Q2 2024 Frontier Group Holdings Inc Earnings Call
Participants
David Erdman; Senior Director of Investor Relations,; Frontier Group Holdings Inc
Barry Biffle; Chief Executive Officer, Director; Frontier Group Holdings Inc
James Dempsey; President; Frontier Group Holdings Inc
Bobby Schroeter; Senior Vice President, Chief Commercial Officer; Frontier Group Holdings Inc
Mark Mitchell; Chief Financial Officer, Senior Vice President; Frontier Group Holdings Inc
John Dorsett; Analyst; Barclays Investment Bank
Michael Linenberg; Analyst; Deutsche Bank
Scott Group; Analyst; Wolfe Research
Savanthi Syth; Analyst; Raymond James
Duane Pfennigwerth; Analyst; Evercore ISI
Stephen Trent; Analyst; Citibank
Conor Cunningham; Analyst; Melius Research
Tom Fitzgerald; Analyst; TD Cowen
Andrew DiDora; Analyst; Bank of America
Jamie Baker; Analyst; J.P. Morgan Securities
Presentation
Operator
Good day, and thank you for standing by, and welcome to the Frontier Group Holdings, Inc., second-quarter 2024 earnings conference call.
(Operator Instructions) Please note that today's conference is being recorded.
I will now hand the conference over to your speaker host, David Erdman, Senior Director of Investor Relations. Please go ahead.
David Erdman
Thank you. Good morning, everyone, and welcome to our second-quarter 2024 earnings call. On the call with me With me this morning are Barry Biffle Chief Executive Officer; Jimmy Dempsey, President; Mark Mitchell, Chief Financial Officer; and Bobby Schroeter, Chief Commercial Officer.
Before yielding, I'd like to recite the customary Safe Harbor provisions. During this call, we will be making forward-looking statements, which are subject to risks and uncertainties.
Actual results may differ materially from those predicted in these forward-looking statements and additional information concerning risk factors, which could cause such differences are outlined in the announcement we released earlier along with reports we file with the Securities and Exchange Commission.
We will also discuss non-GAAP financial measures, which are reconciled to the nearest comparable GAAP measure in the appendix of the earnings announcement.
So I'll give the floor to bear to begin his prepared remarks. Barry?
Barry Biffle
Thanks, David, and good morning, everyone. Despite industry oversupply across the United States, we effectively navigated the quarter due in part to our network and revenue diversification, combined with our unique and improving cost advantage, while consumer travel demand has remained resilient. Post pandemic travel patterns have compelled us to concentrate our flying on peak days, coupled with the maturity of the new revenue initiatives and our unique cost advantage we believe we will drive margin improvement and be the clear low-cost winner in 2025 and beyond.
Our cost advantage is bolstered by the program we launched late last year. Which has generated more than $100 million in annual run rate savings tied to the network simplification. And I'm confident that there's more to come to mitigate excess industry capacity headwinds we quickly responded by adjusting our post-summer capacity to focus on peak days a week, which we believe will drive revenue improvement and ultimately margin growth in our business. In addition, we're also adjusting our fleet plan to accommodate for moderating growth over the next several years.
This morning, we announced a revised delivery schedule with Airbus, which defers 54 aircraft out of 2025 through 2028, reducing our planned growth to approximately 10% per year from the previously expected high-teen growth.
Moreover, we continue to optimize our suite of products and services to better align with customer demand. During the quarter, we launched the new frontier, which provides clear upfront pricing and options, along with additional benefits, will also soon launch a new app and NDC, a new website early next year, all of this will improve the customer experience and ultimately drive higher revenue per passenger.
Before leaving the call. I want to extend my gratitude to every member of team Frontier for their resilience and determination in the face of this challenging landscape and for remaining focused on our top priority of delivering a safe and reliable experience to our customers following our mission of low fares done.
And now I'll turn the call over to Jimmy for a commercial overview. Jimmy?
James Dempsey
Thanks, Barry. And good morning, everyone. Briefly recapping the quarter, total operating revenue increased by 1% to $973 million on capacity growth of 13%, both compared to the 2023 quarter, resulting in ROS of $0.921.
Departures increased 26% on a 13% shorter average stage. Total revenue per passenger was $109, down 14% versus the 2023 quarter, largely driven by the impact of domestic seat growth, which has outpaced seasonal demand trends during a period in which we were transitioning our network and implementing several key product merchandising and distribution enhancements, including the new Frontier.
Our network simplification strategy has been to focus on high fare underserved markets. This year, we have launched our four new crew bases and five new maintenance bases to support the network transition to over 80% up in backlog.
During the quarter, we opened Cincinnati Chicago and San Juan, in addition to Cleveland in March, ultimately optimizing the total base footprint to 13.
