Frontier Group Q3 2026 Earnings Call Summary

Key Takeaways

• Frontier Group Holdings (NASDAQ: ULCC) reported company-record Q3 2026 revenue of $1.4 billion, up 53% year over year, as capacity increased 18%.
• RASM rose 30% to $0.1187. Total revenue per passenger also increased 30% to approximately $138, despite a 2-percentage-point decline in load factor.
• Adjusted net income was $40 million, or $0.18 per diluted share. Adjusted pretax margin improved nearly 12 percentage points to 3% despite a 56% increase in fuel price.
• Liquidity ended the quarter at $1.18 billion. Trailing 12-month leverage declined to just over 4x adjusted EBITDA from 7x at the end of 2025.
• Management expects Q4 RASM to increase more than 20% on capacity growth of 5% to 6%. However, an expected average fuel cost of $4.75 per gallon limits adjusted EPS guidance to a loss of $0.15 through a profit of $0.05.
• Frontier remains on track to achieve $200 million of annual run-rate cost savings by 2027, supported by fleet rightsizing, higher aircraft utilization and other efficiency measures.

Key Financial Data

Business and Operating Performance

Frontier attributed its unit-revenue improvement to stronger revenue management, favorable supply-demand conditions and reduced overlap with Spirit Airlines. Management estimated that roughly one-third of the recent RASM improvement came from better revenue management, one-third from changes involving Spirit and one-third from higher fuel costs supporting fares.

Loyalty-related revenue increased 37% year over year, driven by the co-brand credit card, membership programs and higher customer engagement. Management believes loyalty revenue per passenger could reach double-digit territory over the next three to five years, although it did not provide a specific target.

The airline is also rebuilding off-peak capacity. Management said year-over-year RASM improvement has been consistent across peak and off-peak days, while additional Tuesday and Wednesday flying has increased customer choice and supported loyalty.

First Class installation is beginning, with the product expected to go on sale toward the end of Q1 2027. Frontier’s existing Upfront Plus product has generated an approximately 80% paid load factor. Starlink installation is scheduled to begin in Q1 2027 and proceed aircraft by aircraft throughout the year.

Operationally, Frontier’s completion factor ranked third among domestic carriers in September and through October month-to-date. Management said improved maintenance staffing, parts and tooling contributed to the change. The next priorities are better first-wave punctuality, maintenance planning and faster recovery from weather and air traffic control disruptions.

Frontier ended Q3 with 164 Airbus aircraft. It returned 13 A320neo aircraft under its latest early-return agreement and is replacing that capacity with direct leases for 10 newer and larger A321neo aircraft. A321s represented 55% of the fleet at quarter-end, up from 46% at the end of 2025, and management expects the share to reach about 60% by year-end.

The fleet transactions generated $134 million of nonrecurring Q3 charges, excluded from non-GAAP results. Management estimates that the net return of 37 aircraft during 2026 will reduce maintenance obligations by approximately $400 million over five years.

Management Guidance

The Q4 fuel assumption is $1.25 per gallon higher than Frontier’s prior guidance and represents more than $100 million of additional expected expense. Management said stronger unit revenue should help mitigate, but not fully eliminate, the impact of elevated fuel costs.

For 2027, management currently expects roughly mid-to-high-single-digit capacity growth, with CEO James Dempsey later indicating about 5% to 7%. The final plan remains dependent on fuel prices. Growth is expected to come mainly from higher utilization of the existing fleet, greater off-peak flying, maturing current markets and selective expansion where Spirit has reduced capacity.

Risks and Areas to Watch

• Fuel costs: Q4’s expected fuel price of $4.75 per gallon materially reduces the earnings outlook. Future capacity decisions will also depend on fuel-price developments.
• Operational execution: Weather and air traffic control disruptions exposed operating fragility during July and August. Management is focused on improving first-wave performance and recovery speed.
• Supply chain: Delays affected the rollout of maintenance capabilities at Frontier’s bases during the summer.
• Labor negotiations: Frontier remains in National Mediation Board-facilitated negotiations with its pilots. Management wants progress within 12 months but cannot estimate when an agreement will be completed.
• Cost inflation: Management said broader U.S. inflation must be considered when assessing the 2027 cost outlook.
• Aircraft timing: Delayed aircraft inductions are expected to reduce some capacity currently shown in published Q4 schedules.

Analyst Q&A Highlights

Management emphasized that slower fleet and capacity growth is intended to stabilize revenue, operations and customer retention after several years in which the airline expanded by 20% to 25% annually. Frontier expects its aircraft count at the end of 2027 to remain close to the Q3 2026 level, with order-book deliveries resuming in 2028.

On network opportunities, Frontier said it has backfilled approximately one-quarter of the capacity opportunity created by Spirit’s reductions. Including other airlines, about half has been replaced. The company will continue prioritizing routes based on profitability rather than attempting to replace all withdrawn capacity.

Regarding costs, management aims to offset the absence of sale-leaseback gains with productivity improvements and lower underlying unit costs. Q3’s approximately 2.5% decline in adjusted CASM ex-fuel, excluding sale-leaseback gains, was presented as an indication of that direction, but the company did not provide formal 2027 cost guidance.

Frontier is also modernizing its operations center, maintenance-planning systems, customer interfaces, databases and decision-making tools, including selected AI applications. Management expects much of this work to continue through 2027. It said a 0.5-percentage-point improvement in completion factor could provide a significant revenue benefit while reducing disruption-related costs, although it did not quantify the impact.

