Frontier Group Holdings, Inc. (ULCC) FY 2022 MD&A

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

General

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our audited consolidated financial statements and the related notes and other financial information included elsewhere in this Annual Report on Form 10-K. Our discussion and analysis of fiscal year 2022 compared to fiscal year 2021 is included herein. For discussion of results for the fiscal year 2020 and analysis of year-to-year comparisons between 2021 and 2020, please refer to “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, which was filed with the SEC on February 23, 2022.

Overview

Frontier Airlines is an ultra low-cost carrier whose business strategy is focused on Low Fares Done Right. We are headquartered in Denver, Colorado and offer flights throughout the United States and to select near international destinations in the Americas. Our unique strategy is underpinned by our low-cost structure and superior low-fare brand.

The following table provides select financial and operational information for the years ended December 31, 2022 and 2021:

Total operating revenues for the year ended December 31, 2022 totaled $3,326 million, an increase of 61% compared to the year ended December 31, 2021, primarily due to a 37% increase in RASM as compared to the corresponding period in 2021, along with an 18% increase in capacity, as measured by ASMs, as the demand for leisure travel continued to recover from the COVID-19 pandemic.

Total operating expenses during the year ended December 31, 2022 totaled $3,371 million, resulting in a cost per available seat mile (“CASM”) of 10.62¢, compared to 8.10¢ for the year ended December 31, 2021. Fuel expense was 102% higher during the year ended December 31, 2022, as compared to the year ended December 31, 2021, with the $585 million increase in fuel expense driven by a 71% increase in fuel rates and an 18% increase in fuel consumption associated with the 18% increase in our capacity. Our non-fuel expenses increased by 38% compared to the corresponding prior year period, driven primarily by the cessation of grant funding received under the CARES Act in the fourth quarter of 2021, resulting in no credits being recognized during the year ended December 31, 2022 as compared to a $278 million benefit we recorded from this funding under PSP2 and PSP3, in addition to $17 million in CARES Act employee retention credits received during the year ended December 31, 2021. The increase was further driven by higher capacity and a larger fleet size and the resulting increase in operations during the year ended December 31, 2022 as compared to the corresponding prior year period as well as $10 million in net transaction and merger-related costs during the year ended December 31, 2022. These increases, mainly due to the cessation of CARES Act credits, resulted in a 17% increase in CASM (excluding fuel), a non-GAAP measure, from 5.96¢ for the year ended December 31, 2021 to 6.96¢ for the year ended December 31, 2022. Adjusted (non-GAAP) CASM (excluding fuel), which excludes the impact of $10 million in transaction and merger-related costs, $7 million in asset impairment and $2 million in collective bargaining contract ratification costs for the year ended December 31, 2022, and excludes the $295 million impact of the CARES Act credits and $11 million in costs incurred with the early lease termination of our A319 leased aircraft for the year ended December 31, 2021,

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decreased from 7.02¢ for the year ended December 31, 2021 to 6.90¢ for the year ended December 31, 2022. For the reconciliation to corresponding GAAP measures, see “—Results of Operations—Reconciliation of CASM to CASM (excluding fuel), Adjusted CASM (excluding fuel), Adjusted CASM, CASM including net interest and Adjusted CASM including net interest.”

We generated a net loss of $37 million and $102 million during the years ended December 31, 2022 and 2021, respectively. Our results for the year ended December 31, 2022 included $10 million of net transaction and merger-related costs, $7 million of asset impairment costs and $2 million of collective bargaining contract ratification costs within operating expenses, as well as $7 million in other non-operating expenses from the write-off of unamortized deferred financing costs due to the paydown of the Treasury Loan. Our results for the year ended December 31, 2021 included $295 million in CARES Act credits and $11 million in early lease termination costs within operating expenses, and $22 million in other non-operating expenses related to mark to market adjustments associated with the warrants issued pursuant to the loans taken under the CARES Act. Considering these aforementioned non-GAAP adjustments and the related tax impacts, our adjusted (non-GAAP) net loss was $17 million for the year ended December 31, 2022, as compared to an adjusted (non-GAAP) net loss of $299 million for the year ended December 31, 2021. For the reconciliation to corresponding GAAP measures, see “—Results of Operations—Reconciliation of Net income (loss) to Adjusted net income (loss) and to EBITDA, Adjusted EBITDA, EBITDAR and Adjusted EBITDAR.”

As of December 31, 2022, our total available liquidity was $761 million, made up of cash and cash equivalents. On February 2, 2022, we repaid the $150 million outstanding under the Treasury Loan pursuant to the secured loan program established under the CARES Act. The repayment of this loan unencumbered our co-branded credit card program and related brand assets that secured the Treasury Loan obligation.

