Frontier Airlines, Inc 10q
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 2003.
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF
1934
Commission file number: 0-24126
FRONTIER AIRLINES, INC.
(Exact name of registrant as specified in its charter)
Colorado 84-1256945
(State or other jurisdiction of incorporated or organization) (I.R.S. Employer Identification No.)
7001 Tower Road, Denver, CO 80249
(Address of principal executive offices) (Zip Code)
Issuer's telephone number including area code: (720) 374-4200
Indicate by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing requirements for the past
90 days. Yes X No
Indicate by check mark whether the Registrant is an accelerated filer (as defined in
Rule 12b-2 of the Exchange Act). Yes X No
The number of shares of the Company's common stock outstanding as of November 1, 2003
was 35,190,768.
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Page
Item 1. Financial Information
Financial Statements 1
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 9
Item 3. Quantitative and Qualitative Disclosures About Market Risk 26
Item 4. Controls and Procedures 27
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 28
Item 6. Exhibits and Reports on Form 8-K 28
PART I. FINANCIAL INFORMATION
Item 1. Financial Information
FRONTIER AIRLINES, INC.
Balance Sheets
September 30, 2003 March 31, 2003
Assets
Current assets
Cash and cash equivalents $ 201,332,308 $ 102,880,404
Short-term investments 2,000,000 2,000,000
Restricted investments 22,603,189 14,765,000
Receivables, net of allowance for doubtful
accounts of $241,000 and $237,000 at
September 30, 2003 and March 31, 2003, respectively 22,186,140 25,856,692
Income taxes receivable 329,823 24,625,616
Security and other deposits 912,399 912,399
Prepaid expenses and other assets 9,404,212 9,050,671
Inventories, net of allowance of $2,478,000 at
September 30, 2003 and March 31, 2003, respectively 5,780,345 5,958,836
Deferred tax asset 7,410,930 4,788,831
Total current assets 271,959,346 190,838,449
Property and equipment, net 415,633,962 334,492,983
Security and other deposits 11,998,393 6,588,023
Aircraft pre-delivery payments 25,884,661 30,531,894
Restricted investments 9,709,781 9,324,066
Deferred loan fees and other assets, net 6,428,472 16,068,361
$ 741,614,615 $ 587,843,776
=============== ===============
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 19,308,980 $ 26,388,621
Air traffic liability 77,050,721 58,875,623
Other accrued expenses 40,763,309 22,913,659
Current portion of long-term debt 15,316,629 20,473,446
Deferred revenue and other liabilities 1,330,000 1,396,143
Total current liabilities 153,769,639 130,047,492
Long-term debt 279,378,528 261,738,503
Deferred tax liability 32,916,660 20,017,787
Deferred revenue and other liabilities 20,096,590 17,072,868
Total liabilities 486,161,417 428,876,650
Stockholders' equity:
Preferred stock, no par value, authorized 1,000,000
shares; none issued - -
Common stock, no par value, stated value of $.001
per share, authorized 100,000,000; 35,147,768 and
29,674,050 issued and outstanding at September 30,
2003 and March 31, 2003, respectively 35,148 29,674
Additional paid-in capital 180,663,677 96,424,525
Unearned ESOP shares (573,277) -
Other comprehensive loss (116,690) -
Retained earnings 75,444,340 62,512,927
255,453,198 158,967,126
$ 741,614,615 $ 587,843,776
=============== ===============
See accompanying notes to financial statements.
FRONTIER AIRLINES, INC.
Statements of Operations
(Unaudited)
Three Months Ended Six Months Ended
September 30, September 30, September 30, September 30,
2003 2002 2003 2002
Revenues:
Passenger $ 159,964,675 $ 116,709,640 $ 298,855,237 $ 226,001,522
Cargo 2,369,222 1,366,251 4,058,247 2,946,187
Other 3,487,275 1,278,633 5,273,638 2,219,222
Total revenues 165,821,172 119,354,524 308,187,122 231,166,931
Operating expenses:
Flight operations 42,267,994 38,236,779 84,433,315 75,320,183
Aircraft fuel expense 25,900,551 21,332,131 48,501,320 38,728,122
Aircraft and traffic servicing 26,077,456 21,274,015 50,074,966 40,623,124
Maintenance 17,120,004 17,500,920 34,997,976 33,942,991
Promotion and sales 16,470,511 13,505,113 31,190,508 28,224,421
General and administrative 9,784,376 6,574,920 18,720,012 12,696,791
Depreciation and amortization 5,870,300 4,133,227 11,057,498 7,931,639
Total operating expenses 143,491,192 122,557,105 278,975,595 237,467,271
Operating income (loss) 22,329,980 (3,202,581) 29,211,527 (6,300,340)
Nonoperating income (expense):
Interest income 524,468 487,798 937,831 1,194,760
Interest expense (4,034,387) (1,895,668) (7,868,780) (3,154,979)
Emergency Wartime Supplemental
Appropriations Act compensation - - 15,024,188 - 15,024,188
Early extinguishment of debt (8,742,489) - (8,742,489) - (8,742,489)
Aircraft lease and facility exit costs (4,659,058) - (5,345,353) -
Loss on sale-leaseback of aircraft (1,237,718) - (1,237,718) - (1,237,718)
Other, net (676,218) (286,772) (852,311) (438,322)
Total nonoperating expense, net (18,825,402) (1,694,642) (8,084,632) (2,398,541)
Income (loss) before income tax expense
(benefit) and cumulative effect of
change in method of accounting for
maintenance 3,504,578 (4,897,223) 21,126,895 (8,698,881)
Income tax expense (benefit) 1,506,855 (1,842,729) 8,195,482 (3,171,966)
Income (loss) before cumulative effect of
change in method of accounting for
maintenance 1,997,723 (3,054,494) 12,931,413 (5,526,915)
Cumulative effect of change in method of
accounting for maintenance, net of tax - - - 2,010,672
Net income (loss) $ 1,997,723 $(3,054,494) $ 12,931,413 $(3,516,243)
============== ============== =============== ==============
(Continued)
FRONTIER AIRLINES, INC.
Statements of Operations
(Unaudited)
September 30, September 30, September 30, September 30,
2003 2002 2003 2002
Earnings (loss) per share:
Basic:
Income (loss) before cumulative effect
of a change in accounting principle $0.07 ($0.10) $0.43 ($0.19)
Cumulative effect of change in method of
accounting for maintenance checks - - - 0.07
Net income (loss) $0.07 ($0.10) $0.43 ($0.12)
============== ============== =============== ==============
Diluted:
Income (loss) before cumulative effect
of a change in accounting principle $0.06 ($0.10) $0.40 ($0.19)
Cumulative effect of change in method of
accounting for maintenance checks - - - 0.07
Net income (loss) $0.06 ($0.10) $0.40 ($0.12)
============== =============== =============== ===============
Weighted average shares of
common stock outstanding:
Basic 30,440,589 29,632,898 30,133,571 29,583,870
============== =============== =============== ===============
Diluted 33,620,352 29,632,898 32,514,599 29,583,870
============== =============== =============== ===============
See accompanying notes to financial statements.
FRONTIER AIRLINES, INC.
Statements of Stockholders' Equity and Other Comprehensive Loss
For the Year Ended March 31, 2003 and the Six Months Ended September 30, 2003
Accumulated
Additional Unearned Other Total
Common paid-in ESOP Comprehensive Retained stockholders'
Stock capital shares Loss earnings equity
Balances, March 31, 2002 $ 29,422 $85,867,486 $(2,119,670) $ - $85,356,055 $169,133,293
Net loss - - - - (22,843,128) (22,843,128)
Exercise of common stock options 252 616,695 - - - 616,947
Warrants issued in conjunction
with debt agreement - 9,282,538 - - - 9,282,538
Tax benefit from exercises of
common stock options and
warrants - 657,806 - - - 657,806
Contribution of common stock to
employees stock ownership plan - - - - - -
Amortization of employee stock
compensation - - 2,119,670 - - 2,119,670
Balances, March 31, 2003 29,674 96,424,525 - - 62,512,927 158,967,126
Net income - - - - 12,931,413 12,931,413
Other comprehensive loss -
Unrealized loss on
derivative instruments - - - (116,690) - (116,690)
Total comprehensive income 12,814,723
Sale of common stock, net of
offering costs of $257,000 5,050 81,080,419 - - - 81,085,469
Exercise of common stock
options 76 348,974 - - - 349,050
Tax benefit from exercises of
common stock options and
warrants - 516,999 - - - 516,999
Contribution of common stock to
employees stock ownership plan 348 2,292,760 (2,293,108) - - -
Amortization of employee stock
compensation - - 1,719,831 - - 1,719,831
Balances, September 30, 2003 $35,148 $180,663,677 $ (573,277) $(116,690) $75,444,340 $255,453,198
==================================================================================
See accompanying notes to financial statements.
FRONTIER AIRLINES, INC.
Statements of Cash Flows
For the Six Months Ended September 30, 2003 and 2002
(Unaudited)
2003 2002
Cash flows from operating activities:
Net income (loss) $ 12,931,413 $ (3,516,243)
Adjustments to reconcile net income (loss) to net cash
provided (used) by operating activities:
Employee stock plan compensation expense 1,197,879 1,413,113
Depreciation and amortization 11,057,498 7,931,639
Loss on disposal of equipment 2,246,836 -
Unrealized derivative gain (358,743) -
Deferred tax expense 10,276,774 5,282,898
Changes in operating assets and liabilities:
Restricted investments (8,841,604) (8,434,423)
Receivables 3,670,552 3,756,330
Income taxes receivable 24,295,793 (311,321)
Security, maintenance and other deposits (2,719,470) (450,300)
Prepaid expenses and other assets (353,541) 1,680,945
Inventories 178,491 (689,900)
Deferred loan and other expenses 10,870,936 (559,797)
Accounts payable (7,079,641) (1,510,843)
Air traffic liability 18,175,098 (3,100,527)
Other accrued expenses 18,421,955 (3,104,387)
Deferred stabilization act compensation - (4,000,000)
Accrued maintenance expense - (3,196,617)
Deferred revenue and other liabilities 2,957,579 2,159,384
Net cash provided (used) by operating activities 96,927,805 (6,650,049)
Cash flows from investing activities:
Decrease (increase) in aircraft lease and purchase
deposits, net 1,956,333 (10,235,887)
Decrease in restricted investments 617,700 411,800
Capital expenditures (94,445,313) (98,755,494)
Net cash used by investing activities (91,871,280) (108,579,581)
Cash flows from financing activities:
Net proceeds from issuance of common stock 81,951,518 570,976
Proceeds from long-term borrowings 76,500,000 73,200,000
Payment of financing fees (1,039,347) (988,351)
Principal payments on long-term borrowing (64,016,792) (2,542,438)
Net cash provided by financing activities 93,395,379 70,240,187
Net increase (decrease) in cash and cash equivalents 98,451,904 (44,989,443)
Cash and cash equivalents, beginning of period 102,880,404 87,555,189
Cash and cash equivalents, end of period $ 201,332,308 $ 42,565,746
================ ===============
See accompanying notes to financial statements.
FRONTIER AIRLINES, INC.
Notes to Financial Statements
September 30, 2003
(1) Basis of Presentation
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and the instructions to Form 10-Q and Regulation S-X. Accordingly, they do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements and should be read in
conjunction with the Company's Annual Report on Form 10-K for the year ended March
31, 2003. In the opinion of management, all adjustments (consisting only of
normal recurring adjustments) considered necessary for a fair presentation have
been included. The results of operations for the three and six months ended
September 30, 2003 are not necessarily indicative of the results that will be
realized for the full year.
(2) Summary of Significant Accounting Policies
Stock-Based Compensation
The Company follows Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" ("APB 25") and related Interpretations in accounting
for its employee stock options and follows the disclosure provisions of Statement
of Financial Accounting Standards No. 123 (SFAS 123). The Company applies APB 25
and related Interpretations in accounting for its plans. Accordingly, no
compensation cost is recognized for options granted at a price equal to the fair
market value of the Common Stock on the date of grant. Pro forma information
regarding net income and earnings per share is required by SFAS 123, which also
requires that the information be determined as if the Company has accounted for
its employee stock options under the fair value method of that Statement. Had
compensation cost for the Company's stock-based compensation plan been determined
using the fair value of the options at the grant date, the Company's pro forma net
income (loss) and earnings (loss) per share would be as follows:
Three Months Ended Three Months Ended
September 30, September 30, September 30, September 30,
2003 2002 2003 2002
Net income (loss):
As Reported $ 1,997,723 $ (3,054,494) $ 12,931,413 $ (3,516,243)
Pro Forma $ 1,378,809 $ (3,592,239) $ 11,864,756 $ (6,113,647)
Earnings (loss) per share, basic:
As Reported $ 0.07 $ (0.10) $ 0.43 $ (0.12)
Pro Forma $ 0.05 $ (0.12) $ 0.39 $ (0.21)
Earnings (loss) per share, diluted:
As Reported $ 0.06 $ (0.10) $ 0.40 $ (0.12)
Pro Forma $ 0.04 $ (0.12) $ 0.36 $ (0.21)
FRONTIER AIRLINES, INC.