Full Earnings Call Transcript

Complete Earnings Call Transcript

Management Remarks

Operator

Hello, everyone. Thank you for joining us, and welcome to the Frontier Group Holdings Q3 2026 Earnings Call.

[Operator Instructions]

I will now hand the conference over to David Erdman, Senior Director of Investor Relations. David, please go ahead.

David Erdman

Thank you, and good morning. Welcome to our Frontier Group Holdings Third Quarter 2026 Earnings Call.

Joining me today in speaking order are Jimmy Dempsey, President and Chief Executive Officer; Bobby Schroeter, Chief Commercial Officer; and Mark Mitchell, Chief Financial Officer.

Each will deliver brief prepared remarks, and then we'll open the call for questions.

However, before we begin, I'll remind you that today's discussion will include forward-looking statements subject to risks and uncertainties, and we will be referring to certain non-GAAP financial measures during the call.

Reconciliations can be found in the earnings release issued earlier today and on our Investor Relations website. We'll also be referencing stage-adjusted unit metrics, which are based on a conversion to 1,000 miles.

So I'll give the call over to Jimmy to begin his prepared remarks. Jimmy?

James Dempsey

Thanks, David, and good morning, everyone. Our third quarter results represent another meaningful step forward in Frontier's transformation.

The team delivered record revenue, exceptional unit revenue performance, and adjusted profitability in a high fuel price environment. This performance demonstrates that the changes we are making across the business are positioning the business for sustained profitability.

I want to begin by thanking Team Frontier for all their efforts in helping us to make progress and execute on our transformation plan. Their focus on safety, operational execution, and customer experience is fundamental to our success.

We are moving with urgency, but we are doing so with the discipline required to build a stronger and more durable airline. Third quarter revenue of $1.4 billion was a company record, up 53% year-over-year with RASM growth of 30% on an 18% increase in capacity.

Adjusted diluted earnings per share was $0.18, above the high end of our guidance range as our revenue performance more than absorbed the incremental fuel headwind.

Adjusted pretax margin improved nearly 12 percentage points year-over-year to 3% despite absorbing a 56% increase in fuel price. Our fleet rightsizing work is now substantially complete.

During the quarter, we finalized agreements to early return 13 A320neo aircraft and replace that capacity with direct leases for 10 newer, larger, and more cost-efficient A321neo aircraft.

Our fleet rightsizing transactions ensure measured growth, considerably lower future maintenance obligations, lower financial leverage, and better gauge dynamics for the business.

On cost discipline, we remained on track to deliver $200 million of annual run rate cost savings by 2027, including the benefits from a more productive fleet.

To this end, our adjusted unit costs, excluding fuel and sale and leaseback gains, are down approximately 2.5% year-over-year.

Operationally, we are making meaningful progress to build a more reliable airline through improved maintenance planning, stronger station capabilities, and more consistent execution.

Following volatile weather in most of July and August, our completion factor in September and through October month-to-date ranked third among domestic carriers.

While this demonstrates significant progress, we are focused on improving the level of consistency and delivery of the operation.

The results we announced today also demonstrate the continued progress we're making with revenue management and customer loyalty, including the strong response to our premium offerings.

First-class seat installation begins this quarter, with Starlink WiFi installation beginning in the first quarter, diversifying the revenue base and enhancing our value proposition.

Looking ahead, we expect the commercial momentum to continue.

RASM for the fourth quarter is expected to be up over 20% on capacity growth of 5% to 6%, which will be our fourth consecutive quarter of double-digit unit revenue growth, helping us mitigate the elevated fuel costs expected during the fourth quarter.

Our performance reflects the successful progression of the company's strategic initiatives set out earlier this year, and it gives us confidence in our ability to translate our momentum into sustained profitability.

With that, I'll turn the call over to Bobby.

Robert "Bobby" Schroeter

Thanks, Jimmy. Third quarter RASM increased 30% year-over-year to $0.1187 on capacity growth of 18%.

Total revenue per passenger also rose 30% to approximately $138, while load factor declined modestly by 2 percentage points, highlighting our focus on proactively adjusting our strategy to maximize results in the current environment.

Importantly, the strength in RASM extended across the week as we reintroduce off-peak capacity.

The positioning of our network has enabled us to take advantage of a more favorable supply-demand dynamic in our markets and, in conjunction with our continued revenue management discipline, is leading to an outsized revenue improvement.

Importantly, we are delivering these results ahead of the First Class and Starlink rollouts Jimmy mentioned. Those investments will build on the progress we are already making, giving customers more choice and broadening our appeal to leisure and small business travelers.

We see further opportunities to increase revenue per passenger and build loyalty while maintaining the cost discipline that supports our low fares.

Contributing to our revenue performance is a 37% year-over-year improvement in loyalty-related revenue, supported by growth in our co-brand card and membership programs, along with higher engagement and spending.

These programs give customers more reason to choose Frontier and return more often, and they provide recurring revenue streams that diversify our revenue mix and support more resilient earnings.

Looking ahead, we expect our commercial momentum to continue into the fourth quarter with RASM increasing more than 20% year-over-year on capacity growth of 5% to 6%.

With that, I'll turn it over to Mark. Thanks, Bobby.

Mark Mitchell

Adjusted net income was $40 million during the third quarter or $0.18 per diluted share, meaningfully above our previously issued guidance.

Fuel expense was $425 million at an average cost of $3.96 per gallon. The average cost per gallon reflects an increase of 56% versus the corresponding 2025 quarter or approximately $150 million of incremental expense on current quarter fuel consumption.

