FRONTIER
AIRLINES, INC.
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For
the three and nine months ended December 31, 2005 and
2004
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(Unaudited)
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Three
Months Ended
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Nine
Months Ended
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December
31,
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December
31,
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December
31,
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December
31,
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2005
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2004
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2005
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2004
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Revenues:
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Passenger
- mainline
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$
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217,812,040
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$
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182,360,545
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$
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655,276,441
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$
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539,971,428
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Passenger
- regional partner
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23,489,827
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21,582,231
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69,834,655
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62,618,444
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Cargo
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1,461,832
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1,188,514
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4,053,577
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3,862,018
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Other
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4,198,861
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3,106,181
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12,631,427
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8,643,425
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Total
revenues
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246,962,560
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208,237,471
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741,796,100
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615,095,315
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Operating
expenses:
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Flight
operations
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35,187,555
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32,545,417
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104,097,155
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96,107,230
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Aircraft
fuel
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77,649,123
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53,806,536
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208,391,165
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138,524,787
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Aircraft
lease
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23,370,956
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23,034,636
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70,273,868
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64,232,862
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Aircraft
and traffic servicing
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35,183,456
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32,287,621
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101,050,337
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95,208,836
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Maintenance
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18,487,070
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19,170,439
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57,015,422
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57,326,354
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Promotion
and sales
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19,851,722
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18,738,362
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60,368,849
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57,827,342
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General
and administrative
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12,481,000
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12,827,674
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36,802,629
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35,155,449
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Operating
expenses - regional partner
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29,143,742
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24,012,344
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79,569,264
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68,874,118
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Aircraft
lease and facility exit costs
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-
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-
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3,364,515
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-
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(Gains)
losses on sales of assets, net
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(273,565
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)
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(119,565
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)
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(964,742
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)
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484,666
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Impairments
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-
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658,424
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-
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5,259,624
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Depreciation
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7,545,117
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6,559,021
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21,079,516
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19,783,602
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Total
operating expenses
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258,626,176
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223,520,909
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741,047,978
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638,784,870
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Operating
income (loss)
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(11,663,616
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)
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(15,283,438
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748,122
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(23,689,555
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Nonoperating
income (expense):
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Interest
income
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2,559,727
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1,049,917
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5,835,209
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2,406,186
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Interest
expense
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(5,709,068
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)
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(3,384,302
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(14,870,882
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(9,405,161
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Other,
net
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(53,016
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341,287
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(203,441
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172,570
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Total
nonoperating income (expense), net
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(3,202,357
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(1,993,098
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(9,239,114
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(6,826,405
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Loss
before income tax benefit
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(14,865,973
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(17,276,536
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(8,490,992
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(30,515,960
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Income
tax benefit
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(4,575,753
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(6,218,492
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(2,372,376
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(10,802,228
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Net
loss
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$
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(10,290,220
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$
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(11,058,044
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$
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(6,118,616
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$
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(19,713,732
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Loss
per share:
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Basic
and diluted
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$
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(0.28
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)
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$
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(0.31
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)
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$
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(0.17
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)
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$
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(0.55
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)
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Weighted
average shares of common stock outstanding:
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Basic
and diluted
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36,187,528
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35,623,855
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36,127,533
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35,612,440
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See
accompanying notes to financial statements.
FRONTIER
AIRLINES, INC.
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For
the Nine Months Ended December 31, 2005 and 2004
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(Unaudited)
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Nine
Months Ended
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Cash
flows from operating activities:
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December
31,
2005
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December
31,
2004
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$
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(6,118,616
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$
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(19,713,732
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)
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Adjustments
to reconcile net loss to
net
cash provided (used) by operating activities:
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Compensation
expense under long-term incentive plans
and
employee ownership plans
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2,376,792
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2,182,634
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Depreciation
and amortization
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21,782,355
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20,243,474
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Impairment
recorded on long-lived assets
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-
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3,996,742
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Impairment
recorded on inventories
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-
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1,262,882
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Deferred
income taxes
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(2,367,092
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(10,878,784
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)
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Unrealized
derivative loss (gain)
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2,254,201
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(432,009
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)
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Losses
(gains) on disposal of equipment and assets held for sale
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(998,833
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563,319
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Changes
in operating assets and liabilities:
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Restricted
investments
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(4,502,791
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(9,353,583
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)
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Receivables
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(8,419,466
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1,651,279
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Security
and other deposits
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108,509
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(1,589,821
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)
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Prepaid
expenses and other assets
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(1,164,622
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(5,749,344
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)
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Inventories
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299,922
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(2,612,549
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)
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Other
assets
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640,516
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1,203,556
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Accounts
payable
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(3,717,327
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(1,728,433
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)
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Air
traffic liability
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(2,944,746
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3,640,943
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Other
accrued expenses
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1,190,169
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4,411,793
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Deferred
revenue and other liabilities
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7,086,123
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695,319
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Net
cash provided (used) by operating activities
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5,505,094
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(12,206,314
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)
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Cash
flows from investing activities:
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Proceeds
from maturities of held-to-maturity investments
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3,000,000
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2,000,000
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Proceeds
from the sale of available-for-sale securities
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- |
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41,250,000
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Purchase
of available-for-sale securities
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- |
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(136,650,000
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)
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Aircraft
lease and purchase deposits made
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(21,555,865
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(15,848,240
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)
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Aircraft
lease and purchase deposits returned or applied
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18,989,115
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24,330,934
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Decrease
in restricted investments
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2,034,000
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3,481,600
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Proceeds
from the sale of aircraft and equipment
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9,080,386
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77,706,640
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Capital
expenditures
|
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(88,640,790
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|
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(121,202,098
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)
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Net
cash used in investing activities
|
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(77,093,154
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)
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(124,931,164
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)
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Cash
flows from financing activities: |
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Proceeds
from the exercise of stock options
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348,799
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Proceeds
from long-term borrowings
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146,700,000
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22,000,000
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Principal
payments on long-term borrowings
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(14,864,029
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(14,253,415
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)
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Payment
of financing fees
|
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(3,913,756
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(966,635
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)
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Payment
to bank for compensating balance
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(2,000,000
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-
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Principal
payments on short-term borrowings
|
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(5,000,000
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-
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Net
cash provided by financing activities
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|
122,473,403
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|
7,128,749
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Net
increase (decrease) in cash and cash equivalents
|
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|
50,885,343
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(130,008,729
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)
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Cash
and cash equivalents, beginning of period
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|
171,794,772
|
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130,008,729
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|
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|
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Cash
and cash equivalents, end of period
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|
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|
$
|
-
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See
accompanying notes to financial statements.
FRONTIER
AIRLINES, INC.
December
31, 2005 (Unaudited)
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 Article 10 of 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, 2005. The preparation of financial statements in conformity
with
generally accepted accounting principles 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. In the
opinion of management, all adjustments (consisting only of normal recurring
adjustments) considered necessary for a fair presentation have been included.
The
Company operates in one business segment that provides transportation to
passengers and cargo and includes mainline operations and a regional
partner.
Financial
results for the Company and airlines in general, are seasonal in nature.
More
recently, results for the Company’s first
and second
fiscal quarters have exceeded its third and fourth fiscal quarters. Results
of
operations for the three and nine months ended December 31, 2005 are not
necessarily indicative of the results that may be expected for the year ended
March 31, 2006.
Recently
the Company’s services to Cancun, Mexico and New Orleans, Louisiana were
disrupted by hurricanes and other extreme weather impacting the Company’s
service levels to these destinations and also impacting revenues and cost
of
doing business. The Company maintains business interruption insurance to
cover
lost profits and has made claims to recover loss profits related to these
events. The Company has not recorded any anticipated recoveries as a final
settlement of the claims has not been reached.
Reclassifications
Certain
prior year amounts have been reclassified to conform to the current year
presentation including the reclassification of investment securities of
$154,000,000 of auction rate securities, which were included in cash and
cash
equivalents at December 31, 2004. As a result of this reclassification, the
Company’s cash flow from investing activities for the nine months ended December
31, 2004 now includes the net change in auction rate securities in short-term
investments.
2.
Stock-Based
Compensation
Stock
options and other stock-based compensation awards are accounted for using
the
intrinsic value method prescribed under 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”). 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. The fair value of
each
option grant was estimated on the date of grant using the Black-Scholes option
valuation model.
Had
compensation cost for the Company’s stock-based compensation plans had been
determined using the fair value of the options at the grant date, the Company’s
pro forma net loss and loss per share would have been as follows:
|
|
Three
months ended
December
31,
|
|
Nine
months ended
December
31,
|
|
|
|
2005
|
|
2004
|
|
2005
|
|
2004
(1)
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss, as reported
|
|
$
|
(10,290,220
|
)
|
$
|
(11,058,044
|
)
|
$
|
(6,118,616
|
)
|
$
|
(19,713,732
|
)
|
Add:
stock-based compensation expense included in reported net earnings,
net of
tax
|
|
|
27,051
|
|
|
-
|
|
|
66,231
|
|
|
-
|
|
Less:
total compensation expense determined under fair value method
for all
awards, net of tax
|
|
|
(134,668
|
)
|
|
(547,061
|
)
|
|
(404,964
|
)
|
|
(3,995,735
|
)
|
Pro
forma net loss
|
|
$
|
(10,397,837
|
)
|
$
|
(11,605,105
|
)
|
$
|
(6,457,349
|
)
|
$
|
(23,709,467
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
per share, basic and diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As
reported
|
|
$
|
(0.28
|
)
|
$
|
(0.31
|
)
|
$
|
(0.17
|
)
|
$
|
(0.55
|
)
|
Pro
forma
|
|
$
|
(0.29
|
)
|
$
|
(0.33
|
)
|
$
|
(0.18
|
)
|
$
|
(0.67
|
)
|
|
(1)
|
During
the nine months ended December 31, 2004, the Company’s Board of Directors
approved the accelerated vesting of certain of the Company’s stock options
with exercise prices in excess of the stock’s current market price. The
purpose of the accelerated vesting is to enable the Company to
avoid
recognizing compensation expense in its statement of operations
associated
with these options in future periods upon adoption of SFAS No.
123(R) in
the second quarter of fiscal 2006. As a result, a total of 671,500
options
became immediately vested. These options originally would have
vested
between October 2004 and March 2009. Exercise prices for these
options
ranged from $8.00 to $24.17 per share. There were 35 employees
affected by
the modification. The total accelerated expense as a result of
the
modification is approximately $2,997,000, net of taxes, and is
included in
the pro forma numbers presented in the table above.
|
The
fair
value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted average
assumptions used for grants during the nine months ended December 31, 2005:
dividend yield of 0%; expected volatility of 74.4%; expected life of 5
years;
and risk-free interest rate of 4.06%. The weighted average fair value of
options
granted during the nine months ended December 31, 2005, was $6.74. The
following
weighted average assumptions were used for grants during the nine months
ended
December 31, 2004: dividend yield of 0%; expected volatility of 70.7%;
expected
life of 6 years; and risk-free interest rate of 3.35%. The weighted average
fair
value of options granted during the nine months ended December 31, 2004,
was
$5.00.
In
September of 2004, our shareholders approved and the Company adopted the
Frontier Airlines 2004 Equity Incentive Plan (the “2004 Plan”), which authorizes
the Board of Directors to grant incentive compensation to member of the
Board
and certain employees of the Company. Pursuant to the 2004 Plan, each fiscal
year the Board adopts an annual bonus and long-term incentive plan for
the
Company’s officers and director-level employees. The long-term incentive plan
for the fiscal year ending March 31, 2006 resulted in the issuance of 194,746
stock appreciation rights payable in stock, 83,386 restricted stock units
and a
three-year cash incentive pool. Forfeitures during the nine-months ended
were
29,727 stock appreciation rights payable in stock and 9,562 restricted
stock
units. Annual bonuses and three-year cash incentive pools will become payable
based upon pre-tax profits and a modifier based on the Company’s annual pre-tax
profit performance relative to peer group companies. There was no bonus
accrual
under this plan for the nine months ended December 31, 2005 because the
Company
has not been profitable in this fiscal year.
The
restricted stock awards vest, if the executive is still employed by the
Company
at the time, in five years from the grant date. Restricted stock issued
to
members of the Board of Directors vest after three years. The fair value
of the
restricted stock units on the date of the grant is recorded as compensation
expense over the vesting period. The stock appreciation rights payable
in stock
vest 20% a year over five years. Compensation expense for the stock appreciation
rights is based on the difference between the market price of the award
on the
date of grant and the current market price of the award. During the nine-months
ended December 31, 2005, compensation expense
of
$106,000 has been recognized for these awards issued under the 2004 Plan.
3. Loss
per share
Basic
loss per share is computed by dividing net loss by the weighted average
number
of shares of common stock outstanding during the period. Diluted loss per
share
includes dilutive common stock equivalents, using the treasury stock method,
and
assumes that convertible debt was converted into common stock upon issuance,
if
dilutive.
During
the three and nine months ended December 31, 2005, interest, net of tax,
on the
Convertible Notes in the amount of $233,000 and shares of 2,418,000 and
809,000,
respectively, that would be issued upon assumed conversion of the Convertible
Notes, were excluded from the calculation of diluted loss per share due
to the
antidilutive effect on loss per share. For the three and nine months ended
December 31, 2005, outstanding options and warrants of 6,304,000 were excluded
from the diluted earnings per share because the effect would have been
anti-dilutive. For the three and nine months ended December 31, 2004,
outstanding options and warrants of 6,477,000 were excluded from the diluted
earnings per share because the effect would have been anti-dilutive.
4.