As part of the structural shift in the network, we launched 114 new routes from our 13 basis, consistent with historical averages. We have seen encouraging results on two-thirds of these markets, and we have made adjustments to the markets that did not stimulate.
As a result of our focus on peak day, capacity is expected to grow by 4% to 6% in the third quarter and 5% to 7% for the full year versus 2023. While consumer travel demand has remained resilient on peak days of the week, post pandemic, travel patterns compelled us to concentrate our flying on peak days to capture relatively higher rather than accordingly beginning in mid-August. Through the end of the year, we trimmed capacity on off-peak days of the week to size. The adjustments less than 30% of September seats for sale today are scheduled on off-peak days compared to approximately 40% in September 2023.
In addition to our own capacity adjustments, the post-summer capacity cuts from other carriers should start to restore balance and in the domestic market. In fact, in the past month, we've observed fare increases and the elimination of the lowest promotional fares augmenting our own self-help measures.
In June, we reached targeted levels of out and back flying, and it helped drive an improvement across key operational metrics, including on-time arrivals and departures and controllable completion factor. Our swift recovery from last month's IT related disruptions further validates its working while certain other impacted carriers struggled to reset their operations in a timely manner.
Furthermore, it helped drive our cost performance in the quarter as we realized significant savings as a result of our network simplification.
Bobby Schroeder, our new Chief Commercial Officer, will walk you through several key product merchandising and distribution enhancements, including new frontier.
Bobby Schroeter
Thanks, Jimmy, and good morning, everyone. Making sure our customers have the best possible value with great experiences. What drives us at Frontier Airlines. As part of this goal, this quarter, we launched the new frontier. This initiative marks a major step in our commitment to delivering unparalleled value and a superior travel experience with the new frontier customers now see clear and straightforward pricing of fare and bundle options immediately after their search, making it easier to understand the total cost of their trip from the start.
The new to Frontier has been very successful initially launched on flyfrontier.com only. It is now outperforming other channels. This success has led us to roll it out or is leading us to roll it out to our mobile app shortly and to third parties over time.
Additionally, our upfront plus and best fare products continued to perform exceptionally well upfront plus offers our customers a seating experience with a blocked middle seat at the front of the aircraft that far surpasses other premium economy seating options in the marketplace at a great price.
The positive reception of this premium product has far exceeded our expectations. BizFare, our bundled product upsell in third party channels has also been successful. We initially focused our launch in online travel agency channels, which are primarily leisure customers.
We are now leaning more heavily into travel management companies and corporate online booking tools with BizFare, which are more focused on business travel and the distribution channel that we have been more limited in historically.
Looking ahead, we are thrilled to announce the upcoming launch of a new mobile app shortly and a new website early next year. These platforms are being designed with the user experience at the forefront offering, enhanced functionality and better looking better booking processes, the new app and website will also allow us to bring new products and services to market more quickly and enable us to merchandise in more effective ways, significantly improving our customers' digital via digital interactions with us.
Moreover, we are in the final stages of integrating NDC or New Distribution Capability connectivity. This advancement will enable us to offer a richer, more dynamic shopping experience across various sales channels, with NDC customers will benefit from greater choice and tailored offers, ensuring they receive the best value service.
Together. These developments underscore our ongoing dedication to innovation and excellence in every aspect of our business. We are confident that these initiatives will strengthen our market position, enhance the overall travel experience for our customers and drive overall loyalty.
That concludes my remarks. I will now turn over to Mark to provide a financial update.
Mark Mitchell
Thanks, Bobby, and good morning, everyone. total revenue was $973 million, slightly higher than the comparable '23 quarter. Fuel expense was $288 million, 18% higher than the '23 quarter at an average cost per gallon of $2.84 year over year. Increase in fuel expense was the result of 6% higher fuel prices and 13% higher consumption resulting from higher ASMs, marginally offset by increased fuel efficiency compared to the second quarter.
Adjusted non-fuel operating expenses were $645 million below the low end of our guidance, due primarily to better than expected cost performance and supported by our network simplification efforts and the cost benefit from the aircraft lease extensions we executed during the course.
Adjusted CASMex fuel was $0.0624, 10% lower than the '23 quarter were $0.0592 on a stage adjusted basis, 16% lower compared to the '23 quarter due to the cost benefit from having five additional aircraft sale leaseback transactions in the quarter and the cost benefit of the aircraft lease extensions, along with the aggressive cost management across the organization that helped mitigate year-over-year inflationary impacts supported by network simplification.
Second quarter adjusted pre-tax margin was 3.3%, reflecting the impact of the excess domestic industry capacity. As previously highlighted, we ended the quarter with $658 million of unrestricted cash and cash equivalents and $206 million of cash net of total debt, an increase of $50 million versus the prior quarter.
We had 148 aircraft in our fleet at quarter end after taking delivery of six A321neo aircraft during the quarter, all financed with sale leaseback transactions, we expect to take delivery of 11 A321neo in the second half of 2024, and we have financing arranged for our aircraft deliveries into early 2026.