Adjusted operating expenses, excluding fuel, were $896 million or $0.074 stage-adjusted, 3% higher year-over-year.

However, as Jimmy mentioned, excluding sale-leaseback gains, adjusted CASM ex fuel declined approximately 2.5% on a stage-adjusted basis, driven by efficiencies from our fleet rightsizing and other cost savings initiatives.

We ended the quarter in a strong liquidity position with $1.18 billion, up slightly from the end of the second quarter.

Due in large part to our fleet rightsizing and other strategic initiatives, our leverage ratio declined meaningfully from 7x adjusted EBITDA at the end of 2025 to just over 4x on a trailing 12-month basis at the end of September.

We ended the quarter with 164 Airbus aircraft following the delivery of 1 A320neo and 3 A321neo aircraft, 2 fewer than expected. We also returned all 13 A320neo aircraft under the most recent early return agreement, with 5 returns in the third quarter of 2026 and the remainder in October.

In the fourth quarter, we expect to take delivery of 2 A321neo aircraft from our order book and 5 of the 10 A321neo aircraft under direct lease transactions with AerCap.

The remaining 5 direct lease aircraft are expected in the first quarter of '27. Separately, we expect to take delivery in the fourth quarter of 3 of the 11 aircraft being sold to Avalon, with the remaining 8 expected to be received and sold to Avalon in the first half of '27.

The gains from the sale of the 11 aircraft to Avalon will be excluded from our non-GAAP results.

The fleet actions associated with the latest early return agreement resulted in nonrecurring charges of $134 million in the third quarter, including lease return costs, accelerated depreciation related to capitalized maintenance due to shortened useful lives, and the write-off of nonrecoverable capitalized prepaid maintenance balances.

These nonrecurring charges were excluded from our non-GAAP results.

Turning to guidance. We expect fourth-quarter adjusted diluted earnings per share to range from a loss of $0.15 to a profit of $0.05 based on an expected average fuel cost of $4.75 per gallon, up $1.25 or over $100 million from our prior guidance on capacity growth of 5 to 6 percentage points year-over-year.

RASM is expected to be up over 20% versus the prior-year quarter, which would be our fourth consecutive quarter of double-digit growth. Operator, we're ready to open the line for questions.

Operator

[Operator Instructions]

Your first question comes from the line of Savi Syth with Raymond James.

Question-and-Answer Session

Savanthi Syth

Impressive revenue performance there and loyalty. I was curious; some time ago, you talked about that loyalty opportunity on a per-passenger basis.

And I wonder if you could give an update on where you are on credit card revenue or loyalty as a whole on a per-passenger basis. And again, thoughts on where that can get to in the next 12 to 18 months.

James Dempsey

Yes. I mean, I would actually build more towards like 3 to 5 years. We're building a loyalty program, Savi, that we're creating a more stable, diversified revenue base for the airline.

We're certainly seeing the loyalty program perform exceptionally well. I mean, the year-over-year performance across all of our programs the Barclay Card credit card and then the membership program is performing exceptionally well.

We're not going to give you exact targets over the next number of years, but we can certainly see, on a per-passenger basis, this going into double-digit territory in the next 3 to 5 years.

I think the enhancement of premium products into the business will only improve the performance in the loyalty program. And really, what we're after as a business is creating reliability in our customers' eyes.

Frontier has, for many years, struggled during peak periods with completion factor and A14. And one of the things that we set about at the beginning of this year was fixing the operation in the airline to create reliability in the airline.

We're actually moving positively towards that. During the summer, we had some noise around ATC and weather, like every airline, and it showed the fragility of the operation where you have day after day of ATC and weather noise.

And that needs to be fixed in order to create that reliability in the customers' eyes. And that then will drive real loyalty into the business going forward, like the premium products that we're bringing in.

So we're pretty excited about where we're going. If you look at the last couple of months, the operation performed really well. You're seeing the revenue base of the airline perform exceptionally well.

And loyalty is a big contributor to that year-over-year.

Savanthi Syth

And if I might follow up on that, just I think in a recent interview, Jimmy, you had mentioned the complication of fixing the operation is just because you had to do it across that whole fleet across bases.

Where are you in terms of -- do you go base by base? Or is it just a little bit across all the bases? Or what's the progress on getting that? And do you still expect it by the end of '27 to get where you want to?

James Dempsey

Yes. I mean, we're getting into the weeds here. But I mean, I would say a couple of things.

We planned on having a better, more capable maintenance footprint across the airline running into the summer. And the supply chain -- not an excuse, but the supply chain got in the way of getting that competency into a lot of the airports where we have our base maintenance happening.

We actually got that competency in place in late September, early October. And so what we're seeing at the moment is really a step change. You're seeing our completion factor move into the top 3 across the industry.

And we've seen pretty benign weather over the last couple of months, but we're certainly seeing the completion factor in the airline perform really, really well.

The next step is really to fix A14 and get the start-up at the beginning of every day, the first wave, operating more efficiently and more effectively, and that's in progress.

We're spending a lot of time modernizing the architecture of the airline in the background. So a lot of the stuff that you guys will never ever see, but that will take through the first half of next year.

And look, my ambition is to have the airline operating the platform in a really strong position going through next summer. And when I talk about competency in stations, I'm talking about parts and tooling and people in the stations and having them in place across the summer.

That's all in a very strong position right now, and you're seeing the performance as a result of it.

Operator

Your next question comes from the line of Atul Maheswari with UBS.

