our fleet rightsizing and other cost savings initiatives. We ended the quarter in a strong liquidity position with $1.18 billion, up slightly from the end of the second quarter.
Due in large part to our fleet rightsizing and other strategic initiatives, our leverage ratio declined meaningfully from 7 x adjusted EBITDAR at the end of 2025 to just over 4 x on a trailing 12-month basis at the end of September. We ended the quarter with 164 Airbus aircraft following the delivery of one A320neo and three A321neo aircraft, two fewer than expected. We also returned all 13 A320neo aircraft under the most recent early return agreement, with five returns in the third quarter of 2026 and the remainder in October. In the fourth quarter, we expect to take delivery of two A321neo aircraft from our order book and five of the 10 A321neo aircraft under direct lease transactions with AerCap. The remaining five direct lease aircraft are expected in the first quarter of 2027.
Separately, we expect to take delivery in the fourth quarter of three of the 11 aircraft being sold to Avolon, with the remaining eight expected to be received and sold to Avolon in the first half of 2027. The gains from the sale of the 11 aircraft to Avolon will be excluded from our non-GAAP results. The fleet actions associated with the latest early return agreement resulted in non-recurring charges of $134 million in the third quarter, including lease return costs, accelerated depreciation related to capitalized maintenance due to shortened useful lives, and the write-off of non-recoverable capitalized prepaid maintenance balances. These non-recurring charges were excluded from our non-GAAP results. Turning to guidance.
We expect fourth quarter adjusted diluted earnings per share to range from a loss of $0.15 to a profit of $0.05 based on an expected average fuel cost of $4.75 per gallon, up $1.25, or over $100 million from our prior guidance on capacity growth of 5-6 percentage points year-over-year. RASM is expected to be up over 20% versus the prior year quarter, which would be our fourth consecutive quarter of double-digit growth. Operator, we are ready to open the line for questions.
We will now begin the question and answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Savi Syth with Raymond James. Your line is open. Please go ahead.
Hey, good morning. Kind of impressive revenue performance there and kind of loyalty particularly. I was curious, some time ago you talked about that loyalty opportunity on a per passenger basis, and I wonder if you could give an update on where you are, credit card revenue or loyalty as a whole, on a per passenger basis and, again, thoughts on where that can get to in the next 12-18 months.
Yeah, I would actually build more towards three to five years. We are building a loyalty program, Savi, that we are creating a more stable, diversified revenue base for the airline. We are certainly seeing the loyalty program perform exceptionally well. The year-over-year performance across all of our programs, the Barclaycard credit card, and then the membership programs, is performing exceptionally well. We are not going to give you exact targets over the next number of years, but we can certainly see on a per passenger basis, this going into double digit territory, in the next three to five years. I think the enhancement of premium products into the business will only improve the performance in the loyalty program. And really what we are after as a business is creating reliability in our customers' eyes.
Frontier has for many years struggled during peak periods, with completion factor and A14, and one of the things that we set about at the beginning of this year was fixing the operation in the airline to create reliability into the airline. We are actually moving positively towards that. During the summer, we had some noise around ATC and weather like every airline, and it showed the fragility of the operation where you had day after day of ATC and weather noise. That needs to be fixed in order to create that reliability in the customer's eyes. That then will drive real loyalty into the business going forward, allied to the premium products that we are bringing in. We are pretty excited about where we are going.
If you look at the last couple of months, the operation performed really well, and you are seeing the revenue base of the airline perform exceptionally well. Loyalty is a big contributor to that year-over-year.
Got it. If I might follow up on that, I think in a recent interview, Jimmy, you had mentioned the complication of fixing the operation is just because you had to do it across this whole fleet and across bases. Where are you in terms of, is it go base by base, or is it just a little bit across all the bases? What is the progress on getting that? Do you still expect by the end of 2027 to get where you want to?
