Frontier Group Holdings, Inc. (ULCC) Earnings Call Transcript & Summary

All right. Folks, the afternoon rolls on. And in the past, Mark and I have toyed with the idea of trying to put together airline panel presentations. We've succeeded from time to time with the aircraft lessors. Tomorrow is reserved for that business. But most airlines have been reluctant to appear on the same stage. One of the reasons that's been given to me in the past is, well, we don't want to give any implication that we might actually be working more closely with these airlines and God forbid, even contemplating a merger. So fast forward to today, and we have a merger, and we have a panel of 2. So this is good. This is what we've been pushing for, for a couple of years. So let me turn it over to Barry Biffle and Ted Christie, the CEOs of Frontier and Spirit Airlines, respectively. Gentlemen, thanks for being here.

I'm going to go first.

Okay.

Good afternoon, everyone. Pleasure to be -- I am Ted Christie, the CEO of Spirit Airlines. I'll turn it over to Barry here in a little bit. Before we go through a slide deck, I just have a quick update on what we're seeing in the near term to give you guys some color on what the market looks like. So heading out of the holiday travel period into the first part of January was a very difficult period for the airline business, quite a bit of disruption related to Omicron, cancellations, sick calls, that probably in this quarter, cost us around $20 million, in fact, in interrupted trip expense and that sort of expenses. And there was obviously a significant impact on demand as well. The period there from the post-holiday January period, through really the middle part of February, which is traditionally very off-peak was the [ offest ] of off-peak that we've seen, in fact, probably the worst period during the whole pandemic with the exception of the beginning of the pandemic, as a result of the Omicron surge. However, the good news is by the time we hit the middle part of February into the President's Day weekend, we really saw a quick rebound. It was very V-shaped in fact, and demand has been roaring back now that we hit the peak period here in spring break travel period, we're now eclipsing 2019 in terms of volume, and seeing yields for the month of March that are equal to or perhaps greater than what we saw in 2019. So a very encouraging signs for the remainder of the spring travel period and importantly, as we head into the summer, which we anticipate will be a very busy summer. So from a capacity standpoint, in the first quarter, Spirit is up around 19% and on a year-over 3-year basis, it looks like it will be about that way as well in the second quarter. So things are trending in the right direction now that we've gotten past Omicron. So I thought I'd give you guys a little bit of that color. And we can move on now to the story of the day, which is really the exciting announcement between Spirit and Frontier to create the largest ultra-low-cost carrier in the Americas, a true nationwide network and a really unique transaction. One, an airline merger that really has no precedent. This is a very unique deal. You're combining 2 of the lowest cost producers in the space, very complementary networks and delivers really across the board to all constituents. This is a transaction that's going to be very positive for the consumer. In fact, our initial estimates say that on an annualized basis, initially, we're going to deliver at least $1 billion in total savings, and I'll explain to you in a second where that comes from. But basically, we got a little bit more incremental flying out of combined in the 2 networks, and we can deliver that into markets we don't serve, which helps us lower fares for our guests and our customers, which is a very good story. We deliver for our shareholders as well. There's $500 million in synergies. We've got a break-up -- breakdown of that in a little bit as well. This is good for the environment. We both run the most fuel-efficient airlines in the Americas today, and that will continue to improve as we take delivery of more and more fuel-efficient neo aircraft. We're already the best producer on an ASM per gallon basis and that gets better and in this environment, admittedly volatility has been difficult to stomach across the board over in the oil markets. But in an elevated oil market, this is even more important that we run very fuel-efficient businesses. And then finally, for our team members. This is a very positive thing for both the team members here at Spirit and for the team members of Frontier. There's going to be tremendous opportunity. This is going to be a very large business. And that means more stability, incremental jobs, lots of opportunity for our crew members, new bases, all kinds of exciting things there. So a very, very good complementary transaction for both of us. Here's a little bit about the specifics of the transaction with where we're landing is Frontier equity, will own about 51.5% of the business. Spirit equity holders will own 48.5% of the business. There's a little bit of cash that changes hands as well. And the Board will be a combination of the best of the 2 Boards chaired by Bill Franke, the current Chairman of Frontier. And then we'll work out the specifics around management team and branding and headquarters location over time that those decisions will come. Right now, we're both focused on running the best business as we can. This is still a choppy industry right now. And I think we've both got both management teams head down focused on really good operations into the peak periods, which is critical really for both of us. So I think that's the right place to be focused. But we are expecting that we would close commercially on this