Impact of the COVID-19 Pandemic

The COVID-19 pandemic had a material adverse effect on our business and results of operations for the years ended December 31, 2022 and 2021. Although we have continued to experience a significant and sustained recovery during the year ended December 31, 2022 as compared to the year ended December 31, 2021, we are unable to predict the future spread and impact of COVID-19, or the efficacy and adherence rates of vaccines and other therapeutics and the resulting measures that may be introduced by governments or other parties and what the overall impact may be to consumer behavior and the resulting demand for air travel.

We received significant financial assistance from the Treasury under the CARES Act and the PSP, PSP2 and PSP3 (collectively, the “PSPs”). Please refer to “Notes to Consolidated Financial Statements — 2. Impact of COVID-19” for additional detail on the CARES Act and the PSPs, and “Notes to Consolidated Financial Statements — 9. Debt” for further information on the promissory notes entered into with the Treasury in connection with our participation in the PSPs (collectively, the “PSP Promissory Notes”). The impact on our consolidated financial statements for the year ended December 31, 2022 and 2021 are as follows:

On September 28, 2020, we entered into a loan agreement with the Treasury for a term loan facility of up to $574 million pursuant to the secured loan program established under the CARES Act. As of December 31, 2021, we had borrowed $150 million under the Treasury Loan, for which the right to draw any further funds lapsed in May 2021. On February 2, 2022, we repaid the Treasury Loan which included the $150 million principal balance along with accrued interest and associated fees of $1 million. Additionally, we recognized a $7 million loss on the extinguishment of debt during the year ended December 31, 2022 from the write-off of unamortized deferred financing costs associated with the Treasury Loan.

On January 15, 2021, we entered into an agreement with the Treasury for installment funding under the PSP2 (the “PSP2 Agreement”), pursuant to which we received $161 million, comprised of a $143 million grant (the “PSP2 Grant”) for the continuation of payroll support through March 31, 2021, and an $18 million unsecured 10-year, low-interest loan (the “PSP2 Promissory Note”), all of which was received during the year ended December 31, 2021. The PSP2 Grant was recognized over the period it was intended to support payroll. We recognized the full $143

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million of PSP2 Grant proceeds, net of deferred financing costs, during the year ended December 31, 2021, within CARES Act credits in our consolidated statements of operations.

On April 29, 2021, we entered into an agreement with the Treasury for installment funding under the PSP3 (the “PSP3 Agreement”), pursuant to which we received $150 million, comprised of a $135 million grant (the “PSP3 Grant”) for the continuation of payroll support through September 30, 2021, and a $15 million unsecured 10-year, low-interest loan (the “PSP3 Promissory Note”), all of which was received during the year ended December 31, 2021. The PSP3 Grant was recognized over the period it was intended to support payroll. We recognized the full $135 million of PSP3 Grant proceeds, net of deferred financing costs, during the year ended December 31, 2021, within CARES Act credits in our consolidated statements of operations.

In connection with our participation in the PSPs and the Treasury Loan, we have been subject to certain restrictions and limitations related to our operations, our use of the grant funds, our ability to terminate or furlough employees and executive compensation and dividends, of which we have been compliant with through December 31, 2022, as applicable. While most of the restriction periods have lapsed, as of the date of this filing we are still subject to additional reporting and recordkeeping requirements as well as subject to limitations on certain executive compensation, including limiting pay increases and severance pay or other benefits upon terminations, until April 1, 2023.

In connection with the PSP Promissory Notes and the Treasury Loan, we issued to the Treasury warrants to purchase 3,117,940 shares of our common stock at a weighted-average price of $6.95 per share. The initial fair value of these warrants upon issuance was treated as a loan discount, which reduced the carrying value of the related Treasury Loan and PSP Promissory Notes, and is amortized utilizing the effective interest method as interest expense in our consolidated statements of operations over the term of each loan. These awards were originally classified as liability-based awards within other current liabilities on our consolidated balance sheets, with periodic mark to market remeasurements being included in interest expense in our consolidated statements of operations given we only had the option of settling in cash prior to being publicly traded. As a result of our initial public offering of our common stock (the “IPO”), we have the intent and ability to settle the warrants issued to the Treasury in shares, and as a result, as of April 6, 2021, we reclassified the warrant liability to additional paid-in capital on our consolidated balance sheet and are no longer required to mark to market the warrants. We recorded no mark to market adjustments during the year ended December 31, 2022, and recorded $22 million during the year ended December 31, 2021, to interest expense within our consolidated statements of operations. The Treasury has not exercised any warrants as of December 31, 2022.