Property and Equipment, Net
As
of
December 31, 2005 and March 31, 2005, property and equipment consisted
of the
following:
|
|
December
31,
|
|
March
31,
|
|
|
|
2005
|
|
2005
|
|
|
|
|
|
Aircraft,
spare aircraft parts, and improvements to leased aircraft
|
|
$
|
553,696,193
|
|
$
|
489,324,022
|
|
Ground
property, equipment and leasehold improvements
|
|
|
40,485,042
|
|
|
38,524,096
|
|
Construction
in progress
|
|
|
839,302
|
|
|
231,397
|
|
|
|
|
595,020,537
|
|
|
528,079,515
|
|
Less
accumulated depreciation
|
|
|
(82,164,918
|
)
|
|
(72,265,833
|
)
|
|
|
|
|
|
|
|
|
Property
and equipment, net
|
|
$
|
512,855,619
|
|
$
|
455,813,682
|
|
5. Deferred
Revenue and Other Liabilities
At
December 31, 2005 and March 31, 2005, deferred revenue and other liabilities
were comprised of the following:
|
|
December
31,
|
|
March
31,
|
|
|
|
2005
|
|
2005
|
|
|
|
|
|
|
|
Deferred
revenue related to co-branded credit card
|
|
$
|
12,968,841
|
|
$
|
6,557,945
|
|
Deferred
rent credits
|
|
|
18,970,515
|
|
|
18,271,668
|
|
Other
|
|
|
624,856
|
|
|
648,476
|
|
Total
deferred revenue and other liabilities
|
|
|
32,564,212
|
|
|
25,478,089
|
|
Less
current portion
|
|
|
(10,459,415
|
)
|
|
(5,361,422
|
)
|
|
|
$
|
22,104,797
|
|
$
|
20,116,667
|
|
6. Other
Accrued Expenses
At
December 31, 2005 and March 31, 2005, other accrued expenses were comprised
of
the following:
|
|
December
31,
|
|
March
31,
|
|
|
|
2005
|
|
2005
|
|
|
|
|
|
|
|
Accrued
salaries and benefits
|
|
$
|
33,745,002
|
|
$
|
30,340,793
|
|
Federal
excise and other passenger taxes payable
|
|
|
13,941,059
|
|
|
17,251,283
|
|
Property
taxes payable
|
|
|
3,908,953
|
|
|
2,279,718
|
|
Remaining
lease payments for aircraft and facilities
|
|
|
|
|
|
|
|
abandoned
before lease termination date
|
|
|
124,012
|
|
|
1,063,022
|
|
Other
|
|
|
4,808,346
|
|
|
4,402,387
|
|
|
|
$
|
56,527,372
|
|
$
|
55,337,203
|
|
7.
Long-term
Debt
Convertible
Notes due 2025
On
December 7, 2005, the Company completed the sale of $92,000,000 aggregate
principal amount of 5.0% Convertible Notes due 2025 (“Convertible Notes”) in a
public offering pursuant to the Company’s shelf registration statement. Interest
is payable semi-annually, beginning on June 15, 2006. The Convertible Notes
are
unsecured and rank effectively junior in right of payment to existing and
future
secured debt, including the Company’s Credit Facility and aircraft notes. At any
time on or after December 31, 2010, the Company may redeem any of the
Convertible Notes for cash at a redemption price of 100% of the principal
amount
plus accrued interest. Holders may require the Company to repurchase the
Convertible Notes for cash at a repurchase price of 100% of the principal
amount
plus accrued interest on December 15, 2010, 2015 and 2020.
The
Convertible Notes are convertible, at the option of the holders, into shares
of
the Company’s common stock at a conversion rate of 96.7352 shares per principal
amount of notes (representing a conversion price of approximately $10.34
per
share), subject to certain adjustments, at any time prior to maturity. Upon
conversion, the Company will have the right to deliver a combination of cash
and
shares of common stock. In addition, holders of the Convertible Notes have
the
right to require the Company to repurchase the notes upon the occurrence
of a
specified designated event at a price of 100% of the principal amount plus
accrued interest. Upon the occurrence of a specified designated event prior
to
December 15, 2010, the conversion rate will be increased by a specified number
of shares.
Long-term
Debt Secured by Aircraft
During
the nine months ended December 31, 2005, the Company borrowed $54,700,000
for
the purchase of two Airbus A319 aircraft, including a junior loan of $4,900,000
on an aircraft purchased in July 2005. The senior loans have terms of 12
years
and are payable in quarterly installments currently of $693,000 and $672,000,
respectively, as of December 31, 2005, including interest, payable in arrears,
with a floating interest rate adjusted quarterly based on LIBOR. These loans
bear interest at rates of 6.49% and 6.04%, respectively, at December 31,
2005.
At the end of the term, there are balloon payments of $5,558,000 and $4,900,000,
respectively. A security interest in the two purchased aircraft secures these
loans. The junior loan has an eight-year term with quarterly installments
currently of $241,000. The loan bears interest at a floating interest rate
adjusted quarterly based on LIBOR, which was 7.94% at December 31,
2005.
Credit
Facilities
In
March
2005, the Company entered into a 42-month revolving credit facility (“Credit
Facility”) to be used in support of letters of credit and for general corporate
purposes. Under this facility, the Company may borrow the lesser of $13,000,000
(“maximum commitment amount”) or 50% of the current market value of pledged
eligible spare parts. The amount of letters of credit available is equal
to the
amount available under the facility less current borrowings. The amount
available under the Credit Facility at December 31, 2005 was $10,816,000,
which
was reduced by letters of credit issued during the quarter of $6,500,000
for a
net amount available for borrowings of $4,316,000. There was $5,000,000
borrowed
against the Credit Facility at March 31, 2005, and there were no amounts
borrowed as of December 31, 2005.
In
July
2005, the Company entered into a twelve-month credit agreement (the “Credit
Agreement”) with a bank for a $5,000,000 revolving letter of credit. Under the
Agreement, $3,500,000 may be used for the issuance of letters of credit,
which
must be collateralized by a borrowing base consisting of certain receivable
balances at the time of issuance. As of December 31, 2005, the aggregate
amount
of letters of credit issued under the Credit Agreement was $2,270,000 and
a cash
compensating balance
of
$2,000,000 was maintained to secure the letters of credit, which has been
classified as a current restricted investment on the balance sheet. There
were
no amounts borrowed at December 31, 2005.
The
Credit Facility and the Credit Agreement contain standard events of default
provisions, including a financial covenant to maintain $120,000,000 of
unrestricted cash with a 30-day cure period.
8.
Comprehensive Loss
A
summary
of the comprehensive loss is as follows:
|
|
Three
months ended
December
31,
|
|
Nine
months ended
December
31,
|
|
|
|
2005
|
|
2004
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(10,290,220
|
)
|
$
|
(11,058,044
|
)
|
$
|
(6,118,616
|
)
|
$
|
(19,713,732
|
)
|
Other
comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
gain (loss) on derivative instruments, net of tax
|
|
|
(35,553
|
)
|
|
112,170
|
|
|
(90,688
|
)
|
|
361,177
|
|
Total
comprehensive loss
|
|
$
|
(10,325,773
|
)
|
$
|
(10,945,874
|
)
|
$
|
(6,209,304
|
)
|
$
|
(19,352,555
|
)
|
9. Aircraft
Lease and Facility Exit Costs
In
April
2005, the Company ceased using three of its Boeing 737-300 leased aircraft
with
original lease termination dates in June 2005, August 2005 and May 2006.
The
Company negotiated an early return and one-time payment for the one aircraft
with an original lease termination date of May 2006. This resulted in a charge
during the first quarter of $3,311,888, representing the estimated fair value
of
the remaining lease payments and a negotiated one-time termination payment.
In
September 2005, the Company recorded $52,627 of facility lease exit costs
related to a property in which a sublease was not obtained in a period
originally estimated for an airport exited in fiscal year 2005. This reflects
the Company’s revised estimated future payments on this lease. These charges are
included in the Statement of Operations as aircraft and facility lease exit
costs. The aircraft facility exit cost liability of $180,739 is included
in the
following Balance Sheet accounts: $124,012 in other accrued expenses and
$56,727
in other long-term liabilities.
A
summary
of the activity charged to these liabilities is as
follows:
|
|
Aircraft
|
|
Facility
|
|
Total
|
|
Balance,
March 31, 2005
|
|
$
|
932,800
|
|
$
|
249,568
|
|
$
|
1,182,368
|
|
Additions
|
|
|
3,311,888
|
|
|
52,627
|
|
|
3,364,515
|
|
Lease
payments
|
|
|
(4,244,688
|
)
|
|
(121,456
|
)
|
|
(4,366,144
|
)
|
Balance,
December 31, 2005
|
|
$
|
-
|
|
$
|
180,739
|
|
$
|
180,739
|
|
10. Retirement
Health Plan
In
conjunction with the Company’s collective bargaining agreement, pilots, retired
pilots and their dependents may retain medical benefits under the terms and
conditions of the Health and Welfare Plan for Employees of Frontier Airlines,
Inc. until age 65. The costs of retiree medical benefits are continued under
the
same contribution schedule as active employees.
The
net
periodic benefit cost for the three and nine months ended December 31, 2005
and
2004 includes the following components:
|
|
Three
months ended
December
31,
|
|
Nine
months ended
December
31,
|
|
|
|
2005
|
|
2004
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
Service
cost
|
|
$
|
238,479
|
|
$
|
236,475
|
|
$
|
715,437
|
|
$
|
714,203
|
|
Interest
cost
|
|
|
67,821
|
|
|
54,598
|
|
|
203,463
|
|
|
163,791
|
|
Recognized
net actuarial loss
|
|
|
15,171
|
|
|
22,358
|
|
|
45,513
|
|
|
67,074
|
|
Net
periodic benefit cost
|
|
$
|
321,471
|
|
$
|
313,431
|
|
$
|
964,413
|
|
$
|
945,068
|
|
11.
Assets Held for Sale
In
April
2005, the Company retired the remaining Boeing aircraft and has classified
all
remaining Boeing 737-300 aircraft rotable spare parts and expendable inventories
as “assets held for sale.” As such, these assets have been valued at the lower
of the carrying amount or the estimated market value less selling costs.
In
August
2004, the Company began selling Boeing spare parts and entered into agreements
with two vendors to sell these parts on a consignment basis. The Company
monitors resale values for Boeing parts quarterly using estimates obtained
from
outside vendors. Based on the current market prices and recent sales history,
the Company has determined that there is currently no additional impairment
required for the Boeing rotable spare parts and expendable inventories.
Gains
and
losses that resulted from the sale of these assets are recognized as they
are
sold and reported in income from operations as a component of (gains) losses
on
sales of assets, net. During the nine-months ended December 31, 2005, the
Company realized a net gain of $1,224,000 on the sale of these assets.
12.
Recently Issued Accounting Standards
In
December 2004, the Financial Accounting Standards Board (“FASB”) issued SFAS No.
123R, “Share-Based Payments”. SFAS No. 123R is a revision of SFAS No. 123,
“Accounting for Stock Based Compensation”, and supersedes APB 25. Among other
items, SFAS 123R eliminates the use of APB 25 and the intrinsic value method
of
accounting, and requires companies to recognize the cost of employee services
received in exchange for awards of equity instruments, based on the grant
date
fair value of those awards, in the financial statements. The effective
date of
SFAS 123R will be the beginning of the fiscal year that begins after June
15,
2005.
SFAS
123R
permits companies to adopt its requirements using either a “modified
prospective” method, or a “modified retrospective” method. Under the “modified
prospective” method, compensation cost is recognized in the financial statements
beginning with the effective date, based on the requirements of SFAS 123R
for
all share-based payments granted after that date, and based on the requirements
of SFAS 123 for all unvested awards granted prior to the effective date
of SFAS
123R. Under the “modified retrospective” method, the requirements are the same
as under the “modified prospective” method, however companies may restate
financial statements of previous periods based on proforma disclosures
made in
accordance with SFAS 123.
The
Company currently accounts for stock based compensation under APB 25 and
utilizes a standard option pricing model (i.e., Black-Scholes) to measure
the
fair value of stock options granted to employees. While SFAS 123R permits
entities to continue to use such a model, the standard also permits the
use of a
“lattice” model.
SFAS
123R
also requires that the benefits associated with the tax deductions in excess
of
recognized compensation cost be reported as a financing cash flow, rather
than
as an operating cash flow as required under current literature. This requirement
will reduce net operating cash flows and increase net financing cash flows
in
periods after the effective date. These future amounts cannot be estimated
because they depend on, among other things, when employees exercise stock
options.
The
Company currently expects to adopt SFAS 123R effective April 1, 2006, and
to use
the modified prospective method; however, the Company has not yet determined
which of the aforementioned option pricing models it will use. In addition,
the
Company has not yet determined the financial statement impact of adopting
SFAS
123R.
Special
Note About Forward-Looking Statements - 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 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; failure of our new
markets
to perform as anticipated; the inability to achieve a level of revenue
through
fares sufficient to obtain profitability due to competition from other
air
carriers and excess capacity in the markets we serve; 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; hurricanes and their impact on oil production; 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, Southwest Airlines, and other competitors,
particularly in some of our Mexico destinations due to the increase in
the
number of domestic airlines authorized to serve Mexico markets from the
U.S.;
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, debt or operating lease financing
necessary to acquire aircraft which we have ordered; uncertainties regarding
aviation fuel prices, and various risk factors to our business discussed
elsewhere in this report. Because our business, like that of the airline
industry generally, is characterized by high fixed costs relative to revenues,
small fluctuations in our revenue per available seat mile (“RASM”) or cost per
available seat mile (“CASM”) can significantly affect operating
results.
These risks and factors are not exclusive, and we undertake no obligation
to
publicly update or revise any forward-looking statements to reflect events
or
circumstances that may arise after the date of this filing. A discussion
of some
of these risk factors is included in the Company’s Annual Report on Form 10-K
for the year ended March 31, 2005 and a Form 8-K filed on November 29,
2005.
These reports should be read in their entirety since no single section
deals
with all aspects of these matters.
Our
Business
Now
in
our 12th year of operations, we are a low cost, affordable fare airline
operating primarily in a hub and spoke fashion connecting cities coast
to coast
through our hub at Denver International Airport (“DIA”). We are the second
largest jet service carrier at DIA based on departures. As of January 23,
2006,
we, in conjunction with Frontier JetExpress operated by Horizon Air Industries,
Inc. (“Horizon”), operate routes linking our Denver hub to 47 U.S. cities
spanning the nation from coast to coast and to seven cities in Mexico.
During
the year ended March 31, 2005, we began certain point-to-point routes to
Mexico
from non-hub cities. As of January 23, 2006, we also provided jet service
to
Cancun, Mexico directly from four non-hub cities and service to Puerto
Vallarta,
Mexico from Kansas City, Missouri.
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 49
jets as of January 23, 2006 (33 of which we lease and 16 of which we own),
consisting of 42 Airbus A319s and seven Airbus A318s. In April 2005, we
completed our plan to replace our Boeing aircraft with new purchased and
leased
Airbus jet aircraft. During the three and nine months ended December 31,
2005,
we increased year-over-year capacity by 8.6% and 6.7%, respectively. During
the
three and nine months ended December 31, 2005, we increased mainline passenger
traffic by 9.2% and 12.7% over the prior comparable periods, outpacing
our
increase in capacity during both periods. We intend to continue our growth
strategy and will add frequency to new markets and existing markets that
we
believe are underserved.