transaction sometime in the second half of this year, probably the later part of that as we work through the regulatory approval process. I mentioned the winning side of this for both consumers and shareholders. So the $1 billion in savings driven by incremental utilization of aircraft. So when you put 2 network businesses together, you're going to create some incremental efficiencies with scale. And that comes with sparing ratio and it comes with scheduling efficiencies. And initial estimates tell us that we think we can free up somewhere around 10 airplanes on day 1. And all that gets deployed in the markets we don't serve and creates low fare opportunities to stimulate more traffic, and that's a big savings opportunity for our guests and our consumers. And then we have synergies of $0.5 billion on a run rate basis. And again, this is at the op line. So while it is divided up into commercial synergies and cost synergies, this all falls to the op line, the $0.5 billion is net of expensive achieved. So I'll walk you through some of the specifics of that here. So of the $500 million in synergies that we anticipate receiving as a result of this transaction, $100 million of it is cost synergies, largely procurement and fleet synergies are resolving some of those things as a combination of scale. So some real good positive cost benefits that quite frankly, are a real asset to this combined business as we -- collectively, the industry faces continued inflationary pressures on labor and airport-related expenses, this is a unique way for us to continue to fight those that other airlines quite frankly don't have available to them. So a real positive there. But then on the commercial side, the balance of about $400 million. And again, at the op line includes some distribution benefit, which is material. So now we're opening up the e-commerce sites and the distribution platforms of both businesses to more people. And we think that, that improves load factor. Today, both businesses are high load factor airlines, but they do operate at a slight load factor deficit than some of our peers internationally. And we think this will give us a chance to improve that sum by widening the distribution funnel in both cases. I mentioned the schedule efficiencies driving about $145 million of revenue-related synergies into the business. We'll just increase aircraft utilization, basically, and that gives us some incremental flying and drive some more benefit to the op line for us. And then on day 1, you put the 2 networks together, and there are incremental connecting opportunities. In fact, we think there's 300 or so markets that neither 1 of us technically price today that we would price as a combined network and that drives a little bit of benefit as well. So some real achievable and beneficial synergies because they produce both op line benefit, but unit cost efficiency, which is really the way we drive our business. A quick look at the network and what this does illustrate is the complementary nature of both airlines today. We are -- Spirit has largely been a strength on the Eastern seaboard of the United States and Frontier has grown up on the western side of the United States, clearly overlap today in some places. But we can contribute quite a bit from the Eastern Seaboard, and we know they have strength in the West, and you can see where our yellow lines up, up and down the Eastern Seaboard into the Caribbean, giving some real benefit there. Frontier touches quite a few dots throughout the Midwest and to the western part of the United States. So a lot more nonstop routes for us to serve a lot more opportunities for our guests, which is going to contribute real benefits to the strength of our loyalty programs, combined and attachment with future people booking travel on these combined airlines. One interesting point is that we think there is real opportunity for us to continue to penetrate even in small and midsized markets that neither 1 of us serve today because the combined distribution power and connecting power of the networks make it more realistic for us to serve those type of markets. We give a couple of examples here like Eugene or Worcester, Mass or those types of places where we've either never served them or had difficulty making them work. The combined airline will probably do a much better job at making those types of markets work. Here, we have a look at the sizing of the businesses. As you can see, separated were down 7% and 8% in the industry, but combined, we'll be on an ASM basis, the fifth largest airline in the United States. Look at the bubbles above, you can see what really makes our model work. We're still about $108 in average fare combined and ever is considerably higher than that. We see no reason that will change. In fact, the combination provides us with more efficiencies and ways to continue to drive costs lower, reduce low fares and stimulate more traffic. So a really, really good chance for us to continue to penetrate and stimulate, which is what the models are all about. And finally, before I turn it over to Barry, one of our business is always all about, it's about low cost. We are the most cost efficient producers in this space today, that will continue post-closing with continued synergies and growth opportunities for both businesses. You can see these cost differentials between the higher cost carriers are significant. We use that obviously to compete with low fares and stimulate activity, and it has worked extremely well over the course of this experiment at Spirit, which has been ongoing now for almost 16 years and Frontier joined the fold as a ULCC almost 9 years ago. So a lot of success, but more importantly, a lot of opportunity. With that, I'll turn it over to Barry, and then we'll take Q&A.