As Barry mentioned, we recently updated our delivery profile with Airbus, which defers 54 aircraft deliveries in 2025 through 2028. As compared to our delivery profile as of the end of Q1, the delivery profile for our remaining 187 aircraft for 2025 and onward is extended from 2029 to 2031.
The deferrals further support our efforts to moderate growth. They also reduced our financing needs and lower pre-delivery payments in the coming years.
Our third quarter and full year 2024 guidance was published in the earnings announcement we issued this morning. Recapping key highlights. Full year adjusted CASMex fuel stage adjusted is expected to be down 1% to 2% versus the prior year, despite the significant capacity reduction since our last guidance update in May.
Our adjusted pre-tax margin in the third quarter is expected to range from a loss of 3% to 6%, which includes an estimated 4-percentage-point impact from the Microsoft CrowdStrike outage in July and weather-related impacts, including Hurricane Debbie, full year adjusted pre-tax margin is expected to be in the range of minus 1.5% to positive 1.5%.
With that, I'll turn the call back to Barry for closing remarks.
Barry Biffle
Thanks, Mark. While we're disappointed industry capacity imbalance relative to demand and its effect on our revenue and margins, we're encouraged by our cost and revenue tailwinds, which coupled with our expectation of additional industry self-help measures in the months to come ensures we will be the clear low-cost winner in 2025 and beyond.
Thanks again for joining us this morning. We're ready to begin the Q&A portion.
Question and Answer Session
Operator
(Operator Instructions)
Brandon Oglenski, Barclays.
John Dorsett
Yeah, hi, this is John Dorsett on for Brandon. Thanks for taking my question. In the release, you commented that resin is supposed to inflect into the fourth quarter. How many bookings do you currently have today that will give you confidence that [resin] will positive?
Barry Biffle
Well, I think what we've got right now, as we said at this moment, goes is that the September fare has actually inflected positive already year over year. And I think that is really before we see a lot of the balance of a lot of the cuts that have happened and we expect to continue happened in Q4. So we expect the rise of inflection to take place in September and beyond.
Just again, just based off the current trends.
John Dorsett
Okay, thank you. And just one follow-up on earlier, in the year you talked to new markets being it has them accretive, how they've been performing summer and is it taking a little longer and previously expected to mature in the new market?
James Dempsey
Yeah, John, it's Jamie here. Look, anytime you launch new markets and we've been in the business of doing this for quite some time. You have a maturity profile and on the markets. And we've launched quite a considerable amount of new routes in Q2, and we've seen those mature positively across the summer months and moving into the fall and winter season.
And what we've done is we've cut the ones that we don't see that are operating well and what we said earlier in is that we usually see about a two-thirds success rate in new routes and it's consistent among the new lottery launches during the second quarter, two-thirds of them are working and operating quite positive.
John Dorsett
Great. Thank you. Appreciate that.
Operator
Michael Linenberg, Deutsche Bank. Your line is open.
Michael Linenberg
Hey, good morning, I want to take a closer look, just on the cost side. I mean, you did come in a lot better. I don't know, $50 million-plus when I go to the line items, a lot of them were actually up in line with capacity, like if you had to look at like two or three drivers of that better cost, what were they, which sort of line items drove that? Thanks and then I have a follow-up.
Mark Mitchell
Yeah, no worries. This is Mark. So yeah, when you look at the outperformance versus the guidance that we put forward, so we had stronger than expected cost savings from the cost savings plan that we put forward where we highlighted in the release that we've gotten over $100 million of annual run rate savings. So that certainly was a contributor. In addition, during the quarter, we extended some leases on there was a lease return benefit tied to that. That was another component to those. Those I would say were the two primary drivers.
Barry Biffle
The big driver and the one that's sustainable is we are delivering on what we laid out last year to simplify the network, simplify the schedule, the operation, and we're seeing huge dividends from that. And that's going to continue to accelerate because it was a little bit sooner than we had planned, but we'll definitely see the benefits of that as we round out the balance of the year.
Michael Linenberg
Barry, can I maybe push back on that? I mean, in the quarter, I mean, you definitely had a better completion factor from a year ago or the whole industry did pretty well in the June quarter. The new one you came in last versus the competition on cancelled flights.
And I just assume that that was the ramping up of the Outback and opening up some of these new stations, you do see your station operations numbers up. The expense line is up a lot more than your capacity growth.
So I actually thought that maybe you're struggling during the quarter, but it sounds like maybe it's just what the industry did better on a completion factor basis and you just happened to come in at the tail end. I know what are--
Barry Biffle
Yeah. So we did have some teething challenges with opening the new bases, those are behind us. But what really caused it is we had a preponderance of weather that just really hit us. It is in Texas, hit us in Colorado. It is in Florida. And I think we just kind of had the back end of being indexed, I guess, to weather.