Recently
our services to Cancun, Mexico, New Orleans, Louisiana and certain of our
markets in Florida were disrupted by hurricanes and other extreme weather,
impacting our service levels to these destinations and also impacting our
revenues and cost of doing business. We are always at risk of severe weather
in
any destination we serve. Although we believe we have developed sound strategies
for addressing operational issues created by severe weather, we remain
exposed
to significant operational interruptions. The two Gulf Coast hurricanes
also
severely damaged crude oil production and refinery capacity in the region.
As a
result of these disruptions, in October 2005, the cost of jet aviation
fuel
increased within weeks by nearly $1.00 per gallon and caused fuel shortages
at
several airports that we serve.
In
addition, with respect to our Mexico service, the U.S. and Mexico recently
amended their bilateral agreement relating to commercial air service.
Previously, only two U.S. based airlines were permitted to provide air
service
between the U.S. and certain cities in Mexico, primarily the resort destinations
we serve. In many cases, we were one of the two U.S. based airlines providing
service to the cities we serve in Mexico. The recent amendments to the
bilateral
agreement expanded the authorized service levels to three U.S. based airlines
per identified city pair. It is therefore highly likely that other airlines
will
seek to add service to some of the Mexico destinations we serve, which
would
increase competition and perhaps place downward pressure on air fares in
these
markets.
In
September 2003, we signed a 12-year agreement with Horizon, under which
Horizon
operates up to nine 70-seat CRJ 700 aircraft under our Frontier JetExpress
brand. The service began on January 1, 2004 with three aircraft. We increased
JetExpress aircraft to a total of eight aircraft in service and one spare
aircraft as of June 1, 2004. We control the scheduling of this service.
We
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 the performance of Horizon and our financial performance. As of
January
23, 2006, Frontier JetExpress provides service to Albuquerque, New Mexico;
Boise, Idaho; Billings, Montana; Dayton, Ohio; El Paso, Texas; Fresno,
California; Little Rock, Arkansas; Oklahoma City, Oklahoma; Spokane, Washington;
Tucson, Arizona; and Tulsa, Oklahoma, and supplements our mainline service
to
Austin, Texas; Omaha, Nebraska, and San Jose, California.
We
currently operate on 16 gates on Concourse A at DIA on a preferential basis.
We
use these 16 gates and share use of up to four common use regional jet
parking
positions to operate approximately 241 daily mainline flight departures
and
arrivals and 52 Frontier JetExpress daily system flight departures and
arrivals.
During
the nine months ended December 31, 2005, we added service from DIA to the
following new cities with commencement dates as follows:
Destination
|
Commencement
Date
|
|
|
Detroit,
Michigan
|
May
8, 2005
|
Tulsa,
Oklahoma (1)
|
May
22, 2005
|
Akron-Canton,
Ohio
|
June
15, 2005
|
San
Antonio, Texas
|
June
26, 2005
|
Dayton,
Ohio (1)
|
August
31, 2005
|
Fresno,
California (1)
|
August
31, 2005
|
Kansas
City, Missouri to
Puerto
Vallarta, Mexico
|
December
17, 2005
|
Denver,
Colorado to Cozumel, Mexico
|
December
17, 2005
|
Denver,
Colorado to Acapulco, Mexico (2)
|
December
18, 2005
|
|
|
(1)
Operated exclusively by Frontier JetExpress.
|
|
(2)
We will discontinue seasonal service to Acapulco on April 16,
2006.
|
In
September 2005, we suspended our one daily flight to New Orleans, Louisiana
due
to Hurricane Katrina.
In
addition to adding Acapulco and Cozumel to cities we serve in Mexico, we
have
increased service in Mexico as follows: (1) resumed seasonal service to
Ixtapa/Zihuatanejo on November 18, 2005, adding an additional
weekly
frequency
from the 2004 season for a total of three round-trip frequencies per week,
(2)
increased service from Denver to Cabo San Lucas beginning November 18,
2005 and
to Puerto Vallarta beginning December 17, 2005, with daily service plus
an
additional Saturday frequency during peak periods to both destinations,
and (3)
increased to two daily flights to Cancun from Denver during the peak winter
holiday periods, effective December 17, 2005. This represents an increase
in our
Cancun service from Denver and is part of our growing Cancun operation,
which
currently includes non-stop service to Cancun from St. Louis, Kansas City,
Salt
Lake City, Nashville and Denver.
In
January 2006, we submitted an application with the DOT and the Canadian
government for authority to provide round-trip jet transportation to Canada.
In
January 2006, we received authorization from the DOT to serve cities located
in
Canada. Our applications with Canadian authorities are pending. We have
also
submitted applications to the DOT for authority to provide round-trip jet
transportation for the following routes: (1) Indianapolis, Indiana to Cancun,
Mexico; (2) Chicago Midway airport to Cancun, Mexico; and (3) Los Angeles
International Airport to Cabo San Lucas, Mexico. In January 2006, we received
approval from the DOT for our application to fly from Indianapolis to Cancun.
Our application with the Mexican authorities is pending.
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 made available as
soon as
reasonably practicable 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.
Overview
of Operations and the Industry
We
intend
to continue our focused growth strategy, which included the completion
of a
fleet transition from a Boeing fleet to an all Airbus fleet in April 2005.
One
of the key elements of this strategy is to produce cost savings because
crew
training is standardized for aircraft of a common type, maintenance issues
are
simplified, spare parts inventory is reduced, and scheduling is more efficient.
As of January 23, 2006, we have remaining firm purchase commitments for
11
Airbus 319 aircraft from Airbus, and we intend
to
lease as many as four additional A319 aircraft from third party lessors
over the
next two years. We intend to use these additional aircraft to provide service
to
new markets and/or to add frequencies to existing markets that we believe
are
underserved.
We
believe we have a proven management team and a strong company culture and
will
continue to focus on differentiating the product and service we provide
to our
passengers. We believe our friendly, dedicated employees, affordable pricing,
accommodating service, in-flight entertainment systems and comfortable
airplanes
distinguish our product and service from our competitors. Safety is a primary
concern, and we are proud that our maintenance staff has been awarded the
FAA
Diamond Award for Excellence for seven straight years – an
award that
recognizes our commitment to the ongoing training and education of our
maintenance staff. Our product begins with the Airbus aircraft, which offers
a
comfortable passenger cabin that we configure with one class of comfortable
seating, superb leg room, and in-seat 24 channel live television entertainment.
We also provide three additional channels that offer current-run pay-per-view
movies. Augmenting our product is our team of dedicated employees who strive
to
offer friendly customer service and keep operations running efficiently,
which
we believe leads to lower operating costs.
The
airline industry continues to operate in an intensely competitive market
with
record high aircraft fuel costs. We expect competition will remain intense.
Business and leisure travelers continue to reevaluate their travel budgets
and
remain highly price sensitive. Increased competition has prompted aggressive
strategies from competitors through discounted fares and sales promotions.
Additionally, the intense competition coupled with the record high fuel
costs
has created financial hardship for some of our competitors that have been
forced
to reduce capacity or have been forced into bankruptcy protection.
Highlights
from the Quarter
|
·
|
Completed
a $92,000,000 public offering of convertible
notes
|
|
·
|
Increased
the number of Mexico cities we serve to seven with new service
to Cozumel
and Acapulco.
|
|
·
|
We
were ranked as number one in “On
Time
Arrival Performance” among all carriers at the 33 largest airports in
America for the month of September 2005 and in the top five for
on time
arrival performance for four consecutive months.
|
Operating
Statistics
The
following table provides certain of our financial and operating data for
the
three and nine months ended December 31, 2005 and 2004:
|
Three
Months Ended
December
31,
|
|
|
|
Nine
Months Ended
December
31,
|
|
|
|
2005
|
|
2004
|
|
Change
|
|
2005
|
|
2004
|
|
Change
|
Selected
Operating Data - Mainline:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Passenger
revenue (000s) (1)
|
$
217,812
|
|
$
182,361
|
|
19.4%
|
|
$
655,276
|
|
$
539,971
|
|
21.4%
|
Revenue
passengers carried (000s)
|
1,872
|
|
1,644
|
|
13.9%
|
|
5,784
|
|
4,978
|
|
16.2%
|
Revenue
passenger miles (RPMs) (000s) (2)
|
1,774,114
|
|
1,625,146
|
|
9.2%
|
|
5,555,093
|
|
4,928,415
|
|
12.7%
|
Available
seat miles (ASMs) (000s) (3)
|
2,461,668
|
|
2,267,686
|
|
8.6%
|
|
7,326,080
|
|
6,862,911
|
|
6.7%
|
Passenger
load factor (4)
|
72.1%
|
|
71.7%
|
|
0.4
pts.
|
|
75.8%
|
|
71.8%
|
|
4.0
pts.
|
Break-even
load factor (5)
|
75.2%
|
|
77.6%
|
|
(2.4)
pts.
|
|
75.7%
|
|
75.1%
|
|
0.6
pts.
|
Block
hours (6)
|
50,968
|
|
45,725
|
|
11.5%
|
|
149,323
|
|
136,786
|
|
9.2%
|
Departures
|
20,835
|
|
18,136
|
|
14.9%
|
|
61,338
|
|
54,723
|
|
12.1%
|
Average
seats per departure
|
129.4
|
|
129.9
|
|
(0.4%)
|
|
129.4
|
|
130.2
|
|
(0.6%)
|
Average
stage length
|
913
|
|
963
|
|
(5.2%)
|
|
923
|
|
963
|
|
(4.2%)
|
Average
length of haul
|
948
|
|
989
|
|
(4.1%)
|
|
960
|
|
990
|
|
(3.0%)
|
Average
daily block hour utilization (7)
|
11.3
|
|
10.7
|
|
5.6%
|
|
11.4
|
|
11.2
|
|
1.8%
|
Yield
per RPM (cents) (8), (9)
|
12.04
|
|
11.10
|
|
8.5%
|
|
11.65
|
|
10.87
|
|
7.2%
|
Total
yield per RPM (cents) (9), (10)
|
12.60
|
|
11.49
|
|
9.7%
|
|
12.10
|
|
11.21
|
|
7.9%
|
Yield
per ASM (cents) (9), (11)
|
8.68
|
|
7.95
|
|
9.2%
|
|
8.84
|
|
7.81
|
|
13.2%
|
Total
yield per ASM (cents) (12)
|
9.08
|
|
8.23
|
|
10.3%
|
|
9.17
|
|
8.05
|
|
13.9%
|
Cost
per ASM (cents)
|
9.32
|
|
8.80
|
|
5.9%
|
|
9.03
|
|
8.30
|
|
8.8%
|
Fuel
expense per ASM (cents)
|
3.15
|
|
2.37
|
|
32.9%
|
|
2.84
|
|
2.02
|
|
40.6%
|
Cost
per ASM excluding fuel (cents) (13)
|
6.17
|
|
6.43
|
|
(4.0%)
|
|
6.19
|
|
6.28
|
|
(1.4%)
|
Average
fare (14)
|
$
104.72
|
|
$
102.92
|
|
1.7%
|
|
$
103.42
|
|
$
101.14
|
|
2.3%
|
Average
aircraft in service
|
49.0
|
|
46.4
|
|
5.6%
|
|
47.8
|
|
44.4
|
|
7.7%
|
Aircraft
in service at end of period
|
49.0
|
|
46.0
|
|
6.5%
|
|
49.0
|
|
46.0
|
|
6.5%
|
Average
age of aircraft at end of period
|
2.4
|
|
2.8
|
|
(14.3%)
|
|
2.4
|
|
2.8
|
|
(14.3%)
|
Average
fuel cost per gallon (15)
|
$
2.21
|
|
$
1.64
|
|
34.8%
|
|
$
1.98
|
|
$
1.39
|
|
42.4%
|
Fuel
gallons consumed (000’s)
|
35,076
|
|
32,725
|
|
7.2%
|
|
105,329
|
|
99,483
|
|
5.9%
|
|
Three
Months Ended
December
31,
|
|
|
|
Nine
Months Ended
December
31,
|
|
|
|
2005
|
|
2004
|
|
Change
|
|
2005
|
|
2004
|
|
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected
Operating Data - Regional Partner:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Passenger
revenue (000s) (1)
|
$
23,490
|
|
$
21,582
|
|
8.8%
|
|
$
69,835
|
|
$
62,618
|
|
11.5%
|
Revenue
passengers carried (000s)
|
228
|
|
221
|
|
3.2%
|
|
695
|
|
657
|
|
5.8%
|
Revenue
passenger miles (RPMs) (000s) (2)
|
156,565
|
|
129,301
|
|
21.1%
|
|
442,278
|
|
403,012
|
|
9.7%
|
Available
seat miles (ASMs) (000s) (3)
|
215,077
|
|
185,673
|
|
15.8%
|
|
608,194
|
|
554,022
|
|
9.8%
|
Passenger
load factor (4)
|
72.8%
|
|
69.6%
|
|
3.2
pts
|
|
72.7%
|
|
72.7%
|
|
-
|
Yield
per RPM (cents) (8), (9)
|
15.00
|
|
16.69
|
|
(10.1%)
|
|
15.79
|
|
15.54
|
|
1.6%
|
Yield
per ASM (cents) (9), (11)
|
10.92
|
|
11.62
|
|
(6.0%)
|
|
11.48
|
|
11.30
|
|
1.6%
|
Cost
per ASM (cents)
|
13.55
|
|
12.93
|
|
4.8%
|
|
13.08
|
|
12.43
|
|
5.2%
|
Average
fare
|
$
103.13
|
|
$
97.51
|
|
5.8%
|
|
$
100.54
|
|
$
95.24
|
|
5.6%
|
Aircraft
in service at end of period
|
9
|
|
9
|
|
-
|
|
9
|
|
9
|
|
-
|
|
Three
Months Ended
December
31,
|
|
|
|
Nine
Months Ended
December
31,
|
|
|
|
2005
|
|
2004
|
|
Change
|
|
2005
|
|
2004
|
|
Change
|
Selected
Operating Data - Combined:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Passenger
revenue (000s) (1)
|
$
241,302
|
|
$
203,943
|
|
18.3%
|
|
$
725,111
|
|
$
602,589
|
|
20.3%
|
Revenue
passengers carried (000s)
|
2,100
|
|
1,865
|
|
12.6%
|
|
6,479
|
|
5,635
|
|
15.0%
|
Revenue
passenger miles (RPMs) (000s) (2)
|
1,930,679
|
|
1,754,447
|
|
10.0%
|
|
5,997,371
|
|
5,331,427
|
|
12.5%
|
Available
seat miles (ASMs) (000s) (3)
|
2,676,745
|
|
2,453,359
|
|
9.1%
|
|
7,934,274
|
|
7,416,933
|
|
7.0%
|
Passenger
load factor (4)
|
72.1%
|
|
71.5%
|
|
0.6
pts.