Yeah. We are getting into the weeds here, but I would say a couple of things, right? We planned on having a better, more capable maintenance footprint across the airline running into the summer. The supply chain, it is not an excuse, but the supply chain got in the way of getting that competency into a lot of the airports that we have our base maintenance happening. We actually got that competency in place in late September, early October. What we are seeing at the moment is really a step change. You are seeing our completion factor move into the top three across the industry. Now, we have seen pretty benign weather over the last couple of months, but we are certainly seeing the completion factor in the airline perform really well.
The next step is really to fix A14 and get the start-up at the beginning of every day, the first wave operating more efficiently and more effectively. That's in progress. We're spending a lot of time modernizing the architecture of the airline in the background. A lot of the stuff that you guys will never ever see, but that'll take through the first half of next year. My ambition is to have the airline operating platform in a really strong position going through next summer. When I talk about competency in stations, I'm talking about parts and tooling and people in the stations and having them in place across the summer. That's all in a very strong position right now, and you're seeing the performance as a result of it.
That's helpful. Thank you.
Your next question comes from the line of Atul Maheswari with UBS. Your line is open. Please go ahead.
Good morning. Thanks a lot for taking my question. Jimmy, on the last call, you spoke about plans for high single to maybe 10% capacity growth for next year. Since then, fuels obviously moved higher. I'm wondering if you have any updated thoughts on your capacity plans for next year. Related to that, where do you plan to deploy capacity growth next year? Is it primarily in previous Spirit markets, or have those opportunities already been tapped out?
Yeah, look, I think our capacity growth, we have got to go through planning for next year. We will have a better sense of it when we come back on our next call in the new year. But I suspect it is somewhere in the 6%, 7%, 8% zone going into next year. It is obviously dependent on where fuel prices migrate to over the coming months and through next year. We are very conscious of that. If you recall earlier this year, we set about a plan of bringing productivity back into the airline across this year. With the onset of the Iranian conflict and oil prices rising, we took some capacity out in order to manage through the summer period. We will continue that dynamic of bringing productivity back in the airline where we see it makes sense and also deploying the capacity growth of the airline.
I think mid to high single digits makes sense. I do not know if we will make it all the way to 10%. I see it at about 5% to 7% capacity growth next year. On your second question of where, obviously we are going to mature our network that exists today and add to it. With like 5% to 7% capacity growth, you are not going to see a meaningful change overall in the network deployment in the airline. We positioned the airline very effectively earlier this year to take advantage of continued reductions in capacity by Spirit Airlines. That has proven to be very successful as we progress through this year and we will continue to look at opportunities that exist as we roll into next year.
Got it. That is very helpful. Just my follow-up, just sticking to the Spirit topic, are you able to quantify the RASM lift in the third quarter from lack of Spirit and what is your expectation for the fourth quarter? Then really, what are you seeing in those ex-Spirit markets that you have entered from a competitive standpoint currently?
Well, we see supply-demand dynamic really positive across the business at the moment, both in ex-Spirit markets and just across the entire environment. We overlapped at about 30% of our business overlapped with Spirit earlier this year. So, yeah, it is helpful to the business, but I think the airline is moving beyond that structural change. If you look at the performance from a RASM trajectory, we have done a lot in our revenue management systems to improve the delivery of better unit revenues into the business. That started this time last year and we have seen real progress on that. If you looked at the airlines, I talked about this in the last call. If you looked at the airline running into the Iranian crisis, we were up high teens in terms of RASM year-over-year in Q1.
You've seen that obviously advance with the fare environment that's developed with higher fuel and also the structural change that happened with Spirit. We feel pretty good about where the airline sits today and moving forward. This is all probably, like Bobby mentioned this in his transcript. This is all prior to advancement in premium products that the airline is pushing towards. We're imminently going to get First Class seats in place across the airline. We've had those First Class seats. We delayed that process in order to get the right sizing of the fleet done this year. That process is happening as we speak. In addition, we add Starlink pretty soon. I'm really excited about adding Starlink to the business. If you look at other airlines, they have connectivity, and they're moving to Starlink or Amazon Leo.