But when you look to July on, you can see the bases are mature, the weather was even across the US. And if you look at that, we've moved up in the Mid-Pac and we've got significant jumps on now in on-time a year over year.
And in fact, I think our completion for July was relatively flat, even with that a huge technology outage. So yeah, I think from a reliability perspective, we're really seeing it, and that's benefiting our customers. But on the cost side, we're really seeing a huge benefit from the simplification.
Mark Mitchell
And just one other thing to add on the stations front, I mean, you got to take into consideration stage that you were looking at the capacity movement, but departures are up a lot more. And so certainly that is going to drive stations to move more than you would otherwise expect just looking at capacity by itself.
Barry Biffle
And just one other thing I'd add, Michael, one other thing I'll add, Michael, you know, I've talked about this off-line, but I think if you if you look at technology out, it shows that again, especially with the Outback, we are the only major airline, the only one that has actually not had a multi-day event caused by weather or some kind of outage.
We bounced back every time. And that resilience is because of the schedule and what we've done to construct it, construct the business and make it much more reliable and we can we expect that we'll continue to get dividends is that as those bases mature over the next couple of months.
Michael Linenberg
Yeah. And I know you saw that in the data on like July 20 where everybody was cancelling a lot. I know you cancelled the night before, I think you only cancelled five flights. So you could definitely see it in that data. And thanks for taking my questions.
Operator
Ravi Shanker, Morgan Stanley. Your line is open.
Hi, this is Katherine on for Ravi. Thanks for taking my question. I just wanted to ask about the bundled fares just kind of what your rationale was there, what are the benefits that you might be seeing on? Maybe what has changed with the market that's now kind of right time to do this yet.
Bobby Schroeter
So this is Bobby, we launched a new Frontier in May and a big part in that was actually trying to bring forward on and make sure that our customers were able to make decisions upfront with the on the fare itself and the bundles right there in front of them.
It's been very successful. So we launched out of the gate with a higher ancillary attach rate than other channels that has persisted through time. We've done some a lot of property price optimization that has helped from a revenue perspective there as well. And we see a lot of opportunity in the future as we and we look at more price optimization and merchandising opportunities as well.
Look, this is something that when you're in this environment on the value that we're creating and bringing forward is on for customers and people shopping to be able to see that on total price upfront. And that's something that was on further down the path when they were doing a search.
And so we're losing eyeballs in terms of people being able to see that and we've gained that quite a bit. So it's been very successful and we see that as accretive. And frankly, as we get into future months and as the environment is changing. We see this as a big benefit for us going forward.
Thank you. And if I could just sneak in one more. I'm just curious if there's a risk of the industry growing too much capacity on peak days.
And whether or not you're confident that current travel patterns are kind of stabilizes like the new normal with peak first trough, et cetera.
Barry Biffle
Well, I think so in our case, we looked at where we make money and where we were. We've been losing money here recently with the oversupply and the midweek. He's been losing money on balance on average. And so for us, that makes sense to reduce that, that oversupply we've made those we've made those changes, and that will be a run rate going forward?
I can't speak for the industry overall. I think there's probably not just midweek. I think there's probably routes and an overall capacity that needs to come out we see several hundred routes for the high-cost carriers that are up at least 50% or more capacity versus 2019.
And I think there's over 150 of them that the capacity is more than doubled just of the high-cost carrier capacity. So we look forward, there's a lot more capacity to come out on. That's what has stopped losing money and stopped doing things that lose money, and I suspect that the industry is going to respond to that.
Thank you.
Operator
Scott Group, Wolfe Research.
Scott Group
Yeah, hey, thanks, guys. So I think the guidance now implies fourth quarter capacity flat to maybe even down a little bit year over year. How should we think about capacity in 25 and in a world where you guys are now deferring some aircraft. Any color on how to think about sale-leaseback gains going forward?
Barry Biffle
Yeah. Look, so as far as 25, we haven't finalized 25 yet, but we expect that to be single digits, maybe upper single digits, but mid to upper single digits on capacity. Obviously, for sale leaseback gains. What we announced today was already kind of in the works. I mean, this has been kind of what we've been operating under, if you will, for over a year now, effectively.
What happened was when Airbus had all these delays over the last couple of years, they kept deferring aircraft. And unfortunately it made in future years, the capacity stream got very lumpy. And so this enabled us to smooth that out and also control the capacity to be at that 10% or in next year's case, slightly lower. So but we don't we don't see a major impact as it from our expectations sale leaseback gains.
We have roughly same many aircraft next year as we have this year as an example.
Scott Group
I wanted to just you're talking a lot more about more peak unless off peak. You know, your model has been so much about utilization and that was for over the last year. So we need to get our utilization back to where it was.
How much of a headwind to utilization is this new approach?