Atul Maheswari

Jimmy, on the last call, you spoke about plans for high single-digit to maybe 10% capacity growth for next year. But since then, fuels obviously moved higher.

So I'm wondering if you have any updated thoughts on your capacity plans for next year?

And then related to that, where do you plan to deploy capacity growth next year? Is it primarily in previous spirit markets? Or have those opportunities already been tapped out?

James Dempsey

Yes. Look, I think our capacity growth -- I mean, we've got to go through planning for next year. I mean, we'll have a better sense of it when we come back in our next call in the new year.

But I suspect it's somewhere in the 6%, 7%, 8% zone going into next year. It's obviously dependent on where fuel prices migrate to over the coming months and through next year.

We're very conscious of that. If you recall, like earlier this year, I mean, we set about a plan of bringing productivity back into the airline across this year. And with the onset of the Iranian conflict and oil prices rising, we took some capacity out in order to manage through the summer period.

We'll continue that dynamic of bringing productivity back into the airline where we see it makes sense and also deploying the capacity growth of the airline.

And I think, look, mid- to high single digits makes sense. I don't know if we'll make it all the way to 10%. I see it at about 5% to 7% capacity growth next year.

On your second question of where, I mean, obviously, we're going to mature our network that exists today and add to it. And with like 5% to 7% capacity growth, you're not going to see a meaningful change overall in the network deployment in the airline.

We positioned the airline very effectively earlier this year to take advantage of continued reductions in capacity by Spirit Airlines. That has proven to be very successful as we progress through this year, and we'll continue to look at opportunities that exist as we roll into next year.

Atul Maheswari

And just my follow-up, just sticking to the Spirit topic. Like, are you able to quantify the RASM lift in the third quarter from the lack of Spirit? And what's your expectation for the fourth quarter?

And then really, what are you seeing in those ex-Spirit markets that you've entered from a competitive standpoint currently?

James Dempsey

Well, we see supply-demand dynamics really positive across the business at the moment, both in ex-Spirit markets and just across the entire environment.

We overlapped with about 30% of our business with Spirit earlier this year. And so yes, it's helpful to the business. But I think the airline is moving beyond that structural change.

I mean, if you look at the performance from a RASM trajectory, we have done a lot in our revenue management systems to improve the delivery of better unit revenues into the business. And that started this time last year.

And we've seen real progress on that. I talked about this in the last call. If you look at the airline running into the Iranian crisis, we were up high single-digit or high teens in terms of RASM year-over-year in Q1.

You've seen that, obviously, advance with the fare environment that's developed with higher fuel and also the structural change that happened with Spirit.

And so we feel pretty good about where the airline sits today and moving forward. And this is all -- like Bobby mentioned in his transcript, this is all prior to advancement in the premium products that the airline is pushing towards.

We're imminently going to get first-class seats in place across the airline. We delayed that process. We've had those first-class seats. We delayed that process in order to get the rightsizing of the fleet done this year. And so that process is happening as we speak.

And then, in addition, we'll add Starlink pretty soon. And I'm really excited about adding Starlink to the business. If you look at other airlines, they have connectivity, and they're moving to Starlink or Amazon Leo. And that is a game changer in terms of connectivity.

If you look at our business, we have no connectivity today, and we're moving to the best product out there for connectivity on an aircraft: Starlink.

And so we feel really excited that our existing customer base is going to embrace that product really, really successfully and then widen the aperture in terms of the addressable market for Frontier, providing really good value to customers across the U.S. and adding these premium products into the airline.

So we feel pretty good about the future in terms of unit revenues.

Operator

Your next question comes from the line of Brandon Oglenski with Barclays Capital, Inc.

Brandon Oglenski

Jimmy, can you just help us out on the fleet now? Because I think with all the transactions, you should be roughly flat from a shell count into next year. Is that correct?

And then maybe talk about expectations as we look out to '28 and '29.

James Dempsey

I'll let Mark bring you through in a second, Brandon. But look, the objective here in the airline was to have approximately the same fleet entering into 2026. That ends in 2028.

And what we're doing with capacity growth is really infilling productivity into the airline and actually very successfully infilling productivity into the airline.

That adds, like, if you're looking at the capacity growth this year, you're seeing us infill that capacity across the week. You're not perfectly flat across the week, but you're certainly flattening the week in terms of activity during the week. And so that's the objective.

You build the productivity into the airline. We're a little bit behind on that because of the Iranian crisis in terms of driving productivity back into the airline. We've made a big leap forward.

We need to make a few leaps forward from here. And that's what drives your 7% or 6% growth next year, probably something similar in 2028, in that kind of 5%, 6%, 7%, 8% zone without actually adding that many aircraft to the fleet.

And so this is all basically utilization of the existing asset base. And that's one of the reasons why we're getting such good productivity and unit cost improvement.

If you exclude, like, fuel and exclude all the sale and leasebacks that happened last year and this year, we're actually seeing real productivity build back into the business and the benefit of having both higher gauge aircraft and also more utilization.

Mark Mitchell

Yes. And just yes, to confirm on top of what Jimmy just said. So yes, brand in the fleet, where we sit at the end of September, 164 based upon what's on the books at the end of '27, similar number, just as you mentioned.

And then I think just to give a little bit more color on the mix. I mean, we ended '25 with 46% of the fleet being 321s, the end of the third quarter, 55%, and we'll end the year at about 60%.

So, meaningful gauge improvement in the business. And then '28 is when we start taking deliveries again from our order book.