That is a game changer in terms of connectivity. If you look at our business, we have no connectivity today, and we're moving to the best product out there for connectivity on an aircraft in Starlink. We feel really excited that our existing customer base is going to embrace that product really successfully and then widen the aperture in terms of the addressable market for Frontier, providing really good value to customers across the U.S. and adding these premium products into the airline. So we feel pretty good about the future in terms of unit revenues.
Thank you.
Your next question comes from the line of Brandon Oglenski with Barclays Capital Inc. Your line is open. Please go ahead.
Hey, good morning, and thanks for taking the question. Jimmy, can you just help us out on the fleet now? Because I think with all the transactions, you should be roughly flat from a shell count into next year. Is that correct? Maybe talk about expectations as we look out at 2028 and 2029.
I'll let Mark bring you through it in a second, Brandon. Look, the objective here in the airline is to have approximately the same fleet entering into 2026 that ends 2028, right? What we're doing with capacity growth is really infilling productivity into the airline and actually very successfully infilling productivity into the airline. That adds, if you're looking at the capacity growth this year, you're seeing us infill that capacity across the week. You're not perfectly flat across the week, but you're certainly flattening the week in terms of activity during the week. That's the objective. You build the productivity into the airline. We're a little bit behind on that because of the Iranian conflict in terms of driving productivity back into the airline. We've made a big leap forward.
We need to make a few leaps forward from here, and that's what drives your 7% or 6% growth next year, probably something similar in 2028, in that kind of 5%, 6%, 7%, 8% zone without actually adding that many aircraft to the fleet. This is all basically utilization of the existing asset base, and that's one of the reasons why we're getting such good productivity and unit cost improvement. If you exclude fuel and exclude all the sale leasebacks that happened last year versus this and this year, we're actually seeing real productivity build back into the business and the benefit of having both higher gauge aircraft and also more utilization.
Yeah. Just to confirm on top of what Jimmy just said, so yeah, Brandon, the fleet where we sit at the end of September 164 based upon what's on the books. End of 2027, similar number just as you mentioned. I think, just to give a little bit more color on the mix. We ended 2025 with 46% of the fleet being 321s. The end of the third quarter, 55%, and we'll end the year at about 60%. So meaningful gauge improvement in the business. 2028 is when we start taking deliveries again from our order book.
Okay. Appreciate that. Mark, can you speak to liquidity, especially as you look out into 2027? I think your cash balance didn't change all that much into the third quarter, but how do we think about ongoing CapEx, pre-delivery payments potentially, or lack thereof, as well as potential maintenance expense as well? Thank you.
Yeah. I think if you look at liquidity, our liquidity is up slightly from the second quarter. We sit in a strong position with nearly $1.2 billion of total liquidity. We are not guiding 2027, but based upon the trajectory we're on, and we think we're on a good trajectory. We're certainly focused on growing that liquidity balance. When you think about the maintenance obligations, as we continue to step forward, I think you'll see some measured growth in that CapEx. I think it's important to understand that with the fleet transactions that we did with all the fleet right-sizing. The 37 aircraft that have been returned this year, on a net basis over the next five years, that is somewhere in the neighborhood of $400 million of maintenance savings.
Your next question comes from the line of John Godyn with Citigroup. Your line is open. Please go ahead.
Hey, guys. Thanks for taking my question. It's not lost on people that the capacity trend is more conservative. The language around that is more conservative, and I think that resonates. I wanted to just maybe dialogue about that a little bit big picture. Under new management, if you will, has the bigger picture philosophy changed and is there a margin target? Is there a return on invested capital target? Or is it just generic conservatism? I'm just trying to understand kind of what is driving the change, and how sticky and durable it could be, and how deep it's kind of gone through the organization. Thank you.
Look. Hi, John. We clearly have learned from the last three or four years of growth in the airline. I mean, the airline was growing at 20%, 25% per annum, adding significant aircraft into the fleet. That growth was diluting or creating volatility in your revenue base in the airline. The concept behind slower growth is really to create stability in the revenue base of the airline and also the operating platform of the airline that supports the revenue base of the airline, right. We set about this plan at the beginning of the year to right-size the fleet, which was very important. We had, in our calculation, somewhere around 40 to 45 aircraft that were unproductive in the airline if you were to bring productivity back in. You had a choice to make.