Notes to Financial Statements
September 30, 2003
Interest Rate Hedging Program
During the six months ending September 30, 2003, the Company designated certain
interest rate swaps as qualifying cash flow hedges. Under these hedging
arrangements, the Company is hedging the interest payments associated with a
portion of its LIBOR-based borrowings. Under the swap agreements, the Company
pays a fixed rate of interest on the notional amount of the contracts of $27
million, and it receives a variable rate of interest based on the three month
LIBOR rate, which is reset quarterly. Interest expense for the three and six
months ended September 30, 2003 includes $93,000 and $172,000 of settlement
amounts payable to the counter party for the period. Changes in the fair value of
interest rate swaps designated as hedging instruments are reported in accumulated
other comprehensive income. These amounts are subsequently reclassified into
interest expense as a yield adjustment in the same period in which the related
interest payments on the LIBOR-based borrowings affects earnings. Approximately
$117,000 of unrealized losses are included in accumulated other comprehensive loss
at September 30, 2003 and are expected to be reclassified into interest expense as
a yield adjustment of the hedged interest payments over the next 12 months.
(3) Government Assistance
The Emergency Wartime Supplemental Appropriations Act (the "Appropriations Act"),
enacted in April 2003, made available approximately $2.3 billion to U.S. flag air
carriers for expenses and revenue foregone related to aviation security. The
payment received by each carrier was for the reimbursement of the TSA security
fees, the September 11th Security Fee and/or the Aviation Security Infrastructure
Fee paid by the carrier as of the date of enactment of the Appropriations Act.
According to the Appropriations Act, an air carrier may use the amount received as
the air carrier determines. Pursuant to the Appropriations Act, the Company
received $15,573,000 in May 2003, of which $549,000 was paid to Mesa Air Group for
the revenue passengers Mesa carried as Frontier JetExpress.
The Appropriations Act provides for additional reimbursements to be made to U.S.
flag air carriers for costs incurred related to the FAA requirements for enhanced
flight deck door security measures that were mandated as a result of the September
11 terrorist attacks. Pursuant to the Appropriations Act, the Company received
$889,000 in September 2003 for expenses related to the installation of enhanced
flight deck doors on its aircraft, $275,000 of which was recorded as a reduction
to property and equipment, net, and $614,000 was recorded as a reduction to
maintenance expense.
(4) Stockholders' Equity
Common Stock
The Company completed a secondary public offering of 5,050,000 shares of common
stock in September 2003. The Company received $81,085,000, net of offering
expenses, from the sale of these shares. See note 5 for a discussion of the
required prepayment of the Company's government guaranteed loan as a result of
this sale of stock. Additionally, the government guaranteed loan includes certain
anti-dilution adjustments in the event of any sale of the Company's common stock.
As a result, the exercise price of the warrants issued in connection with the loan
was adjusted from $6.00 per share to $5.92 per share. The total warrants outstanding
at September 2003 in connection with the loan was 3,833,945.
FRONTIER AIRLINES, INC.
Notes to Financial Statements
September 30, 2003
(5) Long-Term Debt
Government Guaranteed Loan
In July 2003, the Company received a federal income tax refund totaling
$26,574,000 from the Internal Revenue Service. The Company prepaid $10,000,000 on
its government guaranteed loan upon receipt of this refund as required by the
terms of the loan agreement.
The government guaranteed loan also required a prepayment equal to 60% of the net
proceeds from any sales of common stock. As a result of the sale of common stock
(see note 4) in September 2003, the Company prepaid approximately $48,418,000 on
the loan. As a result of the prepayments made during the six months ended
September 30, 2003, the remaining loan balance is approximately $11,582,000 at
September 30, 2003. The remaining principal payments under the loan will consist
of $571,000 payable in September 2004, four quarterly installments of
approximately $2,643,000 beginning in December 2004, and one final payment of
$439,000 in December 2005.
Other Long-Term Debt
During the six months ended September 30, 2003, the Company borrowed an additional
$76,500,000 for the purchase of three Airbus A318 aircraft. Each aircraft loan
has a term of 12 years and is payable in monthly installments, including interest,
payable in arrears, with a floating interest rate adjusted quarterly based on
LIBOR plus a margin of 2.25%. At the end of the term, there is a balloon payment
of $3,060,000 for each aircraft loan. The loans are secured by the aircraft.
Item 2: Management's Discussion and Analysis of Financial Condition and Results of
Operations
This report contains forward-looking statements within the meaning of Section 21E of
the Securities Exchange Act of 1934 that describe the business and prospects of
Frontier Airlines, Inc. and the expectations of our company and management. All
statements, other than statements of historical facts, included in this report that
address activities, events or developments that we expect, believe, intend or
anticipate will or may occur in the future, are forward-looking statements. When used
in this document, the words "estimate," "anticipate," "project" and similar
expressions are intended to identify forward-looking statements. Forward-looking
statements are inherently subject to risks and uncertainties, many of which cannot be
predicted with accuracy and some of which might not even be anticipated. These risks
and uncertainties include, but are not limited to: the timing of, and expense
associated with, expansion and modification of our operations in accordance with our
business strategy or in response to competitive pressures or other factors; the
inability to obtain sufficient gates at Denver International Airport to accommodate
the expansion of our operations; general economic factors and behavior of the
fare-paying public and its potential impact on our liquidity; terrorist attacks or
other incidents that could cause the public to question the safety and/or efficiency
of air travel; operational disruptions, including weather; industry consolidation; the
impact of labor disputes; enhanced security requirements; changes in the government's
policy regarding relief or assistance to the airline industry; the economic
environment of the airline industry generally; increased federal scrutiny of low-fare
carriers generally that may increase our operating costs or otherwise adversely affect
us; actions of competing airlines, such as increasing capacity and pricing actions of
United Airlines and other competitors and other actions taken by United Airlines
either in or out of bankruptcy protection; the availability of suitable aircraft,
which may inhibit our ability to achieve operating economies and implement our
business strategy; the unavailability of, or inability to secure upon acceptable
terms, financing necessary to purchase aircraft which we have ordered or lease
aircraft we anticipate adding to our fleet through lease financing; issues relating to
our transition to an Airbus aircraft fleet; uncertainties regarding aviation fuel
prices; and uncertainties as to when and how fully consumer confidence in the airline
industry will be restored, if ever. Because our business, like that of the airline
industry generally, is characterized by high fixed costs relative to revenues, small
fluctuations in our yield per available seat mile ("RASM") or cost per available seat
mile ("CASM") can significantly affect operating results. See "Risk Factors" in our
Form 10-K for the year ended March 31, 2003 and our Form 8-K filed September 19, 2003,
which updates our risk factors.
General
We are a scheduled passenger airline based in Denver, Colorado. We are the
second largest jet service carrier at Denver International Airport ("DIA"). As of
November 1, 2003, we, in conjunction with Frontier JetExpress operated by Mesa Air
Group ("Mesa"), operate routes linking our Denver hub to 37 cities in 22 states
spanning the nation from coast to coast and to three cities in Mexico. We are a low
cost, affordable fare airline operating in a hub and spoke fashion connecting points
coast to coast. We were organized in February 1994 and we began flight operations in
July 1994 with two leased Boeing 737-200 jets. We have since expanded our fleet in
service to 39 jets (26 of which we lease and 13 of which we own), consisting of 14
Boeing 737-300s, 21 Airbus A319s, and four Airbus A318s. In May 2001, we began a
fleet replacement plan to replace our Boeing aircraft with new purchased and leased
Airbus jet aircraft, a transition we expect to complete by approximately of the end of
calendar year 2005. As of November 1, 2003, we no longer operate Boeing 737-200
aircraft. During the three and six months ended September 30, 2003, we increased
capacity by 10.4% and 16.0% over the prior comparable periods, respectively. In the
three and six months ended September 30, 2003, we increased passenger traffic by 42.8%
and 37.1% over the prior comparable periods, respectively, outpacing our increase in
capacity during the periods.
We currently lease 10 gates at DIA. Together with our regional jet codeshare
partner, Frontier Jet Express, we use up to 14 gates at DIA and three regional jet
parking positions, where we operate approximately 180 daily system flight departures
and arrivals and 22 Frontier JetExpress daily system flight departures and arrivals at
DIA. We have signed a letter of intent to lease an additional gate at DIA and are
waiting final lease documentation to add that gate to our lease agreement. In the
meantime, we are using this additional gate with preference over all other domestic
flights. DIA has also commenced construction of two additional gates at the west end
of Concourse A where we now operate. Upon completion of the construction, we intend
to lease the two additional gates on a preferential basis. At this time it is
anticipated these two additional gates will be available in late Spring 2004. On
November 9, 2003, the City and County of Denver and United Airlines announced that they
reached agreement with respect to the restructuring of United's lease of gates and other
facilities at DIA. The agreement will permit United to proceed with the assumption of
the restructured lease as part of its bankruptcy reorganization process. As part of that
settlement, we are advised that United has agreed to relinquish one gate on Concourse A
that DIA would then lease to Frontier on a permanent basis. In addition, United would
make available two additional gates for use by Frontier until the earlier of the
construction of additional gates for Frontier on the West end of Concourse A or October 31,
2005. We are currently in discussions with DIA to develop detailed plans relating to an
expansion of Concourse A to add additional gates for Frontier's future use.
We began service to Orange County, California and Milwaukee, Wisconsin on August
31, 2003 with two and three daily round-trips, respectively, and we added a third
round-trip to Orange County, California on October 1, 2003. Additionally, On November
1, 2003 we began service to St. Louis, Missouri with two daily round-trip flights,
resumed our seasonal service to Mazatlan, Mexico with one weekly round-trip frequency,
increasing to three weekly round-trip frequencies on November 22, 2003; and began service
to Cabo San Lucas with one weekly round-trip frequency, increasing to three weekly round-
trip frequencies beginning on November 22, 2003. We intend to begin service to Puerto
Vallarta, Mexico on November 22, 2003 with three weekly round-trip frequencies and to
Ixtapa/Zihuatanejo, Mexico, on January 31, 2004 with two weekly round-trip
frequencies. We have applied for authority to add a third frequency at New York's
LaGuardia airport. There can be no assurances that we will receive the authority to
do so.
In June 2003, we entered into an agreement with Kinetics, Inc., a provider of
enterprise and self-service technology to the U.S. airline industry, to deploy their
new automated check-in system. The launch of "FlexCheck," our suite of airport and
web-based automated check-in services, utilizes Kinetics' TouchPort self-service
terminals and associated Kinetics software solutions for airport and Internet
check-in. FlexCheck became available via the Internet in early August 2003 with
deployment of self-service kiosks at our hub at DIA in September 2003. The system will
allow our customers to check in for their flights using a standard credit card for
identification purposes only, their EarlyReturns frequent flyer number, E-ticket
number or confirmation number.
On September 18, 2003, we signed a 12 year agreement with Horizon Air
Industries, Inc. ("Horizon") under which Horizon will operate up to nine 70-seat CRJ
700 aircraft under our Frontier JetExpress brand. The service will begin on January
1, 2004 with four aircraft, and the remaining aircraft will be added to service
periodically through May 2004. We will control the scheduling of this service. We
will reimburse Horizon for its expenses related to the operation plus a margin. The
agreement provides for financial incentives, penalties and changes to the margin based
on performance of Horizon and our financial performance. This service will replace
our current codeshare arrangement with Mesa Airlines, which terminates on December 31,
2003.
In March 2003, we entered into an agreement with Juniper Bank
(WWW.JUNIPERBANK.COM), a full-service credit card issuer, to offer exclusively Frontier
MasterCard products to consumers, customers and Frontier's EarlyReturns frequent flyer
members. We launched the co-branded credit card in May 2003. As of November 1, 2003,
Juniper Bank has issued approximately 23,170 of these credit cards. We believe that
the Frontier/Juniper Bank co-branded MasterCard will offer one of the most aggressive
affinity card programs because free travel can be earned for as little as 15,000
miles.