Brandon Oglenski

And then, Mark, can you speak to liquidity, especially as you look out into '27? I think your cash balance didn't change all that much into the third quarter.

But how do we think about ongoing CapEx pre-delivery payments potentially or lack thereof as well as potential maintenance expense as well?

Mark Mitchell

Yes. I mean, I think if you look at liquidity, our liquidity is up slightly from the second quarter. So we sit in a strong position with nearly $1.2 billion of total liquidity.

We are not guiding for '27, but based on the trajectory we are on, and we think we're on a good trajectory, we're certainly focused on growing that liquidity balance.

And when you think about the maintenance obligations, as we continue to step forward, I think you'll see some measured growth in that CapEx.

But I think it's important to understand that with the fleet transactions that we did with all the fleet rightsizing, so the 37 aircraft that have been returned this year on a net basis over the next 5 years, that is somewhere in the neighborhood of $400 million of maintenance savings.

Operator

Your next question comes from the line of John Godyn with Citigroup.

John Godyn

It's not lost on people that the capacity trend is more conservative. The language around that is more conservative, and I think that resonates.

I wanted to just maybe dialogue about that a little bit, big picture. Under new management, if you will, has the bigger picture philosophy changed? And is there a margin target? Is there a return on invested capital target? Or is it just generic conservatism?

I'm just trying to understand what is driving the change, how sticky and durable it could be, and how deep it's gone through the organization?

James Dempsey

Look, John, we clearly have learned from the last 3 or 4 years of growth in the airline. I mean, the airline was growing at 20%, 25% per annum, adding significant aircraft to the fleet. And that growth was diluting or creating volatility in your revenue base in the airline.

And so the concept behind slower growth is really to create stability in the revenue base of the airline and also the operating platform of the airline that supports the revenue base of the airline.

And we set about this plan at the beginning of the year to rightsize the fleet, which is very, very important. We had, in our calculation, somewhere around 40 to 45 aircraft that were unproductive in the airline, if you were to bring productivity back in.

And so you had a choice to make. You either hired a lot of pilots and flight attendants and went out and grabbed a lot of customers and brought productivity to the airline, or you right-sized the fleet.

So we chose the path of rightsizing the fleet because of an opportunity that existed in the engine world in the industry. And I think that has been a very, very positive decision in the business, both internally and externally.

That does create a better platform for growing the business. We're not running away from growing the business. We're just growing at a much more moderate pace, which we think creates that stability in revenue that the airline needs as you move the airline to a bigger platform.

There are also benefits that the airline gets in growing at that pace for, I don't know, 10 years or so; there's a catch-up that needs to happen in the background that we're going through at the moment.

So having shell counts stay relatively similar over a 2-year period allows us to modernize the foundation of the airline.

So, as I mentioned earlier, all the systems that you don't see in the background are in place to operate the airline in a more effective way. And you're seeing real progress in that area.

That's one of the areas that I'm really proud of the progress we've made so far this year, where you can see the stability coming into the operation of the airline, which also then reflects well on the revenue performance in the business.

So those 2 things are very, very important. And so it's not necessarily a conservative approach to capacity. It's really focused on creating that stable revenue base and creating stickiness to our customer base and a stickiness to our network that enables us to actually create loyalty in the business.

So that's really what we're after. And obviously, the airline wants to generate profitability. It wants to generate free cash flow. It wants to get back to high performance in those measures.

We'll talk to you in February about what we feel about 2027. We feel really good about the direction the airline is going in right now.

John Godyn

Can I ask a follow-up just in terms of where the growth is going? This year benefited from Spirit and the distress associated with Spirit, and you guys did a fantastic job orienting yourselves to benefit from that.

I guess it's debatable if there's another financial distress event next year, but let's just assume there isn't. How are you thinking about the growth? Are there new markets still to open? Is it layering in behind existing markets?

Maybe you could just help us think about the complexion of the growth.

Robert "Bobby" Schroeter

This is Bobby. So we look at the network as a portfolio. We're going to look at what's most accretive from a profitability perspective on routes.

We've gone in, and we're at about -- in terms of just the Spirit opportunity, we've backfilled about 1/4 of that. It's around half when you talk about what other airlines have gone in and done.

So the opportunity still exists there for us to look at the routes and markets within that. And they've been very effective for us, frankly, both on the peak days and especially on the off-peak days as well within those markets.

As we go through, you've also seen we've actually increased our overall frequency within markets.

So we'll look at that continuing and how we provide not only more connectivity and capability for our flyers and our customers to fly throughout the week, but also help with what Jimmy was talking about on the operational side as we think about resiliency within the market.

So again, our network, we're continuously looking at it. It's a portfolio. It's looking at how we optimize the overall profitability picture within that. And there's a lot of opportunity that exists out there over the course of the next few years.

James Dempsey

And look, just to add to that, we'll be opportunistic if things crop up that we think are accretive to Frontier. And we don't know what they are yet. And so that's something that's certainly there, and adapting our capacity framework to chase something.

But what we've been doing this year, and we really started this in 2025, is actually picking the markets that we like where we've seen structural change happen, and that continues.

So I feel pretty good about the direction of the network and how it's actually building and building some prominence in markets and getting an element of loyalty and repeat customers into the business.

But I can't stress the operational side of the business enough and improving that in order to support that network development.

Operator

Your next question comes from the line of Duane Pfennigwerth with Evercore.

Duane Pfennigwerth

Maybe just to continue down that path, if it's possible, can you delineate between improvement in the overall fare environment in response to higher jet fuel?