You either hired a lot of pilots and flight attendants, and went out and grabbed a lot of customers, and brought productivity into the airline, or you right-size the fleet. We chose the path of right-sizing the fleet because of an opportunity that existed in the engine world in the industry. I think that has been a very positive decision in the business, both internally and externally. That does create a better platform for growing the business. We're not running away from growing the business. We're just growing at a much more moderate pace, which we think creates that stability and revenue that the airline needs as you move the airline to a bigger platform. There's also benefits that the airline gets.
In growing at that pace for, I don't know, 10 years or so, there's a catch-up that needs to happen in the background that we're going through at the moment. So having shell counts stay relatively similar over a two-year period allows us to modernize the foundation of the airline. As I mentioned earlier, all the systems that you don't see in the background in order to operate the airline in a more effective way. You're seeing real progress in that area. That's one of the areas that I'm really proud of the progress we've made so far this year, where you can see the stability coming into the operation of the airline, which also then reflects well on the revenue performance in the business. So those two things are very important. It's not necessarily a conservative approach to capacity.
It's really focused on creating that stable revenue base, and creating a stickiness to our customer base, and a stickiness to our network that enables us to actually create loyalty in the business. So that's really what we're after. Obviously, the airline wants to generate profitability. It wants to generate free cash flow. It wants to get back to high performance in those measures. We'll talk to you in February about what we feel about 2027. We feel really good about the direction the airline's going in right now.
Can I ask a follow-up just in terms of where the growth is going? This year benefited from Spirit and the distress associated with Spirit, and you guys did a fantastic job kind of orienting yourselves to benefit from that. I guess it's debatable if there's another financial distress event next year, but let's just assume there isn't. How are you thinking about the growth? Are there new markets still to open? Is it layering in behind existing markets? Maybe you could just help us think about the complexion of the growth.
Hey, this is Bobby. We look at the network as a portfolio. We're going to look at what's the most accretive in terms of from a profitability perspective on routes. We've gone in and we're at about, in terms of just the Spirit opportunity, we've backfilled about a quarter of that. It's a little around half when you talk about what other airlines have gone in and done. The opportunity still exists there for us to look at the routes and markets within that, and they've been very effective for us, frankly, both on the peak days and especially on the off-peak days as well within those markets.
As we go through, you've also seen we've actually increased our overall frequency within markets. We'll look at that continuing and how we provide not only more connectivity and capability for our flyers and our customers to fly throughout the week, but also helps, what Jimmy was talking about on the operational side, as we think about resiliency within the market. Again, our network, we're continuously looking at it. It's a portfolio. It's looking at how we optimize the overall profitability picture within that, and there's a lot of opportunity that exists out there over the course of the next few years.
Look, just to add to that, we'll be opportunistic if things crop up that we think is accretive to Frontier. We don't know what they are yet, right? That's something that's certainly there and adapting our capacity framework to chase something. What we've been doing this year, and we really started this in 2025, is actually picking the markets that we like, where we've seen structural change happen, and that continues. I feel pretty good about the direction of the network and how it's actually building, and building some prominence in markets, and getting an element of loyalty and repeat customers into the business. I can't stress enough the operational side of the business and improving that in order to support that network development.
Appreciate the color. Thanks, guys.
Your next question comes from the line of Duane Pfennigwerth with Evercore. Your line is open. Please go ahead.
Hey, thanks. Good morning. Maybe just to continue down that path, if it's possible, can you delineate between improvement in the overall fare environment in response to higher jet fuel? So basically Frontier following the fare umbrella higher from a lower baseline versus Frontier specific initiatives. Jimmy, you've touched on some of those, but is there any way to delineate between the two?