|
|
75.6%
|
|
71.9%
|
|
3.7
pts.
|
Yield
per RPM (cents) (8)
|
12.28
|
|
11.51
|
|
6.7%
|
|
11.96
|
|
11.23
|
|
6.5%
|
Total
yield per RPM (cents) (9), (10)
|
12.79
|
|
11.87
|
|
7.8%
|
|
12.37
|
|
11.54
|
|
7.2%
|
Yield
per ASM (cents) (11)
|
8.86
|
|
8.23
|
|
7.7%
|
|
9.04
|
|
8.07
|
|
12.0%
|
Total
yield per ASM (cents) (12)
|
9.23
|
|
8.49
|
|
8.7%
|
|
9.35
|
|
8.29
|
|
12.8%
|
Cost
per ASM (cents)
|
9.66
|
|
9.11
|
|
6.0%
|
|
9.34
|
|
8.61
|
|
8.5%
|
(1) |
“Passenger revenue” includes revenues for
reduced rate stand-by passengers, charter revenues, administrative
fees,
and revenue recognized for unused tickets that are greater
than one year
from issuance date. The incremental revenue from passengers
connecting
from regional flights to mainline flights is included in
our mainline
passenger revenue.
|
(2)
|
“Revenue
passenger miles,” or RPMs, are determined by multiplying the number of
fare-paying passengers carried by the distance flown. This
represents the
number of miles flown by revenue paying
passengers.
|
(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. This represents the percentage of aircraft
seating
capacity that is actually utilized.
|
(5)
|
“Break-even
load factor” is the mainline passenger load factor that will result in
operating revenues being equal to operating expenses, assuming
constant
revenue per passenger mile and
expenses.
|
For
purposes of these 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 break-even load factor excluding charter revenue is useful
to
investors because charter flights are not included in RPM’s or ASM’s.
Furthermore, in preparing operating plans and forecasts, we rely on an analysis
of break-even load factor 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.
A
reconciliation of the components of the calculation of mainline break-even
load
factor is as follows:
|
|
Three
Months Ended
December
31,
|
|
Nine
Months Ended
December
31,
|
|
|
|
2005
|
|
2004
|
|
2005
|
|
2004
|
|
|
|
(In
thousands)
|
|
(In
thousands)
|
|
Net
loss
|
|
$
|
10,290
|
|
$
|
11,058
|
|
$
|
6,119
|
|
$
|
19,714
|
|
Income
tax benefit
|
|
|
4,576
|
|
|
6,218
|
|
|
2,372
|
|
|
10,802
|
|
Passenger
revenue
|
|
|
217,812
|
|
|
182,361
|
|
|
655,276
|
|
|
539,971
|
|
Revenue
- regional partner
|
|
|
23,490
|
|
|
21,582
|
|
|
69,835
|
|
|
62,618
|
|
Charter
revenue
|
|
|
(4,251
|
)
|
|
(2,006
|
)
|
|
(7,959
|
)
|
|
(4,045
|
)
|
Operating
expenses - regional partner
|
|
|
(29,144
|
)
|
|
(24,012
|
)
|
|
(79,569
|
)
|
|
(68,874
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Passenger
revenue - mainline (excluding charter and regional partner revenue)
required to break even
|
|
$
|
222,773
|
|
$
|
195,201
|
|
$
|
646,074
|
|
$
|
560,186
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
calculation of the break-even load factor follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended
December
31,
|
Nine
Months Ended
December
31,
|
|
|
|
2005
|
|
|
2004
|
|
|
2005
|
|
|
2004
|
|
Passenger
revenue - mainline (excluding charter and regional partner revenue)
required to break even ($000s)
|
|
$
|
222,773
|
|
$
|
195,201
|
|
$
|
646,074
|
|
$
|
560,186
|
|
Mainline
yield per RPM (cents)
|
|
|
12.04
|
|
|
11.10
|
|
|
11.65
|
|
|
10.87
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mainline
revenue passenger miles (000s) to break even assuming constant
yield per
RPM
|
|
|
1,850,274
|
|
|
1,758,568
|
|
|
5,545,700
|
|
|
5,153,505
|
|
Mainline
available seat miles (000’s)
|
|
|
2,461,668
|
|
|
2,267,686
|
|
|
7,326,080
|
|
|
6,862,911
|
|
Mainline
break-even load factor excluding charter revenue
|
|
|
75.2
|
%
|
|
77.6
|
%
|
|
75.7
|
%
|
|
75.1
|
%
|
(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
operational spare aircraft, and excludes aircraft removed permanently
from
revenue service or new aircraft not yet placed in revenue service.
This
represents the amount of time that our aircraft spend in the
air carrying
passengers.
|
(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 RPM’s or ASM’s.
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:
|
Passenger
revenue adjustment
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended
December
31,
|
|
Nine
Months Ended
December
31,
|
|
|
|
2005
|
|
2004
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
Passenger
revenues - mainline, as reported
|
|
$
|
217,812
|
|
$
|
182,361
|
|
$
|
655,276
|
|
$
|
539,971
|
|
Less:
charter revenue
|
|
|
4,251
|
|
|
2,006
|
|
|
7,959
|
|
|
4,045
|
|
Passenger
revenues - mainline excluding charter
|
|
|
213,561
|
|
|
180,355
|
|
|
647,317
|
|
|
535,926
|
|
Add:
Passenger revenues - regional partner
|
|
|
23,490
|
|
|
21,582
|
|
|
69,835
|
|
|
62,618
|
|
Passenger
revenues, system combined
|
|
$
|
237,051
|
|
$
|
201,937
|
|
$
|
717,152
|
|
$
|
598,544
|
|
(10)
|
“Total
yield per RPM” is determined by dividing total revenues by revenue
passenger miles. This represents the average amount one passenger
pays to
fly one mile.
|
(11)
|
“Yield
per ASM” or “RASM” is determined by dividing passenger revenues (excluding
charter revenue) by available seat
miles.
|
(12)
|
“Total
yield per ASM” is determined by dividing total revenues by available seat
miles.
|
(13)
|
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. Excluding fuel from the cost of mainline operations
facilitates the comparison of results of operations between current
and
past periods and enables investors to 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.
|
(14)
|
“Average
fare” excludes revenue included in passenger revenue for charter and
reduced rate stand-by passengers, administrative fees, and revenue
recognized for unused tickets that are greater than one year
from issuance
date.
|
(15) |
“Average fuel cost per gallon” includes
unrealized hedging losses of $1,529,000 and $3,202,000 for the
three
months ended December 31, 2005 and 2004, respectively and unrealized
hedging loss of $2,254,000 and an unrealized hedging gain of
$432,000 for
the nine months ended December 31, 2005 and 2004,
respectively.
|
Results
of Operations
Summary
During
the quarter ended December 31, 2005, we had a net loss of $10,290,000, or
28¢
per diluted share, as compared to a net loss of $11,058,000, or 31¢ per diluted
share, for the quarter ended December 31, 2004. The domestic U.S. airline
environment continues to have extremely challenging conditions due to sustained
widespread price competition and record high fuel costs. Fuel costs have
risen
sharply since January 2004 and increased substantially after September 2005
following Hurricanes Katrina and Rita. Our average fuel cost per gallon,
including hedging activities, was $2.21 during the quarter ended December
31,
2005, compared to $1.64 during the quarter ended December 31, 2004, an increase
of 34.8%. The average cost of fuel for the quarter ended December 31, 2005
includes unrealized hedging losses of $1,529,000, or $0.04 per gallon, as
compared to $3,202,000 of unrealized hedging losses, or $0.10 per gallon,
for
the quarter ended December 31, 2004.
Included
in our net loss for the quarter ended December 31, 2005 were the following
items
before the effect of income taxes: unrealized losses on fuel hedges of
$1,529,000 and gains of $274,000 related primarily to the sale of Boeing
parts
held for sale. These items, net of income taxes, increased our net loss for
the
quarter ended December 31, 2005 by 3¢ per share. Included in our net loss for
the quarter ended December 31, 2004 were the following items before the effect
of income taxes: a gain on the sale of assets of $120,000, a write down of
$658,000 of the carrying value of expendable Boeing 737 inventory, and an
unrealized loss on fuel hedges of $3,202,000. These items, net of income
taxes,
increased our net loss for the quarter ended December 31, 2004 by 7¢ per
share.
Our
mainline passenger yield per RPM was 12.04¢ and 11.10¢ for the quarters ending
December 31, 2005 and 2004, respectively, an increase of 8.5%. Our mainline
average fare was $104.72 for the quarter ended December 31, 2005 as compared
to
$102.92 for the quarter ending December 31, 2004, an increase of 1.7%. Our
length of haul was 948 and 989 miles for the quarters ended December 31,
2005
and 2004, respectively, a decrease of 4.1%. Our average fare increase is
partially due to several industry fare increases that we have matched. Our
mainline passenger revenue per available seat mile for the quarter ended
December 31, 2005 and 2004 were 8.68¢ and 7.95¢, respectively, an increase of
9.2%.
We
continue to focus on controlling non-fuel costs. Our mainline cost per available
seat mile (“CASM”) for the quarters ended December 31, 2005 and 2004 were 9.32¢
and 8.80¢, respectively, an increase of .52¢ per ASM or 5.9%. The increase in
mainline CASM was largely due to an increase in fuel expense to 3.15¢ per ASM
from 2.37¢ per ASM for the quarters ended December 31, 2005 and 2004,
respectively, an increase of 32.9%. Mainline CASM, excluding fuel was 6.17¢ and
6.43¢, respectively, a decrease of .26¢ per ASM or 4.0%. However, included in
mainline CASM for the quarter ended December 31, 2005 was a reduction of
our
sales and promotion expense of $1,300,000, or 0.5¢ per ASM, due to a favorable
sales and use tax credit on the taxation of ticketing services which related
to
the periods starting with September 2001 through December 2004.
An
airline’s
mainline 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. For the quarter ended December 31, 2005,
our
mainline break-even load factor was 75.2% compared to our achieved passenger
load factor of 72.1%. Our mainline break-even load factor for the quarter
ended
December 31, 2004, was 77.6% compared to our achieved passenger load factor
of
71.7%. Our mainline break-even load factor decreased from the prior comparable
period as a result of an increase in our total mainline RASM of 10.3%, which
was
partially offset by a 5.9% increase in mainline CASM during the quarter ended
December 31, 2005 (primarily due to increases in fuel costs).
Small
fluctuations in our RASM or 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.
To
a
large extent, changes in operating expenses for airlines are driven by changes
in capacity, or ASMs. The following table provides our operating revenues
and
expenses for our mainline operations expressed as cents per total mainline
ASMs
and as a percentage of total mainline operating revenues, as rounded, for
the
three and nine month ended December 31, 2005 and 2004. Regional partner
revenues, expenses and ASMs were excluded from this table.
|
|
Three
Months Ended
December
31,
|
|
Nine
Months Ended
December
31,
|
|
|
|
2005
|
|
2004
|
|
2005
|
|
2004
|
|
|
|
Per
|
|
%
|
|
Per
|
|
%
|
|
Per
|
|
%
|
|
Per
|
|
%
|
|
|
|
total
|
|
of
Total
|
|
total
|
|
of
Total
|
|
total
|
|
of
Total
|
|
total
|
|
of
Total
|
|
|
|
ASM
|
|
Revenue
|
|
ASM
|
|
Revenue
|
|
ASM
|
|
Revenue
|
|
ASM
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Passenger
|
|
|
8.85
|
|
|
97.5
|
%
|
|
8.04
|
|
|
97.7
|
%
|
|
8.94
|
|
|
97.5
|
%
|
|
7.87
|
|
|
97.7
|
%
|
Cargo
|
|
|
0.06
|
|
|
0.6
|
%
|
|
0.05
|
|
|
0.6
|
%
|
|
0.06
|
|
|
0.6
|
%
|
|
0.05
|
|
|
0.7
|
%
|
Other
|
|
|
0.17
|
|
|
1.9
|
%
|
|
0.14
|
|
|
1.7
|
%
|
|
0.17
|
|
|
1.9
|
%
|
|
0.13
|
|
|
1.6
|
%
|
Total
revenues
|
|
|
9.08
|
|
|
100.0
|
%
|
|
8.23
|
|
|
100.0
|
%
|
|
9.17
|
|
|
100.0
|
%
|
|
8.05
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Flight
operations
|
|
|
1.43
|
|
|
15.7
|
%
|
|
1.44
|
|
|
17.5
|
%
|
|
1.43
|
|
|
15.5
|
%
|
|
1.40
|
|
|
17.4
|
%
|
Aircraft
fuel
|
|
|
3.15
|
|
|
34.7
|
%
|
|
2.37
|
|
|
28.8
|
%
|
|
2.84
|
|
|
31.0
|
%
|
|
2.02
|
|
|
25.1
|
%
|
Aircraft
lease
|
|
|
0.95
|
|
|
10.5
|
%
|
|
1.01
|
|
|
12.3
|
%
|
|
0.95
|
|
|
10.5
|
%
|
|
0.94
|
|
|
11.6
|
%
|
Aircraft
and traffic servicing
|
|
|
1.43
|
|
|
15.7
|
%
|
|
1.42
|
|
|
17.3
|
%
|
|
1.38
|
|
|
15.0
|
%
|
|
1.39
|
|
|
17.2
|
%
|
Maintenance
|
|
|
0.75
|
|
|
8.3
|
%
|
|
0.85
|
|
|
10.3
|
%
|
|
0.78
|
|
|
8.4
|
%
|
|
0.83
|
|
|
10.4
|
%
|
Promotion
and sales
|
|
|
0.80
|
|
|
8.9
|
%
|
|
0.83
|
|
|
10.0
|
%
|
|
0.82
|
|
|
9.0
|
%
|
|
0.84
|
|
|
10.5
|
%
|
General
and administrative
|
|
|
0.51
|
|
|
5.6
|
%
|
|
0.56
|
|
|
6.9
|
%
|
|
0.50
|
|
|
5.5
|
%
|
|
0.51
|
|
|
6.4
|
%
|
Aircraft
lease and facility exit costs
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
0.05
|
|
|
0.5
|
%
|
|
-
|
|
|
-
|
|
(Gains)
losses on sales of assets, net
|
|
|
(0.01
|
)
|
|
(0.1
|
)%
|
|
-
|
|
|
-
|
|
|
(0.01
|
)
|
|
(0.1
|
)%
|
|
0.01
|
|
|
0.1
|
%
|
Impairments
|
|
|
-
|
|
|
-
|
|
|
0.03
|
|
|
0.4
|
%
|
|
-
|
|
|
-
|
|
|
0.07
|
|
|
0.9
|
%
|
Depreciation
|
|
|
0.31
|
|
|
3.4
|
%
|
|
0.29
|
|
|
3.5
|
%
|
|
0.29
|
|
|
3.1
|
%
|
|
0.29
|
|
|
3.6
|
%
|
Total
operating expenses
|
|
|
9.32
|
|
|
102.7
|
%
|
|
8.80
|
|
|
107.0
|
%
|
|
9.03
|
|
|
98.4
|
%
|
|
8.30
|
|
|
103.2
|
%
|
Three
Months ended December 31, 2005 as Compared to the Three Months ended December
31, 2004
Mainline
Revenues
Industry
fare pricing behavior has 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.