In October 2002, we signed a purchase and long-term services agreement with
LiveTV to bring DIRECTV AIRBORNE(TM)satellite programming to every seatback in our
Airbus fleet. In February 2003, we completed the installation of the LiveTV system on
all Airbus A319 aircraft. The installed systems became operational upon receipt of
regulatory approval in December 2002. We are moving forward with the installation of
the LiveTV systems in our Airbus A318 aircraft and anticipate these systems will
become operational by January 2004. We have implemented a $5 per segment usage charge
for access to the system to offset the costs for the system equipment, programming and
services. We believe the DIRECTV(TM)product represents a significant value to our
customers and offers a competitive advantage for our company.
In September 2001, we entered into a codeshare agreement with Mesa. Under the
terms of the agreement, we market and sell flights operated by Mesa as Frontier
JetExpress using five 50-passenger Bombardier CRJ-200 regional jets. Effective May 4,
2003, Frontier Jet Express replaced our mainline service to Tucson, Arizona, Oklahoma
City, Oklahoma and Boise, Idaho and terminated service to Oakland, California.
Frontier JetExpress also provides service to Ontario, California and Wichita, Kansas,
and supplements our mainline service to San Jose, California, Albuquerque, New Mexico
and Austin, Texas. Mesa terminated service to Wichita, Kansas on October 31, 2003 and
this service was replaced by Great Lakes Aviation, Ltd. ("Great Lakes"), another
codeshare partner, on November 1, 2003. In February 2003, we amended our codeshare
agreement with Mesa from a prorate-based compensation method to a "cost plus"
compensation method effective March 1, 2003 through August 31, 2003. In June 2003, Mesa
and us agreed to extend the term through December 31, 2003. Horizon replaces Mesa
as the Frontier JetExpress operation on January 1, 2004 as previously discussed.
Effective July 9, 2001, we began a codeshare agreement with Great Lakes. We
recently added two additional markets under the codeshare agreement: Rapid City,
South Dakota on July 30, 2003 and to Grand Junction, Colorado on August 1, 2003.
Including these two new cities, Great Lakes provides service to 36 regional markets
located in Arizona, Colorado, Kansas, New Mexico, Nebraska, North Dakota, South
Dakota, Texas, Utah, and Wyoming under this codeshare agreement.
Our filings with the Securities and Exchange Commission are available at no cost
on our website, WWW.FRONTIERAIRLINES.COM, in the Investor Relations folder contained
in the section titled "About Frontier". These reports include our annual report on
Form 10-K, our quarterly reports on Form 10-Q, current reports on Form 8-K, Section 16
reports on Forms 3, 4 and 5, and any related amendments or other documents, and are
typically available within two days after we file the materials with the SEC.
Our corporate headquarters are located at 7001 Tower Road, Denver, Colorado
80249. Our administrative office telephone number is 720-374-4200 and our
reservations telephone number is 800-432-1359.
Results of Operations
We had net income of $1,998,000 or 6¢ per diluted share for the three months
ended September 30, 2003 as compared to a net loss of $3,055,000, or 10¢ per share
for the three months ended September 30, 2002. Included in our net income for the three
months ended September 30, 2003 were the following special items on a pre-tax and
profit sharing basis; write-off of deferred loan costs of $8,742,000 associated
with the prepayment of all but $11,582,000 remaining principal of the government guaranteed
loan; a charge for Boeing aircraft and facility lease exit costs of $4,659,000; loss of
$1,721,000 on the sale of one Airbus aircraft in a sale-leaseback transaction and from
the sale of a spare engine; and an unrealized derivative loss of $276,000. These items,
net of income taxes and profit sharing, totaled $0.27 per diluted share.
We had net income of $12,931,000 or 40¢per diluted share for the six months
ended September 30, 2003 as compared to a net loss of $3,516,000, before cumulative
effect of change in accounting for maintenance checks, or 19¢per share for the six
months ended September 30, 2002. Included in our net income for the six months ended
September 30, 2003 were the following special items on a pre-tax and profit sharing
basis; $15,024,000 of compensation received under the Appropriations Act; write-off of
deferred loan costs of $8,742,000 associated with the prepayment of all but $11,582,000
remaining principal of the government guaranteed loan; a charge for Boeing aircraft and
facility lease exit costs of $5,345,000; loss of $1,721,000 on the sale of one Airbus
aircraft in a sale-leaseback transaction and from the sale of a spare engine; and an
unrealized derivative gain of $475,000. These items, net of income taxes and profit
sharing, totaled $0.03 per diluted share.
The following table provides certain of our financial and operating data for the
three month and six month periods ended September 30, 2003 and 2002.
Three Months Ended Sept. 30, Six Months Ended Sept. 30,
2003 2002 2003 2002
Selected Operating Data:
Passenger revenue (000s) (1) $ 159,965 $ 116,710 $ 298,855 $ 226,002
Revenue passengers carried (000s) 1,457 987 2,684 1,916
Revenue passenger miles (RPMs) (000s) (2) 1,318,020 922,817 2,443,253 1,782,421
Available seat miles (ASMs) (000s) (3) 1,721,397 1,559,879 3,396,447 2,929,278
Passenger load factor (4) 76.6% 59.2% 71.9% 60.8%
Break-even load factor (1) (5) 74.9% 61.7% 65.0% 63.2%
Block hours (6) 33,908 30,875 67,035 58,554
Departures 15,078 13,583 29,688 25,767
Average aircraft stage length (miles) 858 870 860 861
Average passenger length of haul (miles) 905 935 910 930
Average daily fleet block hour utilization(7) 10.0 9.9 10.1 9.9
Passenger yield per RPM (cents) (8) (9) 12.09 12.57 12.18 12.64
Passenger yield per ASM (cents) (9) (10) 9.26 7.44 8.76 7.69
Total yield per ASM (cents) (10) 9.63 7.65 9.07 7.89
Cost per ASM (cents) 8.34 7.86 8.21 8.11
Fuel cost per ASM (cents) (12) 1.51 1.37 1.43 1.32
Cost per ASM excluding fuel (cents) 6.83 6.49 6.78 6.78
Average fare (13) $ 103 $ 109 $ 104 $ 108
Average aircraft in service 37.0 33.8 36.3 32.2
Aircraft in fleet at end of period 38.0 35.0 38.0 35.0
Average age of aircraft at end of period 4.6 9.3 4.6 9.3
(1) "Passenger revenue" includes revenues for non-revenue passengers, administrative
fees, and revenue recognized for unused tickets that are greater than one year
from issuance date.
(2) "Revenue passenger miles," or RPMs, are determined by multiplying the number of
fare-paying passengers carried by the distance flown.
(3) "Available seat miles," or ASMs, are determined by multiplying the number of seats
available for passengers by the number of miles flown.
(4) "Passenger load factor" is determined by dividing revenue passenger miles by
available seat miles.
(5) "Break-even load factor" is the passenger load factor that will result in
operating revenues being equal to operating expenses, assuming constant revenue
per passenger mile and expenses. The break-even load factor for the three months
ended September 30, 2003 includes special items net of profit-sharing; write-off
of deferred loan costs of $8,624,000 associated with the prepayment of the
guaranteed loan; a charge for Boeing aircraft and facility lease exit costs of
$4,292,000; loss of $1,586,000 on the sale of one Airbus aircraft in a
sale-leaseback transaction and from the sale of a spare engine; and an unrealized
derivative loss of $254,000. The break-even load factor for the six months ended
September 30, 2003 includes special items net of profit-sharing; compensation
received under the Appropriations Act of $13,842,000; write-off of deferred loan
costs of $8,624,000 associated with the prepayment of the guaranteed loan; a
charge for Boeing aircraft and facility lease exit costs of $4,924,000; loss of
$1,586,000 on the sale of one Airbus aircraft in a sale-leaseback transaction and
from the sale of a spare engine; and an unrealized derivative gain of $438,000.
(6) "Block hours" represent the time between aircraft gate departure and aircraft gate
arrival.
(7) "Average daily block hour utilization" represents the total block hours divided
by the number of aircraft days in service, divided by the weighted average of
aircraft in our fleet during that period. The number of aircraft includes all
aircraft on our operating certificate, which includes scheduled aircraft, as well
as aircraft out of service for maintenance and operation spare aircraft, and excludes
aircraft removed permanently from revenue service or new aircraft not yet placed in
revenue service.
(8) "Yield per RPM" is determined by dividing passenger revenues (excluding charter revenue)
by revenue passenger miles.
(9) For purposes of these yield calculations, charter revenue is excluded from passenger
revenue. These figures may be deemed non-GAAP financial measures under regulations
issued by the Securities and Exchange Commission. We believe that presentation of
yield excluding charter revenue is useful to investors because charter flights are not
included in RPMs or ASMs. Furthermore, in preparing operating plans and
forecasts, we rely on an analysis of yield exclusive of charter revenue. Our
presentation of non-GAAP financial measures should not be viewed as a substitute
for our financial or statistical results based on GAAP. The calculation of
passenger revenue excluding charter revenue is as follows:
Three Months Ended Sept. 30, Six Months Ended Sept. 30,
2003 2002 2003 2002
Passenger revenues, as reported $159,965 $116,710 $298,855 $226,002
Charter revenue 580 721 1,194 779
Passenger revenues, excluding
charter revenue $159,385 $115,989 $297,661 $225,223
================================== ================================
(10) "Yield per ASM" is determined by dividing passenger revenues (excluding charter revenue) by
available seat miles.
(11) "Total yield per ASM" is determined by dividing passenger revenues by available seat miles.
(12) This may be deemed a non-GAAP financial measure under regulations issued by the Securities
and Exchange Commission. We believe the presentation of financial information excluding fuel
expense is useful to investors because we believe that fuel expense tends to
fluctuate more than other operating expenses, it facilitates comparison of results
of operations between current and past periods and enables investors to better
forecast future trends in our operations. Furthermore, in preparing operating
plans and forecasts, we rely, in part, on trends in our historical results of
operations excluding fuel expense. However, our presentation of non-GAAP
financial measures should not be viewed as a substitute for our financial results
determined in accordance with GAAP.
(13) "Average fare" excludes revenue included in passenger revenue for non-revenue passengers,
administrative fees, and revenue recognized for unused tickets that are greater
than one year from issuance date.
The following table provides our operating revenues and expenses expressed as
cents per total ASMs and as a percentage of total operating revenues, as rounded, for
the three and six month periods ended September 30, 2003 and 2002.
Three Months Ended September 30, Six Months Ended September 30,
2003 2002 2003 2002
Per % Per % Per % Per %
total of total of total of total of
ASM Revenue ASM Revenue ASM Revenue ASM Revenue
Revenues:
Passenger 9.29 96.5% 7.48 97.8% 8.80 97.0% 7.71 97.8%
Cargo 0.14 1.4% 0.09 1.1% 0.12 1.3% 0.10 1.3%
Other 0.20 2.1% 0.08 1.1% 0.15 1.7% 0.08 0.09%
Total revenues 9.63 100.0% 7.65 100.0% 9.07 100.0% 7.89 100.0%
==========================================================================
Operating expenses:
Flight operations 2.46 25.5% 2.71 32.0% 2.48 27.4% 2.57 32.6%
Aircaft fuel expense 1.51 15.6% 1.12 17.9% 1.43 15.7% 1.32 1.67%
Aircraft and traffic servicing 1.51 15.7% 1.36 17.8% 1.47 16.2% 1.39 17.6%
Maintenance 0.99 10.3% 1.12 14.7% 1.03 11.4% 1.16 14.7%
Promotion and sales 0.96 10.0% 0.87 11.3% 0.92 10.1% 0.97 12.2%
General and administrative 0.57 5.9% 0.42 5.5% 0.55 6.1% 0.43 5.5%
Depreciation and amortization 0.34 3.5% 0.26 3.5% 0.33 3.6% 0.27 3.4%
Total operating expenses 8.34 86.5% 7.86 102.7% 8.21 90.5% 8.11 102.7%
==========================================================================
Our passenger yield per RPM was 12.09¢and 12.57¢for the three months
ended September 30, 2003 and 2002, respectively, or a decrease of 3.8%. Our length of haul
was 905 and 935 for the three months ended September 30, 2003 and 2002, respectively,
or a decrease of 3.2%. Our average fare was $103 for the three months ended September
30, 2003 as compared to $109 for the three months ended September 30, 2002, a decrease
of 5.5%. Our passenger yield per RPM was 12.18¢and 12.64¢for the six months
ended September 30, 2003 and 2002, respectively, or a decrease of 3.6%. Our length of haul
was 910 and 930 for the six months ended September 30, 2003 and 2002, respectively,
or a decrease of 2.2%. Our average fare was $104 for the six months ended September
30, 2003 as compared to $108 for the six months ended September 30, 2002, a decrease
of 3.7%. As part of our new fare structure, which we implemented in February 2003,
our highest-level business fares were reduced by 25 to 45 percent, and our lowest
available walk-up fares were reduced by 38 to 77 percent. The new fare structure,
which is comprised of six fare categories, caps all fares to and from Denver at $399
or $499 one-way, excluding passenger facility, security or segment fees, depending on
length of haul. Unlike some other airlines, these fares can be booked each way,
allowing customers to get the best price on both the inbound and outbound portion of
their itinerary with no round-trip purchase required. Our new fare structure removes
the advance purchase requirements of past pricing structures, and there are no
Saturday night stayovers required. Although this has created downward pressure on our
passenger yield per RPM and average fare, we believe the effect on our revenues was
offset by an increase in passenger traffic. Our RASM for the three months ended
September 30, 2003 and 2002 was 9.26¢and 7.44¢, an increase of 24.5%. Our RASM
for the six months ended September 30, 2003 and 2002 was 8.76¢and 7.69¢, an
increase of 13.9%. Additionally, we believe that our average fare during the three and
six months ended September 30, 2003 was a result of intense competition from United
Airlines, a carrier operating under Chapter 11 bankruptcy protection, which is our
principal competitor at DIA.