Thanks, Ted. So before we get going, I'll give a quick update on Frontier, and we said a few things last week. I'll kind of build on that. But We, too, like Spirit, saw the Omicron variant really put a dent into January and February, especially probably the worst we've seen since it started. Unfortunately, like a lot of people, we kind of bet on a recovery, and so we had a lot of flying that probably -- which we didn't have at that point. But -- while we had some of the worst load factors and some of the worst revenue in the first part of the quarter. About 30 days ago, we did start seeing the demand really rushing back. And I think that what's interesting is if you look -- everybody is talking about inflation, but we're not talking about the positives -- we're not talking about the positive side, which is the incomes are at a level that we've just never had before. And if you look at the hotel industry, you look at your Uber prices, your restaurants, car rentals, you're seeing every other sector in the travel space we're not talking small increases. We're talking 20%, 30%, 50% increases in some cases like ADRs. And so you're seeing levels way higher than pre-pandemic. So we're seeing that income come in at a time that everybody is really back -- wanting to be back traveling. And so over the last 30 days, we've seen the highest fare plus ancillary. So total revenue per passenger on all future sales over the last 30 days, be higher than 2019. And in total sales, even adjusted for size going up, looking at our booking curve through the summer, we're actually above that as well for the same 30-day period in 2019. So if you kind of roll that forward. So while we have worst quarter maybe since the pandemic started, but you can see we have line of sight to profitability at those kinds of levels because at over $120, as you can saw, we were $108, I guess, in 2019. So that's considerably more. And I'll talk a little bit about fuel in a second, but just to give you an idea, I mean, fuel is up about 10% or 12%. So we can cover the fuel prices at this level, and that's what's enabled us to start being cash breakeven. And hopefully, we see that translate to profitability by the summer. So back to talking about the merger, I'll kind of build on some of the things Ted was telling you about, but let's talk about the consumer. We have been pretty small. Yes, we're stronger in the West as Ted illustrated, they're stronger in the East. And the truth is that consumers don't have as much choice with us, not only are the Big Four, considerably bigger, but our frequent flyer program and theirs doesn't stand a chance against any of the Big Four. And so the frequent flyer program gets better. There's just more ways to get across the network. There's the 300 O&Ds that Ted mentioned a while ago. And so you get a lot more offering from the recipe of which you give a consumer in offering. But it doesn't stop with just the frequent flyer and the places you can go. There's depth as well. As you can see on this chart. It kind of shows you in some of these examples, what happens in like a Baltimore to Orlando. So you've got 9 frequencies a day on the big guys. We have 2 flights, Spirit has 3. So together, we actually start to be somewhat competitive from a frequency perspective. Obviously, not dominant by any stretch. This isn't about doing that. This is different from any other merger in the past. This isn't about consolidating, cutting capacity and raising prices for consumers. This is about getting more people on more low fares and more places and it does it at a time that also gives you more frequency. So if we do have disruption, we can be much more reliable. So one of the things that's ironic today, we're well aware of where consumers see us and some of the challenges that we drive in complaints as an example. But I'll tell you, we've consistently -- both of us have been in the top tier from a completion perspective, but yet at Frontier, our #1 complaint with the DOT is about flight disruption. And the reason for that is even though we have really high marks, I mean, last year, we were third place in completion. When we do have to cancel, albeit small amounts of time, it's more disruptive to the passenger because we just don't have the frequency to recover. And so this thing not only gives people more low fares, but it's going to deliver a much more reliable experience for the consumer as well. So, wouldn't be a conference these days without talking about ESG. And we believe that the combination will not only be the greenest but by a mile in the space. And so what you can see on this chart shows you that the combined company will get 105 miles per gallon -- 105 miles per gallon per seat. And so that compares, I mean, over on the other side, they're down at 65. I mean in practical terms, I mean, and this is an economic as environmental as we burn 10 gallons of fuel to move a seat 1,000 miles and some of the big airlines use 15 gallons. So when you're seeing $3.5, $4 a gallon, you just do the math. I mean, that's $4 times 5, that's $20 each way, $40 a round trip. So there's an economic component. But not only is it the best thing for your wallet, it's the best thing for the planet, too. So we're really proud of where we are. And both of us taking on the 321neo is just going to continue to push that. We'll be at 105, as I mentioned just a moment ago, by 2025, but the 321neo actually approaches 120 miles per gallon. So just dramatic differences. So we're green and getting much more green as we move along. So not just having the greenest planes, but also we've got a lot of growth. So as you can see, the combined companies will have 350 aircraft on order once we merge, and by 2026, that will be 75% larger than today. And so we'll have a yellow plane with an animal in the tail so -- that's a joke. But anyway, but 12% CAGR and really excited about what this can mean from a growth perspective. So where will we put all these aircraft? And Rick, to say, "Oh, do you have enough space?" Well, the truth is we see enough for 600 to 700 more airplanes at our cost structure. What this slide shows you is that there's over 2,000 markets that we can drop the fare 20% to 70% and make money, because that's -- the dark green line is our cost and all the dots represent the over 2,000 routes of opportunity. And if you exploit all those, it would take 600 to 700 aircraft, and we only have 350 on order. So really excited about the growth, excited about the orders that we have and we've got plenty of opportunities. And I'll show in just a minute how we see kind of the landscape from a cost advantage perspective. So I mentioned how green we were. A lot of that has to do with the combined average fleet age just 5 years. And this is going to continue to stay low as you can see, because we continue to grow with more and more of the fleet being the neo aircraft or the new engine