The CARES Act also provided for an employee retention credit (the “CARES Employee Retention Credit”), which is a refundable tax credit against certain employment taxes that we qualified for beginning on April 1, 2020. In December 2020, the CARES Employee Retention Credit program was extended and enhanced through June 30, 2021. The American Rescue Plan Act, enacted on March 11, 2021, further extended the availability of the CARES Employee Retention Credit through December 31, 2021. As a result of the increase in revenues after the first quarter of 2021, we were no longer eligible for future credits due to the provisions of the gross receipt test applicable to this program. During the year ended December 31, 2021 we recognized $17 million related to the CARES Employee Retention Credit within CARES Act credits in our consolidated statements of operations.

The Proposed Merger with Spirit Airlines, Inc.

On February 5, 2022, we entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Top Gun Acquisition Corp. (“Merger Sub”), a direct wholly-owned subsidiary of ours, and Spirit Airlines, Inc. (“Spirit”). The Merger Agreement provided that, among other things, the Merger Sub would be merged with and into Spirit (the “Merger”), with Spirit surviving the Merger and continuing as a wholly-owned subsidiary of ours. On July 27, 2022, we and Spirit mutually terminated the Merger Agreement.

During the year ended December 31, 2022, we recorded $10 million in net expenses related to the proposed Merger within transaction and merger-related costs, net in our consolidated statement of operations. Costs related to the proposed Merger included $19 million in retention bonus expense, which included an acceleration of 50% of

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Merger-related retention costs for all eligible employees who were not subject to CARES Act compensation restrictions, and $16 million in transaction costs, which are made up of banking, legal and accounting fees, among others, offset by $25 million received from Spirit for reimbursement of incurred Merger-related expenses in accordance with the termination provisions set forth in the Merger Agreement.

In the event that Spirit, within twelve months following the termination of the Merger Agreement, consummates an acquisition with another acquiror or enters into a definitive written agreement providing for an acquisition with another acquiror, which is ultimately consummated, we will be owed an additional $69 million, as provided for in the Merger Agreement.

Trends and Uncertainties Affecting Our Business

We believe our operating and business performance is driven by various factors that typically affect airlines and their markets, including trends which affect the broader travel industry, as well as trends which affect the specific markets and customer base that we target. The following key factors may affect our future performance:

Competition. The airline industry is highly competitive. The principal competitive factors in the airline industry are the fare and total price, flight schedules, number of routes served from a city, frequent flyer programs, product and passenger amenities, customer service, fleet type and reputation. The airline industry is particularly susceptible to price discounting as once a flight is scheduled, airlines incur only nominal incremental costs to provide service to passengers occupying otherwise unsold seats. Price competition occurs on a route-by-route basis through price discounts, changes in pricing structures, fare matching, target promotions and frequent flyer initiatives. Airlines typically use discount fares and other promotions to stimulate traffic during normally slower travel periods to generate cash flow and to maximize RASM. The prevalence of discount fares can be particularly acute when a competitor has excess capacity that it is under financial pressure to sell. A key element of our competitive strategy is to maintain very low unit costs in order to permit us to compete successfully in price-sensitive markets. In addition, some of the legacy network carriers match LCC and ULCC pricing on portions of their network. We believe that fare discounts have and will continue to stimulate demand for Frontier due to our Low Fares Done Right strategy.

Our Low Fares Done Right strategy is underpinned by our low-cost structure, and has significantly reduced our cost base by increasing aircraft utilization (with the exception of the impacts of COVID-19), transitioning to larger and more fuel-efficient aircraft, maximizing seat density, renegotiating the majority of our distribution agreements, realigning our network, migrating to a self-service customer service model, enhancing our website and mobile app, boosting employee productivity and contracting with leading specialists to provide us with select operating and other services.

Our cost structure has generally allowed us to achieve strong results from operations relative to the rest of the industry during periods of competitive pricing and price discounts and has helped our ability to manage through the COVID-19 pandemic. While we have already completed the substantial majority of strategic initiatives to reduce our unit operating costs, we believe that we are well positioned to maintain our low unit operating costs relative to our competitors through on-going strategic initiatives, including continuing our cost optimization efforts and further realizing economies of scale. To the extent that we are unable to maintain our low-cost structure, our ability to compete effectively may be impaired. In addition, if our competitors engage in fare wars or similar behavior, our financial performance could be adversely impacted.

Aircraft Fuel. Fuel expense represents one of the single largest operating expense for most airlines, including ours. Aircraft fuel prices and availability are subject to market fluctuations, refining capacity, periods of market surplus and shortage and demand for heating oil, gasoline and other petroleum products, as well as meteorological, economic and political factors and events occurring throughout the world, which we can neither control nor accurately predict. The future cost and availability of aircraft fuel cannot be predicted with any degree of certainty.