Barry Biffle
Yeah. In rough math, we're looking at about an hour and you can do the math and go look at it, our rent line and what that does to the cost, it's somewhere in the $60 million range of aircraft rent, but we think that that headwind is more than overcome. And so a slight impact to a chasm, but several points in chasm. And that goes straight to the bottom line.
So we think this is worth several points in margin, which is where you look at our kind of our implied rather than guide for the balance of the year. We see this is very accretive. And again, I'll reiterate what we said a while ago. We're now seeing fares up for September year over year, and we expect that trend to continue.
Scott Group
And if I can just ask one more. So you and others now it's sort of leaning into it, freemium. Is there any data you have that says, hey, here are new customers to Frontier that had like people that were reluctant to fly during the past that are now flying with you for the first time in a premium part of the plane that I don't know if you understand what I'm trying to ask again, any data around that?
Barry Biffle
Yeah, Understood what you're saying? Look, I think it's very new and these products are very new on. It's been accretive to us. And we've been really pleased whether it be the BizFare that we've launched, whether it be our upfront plus and all of the premium stuff that we've put out there.
We're really pleased with it, but it's been mainly upsells to our existing customers on our website, although the biz fare is enabling us to kind of reach into those third party channels and introducing new people to the Frontier brand.
And it's been a pretty good success. So we're just now getting those things dialled in. And those will be a lot of maturity over the next 12 to 36 months on all these products. So I think over time, people will find us out when their corporation has a book on us because the travel management companies that we've been making ourselves available those channels, but it's slow to mature.
Bobby Schroeter
And I would just add on the seat side, you know, on one thing that we have on that the pre versus post. So we made a transformation with on-prem plus premium and preferred and the take rate of the on the sort of time period after ARM has increased along with the yield.
So it tells you that people are engaging with that product at a much higher rate on the premium seating products than they did before on, and that's just in its maturity phase. So we anticipate actually on the being able to yield up on that even more in the future with some of the merchandising and pricing tools that we're going to be using.
Scott Group
Thank you, guys.
Operator
Savanthi Syth, Raymond James.
Savanthi Syth
Hey, good morning. If I just follow up on Mike's question earlier on the non-fuel OpEx, is the step-up from 2Q to 3Q, even though capacity is not necessarily stepping up a function of you just don't have that lease extension benefit or I was kind of curious what's happening there. And then as you so your growth next year. I know it's still early days, but any kind of color on how we should think about unit costs trajectory?
Mark Mitchell
Yeah. I mean, specific Savanthi to Q2 to Q3, so when you think about that move, certainly a portion of it is the least benefit that we had in Q2 tied to the lease extensions. There's also a little bit of maintenance timing and as you're going through the on the adjustment in capacity, right.
I mean that there is a little bit of stickiness and some cost, right as you go through that transition. But it's but at the end of the day, I mean, I think those are the main drivers when you look at the guide versus the 660.
Savanthi Syth
That's helpful. Any color on like how we should think about as you slow your growth to, I think and again, high 10s, too, so now maybe 10%, I think on a longer term but maybe even kind of high single digits next year?
Mark Mitchell
Yeah, I mean so as Barry mentioned, right to the utilization component. So I mean, if you put it in terms of the cost saving plan rate that we had put forward, we're targeting $200 million, a portion of that plan tied to the utilization that's being traded for on the resin and benefit.
The remainder of that is on track on the $150 million to hit that annual run rate by the end of the year and then keep in mind as well Savanthi, when you look at where we sit at Q2 in our cost advantage has widened to 45%. And as we look into next year on the back of the cost savings plan and other initiatives that we have, and we expect to be able to sustain and leverage on that cost advantage.
Savanthi Syth
Makes sense. And can I clarify on the CrowdStrike cuts, the 4 point impact from weather and CrowdStrike, how much was CrowdStrike?
Barry Biffle
So we haven't finalized everything to be clear. We got hit by the Microsoft outage, which was the day before accrual a coincidence, unfortunately. But the afternoon before CrowdStrike, I'm sorry, Microsoft actually had a Azure outage which impacted our sales and operations for from pretty much 4 PM onward. And so we had several hundred cancellations from that.
We just recovered from that sit around midnight or so Denver time. And that is when the CrowdStrike hit it took place. So we're still sorting out which parts went to CrowdStrike, which part goes to Microsoft on, but it's in the $20 million-plus range and roughly 2 points in margin degradation.
Savanthi Syth
Well, very helpful. Thank you.
Operator
Duane Pfennigwerth, Evercore ISI.
Duane Pfennigwerth
Hey, thanks. Maybe just to pick it up right, there. And so that $20 million, is that something you're going to look to recover?
Barry Biffle
We don't discuss those types of things yet, but we would expect we will look to recover every penny.