Yeah, it is hard. That is a challenging question. What I mentioned earlier was, look, we were up pre-fuel crisis or Iranian conflict, up nearly 20% in RASM in Q1. So there's both structural change in that and also better performance by Frontier in managing its revenue. The structural change we were getting was linked to Spirit. So if you look at it, I would say it's about a third better revenue management, maybe about a third Spirit, and about a third fuel. Obviously the fare environment improving as a result of fuel. That's kind of where we sit at the moment, and we'll see how it progresses. We feel really good that there's a lot of stickiness in this revenue change. I mentioned it earlier, we're seeing this unit revenue improvement in advance of adding real premium products to the airline.
We are really excited about where the unit revenues go next year or the year after as we establish these premium products in the airline.
Thank you. Then relatedly, maybe you can speak to the variation of performance across your markets, maybe what you are seeing today versus what you saw historically. Are there any themes in the profile of markets that are outperforming versus markets that are lagging? Is there any relationship to how big your footprint is? When I think about in Orlando and your footprint in Orlando, how does that look relative to the system? Thank you.
Yeah, there is always pluses and minuses that happen across the system. What we are seeing is just broad-based improvement in the business and how we run the business. I am not going to pick specific markets that are outperforming versus other markets. You can read into some of the language that we are using around structural change, that we have certainly seen an improvement in markets where there was a significant overlap with Spirit, and we positioned the airline for that. But outside of that, we are really seeing broad-based improvement in overall revenues.
Thank you.
Your next question comes from the line of Ravi Shanker with Morgan Stanley. Your line is open. Please go ahead.
Hi, this is Madison for Ravi. Thanks for taking the question. First, just wondering, any thoughts on what larger carriers focusing on yields over load factor means for you guys in terms of spillover traffic and if you're seeing any opportunities there moving into the next year?
Hi, Madison. Look, what we're certainly doing in the airline at the moment is adapting to the environment that exists in front of us. We don't control other airlines and their behaviorisms around pricing. We certainly look at our pricing and pricing tools with the objective of maximizing the revenue output that we get. Certainly if other airlines are chasing yield over volume, that's something that's their prerequisite. We like volume. We typically chase volume as a business. There have been periods in the past where we've managed the airline for yield over volume, and then there's periods where we manage the airline for volume over yield. It really depends on the environment that's there, and the ability to maximize the overall revenue base of the airline.
At the moment, we have a nice balance between yield and volume in our business, given the supply-demand dynamic that exists in the environment. We feel pretty good about it, and we feel pretty good about the stickiness of that going forward.
Got it. Thank you for that color. I am just wondering how you guys are viewing the jet fuel recovery participation across the industry, and do you think you can get to 100% recovery? If so, when are you guys targeting that for?
Well, if you look at the last quarter, we effectively got there in the last quarter. Obviously, oil prices are significantly higher than they were in the last quarter right now. We will see how we perform across this quarter. But I think Frontier has performed phenomenally well in offsetting high oil prices with the revenue performance in the airline.
Got it. Thanks so much for the color.
Your next question comes from the line of Andrew Didora with Bank of America. Your line is open. Please go ahead.
Hey, good morning, everyone. I guess, Jimmy or Bobby, you have guided over 20% RASM on the last couple of calls and have ultimately produced 28% and 30% RASM growth. You are guiding to that again. I guess, should we just view that as just a fairly broad kind of revenue outlook because you do sound very constructive on the environment? Or is there anything that you are seeing in your business today that suggests the underlying momentum has slowed a little bit or any specific headwinds that would cause a RASM decel, particularly on much lower capacity growth?
No. Look, we have seen progress on RASM pretty successfully across the last nine, 10 months. We do have some of the changes that we started a year ago in revenue management starting to really lap as you progress through the end of December. But what I see in the revenue environment at the moment is really constructive. And so we anticipate the industry certainly has a strong appetite to pass on higher fuel with higher fares. We are participating in that clearly, and seeing how the business can perform within that environment. And we continue to see that. So we are quite comfortable about the outlook on RASM. For us to deliver double-digit RASM improvements pretty much in every quarter this year, it is testament to the improvements we have had in revenue management, and some of the structural changes that have happened across the industry. And we do not see that changing.