So basically, Frontier following the fare umbrella higher from a lower baseline versus Frontier-specific initiatives. And Jimmy, you've touched on some of those, but is there any way to delineate between the 2?

James Dempsey

Yes. I mean, it is hard. I mean, that is a challenging question. What I mentioned earlier is, look, we were up pre-fuel crisis or Iranian conflict, up nearly 20% in RASM in Q1.

And so there's both structural change in that and also better performance by Frontier in managing its revenue. And the structural change we were getting was linked to Spirit.

And so if you look at it, I would say it's about 1/3 better revenue management, maybe about 1/3 Spirit, and about 1/3 fuel. And obviously, the fare environment is improving as a result of fuel. That's where we sit at the moment, and we'll see how it progresses.

We feel really good that there's a lot of stickiness in this revenue. And I mentioned it earlier, we're seeing this unit revenue improvement in advance of adding real premium products to the airline.

So we're really excited about where the unit revenues go next year and the year after as we establish these premium products in the [indiscernible]

Duane Pfennigwerth

And then relatedly, maybe you can speak to the variation of performance across your markets, maybe what you're seeing today versus what you saw historically?

Are there any themes in the profile of markets that are outperforming versus markets that are lagging? And is there any relationship to, like, how big your footprint is when I think about Orlando and your footprint in Orlando, how does that look relative to the system?

James Dempsey

Yes, there are always pluses and minuses that happen across the system. What we're seeing is just broad-based improvement in the business and how we run the business.

And so I'm not going to pick specific markets that are outperforming versus other markets. You can read into some of the language that we're using around structural change that we've certainly seen an improvement in markets where there was a significant overlap with Spirit, and we positioned the airline for that.

But outside of that, we're really seeing broad-based improvement in overall revenues.

Operator

Your next question comes from the line of Ravi Shanker with Morgan Stanley.

Unknown Analyst

This is Madison on for Ravi. First, just wondering any thoughts on what larger carriers focusing on yields over load factor means for you guys in terms of spillover traffic and if you're seeing any opportunities there moving into the next year?

James Dempsey

Look, what we're certainly doing in the airline at the moment is adapting to the environment that exists in front of us. And so we don't control other airlines and their behavior around pricing.

We certainly look at our pricing and pricing tools with the objective of maximizing the revenue output that we get. And certainly, if other airlines are chasing yield over volume, that's something that's a prerequisite. We like volume.

We typically chase volume as a business. There have been periods in the past where we've managed the airline for yield over volume. And then there are periods where we manage the airline for volume over yield.

It really depends on the environment that's there and the ability to maximize the overall revenue base of the airline. At the moment, we have a nice balance between yield and volume in our business, given the supply-demand dynamic that exists in the environment.

We feel pretty good about it, and we feel pretty good about the stickiness of that going forward.

Unknown Analyst

Just wondering how you guys are viewing the jet fuel recovery participation across the industry? And do you think you can get to 100% recovery?

And if so, when are you guys targeting that for?

James Dempsey

Well, if you look at the last quarter, we effectively got there in the last quarter. Obviously, oil prices are significantly higher than they were in the last quarter right now. And look, we'll see how we perform across this quarter.

I think Frontier has performed phenomenally well in offsetting high oil prices with the revenue performance in the airline.

Operator

Your next question comes from the line of Andrew Didora with Bank of America.

Andrew Didora

I guess, Jimmy or Bobby, you've guided to over 20% RASM on the last couple of calls and have ultimately produced 28% and 30% RASM growth. You're guiding to that again.

I guess, should we just view that as a fairly broad revenue outlook because you do sound very constructive on the environment?

Or is there anything that you're seeing in your business today that suggests the underlying momentum has slowed a little bit, or any specific headwinds that would cause a RASM decel, particularly on much lower capacity growth?

James Dempsey

Look, we've seen progress on RASM pretty successfully across the last... Whatever... 9, 10 months.

We do have some of the changes that we started a year ago in revenue management starting to really lap as you progress through the end of December.

But I mean, what I see in the revenue environment at the moment is really constructive. And so we anticipate the industry certainly has a strong appetite to pass on higher fuel with higher fares.

We are participating in that clearly and seeing how the business can perform within that environment. And we continue to see that. So we're quite comfortable about the outlook on RASM.

I mean, for us to deliver double-digit RASM improvements pretty much in every quarter this year. I mean, it's a testament to the improvements we've had in revenue management and some of the structural changes that have happened across the industry, and we don't see that changing.

Andrew Didora

And then I guess, as we're exiting 2026 here, obviously, your sale-leaseback gains will be behind you.

It seems like they will be in the spot where you want it to be. Any kind of underlying CASM framework you could provide into next year, particularly as you're basically utilization-driven, and maybe in that framework, speak to it in that mid-single-digit capacity framework that you outlined earlier?

James Dempsey

Yes. I mean, it's hard to guide you at the moment. I mean, we'll come back in the new year with a guide for next year.

But just broadly, I would say the productivity that's building in the airline largely offset the sale and leaseback gains year-over-year. And you're seeing some productivity coming into the airline; we got a 2.5% improvement in unit cost when you take out sale and leaseback gains.

That gives you an insight into the direction that the airline is going heading into next year. There's obviously inflation that exists across the United States that we've got to be conscious of and understand in the coming months.

But my objective is to try and get the airline in a place where you effectively -- not perfectly, but effectively replace the sale and leaseback gains with better unit costs overall.

And Mark, if you want to give some.

Mark Mitchell

Yes. No, I mean I think you hit the nail on the head.