Our CASM for the three months ended September 30, 2003 and 2002 was 8.34¢
and 7.86¢, respectively, an increase of .48¢or 6.1%. CASM excluding fuel for
the three months ended September 30, 2003 and 2002 was 6.83¢and 6.49¢,
respectively, an increase of .34¢or 5.2%. Our CASM increased during the three
months ended September 30, 2003 as a result of an increase in the average price of
fuel from .92¢to $1.01 or .39¢per ASM; an increase in aircraft and traffic
servicing expenses combined with sales and promotions expenses of .24¢as a
result of the increase in the number of passengers we serve and general increases
in DIA airport costs as well as related increases in sales and promotion expenses for
booking fees associated with the increase in passengers, the ongoing costs of LiveTV
service of .05¢; and, an increase in general and administrative expenses of
..15¢as a result of the bonus accrual associated with our return to profitability
and an increase in health insurance costs associated with general increase in health
insurance costs. These increases were partially offset by a decrease of .13¢ in
maintenance expense primarily as a result of the reduction in the number of aircraft
in our Boeing fleet that were replaced with new Airbus A319 aircraft. Our CASM
also increased as a result of a reduction in planned block hours flown due to the
timing of Boeing 737-200 aircraft returns while the number of crew personnel and related
salaries remained relatively static while we prepared for the deliveries of new
Airbus aircraft. Our CASM for the six months ended September 30, 2003 and 2002 was
8.21¢and 8.11¢, respectively, an increase of .10¢or 1.2%. CASM
excluding fuel for the six months ended September 30, 2003 and 2002 was 6.78¢
for each of the periods.
An airline's break-even load factor is the passenger load factor that will
result in operating revenues being equal to operating expenses, assuming constant
revenue per passenger mile. For the three months ended September 30, 2003, our
break-even load factor was 74.9% compared to our achieved passenger load factor of
76.6%. The break-even load factor for the three months ended September 30, 2003
includes the following special items net of profit-sharing; write-off of deferred loan
costs of $8,624,000 associated with the prepayment of the guaranteed loan; a charge
for Boeing aircraft and facility lease exit costs of $4,292,000; loss of $1,586,000 on
the sale of one Airbus aircraft in a sale-leaseback transaction and from the sale of a
spare engine; and an unrealized derivative loss of $254,000. These items, net of
profit sharing, accounted for 6.2 load factor points of the breakeven load factor
amount. For the six months ended September 30, 2003, our break-even load factor was
65.0% compared to our achieved passenger load factor of 71.9%. The break-even load
factor for the six months ended September 30, 2003 includes the following special
items net of profit-sharing; compensation received under the Appropriations Act of
$13,842,000; write-off of deferred loan costs of $8,624,000 associated with the
prepayment of the guaranteed loan; a charge for Boeing aircraft and facility lease
exit costs of $4,924,000; loss of $1,586,000 on the sale of one Airbus aircraft in a
sale-leaseback transaction and from the sale of a spare engine; and an unrealized
derivative gain of $438,000. These items, net of profit sharing, had no impact on the
break-even load factor.
Small fluctuations in our RASM or in our CASM can significantly affect operating
results because we, like other airlines, have high fixed costs in relation to
revenues. Airline operations are highly sensitive to various factors, including the
actions of competing airlines and general economic factors, which can adversely affect
our liquidity, cash flows and results of operations.
Our operations during the three and six months ended September 30, 2003, are not
necessarily indicative of future operating results or comparable to the prior periods
ended September 30, 2002.
Revenues
Our revenues are highly sensitive to changes in fare levels. Competitive fare
pricing policies have a significant impact on our revenues. Because of the elasticity
of passenger demand, we believe that increases in fares may at certain levels result
in a decrease in passenger demand in many markets. We cannot predict future fare
levels, which depend to a substantial degree on actions of competitors and the
economy. When sale prices or other price changes are initiated by competitors in our
markets, we believe that we must, in most cases, match those competitive fares in
order to maintain our market share. Passenger revenues are seasonal depending on the
markets' locations.
We believe that our new fare structure that was implemented in February 2003 may
have had a downward effect on the average fare offset by an increase in passenger
traffic. Our load factors of 75.6%, 80.1%, 79.7%, and 69.5% for the months of June
through September 2003, respectively, represent record load factors for us as compared
to prior comparable months. Our July 2003 load factor was the highest in our
history. We cannot predict whether or for how long these higher load factors will
continue.
Passenger Revenues. Passenger revenues totaled $159,965,000 for the three
months ended September 30, 2003 compared to $116,710,000 for the three months ended
September 30, 2002, or an increase of 37.1%, on increased ASMs of 161,518,000 or
10.4%. Passenger revenues totaled $298,855,000 for the six months ended September 30,
2003 compared to $226,002,000 for the six months ended September 30, 2002, or an
increase of 32.2%, on increased ASMs of 467,169,000 or 16.0%. Passenger revenues
include revenues for reduced rate standby passengers, administrative fees, and revenue
recognized for tickets that are not used within one year from their issue dates. We
carried 1,457,000 revenue passengers during the three months ended September 30, 2003
compared to 987,000 during the three months ended September 30, 2002, an increase of
47.6%. We had an average of 37.0 aircraft in our fleet during the three months ended
September 30, 2003 compared to an average of 33.8 aircraft during the three months
ended September 30, 2002, an increase of 9.5%. RPMs for the three months ended
September 30, 2003 were 1,318,020,000 compared to 922,817,000 for the three months
ended September 30, 2002, an increase of 42.8%. Our load factor increased to 76.6%
for the three months ended September 30, 2003 from 59.2% for the prior comparable
period, or and increase of 17.4 points, or 29.4%. We carried 2,684,000 revenue
passengers during the six months ended September 30, 2003 compared to 1,916,000 during
the six months ended September 30, 2002, an increase of 40.1%. We had an average of
36.3 aircraft in our fleet during the six months ended September 30, 2003 compared to
an average of 32.2 aircraft during the six months ended September 30, 2002, an
increase of 12.7%. RPMs for the six months ended September 30, 2003 were
2,443,253,000 compared to 1,782,421,000 for the six months ended September 30, 2002,
an increase of 37.1%. Our load factor increased to 71.9% for the six months ended
September 30, 2003 from 60.8% for the prior comparable period, or and increase of 11.1
points, or 18.3%.
Cargo revenues, consisting of revenues from freight and mail service, totaled
$2,369,000 and $1,366,000 for the three months ended September 30, 2003 and 2002,
respectively, representing 1.4% and 1.1%, respectively, of total revenues, an increase
of 73.4%. Cargo revenues totaled $4,058,000 and $2,946,000 for the six months ended
September 30, 2003 and 2002, respectively, representing 1.3% of total revenues for
each of the periods, an increase of 37.7%. Cargo revenues increased over the prior
comparable periods as a result of our new contract to carry mail under the United
States Postal Service Commercial Air 2003 Air System Contract. This adjunct to the
passenger business is highly competitive and depends heavily on aircraft scheduling,
alternate competitive means of same day delivery service and schedule reliability.
Other revenues, comprised principally of interline handling fees, liquor sales,
LiveTV sales, co-branded credit card revenue, and excess baggage fees totaled
$3,487,000 and $1,279,000, or 2.1% and 1.1% of total revenues for the three months
ended September 30, 2003 and 2002, respectively, an increase of 172.6%. Other
revenues totaled $5,274,000 and $2,219,000, or 1.7% and 1.0% of total operating
revenues for the six months ended September 30, 2003 and 2002, respectively, an
increase of 137.7%. Other revenues increased over the prior comparable period
primarily due to the Mesa codeshare agreement, LiveTV sales, and revenue generated
from our co-branded credit card program. For the three and six months ended September
30, 2003, we recognized $182,000 and $301,000, respectively.
Operating Expenses
Operating expenses include those related to flight operations, aircraft and
traffic servicing, maintenance, promotion and sales, general and administrative and
depreciation and amortization. Total operating expenses for the three months ended
September 30, 2003 and 2002 were $143,491,000 and $122,557,000 and represented 86.5%
and 102.7% of revenue, respectively. Total operating expenses were $278,976,000 and
$237,467,000 for the six months ended September 30, 2003 and 2002 and represented
90.5% and 102.7% of revenue, respectively. Operating expenses decreased as a
percentage of revenue during the three and six months ended September 30, 2003 as a
result of an increase in total revenues as compared to the six months ended September
30, 2002.
Salaries, Wages and Benefits. We record salaries, wages and benefits within the
specific expense category identified in our statement of operations for which they are
relevant. Salaries, wages and benefits totaled $39,429,000 and $31,199,000 and were
23.8% and 26.1% of total revenues for the three months ended September 30, 2003 and
2002, respectively, an increase of 26.4%. Salaries, wages and benefits totaled
$76,431,000 and $60,775,000 and were 24.8% and 26.3% of total revenues for the six
months ended September 30, 2003 and 2002, respectively, an increase of 25.8%.
Salaries, wages and benefits increased over the prior comparable periods largely as a
result of our bonus accrual due to our return to profitability, overall wage
increases, and an increase in the number of employees to support our ASM growth of
16.0% during the six months ended September 30, 2003. Our employees increased from
approximately 2,950 in September 2002 to approximately 3,570 in September 2003, an
increase of 21.0%.
Flight Operations. Flight operations expenses of $42,268,000 and $38,237,000
were 25.5% and 32.0% of total revenue for the three months ended September 30, 2003
and 2002, respectively, an increase of 10.5%. Flight operations expenses of
$84,433,000 and $75,320,000 were 27.4% and 32.6% of total revenue for the six months
ended September 30, 2003 and 2002, respectively, an increase of 12.1%. Flight
operations expenses include all expenses related directly to the operation of the
aircraft including lease and insurance expenses, pilot and flight attendant
compensation, in-flight catering, crew overnight expenses, flight dispatch and flight
operations administrative expenses.
Aircraft lease expenses totaled $17,921,000 (10.8% of total revenue) and
$17,671,000 (14.8% of total revenue) for the three months ended September 30, 2003 and
2002, respectively, an increase of 1.4%. Aircraft lease expenses totaled $35,113,000
(11.4% of total revenue) and $34,601,000 (15.0% of total revenue) for the six months
ended September 30, 2003 and 2002, respectively, an increase of 1.5%. The average
number of leased aircraft decreased 6.8% from 28.2 to 26.4 during the three months
ended September 30, 2003. The average number of leased aircraft decreased 4.5% from
27.7 to 26.5 during the six months ended September 30, 2003. The marginal increase is
due to the replacement of older and smaller leased Boeing 737-200 aircraft that have
unfavorable lease rates with newer and larger Airbus A319 leased aircraft with more
favorable lease rates.