Got it. Understood. And then I guess as we are exiting 2026 here, obviously your sale-leaseback gains will be behind you. Seems like the fleet will be in the spot where you want it to be.
Yeah
Any kind of underlying CASM framework you could provide into next year, particularly as you are basically utilization driven and maybe in that framework, and kind of speak to it in that mid-single digit capacity framework that you outlined earlier. Thanks.
Yeah. It's hard to guide you at the moment. We'll come back in the new year with a guide for next year. Broadly, I would say the productivity that's building in the airline largely offsets the sale leaseback gains year -over -year. You're seeing some productivity come into the airline. We've got a 2.5% improvement in unit costs when you take out sale leaseback gains. That gives you an insight into the direction that the airline is going heading into next year. There's obviously inflation that exists across the U.S. that we've got to be conscious of and understand in the coming months. My objective is to try and get the airline in a place where you effectively, not perfectly, but effectively replace the sale leaseback gains with better unit costs overall. Mark, if you want to give some
Yeah. No, I think you hit the nail on the head.
Thank you, Jimmy.
Thanks, Andrew.
Your next question comes from the line of Michael Linenberg with Deutsche Bank. Your line is open. Please go ahead.
Oh, yeah. Hey, good morning, everyone. Nice earnings beat this quarter, Team. I guess my first out to Bobby, just on the premium product. When does First Class start? I guess you said it starts rolling out. When do you start selling it? If you are already selling it, what are you seeing fares upfront as a multiple of maybe fares in the back? As a related piece, the Starlink, which rolls out next year, most airlines, what we hear, have to offer it for free. It is part of the contract. I think a few out there have been able to negotiate the ability to sell the Starlink product in addition to offer it free to their customers who may have the credit card or be part of a certain loyalty tier. What sort of structure there do you have? Are you able to sell it?
I have a second one.
Yeah. I will hit on the First Class question first. I think Jimmy talked about this a bit earlier around UpFront Plus and what gives us the confidence around this product and what we think it will provide to our customers and to us in terms of revenue benefit. That is UpFront Plus. We have been hitting about 80% paid load factor on that. First Class has been delayed a bit for a variety of reasons, but it is going to be starting to install imminently. What we will do is, we will start selling for the time period with which we believe all of that will be installed. That is going to be sometime in the first quarter, towards the end of the first quarter—
Okay
—we'll actually have it for sale. It has not gone on sale yet, but it will go on sale, we believe again, imminently, as we start rolling the product out itself. On Starlink, we obviously announced that from a commercial perspective, we're not ready to roll out and talk about what that means from a commercial perspective or how we're going to—
Okay
—roll that out that way. But what we will say is, again, I'll reiterate what Jimmy said, this is something that's a game changer for us and our customers.
We are putting on a product that we don't have today with Wi-Fi itself, and we're going from nothing to a product that's best in class, and is the best Wi-Fi in the sky. If you haven't tried it, go out there and try it. It is as good as your home Wi-Fi service, yet you're in the sky. So we're quite excited to be able to roll that out in conjunction with First Class. Starlink is going to start installing in the first quarter, and we'll roll that out aircraft by aircraft throughout 2027.
Great. Thanks, Bobby. Yeah, I agree. Starlink is pretty awesome. My second question to Mark. Mark, this is more of a modeling question. So the third quarter is your last quarter, I believe, of sale leaseback gains, and then I do think we have three quarters of aircraft gains from the sale, right? But I thought I heard you say that you are going to exclude them from your non-GAAP results, and so I was curious why you would exclude them. Maybe you're not taking gains on them. Can you just explain maybe the discrepancy there? And thanks for taking my question.
Yeah. Just a couple quick items. We do have two order book deliveries in the fourth quarter. Those were supposed to be in the third, they got moved to the fourth, so that is number one.
Specific to the tails that we are selling, that was part of our fleet right-sizing and consistent with the rest, that fleet right-sizing dynamic. We are adjusting those for non-GAAP purposes. We are expecting gains on those sales, but just as part of the entire fleet right-sizing, that is why we are excluding those for non-GAAP purposes.
