Spirit Aviation, our transportation business and investment banking. Welcome to our conference. I'm pinch hitting for Brandon today because he's restricted on these two names, but I have the benefit of having two CEOs up here, which is uncommon. More importantly, two good friends of mine, Barry Biffle, who's the CEO of Frontier Airlines, Ted Christie, who is the CEO of Spirit Airlines. They're obviously up here together because they announced a big merger at the beginning of this month. We will certainly talk a lot about that because I know that's on all investors' minds. What I wanted to do was start off and get a little bit of flavor in terms of what you guys are seeing in the industry. Maybe, Barry, we start with you. How are you seeing demand coming back as sort of Omicron levels comes down? What do you see in terms of bookings for spring break? Yeah. So look, I think spring break is, I mean, most everyone in the industry, whether you're a hotel, airline, whatever, probably a little lower bookings than they were maybe a few years ago. The pace of recovery is one we haven't seen at any point during the pandemic. I mean, you can look at the public data and you can see how long it took after the Delta variant versus now. You're seeing basically in about a six to eight-week period it started, and it's accelerating very quickly. I think you're going to have a pretty full spring break. Got it. Maybe, Ted, for you, we heard from Barry in terms of demand looking good. When I think about the dip that we saw with Omicron, because I think investors are focused on is there going to be another wave, right? To get a sense from you of how that dip compared to, let's say, the Delta dip or the first dip, are we getting better as a country? Are you guys getting better in terms of running airlines and dealing with these dips if and when the next one comes? I hope that's true, the latter part. I think as far as the country's good, yes, you definitely see the resiliency in the consumer. As Barry mentioned, look, the off-peak period of this quarter was still very off-peak. That's been true throughout the pandemic. The peaks have slowly gotten back closer and closer to pre-pandemic levels, but we still do not have enough broad demand to support the off-peak period yet. Coming out of the New Year's return, it was off-peak and we had Omicron, and that was not great. I think it's been more V-shaped this time around than it was in previous either the Delta surge or the original Omicron or the original COVID variant. I mean, it's been positive to see. I share very few on the current recovery. I think it bodes well also for the summer because I think sentiment, as we kind of survey it and look at people, they're much more positive about travel and, in fact, more so than they've been throughout the course of the entire pandemic right now. That is good to see. Got it. The $64,000 question for each of you, and I know no one has a crystal ball, but when do you expect demand, revenue, margins to get back to 2019, the pre-pandemic levels? I think if you look today at the current pace of recovery, it's pretty easy to see with full planes comes eventually higher prices. People start covering their new cost structures with debt and so forth. I would see that by summer, you should see 2019 RASM. There is now the Putin variant, and oil is a little more expensive. I think you're going to get back to 2019 margins, can take a little longer, probably closer to 6-12 months, I would think for the industry. That's kind of how it's going to be. Yeah. I think that's right as it relates to revenue. There's still a capacity deficit, at least for Spirit. We're still underflying the airline right now as we build back into a full utilization airline, which drives a lot of the margin opportunity here. We're still looking at the very end of this year and the early part of next year to return to where we want to be. I think the build is very positive. Now, it's a great day to have a conference because we just for Putin variant, that's perfect. I hadn't thought of that, but that's great. Oil is now $100 a barrel today. That's going to put a dent in the near term. Good news for ULCCs and, quite frankly, for both of these airlines is we're so perfectly situated for high oil prices compared to legacy carriers that, if anything, that gives us a lever. Got it. You touched on two things I wanted to talk about. One was fuel prices and one was capacity. In terms of fuel prices, and I know that Brandon's been asking other airlines about this as well. Historically, the industry has been able to pass through a good portion of the fuel increases. They've kind of been sort of a six to nine-month lag. Do you feel in this environment that that's something you're going to be able to achieve? If not, when do you think you'll have that pricing leverage where you can pass those fuel increases through? I think it's a great point. I've heard Ted speak about it. We all know the drill. ULCCs win in higher oil prices, and this will be no different, right? If you look in history, every time you've seen a big spike, the ULCCs do really well. Now you have the trifecta, right? It's never been a better time to be a ULCC because on the oil side, you take us, and they're very similar. We need 10 gallons to move a seat 1,000 miles, right? The big guys use 15 gallons to move the same seat 1,000 miles. The cost advantage is going to widen significantly. Now let's remember two other things that