Aircraft insurance expenses totaled $2,258,000 (1.4% of total revenue) for the
three months ended September 30, 2003. Aircraft insurance expenses for the three
months ended September 30, 2002 were $2,548,000 (2.1% of total revenue). Aircraft
insurance expenses were .17¢ and .28¢ per RPM for the three months ended
September 30, 2003 and 2002, respectively. Aircraft insurance expenses totaled $5,004,000
(1.6% of total revenue) for the six months ended September 30, 2003. Aircraft insurance
expenses for the six months ended September 30, 2002 were $5,166,000 (2.2% of total
revenue). Aircraft insurance expenses were .20¢ and .29¢per RPM for the six
months ended September 30, 2003 and 2002, respectively. Aircraft insurance decreased per
RPM as a result of less expensive war risk coverage that is presently provided by the FAA
than during the periods ended September 30, 2002 that was previously provided by
commercial underwriters combined with a 30% decrease in our basic hull and liability
insurance rates effective June 7, 2003. The current FAA war risk policy is in effect
until December 10, 2003. We do not know whether the government will extend the
coverage, and if it does, how long the extension will last. We expect that if the
government stops providing excess war risk coverage to the airline industry, the
premiums charged by aviation insurers for this coverage will be substantially higher
than the premiums currently charged by the government or the coverage will not be
available from reputable underwriters.
Pilot and flight attendant salaries before payroll taxes and benefits totaled
$12,510,000 and $10,575,000 or 7.8% and 9.1% of passenger revenue for the three months
ended September 30, 2003 and 2002, an increase of 18.3%. Pilot and flight attendant
salaries before payroll taxes and benefits totaled $24,995,000 and $20,434,000 or 8.4%
and 9.0% of passenger revenue for the six months ended September 30, 2003 and 2002, an
increase of 22.3%. Pilot and flight attendant compensation for the three and six
months ended September 30, 2003 also increased as a result of a 9.5% and 12.7%
increase in the average number of aircraft in service, respectively, an increase of
9.8% and 14.5% in block hours, respectively, a general wage increase in flight
attendant and pilot salaries and additional crew required to replace those who were
attending training on the Airbus equipment. We pay pilot and flight attendant
salaries for training, consisting of approximately six and three weeks, respectively,
prior to scheduled increases in service, which can cause the compensation expense
during such periods to appear high in relationship to the average number of aircraft
in service. We expect these costs to continue to increase as we place additional
aircraft into service and continue to retire Boeing equipment.
Aircraft Fuel Expenses. Aircraft fuel expenses include both the direct cost of
fuel, including taxes, as well as the cost of delivering fuel into the aircraft.
Aircraft fuel expenses of $25,901,000 for 25,543,000 gallons used and $21,332,000 for
23,170,000 gallons used resulted in an average fuel expense $1.01 and 92.1¢per gallon
for the three months ended September 30, 2003 and 2002, respectively. Aircraft fuel
expenses represented 15.6% and 17.9% of total revenue for the three months ended
September 30, 2003 and 2002, respectively. Aircraft fuel expenses of $48,501,000 for
49,955,000 gallons used and $38,728,000 for 44,028,000 gallons used resulted in an
average fuel cost of 97.1¢and 88.0¢per gallon, for the six months ended September
30, 2003 and 2002, respectively. Aircraft fuel expenses represented 15.7% and 16.7%
of total revenue for the six months ended September 30, 2003 and 2002, respectively.
Fuel prices are subject to change weekly, as we purchase a very small portion in
advance for inventory. We initiated a fuel hedging program in late November 2002,
which increased fuel expense by $36,000 for the three months ended September 30, 2003
and decreased fuel expense $503,000 for the six months ended September 30, 2003. Fuel
consumption for the three months ended September 30, 2003 and 2002 averaged 753 and
750 gallons per block hour, respectively, or an increase of .4%. Fuel consumption
per block hour increased during the three months ended September 30, 2003 from the
prior comparable period because of the 17.4 point increase in our load factor,
partially offset by the increase in Airbus aircraft. Fuel consumption for the six
months ended September 30, 2003 and 2002 averaged 745 and 752 gallons per block hour,
respectively, or a decrease of .9%. Fuel consumption per block hour decreased during
the six months ended September 30, 2003 from the prior comparable period because of
the more fuel-efficient Airbus aircraft added to our fleet coupled with the reduction
in our Boeing fleet, which had higher fuel burn rates.
Aircraft and Traffic Servicing. Aircraft and traffic servicing expenses were
$26,077,000 and $21,274,000 (an increase of 22.6%) for the three months ended
September 30, 2003 and 2002, respectively, and represented 15.7% and 17.8% of total
revenue. Aircraft and traffic servicing expenses were $50,075,000 and $40,623,000 (an
increase of 23.3%) for the six months ended September 30, 2003 and 2002, respectively,
and represented 16.2% and 17.6% of total revenue. Aircraft and traffic servicing
expenses include all expenses incurred at airports including landing fees, facilities
rental, station labor, ground handling expenses and interrupted trip expenses
associated with delayed or cancelled flights. Interrupted trip expenses are amounts
paid to other airlines to reaccommodate passengers as well as hotel, meal and other
incidental expenses. Aircraft and traffic servicing expenses will increase with the
addition of new cities to our route system. During the three months ended September
30, 2003, our departures increased to 15,078 from 13,583 for the six months ended
September 30, 2002, or 11.0%. Aircraft and traffic servicing expenses were $1,729 per
departure for the three months ended September 30, 2003 as compared to $1,566 per
departure for the three months ended September 30, 2002, or an increase of $163 per
departure. During the six months ended September 30, 2003, we served approximately 36
cities compared to 31 during the six months ended September 30, 2002, or an increase
of 16.1%. During the six months ended September 30, 2003, our departures increased to
29,688 from 25,767 for the six months ended September 30, 2002, or 15.2%. Aircraft
and traffic servicing expenses were $1,687 per departure for the six months ended
September 30, 2003 as compared to $1,577 per departure for the six months ended
September 30, 2002, or an increase of $110 per departure. Aircraft and traffic
servicing expenses increased per departure as a result of general increases in airport
rents and landing fees and a 47.6% and a 40.1% increase in passengers for the three
and six months ended September 30, 2003, respectively, as compared to the prior
periods. Additionally, cargo (including mail) revenue increased 73.4% and 37.7% for
the three and six months ended September 30, 2003, respectively, as compared to prior
periods. Aircraft and traffic servicing expenses increase with increases in
passengers and cargo handling. We also experienced higher landing fees associated
with the Airbus aircraft which have higher landing weights than the Boeing aircraft.
Maintenance. Maintenance expenses of $17,120,000 and $17,501,000 were 10.3% and
14.7% of total revenue for the three months ended September 30, 2003 and 2002,
respectively, a decrease of 2.2%. Maintenance expenses of $34,998,000 and $33,943,000
were 11.4% and 14.7% of total revenue for the six months ended September 30, 2003 and
2002, respectively, an increase of 3.1%. These expenses include all labor, parts and
supplies expenses related to the maintenance of the aircraft. Routine maintenance is
charged to maintenance expense as incurred while major engine overhauls and heavy
maintenance check expense are accrued monthly with variances from accruals recognized
at the time of the check. Maintenance cost per block hour for the three months ended
September 30, 2003 and 2002 were $505 and $567, respectively. Maintenance cost per
block hour for the six months ended September 30, 2003 and 2002 were $522 and $580,
respectively. Maintenance cost per block hour decreased as a result of a decrease in
our Boeing fleet coupled with the additional new Airbus aircraft that are less costly
to maintain than our older Boeing aircraft. During the three months ended September
30, 2003, we recorded a credit to maintenance expenses totaling $614,000 as a result
of the cockpit door reimbursement under the Appropriations Act, or $18 per block
hour.
Promotion and Sales. Promotion and sales expenses totaled $16,471,000 and
$13,505,000 and were 10.0% and 11.3% of total revenue for the three months ended
September 30, 2003 and 2002, respectively, an increase of 22.0%. Promotion and sales
expenses totaled $31,191,000 and $28,224,000 and were 10.1% and 12.2% of total revenue
for the six months ended September 30, 2003 and 2002, respectively, an increase of
10.5%. These include advertising expenses, telecommunications expenses, wages and
benefits for reservationists and as well as marketing management and sales personnel,
credit card fees, travel agency commissions and computer reservations costs. During
the three months ended September 30, 2003, promotion and sales expenses per passenger
decreased to $11.30 compared to $13.68 for the three months ended September 30, 2002.
During the six months ended September 30, 2003, promotion and sales expenses per
passenger decreased to $11.62 compared to $14.73 for the six months ended September
30, 2002. Promotion and sales expenses per passenger decreased as a result of
variable expenses that are based on lower average fares, the elimination of
substantially all travel agency commissions effective on tickets sold after May 31,
2002, and economies of scale associated with our growth.
General and Administrative. General and administrative expenses for the three
months ended September 30, 2003 and 2002 totaled $9,784,000 and $6,575,000 (an
increase of 48.8%) and were 5.9% and 5.5% of total revenue, respectively. General and
administrative expenses for the six months ended September 30, 2003 and 2002 totaled
$18,720,000 and $12,697,000 (an increase of 47.4%) and were 6.1% and 5.5% of total
revenue for each of the six months ended September 30, 2003 and 2002, respectively.
During the three months ended September 30, 2003, we accrued $1,298,000 for employee
performance bonuses, or .8% of total revenue. During the six months ended September
30, 2003, we accrued for employee performance bonuses totaling $2,423,000, or .8% of
total revenue. Bonuses are based on profitability. As a result of our pre-tax loss
for the three and six months ended September 30, 2002, we did not accrue bonuses.
General and administrative expenses include the wages and benefits for several of our
executive officers and various other administrative personnel including legal,
accounting, information technology, aircraft procurement, corporate communications,
training and human resources and other expenses associated with these departments.
Employee health benefits, accrued vacation and bonus expenses, general insurance
expenses including worker's compensation and write-offs associated with credit card
and check fraud are also included in general and administrative expenses. Our
employees increased from approximately 2,950 in September 2002 to approximately 3,570
in September 2003, or 21.0%. Accordingly, we experienced increases in our human
resources, training, information technology, and health insurance benefit expenses.
General and administrative expenses increased with a general increase in the cost of
providing health insurance..
Depreciation and Amortization. Depreciation and amortization expenses of
$5,870,000 and $4,133,000 were approximately 3.5% of total revenue for each of the
periods ended the three months ended September 30, 2003 and 2002, respectively, an
increase of 42.0%. Depreciation and amortization expenses of $11,057,000 and
$7,932,000 were approximately 3.6% and 3.4% of total revenue for the six months ended
September 30, 2003 and 2002, respectively, an increase of 39.4%. These expenses
include depreciation of aircraft and aircraft components, office equipment, ground
station equipment and other fixed assets. Depreciation expense increased over the
prior year largely as a result of an increase in the average number of Airbus A319 and
A318 aircraft owned from an average of 4.7 during the September 2002 quarter to an
average of 9.8 during the September 2003 quarter, an increase of 108.5%.
Nonoperating Income (Expense). Net nonoperating expense totaled $8,085,000 for
the six months ended September 30, 2003 compared to net nonoperating expense totaling
$2,398,000 for the six months ended September 30, 2002.
Interest income decreased to $938,000 from $1,195,000 during the six months
ended September 30, 2003 from the prior period due a decrease in interest rates.
Interest expense increased to $7,869,000 for the six months ended September 30, 2003
from $3,155,000 as a result of interest expense associated with the financing of
additional aircraft purchased since September 30, 2002 and the government guaranteed
loan we obtained in February 2003.
During the six months ended September 30, 2003, we ceased using three of our
Boeing 737-200 leased aircraft, two of which had lease terminations in October 2003
and one with a lease termination date in October 2005. In August 2003, we closed our
maintenance facility in El Paso Texas, which had a lease termination date in August
2007. As a result of these transactions we recorded a pre-tax charge of $5,345,000.
This amount recognizes the remaining fair value of the lease payments and the
unamortized leasehold improvements on the aircraft and facility.
We completed a public offering of 5,050,000 shares of common stock in September
2003. Under the terms for our government guaranteed loan by the ATSB, as a result of
this offering, we were required to make a prepayment of the loan equal to 60% of the
net proceeds from the offering. As a result, we prepaid approximately $48,418,000 on
the loan and wrote off approximately $8,742,000 of deferred loan costs associated with
the prepayment amount. Of the $8,742,000, approximately $7,239,000 represented the
value assigned to the warrants issued to the ATSB and to two other guarantors in
connection with the loan transaction. The warrants had an estimated fair value of
$9,282,000 when issued. The fair value for these options was estimated at the date of
grant using a Black-Scholes option pricing model.
Other, net nonoperating expense includes a loss totaling $1,238,000 on the sales
leaseback of an Airbus A319 aircraft and a loss totaling $483,000 on the sale of an
aircraft engine during the six months ended September 30, 2003.