Okay. Thank you.
Your next question comes from the line of Jamie Baker with J.P. Morgan Securities LLC. Your line is open. Please go ahead.
Hey, good morning, everybody. When demand started to recover after COVID, and the financial pressures on the industry began to abate, one unintended consequence that we called out was the likelihood that unions would want to reengage and come back to the negotiating table and labor costs would rise, and that's what happened. I'm wondering if that's how you're thinking about things for Frontier. The revenue momentum is impressive. We're assuming fuel declines at some point next year. Would it be prudent for analysts to pull forward the timing of a potential pilot contract?
Hi, Jamie. Quite frankly, I don't have a good answer to that question.
Okay.
We are continuing a process with the NMB in relation to mediating a pilot contract. Our own pilot, Frontier ALPA, has been changing some leadership. They're going through that process at the moment. We just don't have clarity at the moment as to when we will get into really active negotiations with them. I would suspect it happens in the new year, and we can give you more insight into that as next year progresses. But I truly don't have a good answer as to when we will actually have a contract. It's something that we want as a company to progress and get through in the next 12 months. But I'm dependent on the NMB process and how fast or slow that goes.
No, that's still very helpful. I appreciate it. Obviously, no liquidity issues at the moment, but kind of building on Brandon's question from earlier in the call, can you speak to what conventional capital-raising options you have? I emphasize conventional because I'm not asking about equity or forward mileage sales or anything like that. Just traditional incremental debt capacity, unencumbered asset pools, that sort of thing. Thanks.
Yep. No, thank you, Jamie. The primary unencumbered asset that we have is the loyalty pool of assets that we've got, and as we've talked about, those assets are continuing to gain in strength with the loyalty revenue up 37% this quarter. That portfolio does provide us opportunity as we look forward in the capital markets.
All right, great. Thanks, everybody.
Thank you.
Your next question comes from the line of Chris Stathoulopoulos with SIG. Your line is open. Please go ahead.
Morning, everyone. Going back to the earlier questions around capacity for next year, I realize the 6% to 8% is a soft guide, fuel-dependent here, but if you could help frame the stage and gauge component of that. Also as we think about the deployment, what I heard was not much change, but maybe if you could contextualize the opportunity set or the inning that you believe that you're in in markets like MCO, Atlanta, and on the West Coast, more load, yield, or loyalty opportunity there. I just want to understand how you're thinking about those key markets under that kind of mid-single digit capacity growth. Thanks.
Maybe I'll answer the second part first. Look, obviously your network evolves, but look, we're primarily a leisure airline, so if you look at all the big leisure locations around the U.S., we're pretty large in a lot of these locations. We'll continue to add to that footprint as we go. If you look at Orlando or Las Vegas, and connecting those types of locations with the rest of the U.S. is kind of a fundamental part of our business. We're clearly looking at some of the stuff that Spirit exited this year, and replacing some of that capacity. Not all of it. We are certainly replacing the stuff that we think is accretive to Frontier, and that's something that we'll continue to do. We're looking at our network in relation to how it behaves and linked to the loyalty program.
Bringing back flying on Tuesdays and Wednesdays has actually been quite accretive to the loyalty program and improving the customer retention that we have in the business. I think that's quite important, and that's been largely a fundamental portion of the growth that we've put in place, particularly in the last quarter. Like September 2025, on off-peak days of the week, we were flying a couple of hundred flights a day when we were flying 700 flights a day on the peak days of the week. Bringing that up to like 500, 550 flights a day infills into a network that already exists. It helps the customer base that we have in the airline have more choices throughout the week. We've seen a really positive response to our existing customer base to those changes.
We will continue to do that across the network as we build out next year. We can be quite selective because the level of growth is quite low. It is like 6%-7% in comparison to years when we have done 20%-25% new capacity growth, plus a redeployment of capacity that did not work. You are dealing with immature markets in the 30%-35% zone and creating that instability in revenue. I am not going to guide you on exactly where we are going to deploy our network next year, but you can see the direction that the airline is going in. It is primarily leisure, maybe attaching to some small business opportunities that exist, and then focusing on markets that drive some loyalty into the business.