option, which is the greenest option available with today's technology. So we mentioned everybody wins, and specifically, our team members win, and these direct jobs, we believe, will create over 10,000 high-paying mainly union jobs by 2026. And it's just a lot better career opportunity for our people because the company is going to be that much more stable as we combine and that gives a lot more career stability. But we think it's a great opportunity for all our employees. I mean if you're a pilot or a flight attendant, you're just going to have that many more bases to choose from. So they care a lot about their pay, but they also care about their lifestyle. And so more bases gives more options and more career opportunities for our people. So we're really excited what it does for our team members. And so I think to wrap up the merger, why it makes sense. I mean, look, you've got -- the consumers are going to win with more low fares to more places. I mean just the biggest thing, as Ted showed you a while ago, that's going to benefit -- consumers is just the 300 markets, more markets, more utilization of aircraft. But also, you just get higher distribution on there. So you've got more people even on our existing aircraft on each side, raising the load factors, but just giving more people access to those low fares. As I mentioned, our team members are going to win from this. We're going to add 10,000 jobs on a direct basis, even more, probably double that on an indirect basis with our partners. And obviously, shareholders are going to win with the $500 million in synergies that we unlock through the merger. So we think it's really great for everybody involved, all our key stakeholders. So let's shift gears just a moment to talk about the opportunity and why we think that the setup today is better than it's probably been in 10 to 20 years. And when we went into COVID, there were some folks with a lot of debt. This debt doesn't have anything to do with that. What this slide shows you is if you take the debt that airlines took on in the United States, during COVID and you use a normal amortization table plus interest, what it would take per passenger for those airlines to actually pay back that debt. And so we're not picking on any 1 particular carrier but if you exclude Spirit and Frontier together, the industry needs $21 per passenger to pay back just the COVID debt, right? It's considerably higher for some. And in some cases, it actually well exceeds the amount of money that they actually even made in 2019 and before. That compares to just $4 with the combined airline. So it's just a fraction of that. So our cost advantage is going to widen specially when you include debt. So that's why the setup is starting to get a lot better. So we put together this slide, and I'll spend a little time on it for a second. You can focus on it. But if you look at the dynamics that we have today and you go back to the creation of Spirit Airlines, what you know is Spirit in the mid-2000s and being a ULCC, I'm just telling you, in the last 2 decades, this situation has never been this great, at least for us, because you had a cost advantage going into this. I mean, half of the capacity in the United States has cost it's over 70% higher of ours, going into COVID. As I just showed you with the debt and now with the fuel prices, those advantages are going up even more. And then you look at how they're managing ex-fuel inflation, not to speak for our friends at Spirit, but they and ourselves have been managing the ex-fuel inflation probably better than anybody. So let's talk about all these things that investors keep talking about, which is, okay, when is leisure demand going to come back? Well, there's some data out there. I think Jamie has put out some stuff. I think we're around 90%, 95% in the leisure space, okay? So that's 1 thing, but what do you do about business? Because if you don't get business travel for the industry, well, then how do you get your average fare up? Okay, so if you just see on this chart, say, "All right, well, does business travel come back? Sure. Okay. Well, we know fares have to go up," so fares go up. If it doesn't come back, okay, well, then you've got to raise prices on the leisure customers, you can see. In fact, I heard at dinner last night, there was another 1 of the Big Four talking about how they they've been raising prices on the rich folk and the rich folk can pay it. So I don't know that it's an interesting thing. Maybe that shows up, but to prove our point, yes, the Big Four are raising prices. If they don't get away with it and for some reason, not all rich people are stupid. And let's just say they look for value and they go to Costco. They do the same thing with airlines, too. So if they choose to save a little money, maybe they don't, if there's not enough volume, then they'll cut capacity and prices go up. Any way you cut it, prices have to go up with the Big Four, with the dynamic and the situation and the setup that we have today. So let's talk about the cost. So you've got $100 oil, maybe it's $95 today. It was $130 just a week ago. it's going to be high for a while, right? And so we've been investing for over a decade, both of us, to be where we are from a green perspective. But again, as I mentioned earlier, we're burning 10 gallons to move a seat 1,000 miles versus 15 at the big airlines. So that advantage is real. There's $20 each way, $40 round trip. Then you look at the ex-fuel inflation, we're managing this better, and we're continuing to figure out ways to further manage that down. As an example at Frontier, we haven't taken a 321 in 4 years. So that upgauging is starting to happen in a pretty big way later this year. So we expect that we'll continue widen that ex-fuel advantage as well. And then you've got the COVID debt of $21 that I mentioned and ours is like 20% of that. So you've got the cost advantage widening at the same time that on the fare, on the revenue side, you've got the fare advantage widening. So those things are coming together to create what we believe is the best setup for ULCCs. And we think you put that together with the synergies that Ted outlined a while ago, it gives you on the revenue side as well as the cost and we think that Frontier and Spirit can do a great job together. So just to kind of wrap up, look, we think that fundamentals should start to matter. I mean people always joke because like balance sheets don't matter until they do. And so let's start looking at fundamentals again because we think that now is the time. You've got the COVID debt, you've got the lowest fuel burn. You got the lowest overall total cost and you've got over 2,000 markets of opportunity, over 600 aircraft. We got 350 in order to do that, and we're really excited about exploring it. So in conclusion, that we think everybody wins, including shareholders. So we'll now open it up to questions.