Volatility. The air transportation business is volatile and highly affected by economic cycles and trends. Global pandemics and related health scares, consumer confidence and discretionary spending, fear of terrorism or war, weakening economic conditions, fare initiatives, fluctuations in fuel prices, labor actions, changes in governmental

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regulations on taxes and fees, weather and other factors have resulted in significant fluctuations in revenue and results of operations in the past.

Seasonality. Our results of operations for any interim period are not necessarily indicative of those for the entire year because the air transportation business and our route network are subject to seasonal fluctuations. We generally expect demand to be greater in the second and third quarters compared to the rest of the year. While we have, over recent years, reduced our concentration in Denver to decrease the impact of seasonality in our business, 26% of our flights during the year ended December 31, 2022 had Denver International Airport as either their origin or destination, as compared to 29% of our flights during the year ended December 31, 2021.

Labor. The airline industry is currently experiencing certain shortages of qualified personnel, especially as more pilots approach mandatory retirement age. The airline industry is also heavily unionized. The wages, benefits and work rules of unionized airline industry employees are determined by collective bargaining agreements (“CBAs”). Relations between air carriers and labor unions in the United States are governed by the United States Railway Labor Act (“RLA”). Under the RLA, CBAs generally contain “amendable dates” rather than expiration dates and the RLA requires that a carrier maintain the existing terms and conditions of employment following the amendable date through a multi-stage and usually lengthy series of bargaining processes overseen by the National Mediation Board (“NMB”). This process continues until either the parties have reached an agreement on a new CBA or the parties have been released to “self-help” by the NMB. In most circumstances, the RLA prohibits strikes. However, after release by the NMB, carriers and unions are free to engage in self-help measures such as lockouts and strikes.

We have seven union-represented employee groups comprising approximately 87% of our employees as of December 31, 2022. Our pilots are represented by the Air Line Pilots Association (“ALPA”); our flight attendants are represented by the Association of Flight Attendants (“AFA-CWA”); our aircraft technicians, aircraft appearance agents, material specialists and maintenance controllers are all represented by the International Brotherhood of Teamsters (“IBT”); and our dispatchers are represented by the Transport Workers Union (“TWU”).

Maintenance, Materials and Repairs and Maintenance Reserve Obligations. The amount of total maintenance costs and related depreciation of heavy maintenance expense is subject to variables such as estimated usage, government regulations, the size, age and makeup of the fleet in future periods, and the level of unscheduled maintenance events and their actual costs. Accordingly, we cannot reliably quantify future maintenance-related expenses for any significant period of time.

As of December 31, 2022, the average age of our aircraft was approximately four years and all of the aircraft in our fleet were financed with operating leases, the last of which is scheduled to expire by the end of 2034. As of December 31, 2022, we had a firm obligation to purchase 221 A320neo family aircraft by the end of 2029 and to acquire another ten A321neo aircraft through direct leases, all to be delivered in 2023. Please refer to “Notes to Consolidated Financial Statements—14. Commitments and Contingencies” for further discussion. We expect that these new aircraft will require less maintenance when they are first placed in service (sometimes called a “maintenance holiday”) because the aircraft will benefit from manufacturer warranties and also will be able to operate for a significant period of time, generally measured in years, before the most expensive scheduled maintenance obligations, known as heavy maintenance, are required. Once these maintenance holidays expire, these aircraft will require more maintenance as they age and our maintenance and repair expenses for each of our aircraft will be incurred at approximately the same intervals. When these more significant maintenance activities occur, this will result in out-of-service periods during which our aircraft are dedicated to maintenance activities and unavailable to generate revenue.

We account for heavy maintenance events under the deferral method. Accordingly, heavy maintenance is depreciated over the shorter of either the remaining lease term or the period until the next estimated heavy maintenance event. As a result, maintenance events occurring closer to the end of the lease term will generally have shorter depreciation periods than those occurring earlier in the lease term. This will create higher depreciation expense specific to any aircraft related to heavy maintenance during the final years of the lease as compared to earlier periods.

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The terms of certain of our aircraft lease agreements require us to post deposits for future maintenance, also known as maintenance reserves, to the lessor in advance of and as collateral for the performance of heavy maintenance events, resulting in us recording significant prepaid deposits on our consolidated balance sheet. As a result, for leases requiring maintenance reserves, the cash costs of scheduled heavy maintenance events are paid in advance of the recognition of the maintenance event in our results of operations. Please see "Notes to Consolidated Financial Statements—10. Operating Leases—Aircraft Rent Expense and Maintenance Obligations."