Operator

Your next question comes from the line of Michael Linenberg with Deutsche Bank.

Michael Linenberg

Nice earnings beat this quarter, team. I guess my first out to Bobby. Just on the premium product, when does First Class start -- I guess you said it starts rolling out. When do you start selling it?

If you're already selling it, what are you seeing fares upfront as a multiple of maybe fares in the back? And as a related piece, the Starlink, which rolls out next year, most airlines, what we hear, have to offer it for free. It's part of the contract.

I think a few out there have been able to negotiate the ability to sell the Starlink product in addition to offering it free to their customers who may have the credit card or be part of a certain loyalty tier.

What structure do you have there? Are you able to sell it? And then I have a second one.

Robert "Bobby" Schroeter

Yes. So I'll hit on the first class question first. So I think Jimmy talked about this a bit earlier around Upfront Plus and what gives us the confidence around this product and what we think it will provide to our customers and to us in terms of revenue benefit.

That's Upfront Plus. We have been hitting about an 80% paid load factor on that. So First Class has been delayed a bit for a variety of reasons, but it's going to be starting to install imminently.

And what we'll do is we'll start selling for the time period in which we believe all of that will be installed. So that's going to be sometime in the first quarter, towards the end of the first quarter, we'll actually have it for sale.

So it has not gone on sale yet, but it will go on sale, we believe, again, imminently as we start rolling the product out itself.

On Starlink, we obviously announced that. From a commercial perspective, we're not ready to roll out and talk about what that means from a commercial perspective or how we're going to roll that out that way.

But what we will say is, again, I'll reiterate what Jimmy said, this is something that's a game changer for us and our customers. We are putting out a product that we don't have today with WiFi itself. And we're going from nothing to a product that's best-in-class and is the best WiFi in the sky.

If you haven't tried it, go out there and try it. It is as good as your home WiFi service, yet you're in the sky. So we're quite excited to be able to roll that out in conjunction with First Class.

Starlink is going to start installing in the first quarter, and we'll roll that out aircraft by aircraft throughout 2027.

Michael Linenberg

No, I agree. Starlink is pretty awesome. Just my second question to Mark. Mark, this is more of a modeling question.

So the third quarter is your last quarter, I believe, of sale-leaseback gains. And then I do think we have 3 quarters of aircraft gains from the sale.

But I thought I heard you say that you were going to exclude them from your non-GAAP results. And so I was curious why you would exclude them -- maybe you're not taking gains on them.

Can you just explain the discrepancy there?

Mark Mitchell

Yes. So just a couple of quick items. So we do have 2 order book deliveries in the fourth quarter.

So those were supposed to be in the third. They got moved to the fourth. So that's number one. And then, specific to the sales that we're selling, that was part of our fleet rightsizing, and consistent with the rest of that fleet rightsizing dynamic, we are adjusting those for non-GAAP purposes.

And we are expecting gains on those sales. But just as part of the entire fleet rightsizing, that's why we're excluding those for non-GAAP purposes.

Operator

Your next question comes from the line of Jamie Baker with JPMorgan Securities LLC.

Jamie Baker

So when demand started to recover after COVID and the financial pressures on the industry began to abate, one unintended consequence that we called out was the likelihood that unions would want to reengage and come back to the negotiating table and labor costs would rise, and that's what happened.

So I'm wondering if that's how you're thinking about things for Frontier. I mean, the revenue momentum is impressive. We're assuming fuel declines at some point next year.

Would it be prudent for analysts to pull forward the timing of a potential pilot contract?

James Dempsey

Jamie, quite frankly, I don't have a good answer to that question. We are continuing a process with the NMB in relation to mediating the pilot contract.

Our own pilot, Frontier ALPA, has been changing some leadership. And so they're going through that process at the moment. We just don't have clarity at the moment as to when we will get into really active negotiations with them.

I would suspect it happens in the new year, and we can give you more insight into that as next year progresses. But I truly don't have a good answer as to when we will actually have a contract.

It's something that we want as a company to progress and get through in the next 12 months. But I'm dependent on the NMB process and how fast [Technical Difficulty].

Jamie Baker

And then obviously, no liquidity issues at the moment, but building on Brandon's question from earlier in the call, can you speak to what conventional capital raising options you have?

And I emphasize conventional because I'm not asking about equity or forward mileage sales or anything like that. Just traditional incremental debt capacity, unencumbered asset pools, that sort of thing.

Mark Mitchell

Thank you, Jamie. Yes. So the primary unencumbered asset that we have is the loyalty pool of assets that we've got.

And as we've talked about, those assets are continuing to gain in strength, with the loyalty revenue up 37% this quarter. And so that portfolio does provide us with opportunity as we look forward in the capital markets.

Operator

Your next question comes from the line of Chris Stathoulopoulos with SIG.

Christopher Stathoulopoulos

Going back to the earlier questions around capacity for next year. I realize the 6%, 7%, or 8% is a soft guide, fuel-dependent here.

But if you could help frame the stage -- excuse me, engage component of that.

And then also as we think about the deployment, what I heard was not much change, but maybe if you could contextualize the opportunity set or the inning that you believe that you're in, in markets like MCO, Atlanta and then on the West Coast, more load yield or loyalty opportunity there.

Just want to understand how you're thinking about those key markets under that mid-single-digit capacity growth.

James Dempsey

Maybe I'll answer the second part first. And look, I mean, obviously, your network evolves.

But look, we're primarily a leisure airline. And so if you look at all the big leisure locations around the United States, we're pretty large in a lot of these locations.