Duane Pfennigwerth
And then I guess just given all the changes you're making on how you price your product, how are you thinking about the evolution of base fares versus ancillary is there a new target for ancillary? And I guess what is the risk that we're now selling bundled total fares at the same base fare level previously selling unbundled fares?
Barry Biffle
So I think we're moving to a total revenue per passenger and looking to get to a resume that gets us back to double digit margins. That's our target.
Right. And so from whether it comes from fare or comes from ancillary, we think we went too far with the fare side, and we think the dollars back in it is it is obviously a risk, right, that we give up too much and that's what dialling it in is all about.
But I can tell you that we believe with the trends we've seen, we've seen significant improvements in the last six weeks. We've got some more technology updates to make to give us more merchandise and control over the next several weeks. But we see that this is going to be accretive, especially as we move kind of out of this more low fare environment.
We mentioned the fares going up. We've seen we've seen a fare increase recently. And we've seen structurally a lot of the promotional fares across the industry are kind of being removed out of the marketplace.
So that kind of environment improves. I think people look at the value of Frontier. And I think when you couple that with the overall New Frontier and I think you compare it to a carrier that just announced a big change in seat assignment.
As an example, this is exciting because this is really leveling the playing field. This is going to make it very simple for you to compare our product versus them. And the only difference will be bags and you can quickly go compare the difference.
And in fact, you get a lot more with Frontier because you can go to the New Frontier and see the four options that we offer. And there's so far superior seating options that you can get on other carriers, it's kind of our price point.
Duane Pfennigwerth
Thanks for that, Barry. And then maybe just lastly, can you speak to the market, you and Jimmy to speak, the market for sale leasebacks in the way that you structure them is that marketplace stable, getting looser getting tighter? Any thoughts? And I guess did that relate at all to that? So the decision to defer?
Mark Mitchell
Yeah, Duane, this is mark. So as we mentioned on the prepared remarks, I mean, we have financing arranged into '26. And when you when you step back and we're not going to get into the details of those terms. But I mean, if the market continues to remain to be healthy for us as we look forward, so we don't see any issues on that front.
Barry Biffle
And I would just add to doing this was not had didn't have any new financing and had to do with Airbus's challenges in there. It kind of delays and they kind of created kind of lumpy. And when they sort of delay in aircraft, they pile them up in certain spots. And this has enabled us to smooth those out. But I would just say about the leasing community. And I've gone around the world this year and met with a lot of lease leasing companies and personally been talking a lot of them.
And I got to say there's a lot of interest in frontier. I mean, I know investors and these people look very, very short term, but if you lease us an airplane, you are committing to 8, 12 years with us. And what they see and what they're excited about is there was this whole story last year and it's continued to be repeated about cost convergence.
And what we have actually shown is that we are not converging and cost. Our cost advantage is widening. It's getting bigger. And if you look at the structural things we've done to schedule. We've got more to come in that regard.
So we see that cost advantage being real. There's an oversupply in the United States, but what leasing companies do is they understand what the long term is and they know that that oversupply will be addressed and that low cost will win and low cost will again matter and that's why they're betting on Frontier. And we haven't seen one change at all. If anything, I'd say there's more people interested in us than there was before because they see us as kind of last man standing in the US marketplace as we move forward.
Duane Pfennigwerth
Okay. Appreciate the thoughts.
Operator
Stephen Trent, Citi.
Stephen Trent
Yeah, good afternoon, gentlemen, and thanks very much for taking my question on. I was intrigued by what you said about new route launches. I think you said 114 new routes from the 13 crew bases, but then you end up pulling some of them back when they don't perform.
Any high-level view on what sort of time tolerance you have for these routes to start performing before you decide to pull them and how that might possibly differ from what you see from your competitors? Thank you.
James Dempsey
Yeah, Stephen, like look, we see there's two time periods that you see with new route launches. Obviously, the bookings coming into the launch of the actual flight, and you can see performance into that. And then beyond that into the period, after we've seen on two-thirds of the routes like we did launch over 113 routes, I think it was in the last couple of months, we've seen some of them not perform.
And what we do is we address them pretty promptly, particularly as you move out of the seasonal peak part of the year into seasonal peak periods. Some of those routes may come back next year, but we see those being removed going into the fall and winter and winter months.
And then we obviously work the ones that we're keeping. And we see two-thirds of those routes performing and continuing to mature, and it will take up to about 12 months for those for those for those to mature back to system level performance. And so we're investing in those routes and ensuring that they get the system level performance over the next 12 months.
Stephen Trent
I appreciate that, Jimmy. Thank you. And as my follow-up, I know there's been its noise out there about the Department of Transportation wanting the industry to be more transparent about X, Y and Z and have all these disclosures on fees and what have you what's the latest on what you guys are seeing and to the extent that some of these DOT decrees are concerned?