Critical Accounting Policies and Estimates

We prepare our consolidated financial statements in accordance with generally accepted accounting principles in the United States (“GAAP”). In doing so, we make estimates and assumptions that affect our reported amounts of assets, liabilities, revenue and expenses, as well as related disclosure of contingent assets and liabilities. To the extent that there are material differences between these estimates and actual results, our financial condition and results of operations could be affected. We base our estimates on past experience and other assumptions that we believe are reasonable under the circumstances, and we evaluate these estimates on an ongoing basis. We refer to accounting estimates of this type as critical accounting estimates, which we discuss below. For a detailed discussion of our significant accounting policies, please refer to “Notes to Consolidated Financial Statements — 1. Summary of Significant Accounting Policies.”

Frequent Flyer Program

Our Frontier Miles frequent flyer program provides frequent flyer travel awards to program members based on accumulated mileage credits. Mileage credits are accumulated as a result of travel, purchases using the co-branded credit card and purchases from other participating partners. As of December 31, 2022 and 2021, our total frequent flyer liability was $45 million and $54 million, respectively.

The contract to sell mileage credits under the co-branded credit card partnership has multiple performance obligations. The agreement provides for joint marketing, and we account for this agreement consistently with the accounting method that allocates the consideration received to the individual products and services delivered based on relative stand-alone selling prices. We determined the best estimate of the selling prices by considering discounted cash flow analysis using multiple inputs and assumptions, including: (1) the expected number of miles awarded and number of miles redeemed, (2) equivalent ticket value (“ETV”) for the award travel obligation, (3) licensing of brand and access to member lists and (4) advertising and marketing efforts. Any changes in the assumptions outlined above related to our co-branded credit card partnership at agreement inception would impact the allocation of consideration received and the resulting timing of when revenues from the each of the specific performance obligation would be recognized.

We estimate breakage (mileage credits that are expected to expire unutilized) based on statistical models derived from historical redemption patterns. Breakage assumptions, including the period over which mileage credits are expected to be redeemed, the actual redemption activity for mileage credits, the impact of the COVID-19 pandemic or the estimated fair value of mileage credits expected to be redeemed, could have an impact on revenues in the year in which the change occurs and in future years. Additionally, we estimate ETV, which is used to determine the value per mileage credit, based on the historical prices of the flights redeemed using mileage credits and changes to these assumptions could impact the initial allocation of consideration in our co-branded credit card partnership or the amount of revenue recognized or deferred for miles accumulated as a result of travel.

For the year ended December 31, 2022, holding other factors constant, a 10% change in our estimated frequent flyer breakage rate would have resulted in a change to passenger revenues of approximately $4 million, or less than 1%.

Leased Aircraft Return Costs

Our aircraft operating lease agreements generally require us to return aircraft airframes and engines to the lessor in a certain condition or pay an amount to the lessor based on the airframe and engine’s actual return condition.

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These return provisions are evaluated at inception of the lease and throughout the lease terms and are accounted for as either fixed or variable lease payments (depending on the nature of the lease return condition). When such costs become both probable and estimable, they are accrued as a component of supplemental rent through the remaining lease term. Changes to the assumptions utilized in the estimation of these lease return costs are accounted for on a cumulative catch-up basis. As of December 31, 2022 and 2021, our total leased aircraft return cost liability was $102 million and $49 million, respectively.

In assessing the future potential lease return costs we consider the future anticipated costs and scope of maintenance events (largely driven by projected number of flight hours and cycles estimated to be utilized on the aircraft and engines prior to return), estimated timing of such events including the timing since the last expected major maintenance event, the date the aircraft is due to be returned to the lessor, contractual terms of the lease and maintenance provider agreements, current condition of each aircraft, age of the aircraft at lease expiration, type of engine, projected number of hours and cycles run on the engines at the time of return and the number of projected cycles run on the airframe at the time of return, among other estimates.

If actual estimates vary materially from those utilized in the estimation of lease return costs we could incur more or less supplemental rent expense depending on the direction of the adjustments necessary. There can be no assurance that the projections utilized will not materially change in the future given the inherent difficulty in forecasting future utilization of aircraft over their lease terms; however, the estimates utilized are the best available at the time the financial statements were issued.

Income Tax Valuation Allowance

As of December 31, 2022, our total deferred tax assets, net of an $8 million valuation allowance, were $677 million, which included $50 million of deferred tax assets related to NOL carry forwards. These deferred tax assets are comprised of $32 million, $11 million and $7 million related to NOLs available to reduce future federal, state and foreign taxable income, respectively. We assess whether it is more likely than not that sufficient taxable income will be generated to realize deferred tax assets, and a valuation allowance is established if it is not likely that deferred income tax assets will be realized. We consider sources of taxable income from prior period carryback periods, future reversals of existing taxable temporary differences, tax planning strategies and future taxable income when assessing the future utilization of deferred tax assets.