In
addition, certain markets we serve are destinations that cater to vacation
or
leisure travelers, resulting in seasonal fluctuations in passenger revenues
in
these markets.
Passenger
Revenues —
Mainline.
Mainline
passenger revenues totaled $217,812,000 for the quarter ended December 31,
2005
compared to $182,361,000 for the quarter ended December 31, 2004, an increase
of
19.4%.
Mainline
passenger revenue includes revenues for reduced rate standby passengers,
administrative fees, revenue recognized for tickets that are not used within
one
year from their issue dates, and revenue recognized from our co-branded credit
card arrangement. We carried 1,872,000 mainline revenue passengers during
the
quarter ended December 31, 2005 compared to 1,644,000 mainline revenue
passengers during the quarter ended December 31, 2004, an increase of 13.9%.
We
had an average of 49.0 aircraft in service during the quarter ended December
31,
2005 compared to an average of 46.4 aircraft in service during the quarter
ended
December 31, 2004, an increase of 5.6%. Mainline ASMs increased to 2,461,668,000
for the quarter ended December 31, 2005 from 2,267,686,000 for the quarter
ended
December 31, 2004, an increase of 8.6%. Mainline RPMs for the quarter ended
December 31, 2005 were 1,774,114,000 compared to 1,625,146,000 for the quarter
ended December 31, 2004, an increase of 9.2%, outpacing the increase in mainline
ASMs. Our mainline RASM increased to 8.68¢ from 7.95¢, an increase of 9.2%. Our
mainline average fare was $104.72 for the quarter ended December 31, 2005
as
compared to $102.92 for the quarter ended December 31, 2004, an increase
of
1.7%. Our length of haul was 948 and 989 miles for the quarters ended December
31, 2005 and 2004, respectively, a decrease of 4.1%. We started downsizing
our
service in Los Angeles, California (“LAX”) on August 15, 2004 and shifted
service to Mexico beginning in October 2004. By February 2005 we were out
of LAX
as a focus city, which included transcontinental flights between the east
and
west coast, introductory fares and disappointing load factors. The LAX service
resulted in longer system-wide length of haul relative to our non-LAX route
structure we currently have in place. Our average fare increase is partially
due
to the lower fares offered last year for the LAX focus city and is also due
to
several industry fare increases that have sustained in the market
place.
Cargo
Revenues.
Cargo
revenues, consisting of revenues from freight and mail service, totaled
$1,462,000 and $1,189,000 for the quarters ended December 31, 2005 and 2004,
representing 0.7% and 0.6% of total operating revenues excluding regional
partner revenues, respectively for each of the quarters ended December 31,
2005
and 2004, respectively, an increase of 23.0%.
Other
Revenues. Other
revenues, comprised principally of interline and ground handling fees, liquor
sales, LiveTV sales, pay-per-view movies and excess baggage fees, totaled
$4,199,000 and $3,106,000, or 1.9% and 1.7% of total operating revenues
excluding regional partner revenues for the quarters ended December 31, 2005
and
2004, respectively, an increase of 35.2%. Other revenue increased over the
prior
comparable period primarily as a result of increased passenger purchases
of
LiveTV and pay-per-view movies and an increase in revenue from ground handling
fee agreements with other airlines.
Mainline
Operating Expenses
Mainline
operating expenses include expenses related to flight operations, aircraft
and
traffic servicing, maintenance, promotion and sales, general and administrative,
depreciation and expenses related to our transition to an all Airbus fleet.
Total mainline operating expenses were $229,482,000 and $199,509,000 for
the
quarters ended December 31, 2005 and 2004, respectively, and represented
102.7%
and 107.0% of total mainline revenue, respectively. Operating expenses decreased
as a percentage of revenues during the quarter ended December 31, 2005 largely
a
result of an increase in our average fare coupled with an increase in our
load
factor of 0.4 points. This decrease was significantly offset by an increase
of
34.8% in our aircraft fuel cost per gallon for the quarter ended December
31,
2005 as compared to the quarter ended December 31, 2004.
Salaries,
Wages and Benefits.
We
record salaries, wages and benefits within the specific expense category
identified in our statements of operations to which they pertain. Salaries,
wages and benefits increased 6.7% to $55,492,000 compared to $52,013,000,
and
were 24.8% and 27.9% of total mainline revenues for the quarters ended December
31, 2005 and 2004, respectively. Salaries, wages and benefits increased over
the
prior comparable periods largely as a result of general wage increases,
increases in heath insurance costs and increases in workers compensation
insurance. Our employee count increased from approximately 4,500 in December
2004 to approximately 4,600 in December 2005, or an increase of 2.2%. Our
employee count remained relatively flat despite an 8.6% increase in ASMs
due to
economies of scale.
Flight
Operations.
Flight
operations expenses increased 8.1% to $35,188,000 as compared to $32,545,000,
and were 15.7% and 17.5% of total mainline revenue for the quarters ended
December 31, 2005 and 2004, respectively. Flight operations expenses increased
partially due to an increase in mainline block hours from 45,725 for the
quarter
ended December 31, 2004 to 50,968 for the quarter ended December 31, 2005,
an
increase of 11.5%. Flight operations expenses include all expenses related
directly to the operation of the aircraft excluding depreciation of owned
aircraft and aircraft lease expenses and including insurance expenses, pilot
and
flight attendant compensation, in-flight catering, crew overnight expenses,
flight dispatch and flight operations administrative expenses.
Pilot
and
flight attendant salaries before payroll taxes and benefits increased 12.5%
to
$20,927,000 compared to $18,599,000, and were 9.6% and 10.2% of passenger
mainline revenue for the quarters ended December 31, 2005 and 2004,
respectively. We employed approximately 1,400 pilots and flight attendants
at
December 31, 2005 as compared to 1,300 at December 31, 2004, an increase
of
7.7%. The 7.7% increase in the number of pilots and flight attendants is
less
than the 11.5% increase in block hours due to a decrease in required pilot
training after the completion of the Airbus transition. The increase in salaries
was due to general increases in wage rates.
Aircraft
insurance expenses totaled $2,334,000 (1.0% of total mainline revenue) and
$2,398,000 (1.3% of total mainline revenue) for the quarters ended December
31,
2005 and 2004, respectively. Aircraft insurance expenses were .13¢ and .15¢ per
RPM for the quarters ended December 31, 2005 and 2004, respectively. We renewed
our aircraft hull and liability coverage renewed on June 7, 2004 through
December 31, 2005 with a 30% decrease in premiums from the prior policy year
and
we extended our policy on June 7, 2005 through December 31, 2005 at premiums
that were further reduced by 13%. In December 2002, through authority granted
under the Homeland Security Act of 2002, the U.S. government expanded its
insurance program to enable airlines to elect either the government’s excess
third-party war risk coverage or for the government to become the primary
insurer for all war risks coverage. We elected to take primary government
coverage in February 2003 and dropped the commercially available war risk
coverage. The current FAA war risk policy is in effect until August 31, 2006.
We
do not know whether the government will extend the coverage beyond August
2006,
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.
Aircraft
Fuel. 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 costs of
$77,649,000 for 35,076,000 gallons used and $53,807,000 for 32,725,000 gallons
used and resulted in an average fuel cost of $2.21 and $1.64 per gallon for
the
quarters ended December 31, 2005 and 2004, respectively, an increase of 34.8%
per gallon. Aircraft fuel costs, excluding unrealized
hedging
gains, were $2.17 and $1.55 per gallon for the quarters ended December 31,
2005
and 2004, respectively, an increase of 40.0% per gallon. Aircraft fuel expenses
represented 34.7% and 28.8% of total mainline revenue for the quarters ended
December 31, 2005 and 2004, respectively. Fuel prices are subject to change
weekly, as we purchase a very small portion in advance for inventory. The
results of operations for the quarter ended December 31, 2005 include an
unrealized derivative loss of $1,529,000 and realized gains of $1,264,000
in
cash settlements received from a counter-party recorded as a decrease in
fuel
expense. The results of operations for the quarter ended December 31, 2004
include an unrealized derivative loss of $3,202,000 and realized gains of
$1,948,000 in cash settlements received from a counter-party recorded as
a
decrease in fuel expense. Fuel consumption for the quarters ended December
31,
2005 and 2004 averaged 688 and 716 gallons per block hour, respectively,
a
decrease of 3.9%. Fuel consumption per block hour decreased during the quarter
ended December 31, 2005 from the prior comparable period because of the
completed transition to the more fuel-efficient Airbus aircraft as compared
to
the Boeing fleet; by limiting
the use of the auxiliary power units on the aircraft during take off and
taxi to
and from gates; by tanking fuel from lower fuel cost cities; and by performing
single engine taxis.
Aircraft
Lease.
Aircraft
lease expenses totaled $23,371,000 (10.5% of total mainline revenue) and
$23,035,000 (12.3% of total mainline revenue), an increase of 1.5%, for the
quarters ended December 31, 2005 and 2004, respectively. Aircraft lease expenses
remained relatively flat due to approximately the same average number of
leased
aircraft in the periods (32.4 in 2004 as compared to 33.0 in 2005). The increase
is primarily due to increases in lease rates for four of our aircraft that
have
variable rents based on LIBOR.
Aircraft
and Traffic Servicing.
Aircraft
and traffic servicing expenses were $35,183,000 and $32,288,000, an increase
of
9.0%, for the quarters ended December 31, 2005 and 2004, respectively, and
represented 15.7% and 17.3% of total mainline 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 protect
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. As of December 31, 2005, we served 45 cities with mainline
only
services as compared to 40 cities as of December 31, 2004, an increase of
10.0%.
During the quarter ended December 31, 2005, our departures increased to 20,835
from 18,136 for the quarter ended December 31, 2004, an increase of 14.9%.
Aircraft and traffic servicing expenses were $1,689 per departure for the
quarter ended December 31, 2005 as compared to $1,780 per departure for the
quarter ended December 31, 2004, a decrease of 5.1%. This decrease in the
amount
of expenses per departure is related to the realization of economies of
scale.
Maintenance.
Maintenance expenses of $18,487,000 and $19,170,000, a decrease of 3.6% for
the
quarters ended December 31, 2005 and 2004, respectively, and represented
8.3%
and 10.3% of total revenue. Maintenance expenses include all labor, parts
and
supplies expenses related to the maintenance of the aircraft. Maintenance
cost
per block hour was $363 and $419 for the quarters ended December 31, 2005
and
2004, respectively, a decrease of 13.4%. Maintenance cost per block hour
decreased as a result of our transition to an all Airbus fleet that is less
costly to maintain than our older Boeing aircraft, offset slightly by costs
associated with the cost of maintenance associated with meeting the return
condition requirements of one Boeing aircraft during the period. Our mainline
average age of aircraft was 2.4 years as of December 31, 2005 as compared
to 2.8
years as of December 31, 2004. As the Airbus aircraft age, they will require
more maintenance and maintenance expenses per block hour will increase.
Promotion
and Sales.
Promotion
and sales expenses totaled $19,852,000 and $18,738,000 and were 8.9% and
10.0%
of total revenue excluding revenues from our regional partner operations
for the
quarters ended December 31, 2005 and 2004, respectively, an increase of 5.9%.
These expenses include advertising expenses, telecommunications expenses,
wages
and benefits for reservation agents and related supervision as well as marketing
management and sales personnel, credit card fees, travel agency commissions,
computer reservations costs. These expenses are partially offset by marketing
programs in which we received proceeds for the sale of frequent flyer miles.
During the quarter ended December 31, 2005, promotion and sales expense included
a favorable sales and use tax credit of $1,300,000 with respect to the taxation
of ticketing services which related to the periods from September 2001 through
December 2004. During the quarter ended December 31, 2005, promotion and
sales
expenses, excluding the sales tax adjustment in 2005, per mainline passenger
decreased to $11.30 from $11.40 during the quarter ended December 31, 2004.
Promotion and sales expenses per mainline passenger decreased as a result
of an
increase in frequent flyer miles sold related to our co-branded credit card
and
a new point exchange agreement with American Express.
General
and Administrative.
General
and administrative expenses for the quarters ended December 31, 2005 and
2004
totaled $12,481,000 and $12,828,000, respectively, a decrease of 2.7%, and
were
5.6% and 6.9% of total mainline revenue. General and administrative expenses
include the wages and benefits for our executive officers and various other
administrative personnel including legal, accounting, information technology,
corporate communications, training and human resources and other expenses
associated with these departments. Employee health benefits, accrued vacation
and bonus expenses, and general insurance expenses including worker’s
compensation. General and administrative expenses decreased, despite increased
rates for heath insurance and worker’s compensation, due to a decrease in wages
paid for the Sabre implementation.
Gains
and Losses on Sales of Assets, net.
During
the quarter ended December 31, 2005, we recognized net gains totaling $274,000
which were primarily for the sale of Boeing spare parts as compared to net
gains
of $120,000 recognized during the quarter ended December 31, 2004.