Barry Biffle
Yeah, look, I can't speak to all the things going on with the government and what they're digging into. But we believe with the new frontier, you're able to see what you want upfront and you can make a decision very clearly, we are worried, however, that there are third parties that we partner with that don't have the capabilities to make sure that everything is communicated upfront.
So I think the way that the way some of these rules have been constructed, I think they're not easily complied with, but we believe that we are more than complying with the spirit of it of what they're looking for with the New Frontier. And we think this is there's not much there.
I think honestly, I company hope that the DOT follows up on what they've said, though, that they want to look at competition and we continue to see challenges with common use gates in this country. We continue to see challenges with kind of Fortress carriers working with their relevant local airports to create environments that are not conducive to growth, airlines operating safely and reliably, nor do they allow us to grow in a good way.
So we look forward to seeing the DOT following through with its commitment to digging into this and getting a thorough investigation into the practices that are taking place because we clearly feel it's beyond anti-competitive.
Stephen Trent
Okay. I appreciate that, Barry. Thanks for the time.
Operator
Conor Cunningham, Melius Research.
Conor Cunningham
Hi, everyone, thank you. And just on the load factor decline in the second quarter as the 7 points in fares came down quite a bit. I would have thought that lower fares would have stimulated demand a little bit understand that there's oversupply.
But is it really just a function of where RPKs relative to peak today? Thank you.
Barry Biffle
Yeah, look, I mean, we've gotten to the point where I think we have truly found all the demand there is I mean, we have consistently sold fares in a [$0.5] to $1 plus taxes and fees on a Tuesday Wednesday and not gotten full, which tells you that there's just not that much demand. And we called this out. And I think we got a lot of grief for a year and a half ago that we called this travel pattern out.
There was there were some, I think, some hope that last Labor Day, but there was a lot of return to office was going to help mitigate this and change it. But we're now several years into this. And so the travel patterns have become clear to us, and we're going to stop pushing on a string with this because it is clear to us that with the flexible worker kind of work from home on a couple of days a week, the two most common days that they're in the offices in Tuesday, Wednesday and it has caused an environment where there's just not the demand and it's not just us, you can go to look at your TSA numbers and you can go look at it, you can go straight through your favourite airport and you'll just see it
I mean, there's just not the traffic in the airport and this is a function of you the travel patterns for the leisure people, but also the fact that business is still down 20% to 25%. And so we see this to be a semi-permanent change.
And so we're going to stop organizing our business around it. We recognize we have too many pilots of too many flight attendants and everything in the near term, and we're carrying those costs in the third and a little bit of the fourth quarter until we can kind of grow into it until this reset takes place. But the reality is we think that this is kind of the new norm on that. Their problem is if they don't have those days off, it's hard from travel even if the fares is near free.
Conor Cunningham
Okay. That's helpful. And then in February you laid out a plan to get I think it was 10% to 14% pre-tax margins in 2025. You know, obviously a lot has changed since then I'm wondering, are you continuing to expect that target just given the fact that you're on top of all the price changes you're make making the cost savings?
I'm just curious on how you're thinking about that target that you laid out not too long ago. Thank you.
Barry Biffle
I think if anything, we get more confidence in that target, I think it's moved a little bit to the right because of the oversupply. But that's the difference is a one to two-quarter thing. And I think the most encouraging thing that I've seen is that pretty much universally the industry is responding to this capacity imbalance with demand.
And history shows you that once people start cutting, they're not going to stop until they get to their target margins. So we see a lot of we still see a lot of excess capacity with several carriers out there, and we think that there's going to be a lot more coming.
So yeah, it may take us a quarter or two further than we get we had. But I know we feel better about the target than ever, and it's become clear to I mean, we said this back in February at the time, we've debunked this cost convergence thing several times, but it is now become clear that our cost advantage is real, it's durable, it's sustainable.
And when we look into 2025, we see that continuing to expand. And so that's why we think that we will more than get there with all the industry capacity cuts that we expect over the fall and through the winter.
Conor Cunningham
Appreciate it. Thank you.
Operator
Tom Fitzgerald, TD Cowen.
Tom Fitzgerald
Hey, everyone. Thanks very much for the time. And I'm just kind of curious your view on with stage length going down, how large the premium opportunity could really be just it seems like the shorter stage length, the less appetite there is to it at the cabin, but there could be thinking about that the wrong way.
Barry Biffle
Well, first, thanks. Thanks and congratulations on the new role there. So if you look at so at the end of the day, whether you're sitting on a plane for an hour, four hours. People like a slightly better seat on whether you're in that plane for an hour, four hours, some people like the window and some people in and out because they want to be near the bathroom, it doesn't change that.
So while there's a propensity for them to value it more, it doesn't mean they don't value it. And so from our perspective, what we've just seen with the oversupply, it's been more acute in some of the longer hauls. But yes, we're seeing good take rate even I don't know that we're going to actually ever know what it could have been on the longer stage because we may not have that stage ever again. But we're seeing good take rates on.