Offsetting these nonoperating expenses during the six months ended September 30,
2003, is pre-tax compensation of $15,024,000 as a result of payments under the
Appropriations Act for expenses and revenue foregone related to aviation security. We
received a total of $15,573,000 in May 2003, of which we paid $549,000 to Mesa for the
revenue passengers Mesa carried as Frontier JetExpress.
Income Tax Expense. Income tax expense totaled $8,195,000 during the six months
ended September 30, 2003 at a 38.8% rate, compared to an income tax benefit of
$3,172,000 for the six months ended September 30, 2002, at a 36.5% rate.
Liquidity and Capital Resources
Our liquidity depends to a large extent on the number of passengers who fly with
us, the fares we charge, our operating and capital expenditures, and our financing
activities. We depend on lease or mortgage financing to acquire all of our aircraft,
including 40 firm additional owned and leased Airbus aircraft as of September 30, 2003
scheduled for delivery through 2008. In August 2003, we amended our purchase
agreement with Airbus to provide for 15 additional firm Airbus A319 aircraft purchases
with deliveries scheduled beginning in calendar year 2004 and continuing through 2008.
We had cash and cash equivalents and short-term investments of $203,332,000 at
September 30, 2003 and $104,880,000 at March 31, 2003, respectively. At September 30,
2003, total current assets were $271,959,000 as compared to $153,770,000 of total
current liabilities, resulting in working capital of $118,189,000. At March 31, 2003,
total current assets were $190,838,000 as compared to $130,047,000 of total current
liabilities, resulting in working capital of $60,791,000. The increase in our cash
and working capital from March 31, 2003 is largely a result of cash provided by a
stock offering in September 2003 which netted $81,085,000 after offering expenses
offset by a required prepayment of principal and interest totaling $48,633,000 on our
government guaranteed loan and by operating activities. Also favorably impacting our
liquidity during the six months ended September 30, 2003, was the receipt of
$15,913,000 under the Appropriations Act. In September 2003 we completed an aircraft
sale leaseback with net proceeds to us totaling $4,374,000. In July 2003, we received
our income tax refund from the Internal Revenue Service totaling $26,574,000 and
prepaid $10,000,000 on our government guaranteed loan upon receipt of this refund as
required by the loan agreement.
Cash provided by operating activities for the six months ended September 30,
2003 was $96,928,000. This is attributable to our net income for the period, the
income tax refund we received, an increase in air traffic liability and accrued
expenses, offset by a decrease in restricted investments and accounts payable. Cash
used by operating activities for the six months ended September 30, 2002 was
$6,650,000. This is attributable to the net loss for the period, increases in
restricted investments, receivables, security, maintenance and other deposits,
decreases in accounts payable, air traffic liability, other accrued expenses, and
deferred Stabilization Act compensation, offset by a decrease in prepaid expenses and
increases in accrued maintenance expense and deferred lease and other expenses.
Included in cash used by operating activities in the 2002 period is a $4,000,000
repayment of the excess amounts received under the Stabilization Act.
Cash used in investing activities for the six months ended September 30, 2003
was $91,871,000. Net aircraft lease and purchase deposits decreased by $1,956,000
during this period. We used $94,445,000 for the purchase of three additional Airbus
aircraft, aircraft leasehold improvements, ground equipment to support increased
below-wing operations, and computer equipment which included scanning equipment for
the new mail transportation requirements. During the six months ended September 30,
2003, we took delivery of three purchased Airbus A318 aircraft and applied their
respective pre-delivery payments to the purchase of those aircraft. Additionally, we
completed a sale-leaseback transaction on one of our purchased aircraft that we took
delivery of in September 2003, generating cash proceeds of approximately $4,374,000
from the sale and the return of the pre-delivery payments relating to the purchase
commitment. We agreed to lease the aircraft over a 12 year term. Cash used by
investing activities for the six months ended September 30, 2002 was $108,580,000. We
used $98,755,000 for the purchase of three additional Airbus aircraft and to purchase
rotable aircraft components, leasehold improvements and other general equipment
purchases. Net aircraft lease and purchase deposits increased by $10,236,000 this
period. During the six months ended September 30, 2002, we took delivery of three
purchased Airbus aircraft and applied their respective pre-delivery payments to the
purchase of those aircraft.
Cash provided by financing activities for the six months ended September 30,
2003 and 2002 was $93,395,000 and 70,240,000, respectively. During the six months
ended September 30, 2003, we completed a stock offering of 5,050,000 shares of our
common stock. We received $81,085,000, net of offering expenses, from the sale of
these shares. We used $48,418,000 of the proceeds to prepay the government guaranteed
loan. During the six months ended September 30, 2003 and 2002, we received $349,000
and $571,000, respectively, from the exercise of common stock options. During the six
months ended September 30, 2003 and 2002, we borrowed $76,500,000 and $73,200,000,
respectively, to finance the purchase of Airbus aircraft, of which $5,599,000 and
$2,542,000 was repaid as principal payments during the respective periods. During the
six months ended September 30, 2003 we prepaid an additional $10,000,000 on the
government guaranteed loan as required by the loan agreement.
We have been working closely with DIA, our primary hub or operations, and the
offices of the Mayor of the City and County of Denver, in which DIA is located, to
develop strategies and plans for expanding Concourse A where our aircraft gates are
located and also improving efficient use of existing gates, in order to accommodate
our anticipated growth over the next several years. At this time, DIA has committed
to adding two additional gates to Concourse A for our preferential use. It
is expected that these gates will become available in late spring of 2004. We are
examining other expansion options that could add up to an additional eight gates
and five regional jet parking positions to the west side of Concourse A. As new gates
are constructed, we would enter into long-term lease arrangements to use those gates
on a preferential basis. On November 9, 2003, the City and County of Denver and United
Airlines announced that they had reached agreement with respect to the restructuring
of United's lease of gates and other facilities at DIA. The agreement will permit United
to proceed with the assumption of the restructured lease as part of its bankruptcy
reorganization process. As a part of the negotiations, we are advised that United has
agreed to relinquish one gate on Concourse A for immediate lease to Frontier on a permanent
basis. In addition, United would make available two additional gates for use by Frontier
until the earlier of the construction of additional gates for Frontier on the West end of
Concourse A or October 31, 2005. Plans for our expansion of Concourse A are still in
development and the final scope of the project, if any, and a firm estimate of the
project costs, is yet to be determined. We also have not been advised of the amount
of increased rents that will result from Frontier's lease of the gates being made
available by United. It is impossible at this time to estimate the increased rates and
charges that we would incur as the result of the construction and leasing of newly
constructed gates on Concourse A or the lease by Frontier of the gates being made available
by United.
As part of the lease restructure between the City and County of Denver and United
Airlines, we believe that United has been provided certain concessions and reductions in
the rents, rates and charges arising from their lease of facilities at DIA. We have
been advised by the City and County of Denver that they will seek to prevent the reduced
rates and charges being paid by United from increasing the rates and charges being paid
by other airlines. However, the City and County of Denver has also made it clear that
in certain circumstances it will have no choice but to increase rates and charges being
paid by other airlines in order to comply with their own cash flow, reserve account and
bond financing requirements. Because we are the second largest airline operating out
of Denver, we may incur a larger impact of any increase in rates and charges imposed by
DIA. At this time, it is impossible to quantify what the increase in our rates and
charges would be, if any, due to the concession being provided to United.
We have been assessing our liquidity position in light of; our aircraft purchase
commitments and other capital needs, the economy, our competition, the events of
September 11, and other uncertainties surrounding the airline industry. Prior to
applying for a government guaranteed loan under the Stabilization Act, we filed a
shelf registration with the Securities and Exchange Commission in April 2002 that
allowed us to sell equity or debt securities from time to time as market conditions
permit. In September 2003, we completed a stock offering of 5,050,000 shares of our
common stock. Although the stock offering has improved our liquidity, we may need to
continue to explore avenues to enhance our liquidity if our current economic and
operating environment changes. We intend to continue to examine domestic or foreign
bank aircraft financing, bank lines of credit and aircraft sale-leasebacks, the sale
of equity or debt securities, and other transactions as necessary to support our
capital and operating needs. For further information on our financing plans and
activities, see "Contractual Obligations" below.
Contractual Obligations
The following table summarizes our contractual obligations as of September 30,
2003:
Less than 1-3 4-5 After
1 year years years 5 years Total
Long-term debt (1) $ 15,317,000 $ 42,938,000 $ 35,490,000 $200,950,000 $294,695,000
Operating leases (2) (4) 83,570,000 161,762,000 159,555,000 521,681,000 926,568,000
Unconditional purchase obligations(3) 125,210,000 207,082,000 249,879,469 - 582,171,000
Total contractual cash obligations $224,097,000 $411,782,000 $444,924,469 $722,631,000 $1,803,434,000
======================================================================
(1) In February 2003, we obtained a $70,000,000 guaranteed loan of which $69,300,000
was guaranteed by the Air Transportation Stabilization Board ("ATSB") and two
other parties. The loan has three tranches, Tranche A, Tranche B and Tranche C,
in amounts that initially totaled $63,000,000, $6,300,000 and $700,000,
respectively. At September 30, 2003, the interest rates were 1.80%, 2.15%, and
3.6%, respectively. The interest rates on each tranche of the loan adjust
quarterly based on LIBOR rates. The loan required quarterly installments of
approximately $2,642,000 beginning in December 2003 with a final balloon payment
of $33,000,000 due in June 2007. Upon receipt of our income tax refund, which was
pledged under this loan agreement, we were required to make a prepayment of
$10,000,000, which was to be applied against the next successive installments
due. In July 2003, we received our income tax refund and made the required
pre-payment. Additionally, the loan required a prepayment of 60% of the net
proceeds from any sale of equity. As a result of the stock offering we completed
in September 2003, we prepaid an additional $48,418,000 in principal on the loan.
As a result of these prepayments, the loan balance was $11,542,000 at September
30, 2003. The prepayment of $48,418,000, as required by the loan agreement, was
applied to the installments including the balloon payment that were due at the end
of the loan. As a result, the final principal payment due on the loan is now
December 2005. Interest is payable quarterly, in arrears. Guarantee fees of 4.5%
annually are payable quarterly in advance to the guarantors of the Tranche A and
Tranche B loans. The loan facility is secured by certain assets of ours as
described in the loan agreement, consisting primarily of Boeing rotable fixed
assets, all expendable inventory and 50% of other property and equipment. In
connection with this transaction, we issued warrants to purchase of 3,833,946
shares of our common stock at $6.00 per share to the ATSB and to two other
guarantors. The warrants had an estimated fair value of $9,282,538 when issued and
expire seven years after issuance. The fair value for these options was estimated
at the date of grant using a Black-Scholes option pricing model. This amount is
being amortized to interest expense over the life of the loan. The effective
interest rate on the notes is approximately 11.39% including the non-cash value of
the warrants and other costs associated with obtaining the loan, assuming that the
variable interest rates payable on the notes at September 30, 2003. The notes
contain certain covenants that require us to maintain certain ratios with respect
to indebtedness to earnings before income taxes, depreciation and amortization,
and rents ("EBITDAR") and EBITDAR to fixed charges beginning January 1, 2004. We
are not required to meet certain liquidity tests until the quarter ending March
31, 2004. Unrestricted cash balances cannot be less than $25,000,000 at any time
through September 30, 2004 or $75,000,000 thereafter. We are in compliance with
these requirements at September 30, 2003.
During the year ended March 31, 2002, we entered into two loan agreements for two
Airbus A319 aircraft. Each aircraft loan has a term of 10 years and is payable in
equal monthly installments, including interest, payable in arrears. The aircraft
secure the loans. Each of the loans require monthly principal and interest
payments of $215,000 and $218,110, bears interest with rates of 6.71% and 6.54%,
with maturities in May and August 2011, at which time a balloon payment totaling
$10,200,000 is due with respect to each loan.
During the year ended March 31, 2003, we entered into additional loans to finance
seven additional Airbus aircraft with interest rates based on LIBOR plus margins
that adjust quarterly or semi-annually. At September 30, 2003 interest rates for
these loans ranged from 2.375% to 2.888%. Each loan has a term of 12 years, and
each loan has balloon payments ranging from $4,800,000 to $7,770,000 at the end of
the term. The loans are secured by the aircraft.
During the six months ended September 30, 2003, we borrowed an additional
$75,600,000 for the purchase of three Airbus A318 aircraft. Each aircraft loan
has a term of 12 years and is payable in monthly installments, including interest,
payable in arrears, with a floating interest rate adjusted quarterly based on
LIBOR plus a margin of 2.25%. At the end of the term, there is a balloon payment
of $3,060,000 for each aircraft loan. At September 30, 2003, interest rates for
these loans ranged from 3.36% to 3.39%. The loans are secured by the aircraft.