Is this one live? Can you hear me on the. Okay. Before we get to Q&A, I had 1 other clarifying point on the update I gave in the beginning, which was kind of the punchline, to missed that. We're seeing jet fuel price per gallon in the current quarter of about $2.90 a gallon. When you factor that in, along with the expense that we saw in the beginning of the quarter related to the disruption that we saw over the holiday period, plus this kind of nice recovery that we've seen in the second half. We're looking at an EBITDA margin probably of around minus 11% to minus 13%, something like that. So at least gives you a little feel about how our core is shaking up -- said EBITDA. Is there anything else I need to hit to you?

I think I got everything. Okay. Could you go back to the slide that shows you never lose under any circumstance .

What's the problem with it?

Well, so the business travel return, we're optimistic on that front. And yes, that causes Big Four realized yields to rise. But if I'm -- and yes, that would raise the fare umbrella, which is under big fares -- Big Four fares rise. But as a consumer, why does that matter to me? Why does it matter to a consumer shopping for low fare if Mark Streeter books an $1,800 one-way ticket on Delta, which contributes to the Big Four fares rising? I'm just wondering how that...

Because it makes our fares look that much more appealing to the consumer, right? If they've got affluent customers on the leisure side that they can charge more money or they've got a business customer, that's fine. But those sticker prices scare off consumers. Look, we're on the -- we get it. We're on the leisure end of the space, and we're on the people that need an option to travel, inexpensive, uneventful travel. That's what we're all about, right? And so we're not in that business, but it makes them flock to us more because we are the low fare option.

But Delta isn't -- in the example that I gave, the competition isn't advertising an $1,800 one-way fare to your audience. So couldn't you argue that Mark paying that generous fare open -- makes it easier for one of those Big Four to add inventory to $69 level that does potentially compete with your $69?

Maybe they do. But I mean, the fuel price alone to the consumer is actually higher than that with PFCs today. I mean they can't compete. I mean there's -- they need over $20 more each way just for gas. And then you get into the variable labor cost and everything else, I mean their cost -- I think the days of basic economy, I mean, I think you're going to be challenging to hit those kind of numbers.