As part of our assessment of whether a valuation allowance is warranted, we consider all available positive and negative evidence in conjunction with evaluating the source and availability of taxable income to utilize such deferred tax assets. We updated this assessment as of December 31, 2022, noting that, in part as a result of the significant impacts caused by the COVID-19 pandemic, particularly prior to the wide availability of vaccines, we were in a cumulative three-year loss position. Conversely, prior to the pandemic, we have had a consistent history of generating significant earnings and resulting taxable income and have typically utilized significant deferred tax assets such as those related to NOLs prior to expiration. The main source of taxable income that supports realization of our deferred tax assets was from projected future taxable income. Our projections of future taxable income considered the general business environment, our recent history of profitability outside of the impact of the COVID-19 pandemic including the last three consecutive quarters of profitability, industry wide consensus on air travel outlook and post-December 31, 2022 booking trends. These factors were considered in conjunction with other evidence such as our cumulative three-year loss position. Given the significant impact that the COVID-19 pandemic had on our results for which we continue to recover from post vaccine availability, we don’t believe the factors that caused our cumulative three-year loss to be indicative of future performance. Based on the factors outlined above, we concluded that as a result of projected future income, our deferred tax assets are likely to be realized, exclusive of those which have a valuation allowance established.

Additionally, under current tax law, our federal NOL carryforwards do not expire and our state NOLs will expire, if not utilized, from one year to having no expiration depending on the state the NOL is attributed to. As a result of our assessment, we maintained our valuation allowance on our foreign deferred tax assets of $7 million and on certain state deferred tax assets of $1 million, as we concluded this $8 million in benefits related to NOLs will

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most likely not be realized, primarily due to short expiry periods combined with significant income required to utilize these deferred tax assets.

If we are unable to achieve our projected operating income targets or actual results are not in line with those utilized in the judgments listed above, an adjustment to our conclusion on the recoverability of our future deferred tax assets may occur and, therefore, may result in either the creation of a valuation allowance being recorded against some or all of our net deferred tax assets in future periods or the reversal of the previously recorded valuation allowance. An increase in our valuation allowance would result in additional income tax expense, while a release of a valuation allowance in future periods, if those deferred tax assets become realizable, would reduce our income tax expense. There can be no assurance that an additional valuation allowance on our net deferred tax assets will not be required and such valuation allowance could be material.

Results of Operations

Year Ended December 31, 2022 Compared to Year Ended December 31, 2021

Operating Revenues

Total operating revenue increased $1,266 million, or 61%, during the year ended December 31, 2022, as compared to the year ended December 31, 2021, as we experienced increased demand for leisure travel on strong pricing. Revenue was favorably impacted by the 37% increase in RASM during the year ended December 31, 2022 as compared to the year ended December 31, 2021, due to a 31% increase in total revenue per passenger, including a 39% increase in fare revenue per passenger and a 26% increase in ancillary revenue per passenger, alongside a 5.0 point increase in load factor as compared to the corresponding prior year period. In addition, total operating revenue was favorably impacted by an 18% capacity growth, as measured by ASMs. This was driven by an increase in average daily aircraft utilization to 11.1 hours per day for the year ended December 31, 2022, as compared to 9.8 hours per day for the year ended December 31, 2021, as well as a 6% increase in average aircraft in service during the year ended December 31, 2022, as compared to the corresponding prior year period.

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Operating Expenses

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N/M = Not meaningful

(a)Cost per ASM figures may not recalculate due to rounding.

(b)These metrics are not calculated in accordance with GAAP. See the reconciliation to corresponding GAAP measures provided below.

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Reconciliation of CASM to CASM (excluding fuel), Adjusted CASM (excluding fuel), Adjusted CASM, CASM including net interest and Adjusted CASM including net interest

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(a)Cost per ASM figures may not recalculate due to rounding.

(b)CASM (excluding fuel) and Adjusted CASM (excluding fuel) are included as supplemental disclosures because we believe that excluding aircraft fuel is useful to investors as it provides an additional measure of management’s performance excluding the effects of a significant cost item over which management has limited influence. The price of fuel, over which we have limited control, impacts the comparability of period-to-period financial performance, and excluding the price of fuel allows management an additional tool to understand and analyze our non-fuel costs and core operating performance, and increases comparability with other airlines that also provide a similar metric. CASM (excluding fuel) and Adjusted CASM (excluding fuel) are not determined in accordance with GAAP and should not be considered in isolation or as a substitute for performance measures calculated in accordance with GAAP.

(c)Represents $19 million in employee retention costs and $16 million in transaction costs, including banking, legal and accounting fees, incurred in connection with the proposed Merger with Spirit, offset by $25 million received from Spirit for the reimbursement of incurred Merger-related expenses.