In October 2003, we took delivery of an Airbus A318 aircraft and we borrowed
$22,000,000 for the purchase of that aircraft. The loan has a term of 12 years
and is payable in monthly installments, including interest, payable in arrears,
with a floating interest rate adjusted quarterly based on LIBOR plus a margin of
1.95%. At the end of the term, there is a balloon payment of $2,640,000. At
September 30, 2003, the interest rate for this loan was 3.12%. The loan is
secured by the aircraft. We entered into this loan agreement in October 2003 and
the payment obligations are not included in the table.
(2) As of September 30, 2003, we lease 11 Airbus 319 type aircraft and 19 Boeing 737
type aircraft under operating leases with expiration dates ranging from 2003 to
2014. Five of the Boeing 737 type aircraft are no longer in service and are in
the process of being brought into return conditions and returned to the aircraft
lessors. Under all of our leases, we have made cash security deposits or arranged
for letters of credit representing approximately two months of lease payments per
aircraft. At September 30, 2003, we had made cash security deposits of $7,786,000
and had arranged for letters of credit of $6,106,000 collateralized by restricted
cash balances. Additionally, we are required to make supplemental rent payments
to cover the cost of major scheduled maintenance overhauls of these aircraft.
These supplemental rent payments are based on the number of flight hours flown
and/or flight departures and are not included as an obligation in the table
above.
As a complement to our Airbus purchase agreement, in April 2000 we signed an
agreement, as subsequently amended, to lease 15 new Airbus aircraft for a term of
12 years. As of September 30, 2003, we had arranged for issuance of letters of
credit on the remaining six aircraft we agreed to lease totaling $1,235,000, to
secure these leases, collateralized by restricted cash balances.
During the six months ended September 30, 2003, we entered into three additional
aircraft lease agreements; one for two additional Airbus A318 aircraft, scheduled
for delivery in May 2004 and March 2005, and one additional Airbus A319 aircraft,
scheduled for delivery in February 2005; another for eight A319s with deliveries
in January, March, May, and June of 2005, March, April and May of 2006, and one in
February 2007; and two additional A319 aircraft, one of which we took delivery of
in September 2003 as a result of the sale leaseback transaction, and another that
is scheduled for delivery in March 2004. As of September 30, 2003, we have made
$726,000 in security deposits for these aircraft. The lease commitment amounts
are included in these amounts.
In July 2003, we entered into a letter of intent to lease another five Airbus A319
aircraft and executed a lease for one of these in October 2003. The scheduled
delivery dates are in April, May, June, and December 2004; and the last one is
scheduled for delivery in February 2006. As of September 30, 2003, we have made
$500,000 in security deposits for these aircraft.
We also lease office and hangar space, spare engines and office equipment for our
headquarters and airport facilities, and certain other equipment with expiration
dates ranging from 2003 to 2014. In addition, we lease certain airport gate
facilities on a month-to-month basis. Amounts for leases that are on a
month-to-month basis are not included as an obligation in the table above.
(3) We have adopted a fleet replacement plan to phase out our Boeing 737 aircraft and
replace them with a combination of Airbus A319 and A318 aircraft. In March 2000,
we entered into an agreement, as subsequently amended, to purchase up to 17 new
Airbus aircraft. Included in the purchase commitment are amounts for spare
aircraft components to support the aircraft. We are not under any contractual
obligations with respect to spare parts. As of September 30, 2003, we had taken
delivery of 15 of these aircraft, one of which we sold in December 2002.Prior to
the delivery of the aircraft we assigned two of the purchase commitments to two
lessors in February 2003 and September 2003. We agreed to lease two of these
aircraft over a five year term and the third for a 12 year term. As of September
30, 2003, we have remaining firm purchase commitments for two additional aircraft
which, one of which we took delivery of in October 2003 and one of which is
scheduled to be delivered in April 2004. Under the terms of the purchase
agreement, we are required to make scheduled pre-delivery payments for these
aircraft. These payments are non-refundable with certain exceptions. As of
September 30, 2003, we had made pre-delivery payments on future deliveries
totaling $10,474,000 to secure the remaining aircraft.
In August 2003, we amended the purchase agreement with Airbus to purchase 15
additional firm Airbus A319 aircraft purchases. Our purchase agreement with
Airbus also includes purchase rights for up to 23 additional aircraft, and allows
us to purchase Airbus A318 or A320 aircraft in lieu of the A319 aircraft at our
option. The firm Airbus A319 aircraft have scheduled delivery dates beginning in
calendar year 2004 and continuing through 2008. Under the terms of the amendment,
we have rights to modify some or all of these additional aircraft into A320
aircraft by providing Airbus notice prior to December 31, 2004. The amendment
also requires us to lease at least three new Airbus A319 or A320 aircraft from
operating lessors for delivery in calendar year 2004. Including these three
aircraft, we intend to lease as many as 14 additional A318 or A319 aircraft from
third party lessors over the next five years. As of September 30, 2003, we had
made pre-delivery payments on future deliveries totaling $15,411,000 to secure
these aircraft. In August 2003, we entered into a letter of intent to a sale
leaseback of two of these aircraft. As the agreement has not been fully
negotiated and executed, the purchase amounts of these two aircraft are included
in the purchase commitment amounts.
In October 2002 we entered into a purchase and 12 year services agreement with
LiveTV to bring DIRECTV AIRBORNE(TM)satellite programming to every seatback in our
Airbus fleet. We have agreed to the purchase of 46 units of the hardware;
however, we have the option to cancel up to a total of 6 units by providing
written notice of cancellation at least 12 months in advance of installation. As
of September 30, 2003, we have purchased 22 units and have made deposits toward
the purchase of 7 units. The table above includes the remaining purchase
commitment amounts not yet paid for on the remaining firm 18 units.
Commercial Commitments
As we enter new markets, increase the amount of space leased, or add leased
aircraft, we are often required to provide the airport authorities and lessors with a
letter of credit, bond or cash security deposits. These generally approximate up to
three months of rent and fees. As of September 30, 2003, we had outstanding letters
of credit, bonds, and cash security deposits totaling $12,416,000, $4,267,000, and
$12,911,000, respectively. In order to meet these requirements, we have a credit
agreement with a financial institution for up to $1,500,000, which expires August 31,
2004, and another credit agreement with a second financial institution for up to
$20,000,000, which expires November 30, 2003. These credit lines can be used solely
for the issuance of standby letters of credit. Any amounts drawn under the credit
agreements are fully collateralized by certificates of deposit, which are carried as
restricted investments on our balance sheet. As of September 30, 2003, we have drawn
$12,416,000 under these credit agreements for standby letters of credit that
collateralize certain leases. In the event that these credit agreements are not
renewed beyond their present expiration dates, the certificates of deposit would be
redeemed and paid to the various lessors as cash security deposits in lieu of standby
letters of credit. As a result there would be no impact on our liquidity if these
agreements were not renewed. In the event that the surety companies determined that
issuing bonds on our behalf were a risk they were no longer willing to underwrite, we
would be required to collateralize certain of these lease obligations with either cash
security deposits or standby letters of credit, which would decrease our liquidity.
We use the Airline Reporting Corporation ("ARC") to provide reporting and
settlement services for travel agency sales and other related transactions. In order
to maintain the minimum bond (or irrevocable letter of credit) coverage of $100,000,
ARC requires participating carriers to meet, on a quarterly basis, certain financial
tests such as, but not limited to, net profit margin percentage, working capital
ratio, and percent of debt to debt plus equity. As of September 30, 2003, we met
these financial tests and presently are only obligated to provide the minimum amount
of $100,000 in coverage to ARC. If we were to fail the minimum testing requirements,
we would be required to increase our bonding coverage to four times the weekly agency
net cash sales (sales net of refunds and agency commissions). Based on net cash sales
remitted to us for the week ended October 31, 2003, the coverage would be increased to
5,505,000 if we failed the tests. If we were unable to increase the bond amount as a
result of our then financial condition, we could be required to issue a letter of
credit that would restrict cash in an amount equal to the letter of credit.
In November 2002, we initiated a fuel hedging program comprised of swap and
collar agreements. Under a swap agreement, we receive the difference between a fixed
swap price and a price based on an agreed upon published spot price for jet fuel. If
the index price is higher than the fixed price, we receive the difference between the
fixed price and the spot price. If the index price is lower, we pay the difference.
A collar agreement has a cap price, a primary floor price, and a secondary floor
price. When the U.S. Gulf Coast Pipeline Jet index price is above the cap, we receive
the difference between the index and the cap. When the index price is below the
primary floor but above the secondary floor, we pay the difference between the index
and the primary floor. However, when the price is below the secondary floor, we are
only obligated to pay the difference between the primary and secondary floor prices.
When the price is between the cap price and the primary floor the hedge has no cash
effect.
We entered into a three-way collar in November 2002 with a notional volume of
385,000 gallons per month for the period December 1, 2002 to November 30, 2003. The
cap prices for this agreement is 82¢ per gallon, and the primary and secondary
floor prices are at 72 and 64.5¢ per gallon, respectively. This agreement is
estimated to represent 5% of our fuel purchases for that period. In April 2003, we
entered into a swap agreement with a notional volume of 1,260,000 gallons per month
for the period from July 1, 2003 to December 31, 2003. The fixed price of the swap is
71.53¢ per gallon and the agreement is estimated to represent 15% of our fuel
purchases for that period. In September 2003 we entered into a swap agreement with a
notional volume of 630,000 gallons per month for the period from January 1, 2004 to
June 30, 2004. The fixed price of the swap is 74.50¢ per gallon and the
agreement is estimated to represent 7% of our fuel purchases for that period. Our
results of operations for the three months ended September 30, 2003 include an
unrealized derivative loss of $276,000 which is included in fuel expense and a
realized gain of approximately $240,000 in cash settlements recovered from the
counter-party recorded as a decrease in fuel expense. We were not a party to any
derivative contracts during the three or six months ended September 30, 2002.
In March 2003, we entered into an interest rate swap agreement with a notional
amount of $27,000,000 to hedge a portion of our LIBOR based borrowings. Under the
interest rate swap agreement, we are paying a fixed rate of 2.45% and receive a
variable rate based on the three month LIBOR. At September 30, 2003, our interest
rate swap agreement had an estimated unrealized loss of $249,000, $117,000 of which
was recorded as accumulated other comprehensive loss and is included in the balance
sheet. We did not have any interest rate swap agreements outstanding during the six
months ended September 30, 2002.
Effective January 1, 2003, we entered into an engine maintenance agreement with
GE Engine Services, Inc. ("GE") covering the scheduled and unscheduled repair of our
aircraft engines used on most of our Airbus aircraft. The agreement is for a 12 year
period from the effective date for our owned aircraft or December 31, 2014, whichever
comes first, and for each leased aircraft, the term coincides with the initial lease
term of 12 years. This agreement precludes us from using another third party for such
services during the term. This agreement requires monthly payments at a specified
rate multiplied by the number of flight hours flown on the aircraft during that
month. The amounts due based on flight hours are not included in table above.
Critical Accounting Policies
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Critical accounting policies are defined as those that are both important to the
portrayal of our financial condition and results, and require management to exercise
significant judgments. Our most critical accounting policies are described briefly
below. For additional information about these and our other significant accounting
policies, see Note 1 of the Notes to the Financial Statements.
Revenue Recognition
Passenger, cargo, and other revenues are recognized when the transportation is
provided or after the tickets expire, one year after date of issuance, and are net of
excise taxes, passenger facility charges and security fees. Revenues that have been
deferred are included in the accompanying balance sheet as air traffic liability.
Impairment of Long-Lived Assets
We record impairment losses on long-lived assets used in operations when
indicators of impairment are present and the undiscounted future cash flows estimated
to be generated by those assets are less than the carrying amount of the assets. If
an impairment occurs, the loss is measured by comparing the fair value of the asset to
its carrying amount.
Aircraft Maintenance
We operate under an FAA-approved continuous inspection and maintenance program.
We account for maintenance activities on the direct expense method. Under this
method, major overhaul maintenance costs are recognized as expense as maintenance
services are performed, as flight hours are flown for nonrefundable maintenance
payments required by lease agreements, and as the obligation is incurred for payments
made under service agreements. Routine maintenance and repairs are charged to
operations as incurred. Prior to fiscal 2003 we accrued for major overhaul costs on a
per-flight-hour basis in advance of performing the maintenance services.