Okay. And as a passenger, 1 of the things that you said earlier on that interested me was freeing up aircraft, having more spare coverage and having more network connectivity because I don't think a lot of consumers buy air travel with contingency planning in mind. But you admit that when there is a cancellation, it's much harder for both of your franchises to -- because you can't backhaul them over Salt Lake and then get them to Boston or whatever. So maybe wonder, for the combined entity, how is the travel experience going to be different for the consumer? I mean obviously, they're going to have more IROP protection. Do you think you will target more daily frequencies in a month? I'm just wondering a few years down the road once the deal is closed, what is the in-flight and purchase and protection experience for the consumer relative to what a Spirit customer is today or Frontier customer is grown accustomed to?

Well, I mean, I'll kick off. So first of all, the scale of the network is going to give them a lot more opportunity. So I think that I mentioned earlier, attachment. People do make they may make limited buying decision based on contingency, but they absolutely make buying decisions based on whether or not it feels like it's going to continue to provide me value over the long term, right? So the combined business will give them more choice. An example would be today, if we fly a day of week into a market and there's no connecting opportunity on the off day, but because adding the combined networks together, you now have multiple decisions to make to get to the same destination, you're more likely than not to convert on that particular sale. That type of thing is real. That happens today on large network carriers, that kind of thing. So I think there's real value there. As to what the consumer would perceive, I think what they'll see is just a bigger, more complementary network. I think they're going to be more apt to join the loyalty program to adhere to the way that the combined network gives them value over time. And the learn behavior will be -- because Barry is right. I mean, we both have run pretty good airlines over the last few years as it relates to completion factor and on-time performance. But people, when they get disrupted, it's very disruptive because we may have limited service. So that's a learned thing that will come out over time is, gosh, I was able to get reprotected on a, like you said, a backhaul connection or somewhere over Atlanta that I couldn't do before. I think that kind of gets us value over time. What would you add?

Yes. And we can even go through the travel experience. I mean if you think about booking on the airline, right, when we merge -- we'll actually cut our costs in half for web development, right? So we should have a better website, we should have better apps. So the selling experience, the check-in experience online should be much better. And then when they come to the airport, right? I mean people focus on we're big in Denver, they're big in Fort Lauderdale or something like that. But the vast majority of the places that we fly, if you just think about the experience, the other end we have like 1 gate and even small amounts, a very small footprint at the ticket counter. So we're going to have much more coverage throughout the day for people, whether it be baggage service or checking in. And then when you onboard the aircraft, I mean, all I can tell you is that we're going to look at their customer feedback. We're going to go to look at ours, just like we're going to look at every contract. We're going to look at every process. We're going to look at every org chart. And we're going to figure out the best way to have the best onboard experience. I mean, I'm sure they have things that sell better than we do and vice versa, and we'll figure that out as we go. But then when things go bad, we'll have a much more reliable and more recoverable experience. So look, that's when we say everybody wins.

It's Mark Streeter. So while you're waiting for regulatory approval, how much work are you doing on the brand decision? And is that full steam ahead? Are you comparing Q scores and so forth? I mean, Jamie and I have been debating, right? When we look at Spirit, for example, we think, well, is it a little bit more well known? It has more SNL skits references and so forth versus Frontier. But is that good or bad and so forth? Like so we're trying to -- I know you're rolling your eyes at -- but we're trying to figure out like how is this process working? And what are the decision factors? And how are you going about customer service surveys and so forth? Or is that something where you need to wait until you get further along in the approval process?

Well, to be honest the focus on getting the transaction announced, getting us through that period. And now the focus is, quite frankly, on getting the approvals we need to get the transaction to completion. That's really where the combined work is mostly focused. So I don't believe a lot of work has been done yet on determining the appropriate brand. I think the analysis you suggest would be the way we would start looking at that, amongst other things. And as I said, those decisions will come in time. Right now, I think we're both focused on running good airlines and then getting the transaction completed and closed. But we'll start looking at that work over the next few months.

And then on the revenue synergy number of $400 million, remind us, have you talked about what the loyalty component is of that by combining the frequent flyer programs, creating the bigger airline and so forth. Is that included in those numbers? Or is it just simply looking at sort of the network revenue synergies? I forgot what you said about that.

There's a small component. It's tiny. I mean -- so a lot of those take several years because it takes a while to integrate. So we haven't put that in there.

Further questions from the room.

Can you talk about some of the differences in the labor contracts that may exist between the 2 carriers and when they are up for renegotiation? And any risk you might see with any of that?