(d)Represents a write-off of $7 million in capitalized software development costs as a result of a termination of a vendor arrangement.

(e)Represents $2 million of costs related to a one-time contract ratification incentive, plus payroll-related taxes earned through May 2023 and committed to by us as part of an agreement with the union representing our aircraft technicians that was ratified and became effective in May 2022.

(f)As a result of an early termination and buyout agreement executed in May 2021 with one of our lessors, we were able to accelerate the removal of the remaining four A319 aircraft from our fleet. These aircraft were originally scheduled to return in December 2021 and were instead returned during the second and third quarters of 2021. During the year ended December 31, 2021, we incurred $10 million in aircraft rent costs and $1 million in depreciation relating to the acceleration and resulting changes to our lease return obligations.

(g)Represents the recognition of the $278 million of grant funding received from the U.S. government for payroll support in addition to $17 million in employee retention credits we qualified for under the CARES Act during the year ended December 31, 2021.

(h)Adjusted CASM is included as supplemental disclosure because we believe it is a useful metric to properly compare our cost management and performance to other peers, as derivations of Adjusted CASM are well-recognized performance measurements in the airline industry

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that are frequently used by our management, as well as by investors, securities analysts and other interested parties in comparing the operating performance of companies in the airline industry. Additionally, we believe this metric is useful because it removes certain items that may not be indicative of base operating performance or future results. Adjusted CASM is not determined in accordance with GAAP, may not be comparable across all carriers and should not be considered in isolation or as a substitute for performance measures calculated in accordance with GAAP.

(i)On February 2, 2022, we repaid the Treasury Loan, which resulted in a one-time write-off of the remaining $7 million in unamortized deferred financing costs related to the Treasury Loan. This amount is a component of interest expense.

(j)Represents the mark to market adjustment to the value of the warrants issued as part of the funding provided under the CARES Act. This amount is a component of interest expense. As a result of our IPO and the resulting reclassification of warrants from liability-based awards to equity based awards, as of April 6, 2021, we no longer mark to market the warrants.

(k)CASM including net interest and Adjusted CASM including net interest are included as supplemental disclosures because we believe they are useful metrics to properly compare our cost management and performance to other peers that may have different capital structures and financing strategies, particularly as it relates to financing primary operating assets such as aircraft and engines. Additionally, we believe these metrics are useful because they remove certain items that may not be indicative of base operating performance or future results. CASM including net interest and Adjusted CASM including net interest are not determined in accordance with GAAP, may not be comparable across all carriers and should not be considered in isolation or as a substitute for performance measures calculated in accordance with GAAP.

Aircraft Fuel. Aircraft fuel expense increased by $585 million, or 102%, during the year ended December 31, 2022, as compared to the corresponding prior year period. The increase was primarily due to a 71% increase in fuel rate and a 18% increase in fuel gallons consumed due to increased capacity.

Salaries, Wages and Benefits. Salaries, wages and benefits expense increased by $99 million, or 16%, during the year ended December 31, 2022, as compared to the year ended December 31, 2021. The increase was due to higher crew costs, primarily from pilots, driven by elevated credit hours as well as pilot benefit costs and expansion in salaried support staff costs for the year ended December 31, 2022, as compared to the year ended December 31, 2021. In addition, during the year ended December 31, 2022, we incurred $2 million in expenses related to a one-time ratification incentive bonus and related payroll adjustments as a result of a contract ratification with IBT, the union representing our aircraft technicians, in May 2022.

Aircraft Rent. Aircraft rent expense increased by $26 million, or 5%, during the year ended December 31, 2022, as compared to the year ended December 31, 2021, primarily due to the increase in our fleet period-over-period and higher costs associated with anticipated lease returns, which was partially offset by the payback of $31 million of lease deferrals from 2020 recognized in 2021, while no lease deferrals were paid for the year ended December 31, 2022.

Station Operations. Station operations expense increased by $38 million, or 10%, during the year ended December 31, 2022, as compared to the year ended December 31, 2021, primarily due to a 15% increase in departures and the related increases in our airport support operations and higher passenger reaccommodation expenses. In addition, we experienced a $3 million unfavorable impact during the year ended December 31, 2022 related to deferral agreements on certain leases with our airport facilities that were negotiated to manage liquidity during the recovery from the COVID-19 pandemic, as compared to a favorable impact of $9 million during the year ended December 31, 2021. These increases were partially offset by favorable airport costs as a result of lower rates and revenue sharing arrangements.

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Sales and Marketing. Sales and marketing expense increased by $55 million, or 50%, during the year ended December 31, 2022, as compared to the year ended December 31, 2021, primarily due to higher credit card fees resulting from the 61% increase in revenue, in addition to increased sales support and advertising expenses.