Depreciation.
Depreciation expenses of $7,545,000 and $6,559,000 were approximately 3.4%
and
3.5% of total mainline revenue for the quarters ended December 31, 2005 and
2004, respectively, an increase of 15.0%. These expenses include depreciation
of
aircraft and aircraft components, office equipment, ground station equipment,
and other fixed assets. Depreciation expense increased year over year due
to the
fact that the average number of aircraft owned was 15.3 during the quarter
ended
December 31, 2005 as compared to 14.0 during the quarter ended December 31,
2004, an increase of 9.3%, offset by Boeing rotable parts that were depreciated
in 2004 but are not currently depreciated because they are classified as
assets
held for sale.
Nonoperating
Income (Expense). Net
nonoperating expense totaled $3,202,000 for the quarter ended December 31,
2005
as compared to net nonoperating expense of $1,993,000 for the quarter ended
December 31, 2004, an increase of 60.7%.
Interest
income increased to $2,560,000 from $1,050,000 during the quarter ended December
31, 2005 from the prior comparable period as a result of an increase in
short-term interest rates earned on investments and an increase in our cash
position as a result of the net proceeds of $88,707,000 from our convertible
notes offering in December 2005. Interest expense increased to $5,709,000
for
the quarter ended December 31, 2005 from $3,384,000 for the quarter ended
December 31, 2004, an increase of 68.7%. The increase in interest expense
was a
result of additional debt for the acquisition of two additional purchased
aircraft, an increase in the weighted average borrowing rate, and additional
debt of $92,000,000 from our convertible notes offering in December 2005.
Interest on our convertible notes is at a fixed rate of 5.0%. Debt
related to aircraft increased from $305,134,000 as of December 31, 2004 to
$340,851,000 as of December 31, 2005 with an increase in the average weighted
interest rate from 4.38% to 6.20% as of December 31, 2004 and 2005,
respectively.
Regional
Partner
Regional
partner revenues are derived from Frontier JetExpress operated by Horizon
and do
not include the incremental revenue from passengers connecting from regional
flights to mainline flights, which are included in our mainline passenger
revenue. Operating expenses include all direct costs associated with Frontier
JetExpress operated by Horizon plus payments of performance bonuses if earned
under the contract. Certain expenses such as aircraft lease, maintenance
and crew costs are included in the operating agreement with Horizon in which
we
reimburse these expenses plus a margin. Operating expenses also include
other direct costs incurred for which we do not pay a margin. These
expenses are primarily composed of fuel, airport facility expenses and passenger
related expenses.
Passenger
Revenues - Regional Partner.
Regional partner revenues, totaled $23,490,000 for the quarter ended December
31, 2005 and $21,582,000 for the quarter ended December 31, 2004, an 8.8%
increase. The increase in revenue is primarily due to an increase in the
average
fare to $103.13 for the quarter ended December 31, 2005 from $97.51 for the
quarter ended December 31, 2004, an increase of 5.8%.
Operating
Expenses - Regional Partner.
Regional
partner expense for the quarter ended December 31, 2005 and 2004 totaled
$29,144,000 and $24,012,000, respectively, was 124.1% and 111.3% of total
regional partner revenues, respectively, an increase of 21.3%. The increase
in
expenses is primarily due to an increase in fuel cost and additional performance
bonuses paid.
Nine
Months ended December 31, 2005 as Compared to the Nine Months ended December
31,
2004
Summary
We
had a
net loss of $6,119,000 or 17¢ per diluted share for the nine months ended
December 31, 2005, as compared to a net loss of $19,714,000 or 55¢ per diluted
share for the nine months ended December 31, 2004. Included in our net loss
for
the nine months ended December 31, 2005 were the following items before the
effect of income taxes: a charge of $3,365,000 relating to three leased Boeing
737-300 aircraft that we ceased using during the first quarter, gains of
$965,000 related to the sale of Boeing parts held for sale and other assets
and
an unrealized loss on fuel hedges of $2,254,000. These items, net of income
taxes, increased our net loss by 9¢ per share. Included in our net loss for the
nine months ended December 31, 2004 were the following items before the effect
of income taxes: a loss of $485,000 on the sale of two Airbus A319 aircraft
in
sale-leaseback transactions and other assets, a write down of $5,260,000
of the
carrying value of expendable Boeing 737 inventory, and an unrealized gain
on
fuel hedges of $432,000. These items, net of income taxes, increased our
net
loss by 10¢ per share.
Our
mainline passenger yield per RPM was 11.65¢ and 10.87¢ for the nine months ended
December 31, 2005 and 2004, respectively, an increase of 7.2%. Our mainline
average fare was $103.42 for the nine months ended December 31, 2005 as compared
to $101.14 for the nine months ended December 31, 2004, an increase of 2.3%.
Our
length of haul was 960 and 990 miles for the nine months ended December 31,
2005
and 2004, respectively, a decrease of 3.0%. Our RASM for the nine months
ended
December 31, 2005 and 2004 was 8.84¢ and 7.81¢, respectively, an increase of
13.2%.
Our
mainline CASM for the nine months ended December 31, 2005 and 2004 was 9.03¢ and
8.30¢, respectively, an increase of 8.8%. The increase in mainline CASM was
largely due to an increase in fuel expense of 0.82¢ per ASM from 2.02¢ to 2.84¢
per ASM for the periods ending December 31, 2005 and 2004, respectively,
an
increase of 40.6%. Mainline CASM, excluding fuel was 6.19¢ per ASM as compared
to 6.28¢ per ASM for the periods ending December 31, 2005 and 2004,
respectively, a decrease of 1.4%.
For
the
nine months ended December 31, 2005, our mainline break-even load factor
was
75.7% compared to our achieved passenger load factor of 75.8%. Our mainline
break-even load factor for the nine months ended December 31, 2004, was 75.1%
compared to our achieved passenger load factor of 71.8%. Our mainline break-even
load factor increased from the prior comparable period as a result of an
increase in our mainline CASM to 9.03¢ during the nine month period ended
December 31, 2005 (primarily due to increases in fuel costs) from 8.30¢ during
the nine month period ended December 31, 2004, or 8.8%, partially offset
by an
increase in our mainline RASM of 13.2%.
Mainline
Revenues
Passenger
Revenues
-
Mainline.
Mainline
passenger revenues totaled $655,276,000 for the nine months ended December
31,
2005 compared to $539,971,000 for the nine months ended December 31, 2004,
an
increase of 21.4%. We carried 5,784,000 mainline revenue passengers during
the
nine months ended December 31, 2005 compared to 4,978,000 mainline revenue
passengers during the nine months ended December 31, 2004, an increase of
16.2%.
We had an average of 47.8 aircraft in service during the nine months ended
December 31, 2005 compared to an average of 44.4 aircraft in service during
the
nine months ended December 31, 2004, an increase of 7.7%. Mainline ASMs
increased to 7,326,080,000 for the nine months ended December 31, 2005 from
6,862,911,000 for the nine months ended December 31, 2004, an increase of
6.7%.
Mainline RPMs for the nine months ended December 31, 2005 were 5,555,093,000
compared to 4,928,415,000 for the nine months ended December 31, 2004, an
increase of 12.7%, outpacing the increase in mainline ASMs. Our mainline
RASM
increased to 8.84¢ from 7.81¢, an increase of 13.2%. Our mainline average fare
was $103.42 for the nine months ended December 31, 2005 as compared to $101.14
for the nine months ended December 31, 2004, an increase of 2.3%. Our length
of
haul was 960 and 990 miles for the nine months ended December 31, 2005 and
2004,
respectively, a decrease of 3.0%.
Cargo
Revenues.
Cargo
revenues, consisting of revenues from freight and mail service, totaled
$4,054,000 and $3,862,000 for the nine months ended December 31, 2005 and
2004,
representing 0.6% and 0.7% of total operating revenues excluding regional
partner revenues, respectively, an increase of 5.0%. During the quarter ended
June 30, 2004, we determined that carrying mail for the United States Postal
Service was not profitable and we terminated our contract effective July
1,
2004. As such, cargo revenues for the nine months ended December 31, 2005
only
included revenue from our freight service.
Other
Revenues. Other
revenues, comprised principally of interline and ground handling fees, liquor
sales, LiveTV sales, pay-per-view movies and excess baggage fees, totaled
$12,631,000 and $8,643,000 or 1.9% and 1.6% of total operating revenues
excluding regional partner revenue for the nine months ended December 31,
2005
and 2004, respectively, an increase of 46.1%.
Mainline
Operating Expenses
Total
mainline operating expenses were $661,479,000 and $569,911,000 for the nine
months ended December 31, 2005 and 2004, respectively, and represented 98.4%
and
103.2% of total mainline revenue, respectively. Operating expenses decreased
as
a percentage of revenue during the quarter ended December 31, 2005 largely
a
result of an increase in our RASM coupled with an increase in our load factors
of 4.0 points. This increase was significantly offset by an increase of 42.4%
in
our aircraft fuel cost per gallon for the nine months ended December 31,
2005 as
compared to the prior comparable period.
Salaries,
Wages and Benefits.
Salaries, wages and benefits increased 9.8% to $163,983,000 compared to
$149,401,000, and were 24.4% and 27.0% of total mainline revenues for the
nine
months ended December 31, 2005 and 2004, respectively. Salaries, wages and
benefits increased over the prior comparable periods largely as a result
of
general wage increases, increases in heath insurance costs and workers
compensation insurance. Our employee count remained relatively flat with
an
increase of 2.2% from the same comparable period last year despite a 6.7%
increase in ASMs.
Flight
Operations.
Flight
operations expenses increased 8.6% to $104,097,000 as compared to $96,107,000,
and were 15.5% and 17.4% of total mainline revenue for the nine months ended
December 31, 2005 and 2004, respectively. Flight operations expenses increased
due to an increase in mainline block hours from 136,786 for the nine months
ended December 31, 2004 to 149,323 for the nine months ended December 31,
2005,
an increase of 9.2%.
Pilot
and
flight attendant salaries before payroll taxes and benefits increased 15.3%
to
$60,846,000 compared to $52,770,000, and were 9.3% and 9.8% of passenger
mainline revenue for the nine months ended December 31, 2005 and 2004,
respectively. We employed approximately 7.7% more pilot and flight attendants
as
compared to the comparable period last year. The increase of 7.7% in the
number
of pilots and flight attendants is less than the 9.2% increase in block hours
due to a decrease in required pilot training after the completion of the
Airbus
transition. The increase in salaries was due to general increases in wage
rates.
Aircraft
insurance expenses totaled $7,582,000 (1.1% of total mainline revenue) and
$7,678,000 (1.4% of total mainline revenue) for the nine months ended December
31, 2005 and 2004, respectively, a decrease of 1.3%. Aircraft insurance expenses
were .14¢ and .16¢ per RPM for the nine months ended December 31, 2005 and 2004,
respectively, a decrease of 12.5%. Our aircraft hull and liability coverage
renewed on June 7, 2004 for one year with a 30% decrease in premiums from
the
prior policy year and we extended our policy on June 7, 2005 through December
31, 2005 at premiums that were further reduced by 13%.
Aircraft
Fuel. Aircraft
fuel costs of $208,391,000 for 105,329,000 gallons used and $138,525,000
for
99,483,000 gallons used and resulted in an average fuel cost of 1.98¢ and 1.39¢
per gallon for the nine months ended December 31, 2005 and 2004, respectively,
an increase of 42.4% per gallon. Aircraft fuel costs, excluding unrealized
hedging losses and gains, were 1.96¢ and 1.40¢ per gallon for the nine months
ended December 31, 2005 and 2004, respectively. Aircraft fuel expenses
represented 31.0% and 25.1% of total mainline revenue for the nine months
ended
December 31, 2005 and 2004, respectively. Fuel prices are subject to change
weekly, as we purchase a very small portion in advance for inventory. The
results of operations for the nine months ended December 31, 2005 include
an
unrealized derivative net loss of $2,254,000 and realized gains of $5,228,000
in
cash settlements received from a counter-party recorded as a decrease in
fuel
expense. The results of operations for the nine months ended December 31,
2004
include an unrealized derivative net gain of $432,000 and a realized gain
of
approximately $2,490,000 in cash settlements received from a counter-party
recorded as a decrease in fuel expense. Fuel consumption for the nine months
ended December 31, 2005 and 2004 averaged 705 and 727 gallons per block hour,
respectively, a decrease of 3.1%.
Aircraft
Lease.
Aircraft
lease expenses totaled $70,274,000 (10.5% of total mainline revenue) and
$64,233,000 (11.6% of total mainline revenue) for the nine months ended December
31, 2005 and 2004, respectively, an increase of 9.4%. The increase in lease
expense is due to an increase in the average number of leased aircraft from
26.2
to 32.4, or 19.1%, costs associated with the late return of certain Boeing
aircraft, increases in lease rates for four of our aircraft that have variable
rents based on LIBOR, and additional rent related to two spare engine leases.
Aircraft
and Traffic Servicing.
Aircraft
and traffic servicing expenses were $101,050,000 and $95,209,000, an increase
of
6.1%, for the nine months ended December 31, 2005 and 2004, respectively,
and
represented 15.0% and 17.2% of total mainline revenue. Aircraft and traffic
servicing expenses will increase with the addition of new cities to our route
system. During the nine months ended December 31, 2005, our departures increased
to 61,338 from 54,723, an increase of 12.1%. Included in the nine months
ended
December 31, 2005 was a credit granted as a result of the 2004 DIA landing
fee
and facilities calendar 2004 cost reconciliation of $45 per departure. Aircraft
and traffic servicing expenses, excluding the DIA landing fee and facility
calendar adjustment, were $1,692 per departure for the nine months ended
December 31, 2005 as compared to $1,740 per departure for the nine months
ended
December 31, 2004, a decrease of 2.8%.
Maintenance.
Maintenance expenses of $57,015,000 and $57,326,000 were 8.4% and 10.4% of
total
mainline revenue for the nine months ended December 31, 2005 and 2004,
respectively, a decrease of 0.5%. Maintenance cost per block hour was $382
and
$419 for the nine months ended December 31, 2005 and 2004, respectively,
a
decrease of 8.8%.
Promotion
and Sales.