We'll continue to add to that footprint as we go. And so if you look at Orlando or Las Vegas, connecting those types of locations with the rest of the United States is a fundamental part of our business.

We're clearly looking at some of the stuff that Spirit exited this year and replacing some of that capacity. Not all of it. We are certainly replacing the stuff that we think is accretive to Frontier. And that's something that we'll continue to do.

We're looking at our network in relation to how it behaves and is linked to the loyalty program. And so bringing back flying on Tuesdays and Wednesdays has actually been quite accretive to the loyalty program and improving the customer retention that we have in the business.

I think that's quite important. And that's been largely a fundamental portion of the growth that we've put in place, particularly in the last quarter.

Like September '25, on off-peak days of the week. We were flying a couple of hundred flights a day when we were flying 700 flights a day on the peak days of the week. And so bringing that up to like 5, 550 flights a day infills into a network that already exists.

And it helps the customer base that we have in the airline have more choices throughout the week. And so we've seen a really positive response from our existing customer base to those changes.

And so we'll continue to do that across the network as we build out next year. And obviously, we can be quite selective because the level of growth is quite low.

It's like 6%, 7% in comparison to years when we've done 20%, 25% new capacity growth, plus a redeployment of capacity that didn't work. And so you're dealing with immature markets in the 30% to 35% zone and creating that instability in revenue.

So I'm not going to guide you on exactly where we're going to deploy our network next year, but you can see the direction that the airline is going in. It's primarily leisure, maybe attaching to some small business opportunities that exist and then focusing on markets that drive some loyalty into the business.

Christopher Stathoulopoulos

And then I guess as a segue. So you mentioned the day-of-week shift and the uplift from loyalty. I don't think you mentioned what the delta looks like on peak versus off-peak RASM.

I know you spoke about utilization, but if you could give any color around what that looks like on unit revenues.

James Dempsey

Actually pretty consistent across the week, the improvement year-over-year. We're seeing improvement both on peak and off-peak.

Operator

Your last question comes from the line of Daniel McKenzie with Seaport Global.

Daniel McKenzie

A couple of questions here. First is going back to '27 growth; if you could help us understand the character of the growth. And what I'm getting at is you're adding a bunch of premium seats. And so is that 6% to 8% primarily all premium seats? Or is it 6% to 8% -- so mainline cabin inventory flat?

If you could just help us, or at least give us some perspective on what the nature of that premium versus mainline mix looks like, or even how it looks today and how that should trend into next year?

James Dempsey

Well, look, what we've talked about on premium is first class. And so when we talk about that, you have currently in those slots, you have upfront plus, and that blocks the middle seat.

So from a revenue base perspective, that actually doesn't take away a seat in that regard. We are looking at how we could flex on upfront plus with the cabin we have. So we're looking at that. That does play into it.

Otherwise, from a growth perspective, that's what we've announced, and we're looking toward the first class introduction.

Daniel McKenzie

And then I guess the second question here is just reconciling the scheduled beta with the guide that you're giving for the fourth quarter. It looks like scheduled data is a little higher than what you're guiding to.

So I'm just wondering if you can reconcile that. And then I guess just the second house-cleaning question is just the reference to modernize the systems of the airline.

I'm just wondering if you can help us understand where you've invested and what that IT journey looks like over the coming year? Is there some incremental benefit that will either drive cost or revenue savings as you roll out upgrades or new systems over the coming year?

James Dempsey

Let me deal with the capacity. Yes, we're probably a little bit behind in terms of inducting aircraft in this quarter. And so there's some capacity to come out that we have on sale at the moment that will come out in the coming days.

And then we'll progress through the next few weeks or so and see what the timing on inducting those aircraft is. So there's a little bit of noise in our schedule of sale versus what we're actually going to achieve.

So you'll see that update over the coming days and weeks. On modernizing the architecture of the airline, we are modernizing the operations center quite considerably and really the maintenance planning side of the business.

Then, secondarily to that, modernizing or improving the customer interfaces that we have in the airline will create much faster solutions for passengers when they're disrupted.

And so there's a significant amount of work going on across all of those teams in both running the day-to-day operation and also changing how we operate the airline. And I'm pretty excited about it.

It will probably take mostly through 2027 to get this into a place where we're very comfortable with it. But the initial stages of it are quite interesting.

We're obviously building better databases and platforms and then layering tools on top of that to get better decision-making into the airline.

That's some AI improvements that are happening within the business, but also just pure blocking and tackling planning improvements that we're making in the airline that are making a significant difference to the output that the airline has every day.

Christopher Stathoulopoulos

And the cost savings associated with that, can you provide some perspective around that?

James Dempsey

Yes. I mean, clearly, a better operation delivers lower costs and actually better revenue output. And so I don't have that quantified for you at the moment.

But if we can bring our completion factor up by 0.5 point, that's a significant revenue boost to the airline. And obviously, there's a cost of displacement that happens with customers that we would avoid.

So yes, there are real meaningful improvements that will come into the airline as a result of that. It's very difficult to quantify it right now because the timing of getting these right is dependent also on things that are outside of our control.

What I'm trying to get the airline to is recovering from weather and ATC issues in a quicker way in order to have more stability in the operation as you recover and that's something that we're very focused on.

That will improve the overall performance and the overall completion factor of the airline, which obviously delivers lower costs but enhanced revenues.

Operator

We've reached the end of the Q&A session. This concludes today's call. Thank you for attending. You may now disconnect.