are new versus fuel in the past. The debt cost and the interest payments, if you look at the big airlines, excluding us because we do not have debt, and actually we just paid off the government loan recently, they need $20 per passenger each way, $40 round trip, on top of the oil just to pay back the debt that they incurred during COVID. That is the incremental debt from COVID. The third thing is you have got inflation of ex-fuel. They are doing well, and we are leading the industry in terms of managing that inflation. I think those three factors come together to make a fare umbrella that has to go up significantly in order for these guys just to break even. On a cash basis. That fare umbrella going up at a time when our cost advantages are widened means the ULCCs will be the first ones to achieve full profitability in this type of environment. Got it. I know that because you talked about the legacies, that they've come more into the leisure and VFR markets. Not that they weren't there, because they always were, but they've come more into those markets during COVID, in part because that was the only place they could go, right? Their long-haul demand was down and corporate demand was down. Do you still see that? Does that impact you? Do you care about that, given kind of all the advantages that you mentioned that ULCCs and Frontier and Spirit have? Yeah. I mean, that still has occurred. I think what you can see if you look at filed schedules, it's a lot less regional jet capacity and serving the major kind of hubs and wide-body capacity domestic going up. Those are real negatives from a cash burn perspective for their business. I think that fixes as the environment starts to open up more internationally. That still exists today. I think to the point about oil prices, since you guys were just chatting about that, I think the answer to the question is to id better start to because the burn numbers you're going to see out of these bigger airlines with this bigger metal and these older airplanes is just going to be tough. It'll put us in a better position, quite frankly, but I would expect yield to kind of move in the right direction. I know I'm supposed to be answering the questions and not speaking, but I do always recall one story Barry told me. He said, "If fuel ever went up to the moon, we'd be the best off airline." I think this was when you were at Spirit because we'd be the only one left. I think it rings true to everything you guys are talking about. In terms of capacity, going forward, there's a fair amount of capacity that's built into order books in the industry. You guys obviously have very big order books, but as Ted, you pointed out, you've got a lot of places to put that capacity. The question's more broad. Do you think the industry is going to be able to absorb all that additional capacity? Do you think we're headed into an environment that focuses more on growth than profitability? How do you guys sort of square that? I mean, I know what I can comment on specifically with the best and the highest veracity, which is our view of that market, and we think it's robust and significant. If you have six-cent CASM max, there's going to be a tremendous amount of opportunity to deploy airplanes. I can't speak for with any degree of certainty about how the larger airlines are viewing it, but I know we're very bullish about the size of this market in the geography where we serve. I expect Barry would give a similar response, but. Yeah. Look, I think it's ironic. We get this question a lot. It's kind of annoying to people like us because it just says, as investors, you're not differentiating. It's time to start differentiating in the investing space. You need to start looking at balance sheets. You need to start looking at cost structures, and you need to look at sustainable profitability potential. That's why I think it's ironic when somebody asks us if there's some kind of capacity play that we should be shrinking or something. No, no, no. Economics 101. Efficient capacity replaces inefficient capacity. Okay? Remember your business school training. I didn't go to business school, so that's why I asked. Yeah. Yeah. Maybe you're more practical. By the way, I forgot when we started, if you want to ask a question, you can either scan the QR code up there or you can just raise your hand. I'll ask if anyone in the audience has questions in a minute. In terms of I know one question we get from investors about you guys because unit costs are so important is given unit costs have kind of gone up during COVID, what will it take, particularly in a 7.5% inflationary environment, what will it take to bring unit costs back down to where you were pre-pandemic or close, right? I would sort of define that as sub-6-cent CASM max. I think I can speak instead. I mean, it's going to take doing what we do, right? I mean, we're going to stay aggressive about costs. We've got to get back to full utilization just like Spirit does. We've got to get serious about certain things. I mean, we've given the death penalty to several airports recently. What happened? We were down at the Roots Conference recently, and people are starting to listen, right? You can't build and build and build and not add gates in capacity. One of the things we do have, even when we're merged, will still be relatively small. We don't have to fly anywhere, right? If the consumers don't want to pay for it, then maybe we don't need to be there. We can move the