Okay, and then I guess as a segue, you mentioned on the day of the week shift and the uplift from loyalty. I do not think you mentioned what the delta looks like on peak versus off-peak RASM. I know you spoke about utilization, but if you could give any color around what that looks like on unit revenues.
Actually pretty consistent across the week, the improvement year-over-year.
Okay. Thank you.
We're seeing improvement both on peak and off-peak days.
Thank you.
Okay.
Your last question comes from the line of Daniel McKenzie with Seaport Global. Seaport Global, your line is open. Please go ahead.
Oh. Yeah. Thanks, guys, for squeezing me in here. Couple of questions here. First is, going back to 2027 growth, if you could help us understand the character of the growth. What I'm getting at is you're adding a bunch of premium seats, and is that 6%-8% primarily all premium seats, or is it 6%-8%? So mainline cabin inventory flat? If you could just help us, or at least give us some perspective on what the nature, kind of that premium versus mainline mix looks like, or even how it looks today and how that should trend into next year.
Well, look, what we've talked about on premium is First Class. When we talk about that, currently in those slots, you have UpFront Plus, and that blocks a middle seat. From a revenue-based perspective, that actually doesn't take away a seat in that regard. We are looking at how we could flex on UpFront Plus with the cabin we have, so we're looking at that. That does play into it. Otherwise, from a growth perspective, that's what we've announced and we're looking toward is the First Class introduction.
Yeah. Understood. Okay. I guess just the second question here is just reconciling the schedules data with the guide that you're giving for the fourth quarter. It looks like schedules data is a little higher than what you're guiding to. I'm just wondering if you can reconcile that. Then I guess just the second sort of housecleaning question is just the reference to modernize the systems of the airline. I'm just wondering if you can help us understand where you've invested and what that IT journey looks like over the coming year. Is there some incremental benefit that will either drive cost or revenue savings as you roll out upgrades or new systems over the coming year?
Let me deal with the capacity. Yeah, we're probably a little bit behind in terms of inducting aircraft in this quarter, so there's some capacity to come out that we have on sale at the moment that will come out in the coming days. Then we'll progress through the next few weeks or so and see what the timing on inducting those aircraft are. There's a little bit of noise in our schedule that's on sale versus what we're actually going to achieve. You'll see that update over the coming days and weeks. On modernizing the architecture of the airline, we are modernizing the operation center quite considerably and really the maintenance planning side of the business.
Secondarily to that, modernizing or improving the customer interfaces that we have in the airline that will create much faster solutions to passengers when they're disrupted. There's a significant amount of work going on across all of those teams in both running the day-to-day operation, and also changing how we operate the airline. I'm pretty excited about it. It'll probably take mostly through 2027 to get this into a place where we're very comfortable with it. But the initial stages of it are quite interesting. We're obviously building better databases and platforms, and then layering tools on top of that to get better decision-making into the airline.
And have some AI improvements that are happening within the business, but also just pure blocking and tackling planning improvements that we are making in the airline that are making a significant difference to the output that the airline has every day.
And the cost savings associated with that, can you provide some perspective around that?
Yeah. Clearly, a better operation delivers lower costs, right? And actually better revenue output. I do not have that quantified for you at the moment. But if we can bring our completion factor up by half a point, that is a significant revenue boost to the airline, and obviously there is a cost of displacement that happens with customers that we would avoid. So, yeah, there are real meaningful improvements that will come into the airline as a result of that. It is very difficult to quantify it right now because the timing of getting these right is dependent also on things that are outside of our control, right? What I am trying to get the airline to is recovering from weather and ATC issues in a quicker way in order to have more stability in the operation as you recover. And that is something that we are very focused on.
That will improve the overall performance and the overall completion factor of the airline, which obviously delivers lower costs but enhanced revenues.
Well, thanks for the time, you guys.
All right. Thanks, Dan.
We've reached the end of the Q&A session. This concludes today's call. Thank you for attending. You may now disconnect.