Tom Fitzgerald
Okay, thanks. That's really helpful. And then I guess, just, if whether it's macro or other issues, but I think if the downside scenario first to point out, do you have any further flexibility with Airbus to defer more orders or cancelled? Because sometimes it just seems like the best solution is less points and more. Thanks, again for the time everyone?
Barry Biffle
Yeah, look, I mean, we're at we believe that we can be profitable on the peak day. So it's not shell count issue it's more of a day a week issue and probably more season issue. So I think the flexibility that you that we might need in that scenario. We've already demonstrated we have we can we can adjust that capacity.
But I think that to from a shell count, we don't we don't see a need for that in our business. And I would also remind everyone we're the lowest cost provider and that cost advantage is widening. And in any kind of recessionary environment, we're going to revert back to the mean and that is Walmart, Costco and the low-cost carriers win in recession.
Operator
Andrew DiDora, Bank of America.
Andrew DiDora
Good afternoon, everyone. I guess Barry, from a load factor point, If you feel like you've tapped kind of all the demand there, why is 10% growth the next few years to the right level and why not keep maybe pushing out deliveries and cut capacity over the next few years?
Barry Biffle
Well, the issue is that it was primarily the off-peak days. So it's not an it's not an overall situation, it's more off-peak. We are also so. So we were also hit in the fourth quarter. We still had a lot of the kind of oversupply stuff we were in the middle of launching the new route. So that a lot of new routes. And you also had still kind of at many of the over-supplied route.
So as we continue to grow, the demand pool were up 50%. By the time we get to fourth quarter, our total revenue pool is up 50% year over year when you look at the overall audio and deals we're in. And so we just don't see that being a challenge. We're already seeing the load factors recover, and we're seeing the fares recoverable.
As I mentioned a while ago, we the September fare is up and we see it going up from there on moving forward.
Andrew DiDora
Okay. Understood. And then two quick modeling questions. Mark, maybe, what stage length are you using or are you factoring in this year?
Just so we can get to an actual chasm number from the adjusted stage length adjusted chasm guide that you gave?
And then just in terms of the order book change, when we think about the 21 planes coming in next year, just from a sale leaseback gain perspective, anything change, anything changed there or should we continue to model in the recent rate of, say, $12 million to $13 million per plane are or will that come down? Thank you.
Mark Mitchell
Yeah. So two things there from a stage perspective, roughly 850 would be the stage to targets. And then when you look at the on the 21 aircraft next year, the only nuance when you look this year to next year is that we do have about roughly a third of those deliveries next year are going to be 320s versus this year there will be 321.
Andrew DiDora
So a lower rate per plane?
Mark Mitchell
Yeah. The 320 kind of coming in a bit of a lower rate than the 321. So you just had that mix Nuance outside of that? I think that's the only thing to factor.
Andrew DiDora
Got it. Thank you.
Operator
Jamie Baker, J.P. Morgan Securities.
Thanks, this is James on for Jamie. Most of questions have been asked. Just thinking about the capacity has been taken out of the system in the second half of the year. You talked about peak versus off-peak. Is there any geographic way you can break that down? There's been Latin America pressures in prior quarters. Is that the driver of that or are there other markets out there, what types of markets that you're pulling from?
Barry Biffle
Look, I think the only market or city that we, I think we’re really disappointed in was actually new rules on when we look at the rest of the network and things can hit the averages. And but I think New [Orleans] did drag it down a we don't completely understand what happened there, but it just universally did not stimulate.
Jamie Baker
Okay, and then the new rules that mandate from a refund for a three hour plus domestic delay, just high-level thoughts are you are you seeing pastures that take that that are seeking that compensation? Or do you think they could they stick around for a rebooking?
Barry Biffle
We haven't seen a big change. And I mean, the reality is that it's more troublesome. I mean, a three-hour delay is uncomfortable and disappointing. But oftentimes, when we have that delay, everyone else has the same delays. So, is they're generally weather related. I don't it's not even measurable. I'm looking around the room results. We haven't noticed anything measurable on that.
Jamie Baker
Got it. I appreciate the questions.
Operator
Thank you. And with that, I will turn the call back over to Barry for final closing.
Barry Biffle
I want to thank everybody for joining us today again, and wanted to reiterate, we're disappointed in the environment. But the good news is we're seeing green shoots with that. And it looks like the bottom is and I think you're going to see further capacity rationalization as we as we move through the coming months and into the winter.
And we're really excited about the kind of self-help that we've taken and all of the tailwinds that we've got on the revenue side as well as the cost side. So we look forward to talking to you next quarter and updating you on the success with that.
Thanks for joining.
Operator
Ladies and gentlemen, that does conclude our conference for today. Thank you for your participation. You may now disconnect.