Promotion
and sales expenses totaled $60,369,000 and $57,827,000 and were 9.0% and
10.5%
of total mainline revenue for the nine months ended December 31, 2005 and
2004,
respectively, an increase of 4.4%. During the nine months ended December
31,
2005 promotion and sales expense was reduced by $4,444,000 due to a favorable
sales and use tax credit on the taxation of ticketing services which related
to
September 2001 to March 2005. During the nine months ended December 31, 2005,
promotion and sales expenses, excluding the sales tax adjustment in 2005,
per
mainline passenger decreased to $11.21 from $11.62 for the nine months ended
December 31, 2004. Promotion and sales expenses per mainline passenger decreased
as a result of advertising expenses incurred during the nine months ended
December 31, 2004 for advertising in the Los Angeles, California area to
promote
brand awareness for the then new focus city which was offset by an increase
in
frequent flyer miles sold.
General
and Administrative.
General
and administrative expenses for the nine months ended December 31, 2005 and
2004
totaled $36,803,000 and $35,155,000, respectively, an increase of 4.7%, and
were
5.5% and 6.4% of total mainline revenue, respectively.
Aircraft
Lease Exit Costs. In
April
2005, we finalized our transition to an all Airbus fleet and ceased using
three
of our Boeing 737-300 leased aircraft which had original lease termination
dates
in September 2005, August 2005 and May 2006. We negotiated an early termination
fee for the aircraft with an original termination date of May 2006. As such,
we
recorded a charge of $3,312,000 in the quarter ended June 30, 2005 to reflect
the estimated fair value of the remaining lease payments and a one-time early
return payment. There were no similar costs incurred during the nine months
ended December 31, 2004.
Gains
and Losses on Sales of Assets, Net.
During
the nine months ended December 31, 2005, we had net gains totaling $965,000,
which related primarily on the sale of Boeing spare parts. During the nine
months ended December 31, 2004, we incurred a loss totaling $489,000 on the
sale-leaseback of two Airbus A319 aircraft and net losses of $485,000 on
the
sale of other assets.
Depreciation.
Depreciation expenses of $21,080,000 and $19,784,000 and were approximately
3.1%
and 3.6% of total mainline revenue for the nine months ended December 31,
2005
and 2004, respectively, an increase of 6.6%.
Nonoperating
(Income) Expense. Net
nonoperating expense totaled $9,239,000 for the nine months ended December
31,
2005 as compared to net nonoperating expense of $6,826,000 for the nine months
ended December 31, 2004, an increase of 35.4%
Interest
income increased to $5,835,000 from $2,406,000 during the nine months ended
December 31, 2005 from the prior comparable period. Interest expense increased
to $14,871,000 for the nine months ended December 31, 2005 from $9,405,000
for
the nine months ended December 31, 2004.
Income
Tax Benefit. We
recorded an income tax benefit of $2,372,000 during the nine months ended
December 31, 2005 at a 27.9% rate, compared to an income tax benefit of
$10,802,000 during the nine months ended December 31, 2004 at a 35.4% rate.
The
fluctuation in our tax rate is due to the impact of permanent differences
as a
percentage of income.
Regional
Partner
Passenger
Revenues - Regional Partner.
Regional partner revenues totaled $69,835,000 for the nine months ended December
31, 2005 and $62,618,000 for the nine months ended December 31, 2004, an
11.5%
increase. The increase in revenue is due to an increase in the average fare
to
$100.54 from $95.24, an increase of 5.6%.
Operating
Expenses - Regional Partner.
Regional
partner expense for the nine months ended December 31, 2005 and 2004 totaled
$79,569,000 and $68,874,000, respectively, and was 113.9% and 110.0% of total
regional partner revenues, respectively. The increase in expenses is primarily
due to a 48.5% increase in fuel cost and an increase in performance bonuses
paid.
Liquidity
and Capital Resources
Our
liquidity depends to a large extent on the number of passengers who fly with
us,
the fares they pay, our operating and capital expenditures, our financing
activities, and the cost of fuel. We depend on lease or mortgage-style financing
to acquire all of our aircraft, including 15 additional Airbus aircraft that
as
of December 31, 2005 are scheduled for delivery through March 2008. We have
financing commitments on seven of the 15 aircraft scheduled for
delivery.
We
had
cash, cash equivalents and short-term investments of $222,680,000 and
$174,795,000 at December 31, 2005 and March 31, 2005, respectively. At December
31, 2005, total current assets were $346,151,000 as compared to $232,238,000
of
total current liabilities, resulting in working capital of $113,913,000.
At
March 31, 2005, total current assets were $275,550,000 as compared to
$233,850,000 of total current liabilities, resulting in working capital of
$41,700,000.
Operating
Activities.
Cash
provided by operating activities for the nine months ended December 31, 2005
was
$5,505,000 as compared to a use of cash of $12,206,000 for the nine months
ended
December 31, 2004. The increase in operating cash flows was primarily due
to
better operating results during the nine months ended December 31, 2005 as
compared to the same period last year, which was offset by an increase of
$1,993,000 in working capital needs.
Investing
Activities.
Cash
used in investing activities for the nine months ended December 31, 2005
was
$77,093,000. Capital expenditures were $88,641,000 for the nine months ended
December 31, 2005 and included the purchase of two Airbus A319 aircraft,
the
purchase of LiveTV equipment, the purchase of one spare engine that was
delivered to us and that we sold in a sale-leaseback transaction, rotable
aircraft components, aircraft improvements and ground equipment. We received
$9,080,000 from the sale of the spare engine that we sold in a sale-leaseback
transaction, the sale of Boeing spare parts held for sale and other
assets. Aircraft
lease and purchase deposits made during the period were $21,556,000, which
was
offset by pre-delivery payments totaling $18,989,000 applied against the
purchase of two Airbus A319 aircraft and LiveTV equipment.
Cash
used
in investing activities for the nine months ended December 31, 2004 was
$124,931,000. Capital expenditures were $121,202,000 for the nine months
ended
December 31, 2004, and included the purchase of one Airbus A318 aircraft,
two
Airbus A319 aircraft and one spare engine that was delivered to us and that
we
sold in sale-leaseback transactions. Additionally, capital expenditures included
the purchase of LiveTV equipment, rotable aircraft components, aircraft
improvements and ground equipment. Aircraft lease and purchase deposits made
during the period were $15,848,000. We applied the pre-delivery payments
totaling $6,412,000 for the purchase of an Airbus A318 aircraft to the purchase
of that aircraft and the pre-delivery deposits totaling $14,716,000 for the
two
Airbus A319 aircraft were returned to us. We received $77,707,000 from the
sale
of the two new A319 aircraft that we sold in sale-leaseback transactions,
two
spare engines that we sold in sale-leaseback transactions, one spare engine
for
our Boeing fleet and other Boeing spare parts. Net cash used in the purchase
and
sale of available-for-sale securities was $95,400,000.
Financing
Activities.
Cash
provided by financing activities for the nine months ended December 31, 2005
was
$122,473,000. On December 7, 2005, we completed the issuance of $92,000,000
principal amount of 5% convertible notes due 2025, raising net proceeds of
approximately $88,707,000. The net proceeds from our convertible debt offering
are being used for general working capital purposes, including capital
expenditures related to the purchase of financing of aircraft and expansion
of
our operations. During the nine months ended December 31, 2005, we borrowed
$54,700,000 for the purchase of two Airbus A319 aircraft, paid $14,864,000
of
debt principal payments on our 16 owned aircraft and we repaid short-term
borrowings of $5,000,000 under a revolving line of credit. During the nine
months ended December 31, 2005, we also received $1,551,000 from the exercise
of
common stock options and paid $578,000 of fees for aircraft debt financing.
Cash
provided by financing activities for the nine months ended December 31, 2004
was
$7,128,000. During the nine months ended December 31, 2004, we borrowed
$22,000,000 for the purchase of one Airbus A318 aircraft and paid $14,253,000
of
debt principal payments.
Other
Items That Impact Our Liquidity
In
August
2004, we entered into an agreement with two vendors to market and sell all
of
our remaining Boeing 737 spare parts inventories and rotables. As of September
30, 2005, we transferred the remaining Boeing inventories to these vendors.
As
of December 31, 2005, the carrying value of our Boeing rotables and expendable
spare parts classified as assets held for sale totaled $4,069,000. This amount
represents the estimated market value of the remaining Boeing spare parts
based
on estimates obtained from our vendors, less selling costs. If the actual
net
proceeds received for these Boeing parts are less than the amounts we have
estimated, we may recognize additional impairments on these parts. During
the
nine month period ended December 31, 2005, we have received $3,256,000 in
gross
proceeds resulting in a net gain on our expendable and rotable inventory
totaling approximately $1,224,000.
We
continue to assess our liquidity position in light of our aircraft purchase
commitments and other capital requirements, the economy, our competition,
and
other uncertainties surrounding the airline industry. In September 2005,
we
filed a registration statement with the Securities and Exchange Commission,
which will enable us to periodically sell up to $250,000,000 in preferred
and
common stock and debt and other securities. In December 2005, under the first
offering under this shelf registration, we issued $92,000,000 of 5% Convertible
Notes due 2025. We intend to continue to examine domestic or foreign bank
aircraft financing, bank lines of credit and aircraft sale-leasebacks, and
other
transactions as necessary to support our capital and operating needs. For
further information on our financing plans and activities and commitments,
see
“Contractual Obligations” and “Commercial Commitments” below.
We
have
obtained financing for all of our aircraft deliveries scheduled for calendar
year 2006 and expect to have adequate liquidity to cover our contractual
obligations. However, we cannot predict future trends or predict whether
current
trends and conditions will continue. Our future liquidity and capital resources
may be impacted by many factors, including “Risk Factors” discussed in Item 1 of
our annual report on Form 10-K and a Form 8-K filed on November 29,
2005.
In
January 2006, our maintenance personnel ratified a three-year contract
with a wage increase of 3% over the term of the agreement. Also, in January
2006
the National Mediation Board had received a petition for an election by the
material services employees.
Contractual
Obligations
The
following table summarizes our contractual obligations as of December 31,
2005:
|
|
Less
than
|
|
1-3
|
|
4-5
|
|
After
|
|
|
|
|
|
1
year
|
|
years
|
|
years
|
|
5
years
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term
debt - principal payments (1)
|
|
$
|
21,984,000
|
|
$
|
47,858,000
|
|
$
|
53,901,000
|
|
$
|
309,107,000
|
|
$
|
432,850,000
|
|
Long-term
debt - interest payments (1)
|
|
|
24,821,000
|
|
|
44,744,000
|
|
|
38,824,000
|
|
|
106,020,000
|
|
|
214,409,000
|
|
Operating
leases (2)
|
|
|
132,524,000
|
|
|
265,835,000
|
|
|
248,989,000
|
|
|
617,712,000
|
|
|
1,265,060,000
|
|
Unconditional
purchase obligations (3) (4) (5)
|
|
|
157,465,000
|
|
|
304,687,000
|
|
|
6,371,000
|
|
|
-
|
|
|
468,523,000
|
|
Total
contractual cash obligations
|
|
$
|
336,794,000
|
|
$
|
663,124,000
|
|
$
|
348,085,000
|
|
$
|
1,032,839,000
|
|
$
|
2,380,842,000
|
|
(1)
|
At
December 31, 2005, we had 16 loan agreements for 11 Airbus A319
aircraft
and five Airbus A318 aircraft. Two of the loans have a term of
10 years
and are payable in equal monthly installments, including interest,
payable
in arrears. These loans require monthly principal and interest
payments of
$215,000 and $218,000, bear interest with rates of 6.71% and
6.73%, with
maturities in May and August 2011, at which time a balloon payment
totaling $10,200,000 is due with respect to each loan. The remaining
14
loans have interest rates based on LIBOR plus margins that adjust
quarterly or semi-annually. At December 31, 2005, interest rates
for these
loans ranged from 5.50% to 6.73%. Each of these loans has a term
of 12
years, and each loan has balloon payments ranging from $2,640,000
to
$7,770,000 at the end of the term. All of the loans are secured
by the
aircraft. Actual interest payments will change based on changes
in LIBOR.
In July 2005, we also entered into a junior loan in the amount
of
$4,900,000 on an aircraft purchased in July. This loan has a
seven year
term with quarterly installments of $241,000. The loan bears
interest at a
floating rate adjusted quarterly based on LIBOR, which was 7.94%
on
December 31, 2005.
|
|
|
|
In
December 2005, we issued $92,000,000 of 5% convertible notes
due 2025. At
any time on or after December 20, 2010, we may redeem any of
the
convertible notes for the principal amount plus accrued interest.
Note
holders may require us to repurchase the notes for cash for the
principal
amount plus accrued interest only on December 15, 2010, 2015
and 2020 or
at any time prior to their maturity following a designated event
as
defined in the indenture for the convertible notes. In the obligation
table above, the convertible notes are reflected based on their
stated
maturity of December 2025 with the corresponding interest payments.
However, these notes may be called prior to the stated maturity
dates
which would impact the timing of the principal payments and the
amount of
interest paid.
|
|
|
(2)
|
As
of December 31, 2005, we leased 31 Airbus A319 type aircraft
and two
Airbus A318 aircraft under operating leases with expiration dates
ranging
from 2006 to 2017. 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 December 31, 2005,
we had made
cash security deposits of $15,889,000. Additionally, we are required
to
make additional rent payments to cover the cost of major scheduled
maintenance overhauls of these aircraft. These additional 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.
|
|
|
|
During
the fiscal year ended March 31, 2004, we entered into additional
aircraft
lease agreements for two Airbus A318 aircraft and 18 Airbus A319
aircraft.
Three of the aircraft leases were a result of sale-leaseback
transactions
of three new Airbus aircraft. As of December 31, 2005, we have
taken
delivery of 16 of these aircraft. The remaining four aircraft
are
scheduled for delivery beginning in March 2006 through February
2007. As
of December 31, 2005, we have made $668,000 in security deposit
payments
for future leased aircraft deliveries. Total operating lease
obligations
include the four aircraft not yet
received.
|
|
|
|
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 2006 to 2015. 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)
|
As
of December 31, 2005, we have remaining firm purchase commitments
for 11
additional aircraft which have scheduled delivery dates beginning
in June
2006 and continuing through March 2008. We also have remaining
firm
purchase commitments for one spare engine scheduled for delivery
in May
2006. Included in the purchase commitments are the remaining
amounts due
Airbus and amounts for spare aircraft components to support the
additional
purchase and leased aircraft. We are not under any contractual
obligations
with respect to spare parts. 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 December
31, 2005,
we had made pre-delivery payments on future deliveries totaling
$27,531,000 to secure these aircraft.
|
|
|
|
We
have signed a letter of intent for the sale-leaseback of one
owned and
three spare engines scheduled for delivery between October 2004
and
February 2006. In October 2004, we completed the sale-leaseback
of two of
these engines with proceeds totaling $12,186,000. In December
2005, we
completed the sale-leaseback of one additional engine with proceeds
of
$5,789,000. The terms of the letter of intent allow us to sell
each spare
engine to the buyer at the time of delivery, and then lease the
engines
back for a period of ten years commencing on the delivery date.