Effective January 1, 2003, GE and we executed a 12-year engine services
agreement (the "Services Agreement") covering the scheduled and unscheduled repair of
most of our Airbus engines. Under the terms of the Services Agreement, we agreed to
pay GE a fixed rate per-engine-hour, payable monthly, and GE assumed the
responsibility to overhaul our engines on Airbus aircraft as required during the term
of the Services Agreement, subject to certain exclusions. We believe the fixed rate
per-engine hour approximates the periodic cost we would have incurred to service those
engines. Accordingly, these payments are expensed as the obligation is incurred.
Fuel Derivative Instruments
We have entered into derivative instruments which are intended to reduce our
exposure to changes in fuel prices. We account for the derivative instruments entered
into as trading instruments under FASB Statement No. 133, "Accounting for Derivative
instruments and Hedging Activities" and record the fair value of the derivatives as an
asset or liability as of each balance sheet date. We record any settlements received
or paid as an adjustment to the cost of fuel or interest expense.
Interest Rate Hedging Program
During the six months ending September 30, 2003, we designated certain interest
rate swaps as qualifying cash flow hedges. Under these hedging arrangements, we are
hedging the interest payments associated with a portion of our LIBOR-based
borrowings. Under the swap agreements, we pay a fixed rate of interest on the
notional amount of the contracts of $27 million, and we receive a variable rate if
interest based on the three month LIBOR rate, which is reset quarterly. Changes in
the fair value of interest rate swaps designated as hedging instruments are reported
in accumulated other comprehensive income. These amounts are subsequently
reclassified into interest expense as a yield adjustment in the same period in which
the related interest payments on the LIBOR-based borrowings affects earnings.
Customer Loyalty Programs
In February 2001, we established EarlyReturns, a frequent flyer program to
encourage travel on our airline and customer loyalty. We account for the EarlyReturns
program under the incremental cost method whereby travel awards are valued at the
incremental cost of carrying one passenger based on expected redemptions. Those
incremental costs are based on expectations of expenses to be incurred on a per
passenger basis and include food and beverages, fuel, liability insurance, and
ticketing costs. The incremental costs do not include a contribution to overhead,
aircraft cost or profit. We do not record a liability for mileage earned by
participants who have not reached the level to become eligible for a free travel
award. We believe this is appropriate because the large majority of these
participants are not expected to earn a free flight award. We do not record a
liability for the expected redemption of miles for non-travel awards since the cost of
these awards to us is negligible.
As of September 30, 2003 and 2002, we estimated that approximately 24,815 and
8,827 round-trip flight awards, respectively, were eligible for redemption by
EarlyReturns members who have mileage credits exceeding the 15,000-mile free
round-trip domestic ticket award threshold. Of these earned awards, we expect that
approximately 84% would be redeemed. The difference between the round-trip awards
outstanding and the awards expected to be redeemed is the estimate of awards which
will (1) never be redeemed, or (2) be redeemed for something other than a free trip.
We account for point sales to third parties by allocating the funds received for
each mile (or point) between a component representing the value of the subsequent
travel award to be provided and the remainder being recognized in revenue at
collection to cover marketing and other related costs to administer the program. The
marketing component is not determined directly, but instead represents the residual
after determination of the value of the travel component deferral. The component
representing travel is determined based on an equivalent restricted fare, which is
used as the value of travel on a frequent flyer mileage award. The travel component
is recognized as revenue on a straight-line basis over the historical usage period of
the frequent flyer mileage awards which we estimate to be 20 months.
Item 3: Quantitative and Qualitative Disclosures About Market Risk
Aircraft Fuel
Our earnings are affected by changes in the price and availability of aircraft
fuel. Market risk is estimated as a hypothetical 10 percent change in the average
cost per gallon of fuel for the year ended March 31, 2003. Based on fiscal year 2003
actual fuel usage, such a change would have the effect of increasing or decreasing our
aircraft fuel expense by approximately $8,590,000 in fiscal year 2003. Comparatively,
based on projected fiscal year 2004 fuel usage, such a change would have the effect of
increasing or decreasing our aircraft fuel expense by approximately $9,890,000 in
fiscal year 2004, excluding the effects of our fuel hedging arrangements. The increase
in exposure to fuel price fluctuations in fiscal year 2004 is due to the increase of
our average aircraft fleet size during the year ended March 31, 2004, projected
increases to our fleet during the year ended March 31, 2004 and related gallons
purchased.
As of September 30, 2003, we had hedged approximately 12.8% of our remaining
projected fiscal 2004 fuel requirements. In November 2002, we initiated a fuel
hedging program comprised of swap and collar agreements. Under a swap agreement, we
receive the difference between a fixed swap price and a price based on an agreed upon
published spot price for jet fuel. If the index price is higher than the fixed price,
we receive the difference between the fixed price and the spot price. If the index
price is lower, we pay the difference. A collar agreement has a cap price, a primary
floor price, and a secondary floor price. When the U.S. Gulf Coast Pipeline Jet index
price is above the cap, we receive the difference between the index and the cap. When
the index price is below the primary floor but above the secondary floor, we pay the
difference between the index and the primary floor. However, when the price is below
the secondary floor, we are only obligated to pay the difference between the primary
and secondary floor prices. When the price is between the cap price and the primary
floor the hedge has no cash effect.
We entered into a three-way collar in November 2002, with a notional volume of
385,000 gallons per month for the period December 1, 2002 to November 30, 2003. The
cap prices for this agreement is 82¢ per gallon, and the primary and secondary
floor prices are 72 and 64.5¢ per gallon, respectively. The volume of fuel
covered by this contract is estimated to represent 5% of our fuel purchases for that
period. In April 2003, we entered into a third swap agreement with a notional volume
of 1,260,000 gallons per month for the period from July 1, 2003 to December 31, 2003.
The fixed price of the swap is 71.53¢ per gallon and the agreement is estimated
to represent 15% of our fuel purchases for that period. In September 2003 we entered
into a swap agreement with a notional volume of 630,000 gallons per month for the
period from January 1, 2003 to June 30,, 2004. The fixed price of the swap is 74.50¢
per gallon and the agreement is estimated to represent 7% of our fuel purchases
for that period. The results of operations for the quarter ended September 30, 2003
include an unrealized derivative gain of $475,000 which is included in fuel expense
and a realized gain of approximately $28,000 in cash settlements received from a
counter-party recorded as a decrease in fuel expense. We were not a party to any
derivative contracts during the six months ended September 30, 2002.
Interest
We are susceptible to market risk associated with changes in variable interest
rates on long-term debt obligations we incurred to finance the purchases of our Airbus
aircraft and our government guaranteed loan. Interest expense on seven of our owned
Airbus A319 aircraft is subject to interest rate adjustments every three to six months
based upon changes in the applicable LIBOR rate. The interest rate on borrowings
under our government guaranteed loan is also subject to adjustment based on changes in
the applicable LIBOR rates. A change in the base LIBOR rate of 100 basis points (1.0
percent) would have the effect of increasing or decreasing our annual interest expense
by $2,513,000 assuming the loans outstanding that are subject to interest rate
adjustments at September 30, 2003 totaling $251,376,000 are outstanding for the entire
period. As of September 30, 2003, we had hedged approximately 10.7% of our variable
interest rate loans.
In March 2003, we entered into an interest rate swap agreement with a notional
amount of $27,000,000 to hedge a portion of our LIBOR based borrowings. Under the
interest rate swap agreement, we are paying a fixed rate of 2.45% and receive a
variable rate based on the three month LIBOR over the term of the swap which expires
in March 2007. As of September 30, 2003, the fair value of the swap agreement is a
loss of $249,000.
Item 4. Controls and Procedures
As of the end of the period covered by this report, we conducted an evaluation,
under the supervision and with the participation of our management, including our
Chief Executive Officer and Chief Financial Officer, of the effectiveness of the
design and operation of our disclosure controls and procedures pursuant to Exchange
Act Rules 13a-15 and 15d-15. Based upon that evaluation, our Chief Executive Officer
and Chief Financial Officer concluded that our disclosure controls and procedures are
effective. Disclosure controls and procedures are controls and procedures that are
designed to ensure that information required to be disclosed in our reports filed or
submitted under the Exchange Act is recorded, processed, summarized and completely and
accurately reported within the time periods specified in the Securities and Exchange
Commission's rules and forms.
There have been no significant changes in our internal controls or in other
factors that could significantly affect internal controls subsequent to the date we
carried out this evaluation.
PART II. OTHER INFORMATION
Item 4: Submission of Matters to a Vote of Security Holders
Our annual meeting of shareholders was held on September 4, 2003, at which a
quorum for the transaction of business was present. One matter was voted upon, as
described below.
Members of the Board of Directors elected at the meeting were Samuel D. Addoms,
Hank Brown, D. Dale Browning, Paul S. Dempsey, William B. McNamara, B. Larae Orullian,
Jeff S. Potter, and James B. Upchurch. The votes cast with respect to each nominee
were as follows:
18,193,479 "For" Mr. Addoms; 8,349,763 "Withheld"
23,867,207 "For" Mr. Brown; 2,676,034 "Withheld"
23,856,871 "For" Mr. Browning; 2,686,371 "Withheld"
23,860,264 "For" Mr. Dempsey; 2,682,978 "Withheld"
23,840,753 "For" Mr. McNamara; 2,702,489 "Withheld"
23.841.241 "For" Ms. Orullian; 2.702.001 "Withheld"
23,861,524 "For" Mr. Potter 2,681,718 "Withheld"
23,849,141 "For" Mr. Upchurch; 2,694,101 "Withheld"
Shareholder Proposals
Shareholders are entitled to submit proposals on matters appropriate for
shareholder action consistent with regulations of the Securities and Exchange
Commission and our bylaws. If a shareholder wishes to have a proposal appear in our
proxy statement for next year's annual meeting, under the regulations of the
Securities and Exchange Commission it must be received by our Corporate Secretary at
7001 Tower Road, Denver, Colorado 80249-7312 on or before March 19, 2004.
Item 6: Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit
Numbers
Exhibit 10 - Material Contracts
10.21 Credit Agreement dated as of July 30, 2003 between Frontier Airlines,
Inc. and a Lender in respect to an Airbus 318 aircraft. Frontier has
financed the purchase of 3 additional Airbus 318 aircraft with this
Lender under Credit Agreements that are substantially identical in all
material respects to this Exhibit. Portions of this Exhibit have been
omitted and filed separately with the Securities and Exchange
Commission in a confidential treatment request under Rule 24b-2 of
the Securities Exchange Act of 1934, as amended. (1)
10.22 Aircraft Mortgage and Security Agreement dated as of July 30, 2003
between Frontier Airlines, Inc. and a Lender in respect to an Airbus
318 aircraft. Frontier has financed the purchase of 3 additional Airbus
318 aircraft with this Lender under Aircraft Mortgage and Security
Agreements that are substantially identical in all material respects
to this Exhibit. Portions of this Exhibit have been omitted and filed
separately with the Securities and Exchange Commission in a confidential
treatment request under Rule 24b-2 of the Securities Exchange Act of 1934,
as amended. (1)
10.23 Codeshare Agreement dated as of September 18, 2003 between Horizon
Air Industries, Inc. and Frontier Airlines, Inc. Portions of this
Exhibit have been omitted and filed separately with the Securities
and Exchange Commission in a confidential treatment request under
Rule 24b-2 of the Securities Exchange Act of 1934, as amended. (1)
Exhibit 31 - Rule 13a-14(a)/15d-14(a) Certifications
31.1 Section 302 certification of President and Chief Executive Officer,
Jeffery S. Potter. (1)
31.2 Section 302 certification of Chief Financial Officer, Paul H. Tate. (1)
Exhibit 32 - Section 1350 Certifications
32 Section 906 certification of President and Chief Executive Officer,
Jeffery S. Potter, and Chief Financial Officer, Paul H. Tate (1)
(1) Filed herewith.
(b) Reports on Form 8-K
During the quarter ended September 30, 2003, the Company filed the following
reports on Form 8-K.
Date of Financial Statements
Report Item Numbers Required to be Filed
July 31, 2003 7 and 12 None
September 4, 2003 5 None
September 18, 2003 7 and 9 None
September 19, 2003 5 and 7 None
SIGNATURES
Pursuant to the requirements of the Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
FRONTIER AIRLINES, INC.
Date: November 7, 2003 By: /s/ Paul H. Tate
Paul H. Tate, Vice President and
Chief Financial Officer
Date: November 7, 2003 By: /s/ Elissa A. Potucek
Elissa A.Potucek, Vice President, Controller,
Treasurer and Principal Accounting Officer