planes. Somebody says, "Oh, but you've got to be in New York." Southwest had 600 airplanes before they ever even flew to LaGuardia. You do not have to fly anywhere. I think you just got to list that as an example. You have to be aggressive about these costs. If your partners are not going to do it as well, then you have to be willing to move your capacity where you can be efficient because consumers want low fares, and that is the business we are in. I think we were very optimistic about our ability to get to kind of sub-6, 6 max over once we get to full utilization, which is what Barry was talking about as well. I think the unique thing about our announcement over the last 30 days is, and we're very optimistic about our deal, obviously, is that the combined airline does get utilization and efficiency benefit that we would not get standalone. If anything, that increases the ability to drive unit cost advantage against our competitors or to the extent that the broad assumptions around inflationary expenses are wrong, further ability to offset that that our competitors do not have. That is one of the reasons why this transaction makes a heck of a lot of sense. It's another reason we can deliver more low fares is because we're going to get some efficiency out of it. Got it. Okay. That is a good segue because we are about halfway through to talk about the merger, which is, I think, on everyone's minds, very exciting transaction for the sector and for the two companies. Can each of you talk a little bit about, just at a very high level for everyone in the audience, what the rationale was behind the transaction, why Frontier, why Spirit decided to go ahead, and why now? Sure. Look, I mean, we're both great companies, but we're both very similar companies. We just looked at it, and we see that we both will be very successful on our own, but we could be even more successful together. The U.S. has four carriers that control the market, 80% of the market. Together, we can provide a real balance for consumers. Consumers win through the form of lower fares because our costs will be even lower. We'll be able to succeed in places maybe one of us alone couldn't do it because the two brands are stronger in certain geographies. Ultimately, it's good for our shareholders. It's good for our employees, and it's good for customers. The end of why now, why wait two years? If you believe in everything like we do, you want to get on with it. We think it's a great time. As I mentioned, the trifecta of why you want to be in ULCCs right now, this just adds more fuel to that fire. I think it's just a great time to do it. Yeah. I'm not going to add a lot to that. I mean, Barry hit all the great points. They're very complementary businesses. There's a lot of shared background and approach to the market. Our products are very similar. We have subtle nuanced differences, but I think if anything, that provides the combined business an opportunity to evaluate how we package things, how we price things, how we look at stuff, and do that in a way that's going to deliver more low fares. There's a tremendous opportunity here, which we've outlined, and we can obviously talk more in detail. I think what Barry said is 100% correct. I think it's good. It's sort of a win-win-win, which are unique. We've all been through the prior consolidation events in the industry and listened to the things that were said, and this one's different. It is a different overall construct. Maybe for you too, in terms of unlocking those opportunities, can you talk a little bit more about that? What are the sort of additional commercial opportunities or examples of the additional commercial opportunities that you see? Will the strategy of the combined company be different than Spirit's standalone strategy or maybe this part's for Barry or Frontier's standalone strategy? I'll make a few comments. Barry, you can jump in too. I think maybe not strategic difference, first of all, but the distribution power of the combined business will be significant. I think that that can't be understated. We're going to reach Spirit, reach new guests that we couldn't see before because they were either outside of our scope or something, and they're very familiar with the Frontier brand and the Frontier product. I think that's complementary either way. I think the loyalty programs combined are going to be very powerful and offer significant benefits to people, which will make them more apt to want to join both our credit card-based points program as well as the subscription-based programs that we have in place. Like I said, there are some subtle differences between the products. We obviously have a little bit different approach to the more comfortable front of the cabin, and I think we can both look at that and figure out which one we like better. That should be a net positive. I think there's some real upside. I don't know what you want to. Yeah. I mean, I can't add too much, but look, I think both of us are successful, like I said, in different ways. Look, we may find we have stretch product. They have a big front seat. We sit down and compare notes. Maybe we choose one or the other, and we both benefit from that. We'll do all those things all through the cost structure. We're going to look at every contract that each one of us have. Okay, who's paying? Who's got Who's got the better deal? Who's got the better process? We're going to get lower costs through that process, and we're going to