The
agreement will provide financing for an additional two spare
engines which
we expect we will order in the future.
|
|
|
(4)
|
In
October 2002, we entered into a purchase and 12-year services
agreement
with LiveTV to bring DIRECTV AIRBORNE™ satellite programming to every
seatback in our Airbus fleet. We intend to install LiveTV in
every new
aircraft we place in service. The table above includes amounts
for the
installation of DirectTV for the remaining 11 aircraft we currently
expect
to be purchased and the remaining four aircraft we currently
expect to be
leased, less deposits made of $691,000.
|
|
|
(5)
|
In
March 2004, we entered into a services agreement with Sabre,
Inc. for its
SabreSonic™
passenger solution to power our reservations and check-in capabilities
along with a broad scope of technology for streamlining our operations
and
improving revenues. The table above includes minimum annual fees
for
system usage fees. Usage fees are based on passengers booked
and actual
amounts paid may be in excess of the minimum per the contract
terms.
|
Commercial
Commitments
Letters
of Credit and Cash Deposits
As
we
enter new markets, increase the amount of space we lease, 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. We also provide letters
of
credit for our workers’ compensation insurance. As of December 31, 2005, we had
outstanding letters of credit, bonds, and cash security deposits totaling
$12,459,000, $1,867,000, and $18,466,000, respectively. We have a letter
of
credit agreement with a financial institution which expired on December 1,
2005,
which has been extended for existing letters of credit. This facility can
be
used only for the issuance of standby letters of credit and no new letters
of
credit can be issued. Any amounts drawn under this facility are fully
collateralized by certificates of deposit, which are carried as restricted
investments on our balance sheet. As of December 31, 2005, we have utilized
$3,689,000 under this credit agreement for standby letters of credit that
provide credit support for certain leases. We are in the process of moving
these
letters of credit under letters of credit. 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
also
have an agreement with another financial institution where we can issue letters
of credit of up to 50% of certain spare parts inventories less amounts borrowed
under the credit facility. As of December 31, 2005, we had $10,816, 000
available under this facility, which is reduced by letters of credit issued
of
$6,500,000.
In
July
2005, we entered into an additional agreement with another financial institution
for a $5,000,000 revolving letter of credit where we can issue letters of
credit
up to $3,500,000. As of December 31, 2005, we have utilized $2,270,000 under
this agreement for standby letters of credit that provide credit support
for
certain facility leases.
We
have a
contract with a bankcard processor that requires us to pledge a certificate
of
deposit equal to a certain percentage of our air traffic liability associated
with bankcard customers. As of December 31, 2005, that amount totaled
$36,904,000. The amount is adjusted quarterly in arrears based on our air
traffic liability associated with bankcard transactions. As of February 1,
2006,
based on our air traffic liability as of December 31, 2005, this resulted
in a
decrease of approximately $4,142,000 in the required amount of certificate
of
deposits pledged.
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, working capital ratio,
and
percent of debt to debt plus equity. As of December 31, 2005, 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 January
20, 2006, the coverage would be increased by approximately $10,383,000 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.
Hedging
Transactions
In
November 2002, we initiated a fuel hedging program comprised of swap and
collar
agreements. Under a swap agreement, the cash settlements are calculated based
on
the difference between a fixed swap price and a price based on an agreed
upon
published spot price for the underlying commodity. 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, in the case of a
three-way collar, a secondary floor price. When the hedged product’s index price
is above the cap, we receive the difference between the index and the cap.
When
the hedged product’s 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, no payments are required.
Unrealized net losses recorded on fuel derivative contracts for the three
and
nine months ended December 31, 2005 were $1,529,000 and $2,254,000,
respectively, and realized gains for hedge cash settlements during the three
and
nine months ended December 31, 2005 were $1,264,000 and $5,228,000,
respectively. We have entered into the following swap and collar agreements
that
cover periods during fiscal year 2006:
Date
|
Product
*
|
Notional
volume ** (barrels per month)
|
Period
covered
|
Price
(per gallon or barrel)
|
Percentage
of estimated fuel purchases
|
|
|
|
|
|
|
November
2004
|
Jet
A
|
75,000
|
April
1, 2005 -
June
30, 2005
|
$1.34
per gallon, with a floor of
$1.20
per gallon
|
28%
|
May
2005
|
Crude
Oil
|
60,000
|
July
1, 2005 -
December
31, 2005
|
$53.00
per barrel cap, with a
floor
of $50.73
|
20%
|
November
2005
|
Jet
A
|
60,000
|
January
1, 2006 -
March
31, 2006
|
$1.83
per gallon, with a floor of
$1.685
per gallon
|
20%
|
November
2005
|
Jet
A
|
50,000
|
April
1, 2006 -
June
30, 2006
|
$1.83
per gallon, with a floor of
$1.6925
per gallon
|
15%
|
*Jet
A is
Gulf Coast Jet A fuel. Crude oil is West
Texas Intermediate crude oil.
**
One
barrel is equal to 42 gallons.
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 through June
30,
2007. 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 that expires in March 2007. During the three and nine months
ended
December 31, 2005, interest expense was decreased by $63,000 and $146,000,
respectively, for this agreement. During the three and nine months ended
December 31, 2004, interest expense was increased by $32,000 and $183,000,
respectively, for this agreement. Approximately $291,000 of unrealized gains
are
included in accumulated other comprehensive income, net of income taxes of
$110,000, as of December 31, 2005.
Maintenance
Contracts
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 was
subsequently modified and extended in September 2004. The agreement is for
a
12-year period from the effective date for our owned aircraft or May 1, 2019,
whichever comes first. 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. The agreement requires monthly
payments at a specified rate multiplied by the number of flight hours the
engines were operated during that month. The amounts due based on flight
hours
are not included in the Contractual Obligations table above. The costs under
this agreement for our purchased aircraft for the nine months ended December
31,
2005 and 2004 were approximately $1,922,000 and $1,930,000, respectively.
For
our leased aircraft, we do not make the flight hour payments to GE under
the
agreement. Instead we make engine maintenance reserve payments as required
under
the applicable lease agreements. At the time a leased engine makes a scheduled
shop visit, the lessors pay GE directly for the repair of aircraft engines
from
reserve accounts established under the applicable lease documents.
Critical
Accounting Policies
Our
critical accounting policies have not changed from those reported in
Management’s Discussion and Analysis of Financial Condition and Results of
Operations in our 2005 Annual Report on Form 10-K.
New
Accounting Standards
In
December 2004, the FASB issued SFAS No. 123R, Share-Based Payments. SFAS
No.
123R, revised FASB Statement No. 123, Accounting for Stock-Based Compensation
and supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees.
SFAS No. 123(R) focuses primarily on the accounting for transactions in which
an
entity obtains employee services in share-based payment transactions. SFAS
No.
123(R) requires companies to recognize in the statement of operations the
cost
of employee services received in exchange for awards of equity instruments
based
on the grant-date fair value of those awards (with limited exceptions). In
April
2005, the effective date for SFAS No. 123(R) was changed to the first fiscal
year that begins after June 15, 2005. We plan to adopt SFAS No. 123(R) on
April
1, 2006 and use the modified prospective transition method. Under the
modified-prospective method, we will recognize compensation expense in the
financial statements issued subsequent to the date of adoption for all
share-based payments granted, modified or settled after April 1, 2006 as
well as
for any awards that were granted prior to April 1, 2006 for which requisite
service has been provided as of April 1, 2006. As we currently account for
share-based payments under APB 25, we will recognize compensation expense
on
awards granted subsequent to April 1, 2006 using the fair values determined
by a
valuation model prescribed by SFAS No. 123R. The compensation expense on
awards
granted prior to April 1, 2006 will be recognized using the fair values
determined for the pro forma disclosures on stock-based compensation. The
amount
of compensation expense that will be recognized on awards that have not fully
vested will exclude the compensation expense cumulatively recognized in the
pro
forma disclosures on stock-based compensation.
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 nine months ended December 31, 2005. Based on
actual
fuel usage for the nine months ended December 31, 2005, such a change would
have
had the effect of increasing or decreasing our mainline and regional partner
aircraft fuel expense by approximately $23,500,000, excluding the impact
of our
fuel hedging. Comparatively, based on projected fiscal year 2006 fuel usage
for
our mainline operations and regional partner, this would have the effect
of
increasing or decreasing our aircraft fuel expense by approximately $31,732,000,
in fiscal year 2006 as compared to approximately $21,492,000 for fiscal year
2005, excluding the effects of our fuel hedging arrangements.
On
November 12, 2004, we entered into a two-way collar agreement that hedged
approximately 28% of our expected fuel requirements for the quarter ended
June
30, 2005. This collar used Gulf Coast Jet A as its basis. The additional
derivative transaction is a collar agreement that uses West Texas Intermediate
crude oil as its basis. The cap price is set at $1.34 per gallon, and the
floor
is set at $1.20 per gallon. On May 13, 2005, we entered into an additional
derivative transaction that uses West Texas Intermediate crude oil as its
basis
and hedge approximately 20% of our projected fuel requirements for the period
from July 1, 2005 to December 31, 2005. This collar agreement has a cap price
of
$53.00 per barrel and the floor is set at $50.73 per barrel. On November
28,
2005, we entered into a zero cost
collar agreement that hedges approximately 20% of our
expected fuel requirements for the period from January 1, 2006 through
March 31, 2006, and 15% of our expected fuel requirements for the period
from
April 1, 2006 through June 30, 2006. The collar uses Gulf Cost Jet A as
its basis. The cap price is set at $1.83 per gallon for both quarters, and
the floor is set at $1.6850 for the period from January 1, 2006 through March
31, 2006, and $1.6925 for the period from April 1, 2006 through June 30,
2006.
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 U.S. Gulf Coast Pipeline Jet index price is
below the floor, we pay the difference between the index and
the floor. When the price is between the cap price and the
floor, no payments are required.
Our
results of operations for the nine months ended December 31, 2005 include
an
unrealized derivative loss of $2,254,000 that is included in fuel expense
and
realized gains of $5,228,000 in cash settlements received from a counter-party
recorded as a decrease in fuel expense with respect to these three agreements.
As of December 31, 2005, the fair value of the November 2005 hedge agreement
recorded on the balance sheet as an asset was $885,000.
Interest
We
are
susceptible to market risk associated with changes in variable interest rates
on
long-term debt obligations we incurred and will incur to finance the purchases
of our Airbus aircraft. Interest expense on 70.0% of our debt is subject
to
interest rate adjustments every three to nine months based upon changes in
the
applicable LIBOR rate. A change in the base LIBOR rate of 100 basis points
(1.0%) would have the effect of increasing or decreasing our annual interest
expense by $3,031,000 assuming the loans outstanding that are subject to
interest rate adjustments at December 31, 2005 totaling $303,066,000 are
outstanding for the entire period.
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 that expires
in
March 2007. As of December 31, 2005, we had hedged approximately 4.4% of
our
variable interest rate loans that are based on three-month LIBOR rates. As
of
December 31, 2005, the fair value of the swap agreement is recorded in the
balance sheet as an asset of $158,000.
Evaluation
of Disclosure Controls and Procedures
The
Company’s
management, including the Chief Executive Officer and Chief Financial Officer,
evaluated the effectiveness of the design and operation of the Company’s
disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e)
under the Securities Exchange Act of 1934, as amended (the “Exchange
Act”)) as
of the end
of the period covered by this report. Based upon that evaluation, the Company’s
management, including the Chief Executive Officer and Chief Financial Officer,
concluded that the Company’s disclosure controls and procedures are effective in
ensuring that information relating to the Company required to be included
in the
Company’s Exchange Act filings is resolved, processed, summarized and reported
within the time specified in the applicable rules and forms.
Changes
in Internal Controls
There
were no changes made in the Company’s internal controls over financial reporting
that occurred during the Company’s most recent fiscal quarter that have
materially affected, or are reasonably likely to materially affect, the
Company’s internal controls over financial reporting.
|
Exhibits
|
|
|
|
|
|
|
|
Exhibit
|
|
|
Numbers
|
Description
of Exhibits
|
|
|
|
|
1.1
|
Underwriting
Agreement dated December 1, 2005, by and among Frontier
Airlines, Inc., Morgan Stanley & Co. Incorporated, and
Citigroup Global Markets, Inc. (Exhibit 1.1 to a Form 8-K filed on
December 7, 2005).
|
|
|
|
|
4.5
|
Indenture
dated December 7, 2005, by and between Frontier Airlines, Inc.
and U.S. Bank National Association, as Trustee (Exhibit 4.1 to
Amendment No. 1 to Frontier’s Registration Statement on
Form S-3, File No. 333-128407, filed on November 23,
2005).
|
|
|
|
|
4.6
|
First
Supplemental Indenture dated December 7, 2005, by and between
Frontier Airlines, Inc. and U.S. Bank National Association, as
Trustee (Exhibit 4.2 to a Form 8-K filed on December 7,
2005).
|
|
|
|
|
31.1*
|
Certification
of President and Chief Executive Officer pursuant to Section 302
of the
Sarbanes-Oxley Act of 2002.
|
|
|
|
|
31.2*
|
Certification
of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
|
|
|
|
|
32**
|
Certification
of Chief Executive Officer and Chief Financial Officer pursuant
to Section
906 of the Sarbanes-Oxley Act of 2002.
|
|
*
Filed
herewith.
**
Furnished herewith.
Pursuant
to the requirements of Section 13 or 15(d) of the Securities 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:
January 30, 2006
|
By:/s/
Paul H.
Tate
|
|
Paul
H. Tate, Senior Vice President and
|
|
Chief
Financial Officer
|
|
|
|
|
Date:
January 30, 2006
|
By:/s/
Elissa A.
Potucek
|
|
Elissa
A. Potucek, Vice President, Controller,
|
|
Treasurer
and Principal Accounting Officer
|