Sure. I mean so this merger is actually a lot easier than well, practically any of them I've seen. It's the only 1 I'm aware of that was 100% common fleet types in the last 20 years. So that's pretty -- a lot simpler. And on the labor side in workforces, they're largely complementary as well. I mean, on the pilot side, you've got ALPA on both sides. The -- as I understand it, they have a process that they will go through to integrate. Same thing, we have AFA. They have AFA. We have, I think, the only difference is, I think, on the dispatch, there's a slightly different union, but it's a smaller group. So hopefully, we can work out those different a lot easier. And then in one case, for mechanics, for example, we have IBT, and they did not have a unionized workforce. But as far as timing, I think you're...

Yes. You asked about opening. We're open in negotiations right now with our flight attendants that's been open for a few months. And our pilot agreement reaches amendable date next spring. There is an early opener clause to the extent that the pilots want to exercise that. But that's where we are with them and you guys.

Yes, we have 2-plus years on all of ours still outstanding. So on the pilots and the flight attendants. I think it's pretty similar for the mechanics. And our dispatch is actually open right now.

The real good news, as Barry said, just to emphasize, as both major union groups are represented by the same national union. They actually have experience at combining seniority lists and contracts, and they have, in some cases, in their constitution, very clear rules that they'll do it. So I think that does lend to the more simplicity of this deal than other deals. Nothing is going to be perfect or easy. There will be some work here, but at least it's a good starting point.

And 1 thing to remember, too, I mean, this isn't a merger of distress, right? So you're not dealing with who gets laid off on 1 side or the other, right? That's not what we're dealing with. I mean we're both growth companies. We plan to continue growing. And so our career opportunities get better. They don't get worse. So that is very helpful when you're trying to put something together.

So I haven't kept very close notes on all the prior mergers. But there's always some objection that is filed by some consumer watchdog group that I usually haven't heard of. But I have heard of AOC. I have heard of Elizabeth Warren. And I've heard of Bernie Sanders and I was a little surprised at last week's letter. How did you perceive that? What was your take? I assume they sent you a copy.

We've seen the letter. Look, I think it's important to note that the Big Four consolidation has caused a situation in this country where they control 80% of the marketplace. And that's caused a lot of friction with consumers and -- and I'm sure Senator Warren and AOC and others have those concerns based on that experience. I don't know if they've flown Spirit or Frontier. I would love to sit down and talk to him because we agree with many of the points that they're making. We just disagree that we think that this is negative for consumers. We think this is good for consumers. I mean, Ted can probably tell you, I mean, there's out of the top 50 airports in the United States, Fort Lauderdale is the only 1 that is controlled by either 1 of us. And it also happens to be the lowest fares of any of the 50 metros in the United States. If you go to Atlantic City, I think you'll find us in the bottom tier of yields in the United States. It's 100% monopoly of Spirit. You go to Trenton New Jersey, you'll find the same thing with Frontier. So we think that we can demonstrate that this is good, and we agree with them. And we think that people need more low fares to more places and a better experience. And so we look forward to going through the process to talk to them about it.

And I think the letter was very clear in saying if there are concerns. We want to make sure, and I think what we're anxious to show is that we're actually aligned here. This is about us providing competition and stimulating growth.

That's why I was wondering if maybe it was positive regulatory growth because it opens a dialogue.

Yes, we think we have a constructive conversation we're excited about it.

One last question for me. Have you started to think about when the businesses are combined, how you might finance the business differently? Greater scale, both of you lease a lot of aircraft, you do a lot of bank debt and so forth. Spirit did a brand deal. Frontier getting at least in the public markets. But just sort of thinking about -- there's a whole menu of ways you can finance an airline going forward, and you're a little unique in terms of that reliance on operating leases and so forth because that's what you do in your smaller airlines and so forth. But as you become much bigger, you can do different things, right? And that balance sheet can mature. So I'm just wondering if you thought about what you'd like the business to look like 5 years from now on a combined basis in terms of how you're funding it?

Not yet. There's tremendous opportunity there from a cap structure optimization perspective. You're right. I think Frontier relies exclusively on operating lease financing for their fleet. We've done a mix of that over time. We've used the public markets. We've used the private debt markets, we use cash. But I think that there is a chance for the combined business to -- again, I think another synergy there is that the creditworthiness of this business is going to go up -- it's probably going to enhance our ability to get the right deal, which has always been what we're both about as it relates to financing the fleet with primary use of the capital that we source. And so I think that's another opportunity for us to evaluate as we close and move on.

I think that's it for time. Thank you.

Thanks, everyone.

Thanks.