get higher revenues. Everyone will win from that. I don't know that it's going to change our overall fundamental offering. It's just going to make us better at it, right? We already have a loyalty program. We already have, as you mentioned, credit card partnerships. The appeal of that to consumers is going to be better. You're going to see much more organic growth just because of the scale that that provides. Got it. In your press release, your joint press release announcing the transaction, you talked about how the combined carrier deploys to enter more markets, additional markets. You named some smaller cities. You also talked about being more relevant in the markets that you already serve. I think it'd be helpful for shareholders and investors to hear a little more specificity on that because it is a very powerful story. Sure. I mean, we've cited several examples that I think on our own, either one of us might have a hard time with. I mean, we mentioned Eugene, Oregon, Jackson, Mississippi, Worcester, Massachusetts, Ithaca, New York. These are kind of places that maybe on our own, we wouldn't necessarily consider, but these are small to mid-sized communities that need service. With both brands, we believe that we can be successful. I think you get a lot of that—more places with more low fares to more people. You can fly those basically for free through the efficiencies that we gain in the scheduling practices of putting the two airlines together. Can you expand a little bit on that when you say fly for free? Yeah. So there's two components. One has to do with the fact that we're overspared, right? We both have a base in Orlando, and we won't need as much sparing ratio as we combine. Also, there's just inefficiencies in how we schedule. I mean, take Kansas City. They've got an airplane that terminates maybe at an hour, and we had an hour and a half on another one. We couldn't, either one of us, get an extra segment. Together, when you mix the fleets, you can actually get more. You get more utilization out of the actual scheduling of the airline, and you get more efficient on the sparing ratios as well. Got it. Are there any questions in the audience? If anyone has a question, just raise their hand, and we'll get a mic to you. Okay. As part of the announcement, you also announced a synergy number, which we noted was very robust and I think speaks to the strategic benefits of the transaction. You also announced, and that was $500 million, but you also announced a billion-dollar consumer savings number, which was unique. I had never seen that in a transaction. Ed or Barry, can you guys speak to what's driving that $500 million synergy number, big picture, and then what's driving the billion-dollar consumer savings number and how you guys thought about that? I think, first of all, let's make sure we clarify the two points because I want everyone to understand it's a $500 million synergy benefit for the combined company that translates into consumer benefit of we estimate about a billion dollars annually. The synergy opportunity is what's driving the benefit, which is what Barry just described, okay? Within those synergies, there are going to be cost synergies that are largely around purchasing power and efficiencies that we gain and that sort of thing, which we estimate to be about $100 million of that $500 million. The balance is incremental flying that comes from utilization benefit. It's distribution power reaching new customers. There's some loyalty benefit in there. There's a little bit of network connectivity that we don't have today that will drive some better. All of that's increasing the product scale, so giving people more choice, which is very positive for the businesses as well as for the consuming public. The utilization opportunity that Barry talks about in detail is one of the bigger drivers of the overall benefit of the deal because it's free flying that we can pursue, but for the transaction we would not be able to do, and delivers lower fares in places where we're not competitive today, which we think translates into a significant consumer benefit. That's how we quantified it, which is why we're so optimistic about this transaction clearing hurdles because it's a very positive story about we are a very small carrier individually and, quite frankly, even combined, but the Big Four, we actually can help set a little bit more rational pricing in there. That's a positive for the overall market. That is where the billion dollars comes from, is that is the difference you would pay at the Big Four versus what our combined savings would be for the consumer. That is an annual number. Pays dividends to consumers every year. Got it. I know you don't know, but do you think or believe that this will be the start of additional consolidation in the sector? I can't speak to everybody else. All I know is, like Ted said, this merger is completely different. I mean, you said it a while ago that the $1 billion of consumer savings has never been mentioned in a merger. That's the difference here, right? There's no other merger potential like this that creates this kind of consumer savings, and is this good for consumers? I don't know. I can't speak to the other consolidation opportunities, but I can tell you there's nothing else like this. I'm not going to, neither can I. Yes. When you think about the combined company, one of the things that is concerning investors in the sector now is pilots, pilot hiring. Does the