Q3 2005 Frontier Airlines Earnings Conference Call - Final.

Original Source: FD (FAIR DISCLOSURE) WIRE

OPERATOR: Good day, everyone, and welcome to Frontier Airlines third-quarter earnings call. As a reminder today's call is being recorded. For opening remarks and introductions, I would like to turn the call over to Mr. Jeff Potter, President and Chief Financial Officer of Frontier Airlines. Please go ahead.

JEFF POTTER, PRESIDENT AND CEO, FRONTIER AIRLINES, INC.: Thank you, Steve. This is Jeff Potter, President and CEO. Good morning, everyone, appreciate your participation in today's call. First of all, to introduce everybody who is here with me -- Paul Tate, Senior Vice President and CFO; Sean Menke, Senior Vice President and CEO; Ann Block, Senior Vice President of Human Resources and Flight Services; Greg Aretakis, Vice President of Planning and Revenue Management; Ron McClellan, Vice President of Maintenance and Engineering; David Sislowski, Vice President and General Counsel.

Yesterday we announced results for the December quarter, the third fiscal quarter of our 2005 fiscal year. I'm going to take you through some of the highlights, and then Paul and Greg will provide more detail on the Company's cost and revenue performance during the quarter, and also provide you some view on the trends in both areas. Then we will open up the call for questions.

First, David Sislowski will read a brief statement advising you of the risk accelerated with discussions that include forward-looking statements.

DAVID SISLOWSKI, VP AND GENERAL COUNSEL, FRONTIER AIRLINES, INC.: Thanks, Jeff. Our call is being transmitted live today over the World Wide Web and is being recorded. The recorded version of this call will be available on our website through the close of business on January 27, 2006. If you ask a question it will be included in the live transmission and in the recorded version of the call. Use of the live transmission, text, or recorded version of the call for rebroadcast by any other person is not permitted without the express prior written consent of Frontier Airlines.

The earnings press release we issued last evening is posted on our website under the heading About Frontier and the subheading Investor Relations. It was also posted this morning with the SEC as an exhibit to a Form 8-K current report. To the extent the press release contains non-GAAP financial measures as defined in SEC Regulation G, the release also contains a reconciliation of those measures. If any additional non-GAAP financial measures are discussed on the call today, we will make a reconciliation disclosure available to you on our website, again in the investor relations section.

Today's discussion may contain statements about Frontier's future performance. These forward-looking statements are based on information available to management as of today, January 28, 2005. Any predictions about future performance inherently involve the risk that actual results will differ materially from the predicted results. Some of the factors that could affect predicted results may be mentioned on the call, but a more detailed list can be found in the earnings press release we issued last evening and in the Company's various SEC filings.

Note in particular the Company's Form 10-K/A filed with the SEC for its fiscal year ended March 31, 2004. We urge you to consult that press release and all of our other SEC filings for a detailed description of the risks and uncertainties inherent in our business and in our industry. The Company's recent SEC filings can be found in the investor relations section of our website.

Finally, if you're listening to this call using the recorded replay, be advised that the information presented is current as of today, Friday, January 28, 2005, at 9 AM Mountain Time. Frontier assumes no obligation to update this information, except to the extent we are recorded to provide a reconciliation of non-GAAP financial measures. Thanks, Jeff.

JEFF POTTER: Thank you, David. For our third fiscal quarter, we reported a net loss of $8.6 million or 24 cents per common share, excluding special items. While we did report a loss for the quarter, we continue to make strides in our unit costs. Our CASM excluding fuel decreased 6 percent versus last year during the same period.

I think it's important to note that this was achieved while flying a lower utilization than planned in the quarter due to the upcoming completion of our fleet transition. I might point out the lower utilization is planned to extend into the March quarter, and we expect it to return to normalized levels in the June quarter.

During the quarter our capacity or ASMs grew 24.9 percent versus the same period last year, while our passenger traffic or RPMs grew 23.4 percent. Load factor for the quarter was 71.7 percent, which was a slight drop from last year's result of 72.5 percent.

As it is the case with every airline, the most significant challenge we face are the ongoing high fuel prices. We saw our fuel cost per gallon increase 51 percent versus the same period last year. Even in light of the ongoing aggressive nature of the revenue environment we face, where we saw our yield decline 7.6 percent, it is the impact of the high fuel cost, and certainly the industry's inability to generally offset that increase, that is the single biggest factor in our loss this quarter versus last year's profitable December quarter.

I might point out our decline in yield was primarily related to the increase in our passenger length of haul, as our average fare declined less than 1 percent, which leads us to believe that fares may have bottomed out.

Among other business highlights in the quarter, we did take delivery of 1 new Airbus A319 and 1 new Airbus A318, and at the same time retired a Boeing 737 aircraft for a net increase of 1 aircraft and a fleet total of 46 aircraft by quarter's end. We also announced plans to double service levels to Mexico during the peak travel periods of December, the month of December 2004 which we just completed, and also March and April of 2005.

We completed by pilots' category 2 and 3 initial training, which allows Frontier's Airbus pilots to land in reduced visibility, and that provides savings that we didn't realize previously because of …