combination, I guess, getting a mark-to-market from you guys on where your individual businesses are from a pilot hiring perspective and then understanding whether the combined business you think is more advantaged around hiring pilots would be helpful? Look, early indications are good. We've seen applications double since we actually announced the merger. We've already had plenty of applications for every job, and we've had over 10 qualified applicants for every pilot job. We've got plenty in the pipeline. The challenge is we have seen a slight uptick in attrition, not huge, but that causes you to need to train more. We're going through the process of figuring out what you got to do on the schoolhouse side to make that happen, SIM capacity, and on and on. I think this is something we're going to deal with. I think the boogeyman that everybody's talking about, though, I want to put out kind of just kind of some bookends for you. Even if we go to the extreme of opening a flight academy and we trained 100% of our pilots from hour one, right, we estimate that might cost us around $30 million a year, less than 1% of revenue. I mean, look, we're hell-bent to have the lowest cost. My CFO right over there will go, "30 million." The point is, this isn't going to kill our business. There could be a timing of that, and there may be academy-type things. United has opened one, for example. I think when you look at what we offer, and actuarially today, you come to work for Spirit, you'll make just as much money as you do with Delta because you upgrade so much faster over the next 20 years. What do pilots care about? Money. I mean, I've got that covered. They're going to make as much money as anywhere else because they upgrade fast. Now we've got lifestyle. By merging, we have more bases in more places. What's the second thing they care about after money is their lifestyle. This gives them a lot more flexibility. The third thing that they all should care about, back to the trifecta of why you want to be invested in ULCCs, is job security. This merger is going to make sure that we're sustainable for many decades to come and we're the place to be. I think that, yeah, is this accretive and helpful for pilot hiring? Absolutely. Yeah. As to our specific situation, I think we're seeing what Barry is seeing, which is we're still a track and landing spot for pilots, plenty of applications. There's no shortage or anything like that. What we have seen is a slight uptick in attrition. That just means we have to train a little bit more. We got to get the thing moving a little bit quicker, but that's fine. We're a growth business, so that's just moving things along. I agree that for pilots, for the right pilots, this is a very attractive landing spot, especially when you look forward at what the combined business will do for them. Anecdote, again, but I, and I assume you've done the same, spent a lot of time over the last three weeks on the phone and on video and on airplanes talking with our crews. I would say robustly, they're all extremely excited about this opportunity for the reasons that Barry just talked about, which is, wow, bigger business, lots more opportunity, new places to go, more bases, more stability. This is the selling point. That's one, again, another leg up on the rest of the group. Got it. Thank you. We have time for probably one more question before I ask it. Is there any questions in the audience that anyone wants to ask? Okay. You guys have both been known as leaders on the ancillary front. This is sort of a two-pronged question. You have a little bit of time to answer it. I'm going to put my mic down. One is, does the ancillary strategy change on a combined basis? Two, which I know is when people model out earnings for both your airlines, they always ask the question, is there a cap, right? I mean, every time people thought there's been a cap, you guys have surpassed it and found new ways to generate ancillary revenues. At some point, you would think there's diminishing returns. I've thought forever that 50/50 was a good mix. I think I would tell you our bias at Frontier, I mean, look, and we haven't talked yet. We're not working on a joint ancillary strategy. We can't do that yet, just to be clear. I can tell you from Frontier's case, we think it's 70-75%. Makes more sense. We have seen during the pandemic that it's very sticky. You don't see the volatility. We think that you'll see much more stable margins if you can move that higher. Whether it's standalone or combined, I would say over the next five years, we'd like to move closer to 75% instead of 50/50. Yeah. I hesitate to put a number on it, quite frankly, because I joined Spirit 10 years ago. At the time, we were seeing high 40s in ancillary kind of dollars production. I remember we were talking about, "Let's get over 50." Maybe in this hypothetical example, someday we might reach $60. We have left that in the rearview mirror now. I am with Barry. I think the mix of ticket-non-ticket will always be part of our own revenue management strategy. Clearly, what it illustrates is people like choice. They like to buy the things that they think they want, they need, and they do not want to buy the other things. The more we give that to them, we are just going to open up new markets. Got it. I think we're out of time, but I wanted to thank both of you guys for coming down here and speaking to the audience. I appreciate you guys' time. No, thanks for having us.