The following table presents our distribution channel mix:

Maintenance, Materials and Repairs. Maintenance, materials and repair expense increased by $27 million, or 23%, during the year ended December 31, 2022, as compared to the year ended December 31, 2021. This was primarily due to higher average daily utilization per aircraft and more average aircraft in service compared to the year ended December 31, 2021, which resulted in higher maintenance including associated contract labor costs as well as higher aircraft materials expenses. These increases were partially offset by a decrease in volume and extent of planned maintenance checks during the year ended December 31, 2022, as compared to the year ended December 31, 2021.

Depreciation and Amortization. Depreciation and amortization expense increased by $7 million, or 18%, during the year ended December 31, 2022, as compared to the year ended December 31, 2021, primarily due to a $7 million asset impairment as a result of a write-off of certain capitalized software development costs.

CARES Act Credits. CARES Act credits decreased by $295 million, during the year ended December 31, 2022, as compared to the year ended December 31, 2021. During the year ended December 31, 2022, we did not recognize any CARES Act credits due to the cessation of the program in the fourth quarter of 2021.

Transaction and Merger-Related Costs, Net. As a result of the proposed Merger with Spirit, we incurred $10 million in related net costs during the year ended December 31, 2022, including $19 million in employee retention costs and $16 million in transaction costs, which are made up of banking, legal and accounting fees, among others, charged in connection with the Merger, offset by $25 million received from Spirit for the reimbursement of incurred merger-related expenses upon the termination of the Merger agreement.

Other Operating Expenses. Other operating expenses increased by $52 million, or 51%, during the year ended December 31, 2022, as compared to the year ended December 31, 2021. The change was driven by increases in travel expenses relating to crew accommodations, higher supplies and general and administrative costs, including IT and professional services, and escalation in other operating costs during the year ended December 31, 2022 as compared to the year ended December 31, 2021, primarily due to an increase in capacity as demand continues to recover from COVID-19 pandemic. These increases were partly offset by $27 million in additional sale-leaseback gains during the year ended December 31, 2022 as compared to the year ended December 31, 2021.

Other Income (Expense). Other expenses decreased by $27 million, or 100%, during the year ended December 31, 2022, as compared to the year ended December 31, 2021. The decrease was primarily due to $22 million in interest expense related to the mark to market adjustments of warrants issued in conjunction with the PSP Promissory Notes and the Treasury Loan during the year ended December 31, 2021. Additionally, a growth in interest rates contributed to an increase in interest income for the year ended December 31, 2022. This decrease in other expenses was partially offset by a $7 million loss from the extinguishment of debt related to the write-off of unamortized deferred financing costs associated with the Treasury Loan during the year ended December 31, 2022.

Income Taxes. Our effective tax rate for the year ended December 31, 2022 was a benefit of 17.8%, compared to a benefit of 29.2% for the year ended December 31, 2021. The effective tax rate for the year ended December 31, 2022 was lower than the statutory rate primarily due to the non-deductibility of certain executive compensation costs and other employee benefits, coupled with return to provision adjustments. The effective tax rate for the year ended December 31, 2021 was higher than the statutory rate primarily attributable to the release of reserves related to

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uncertain tax positions for which the statute of limitations has expired and excess tax benefit associated with our stock-based compensation arrangements, offset by the non-deductible interest from the mark to market adjustments of the warrants issued to the Treasury as part of our participation in the PSPs and the Treasury Loan.

Reconciliation of Net income (loss) to Adjusted net income (loss) and to EBITDA, Adjusted EBITDA, EBITDAR and Adjusted EBITDAR

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(a)Adjusted net income (loss), EBITDA and Adjusted EBITDA are included as supplemental disclosures because we believe they are useful indicators of our operating performance. Derivations of net income and EBITDA are well-recognized performance measurements in the airline industry that are frequently used by our management, as well as by investors, securities analysts and other interested parties in comparing the operating performance of companies in our industry.

Adjusted net income (loss), EBITDA and Adjusted EBITDA have limitations as analytical tools. Some of the limitations applicable to these measures include: Adjusted net income (loss), EBITDA and Adjusted EBITDA do not reflect the impact of certain cash charges resulting from matters we consider not to be indicative of our ongoing operations; Adjusted net income (loss), EBITDA and Adjusted EBITDA do not reflect our cash expenditures, or future requirements, for capital expenditures or contractual commitments; EBITDA and Adjusted EBITDA do not reflect changes in, or cash requirements for, our working capital needs; EBITDA, and Adjusted EBITDA do not reflect the interest expense, or the cash requirements necessary to service interest or principal payments, on our indebtedness or possible cash requirements related to our warrants; although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and EBITDA and Adjusted EBITDA do not reflect any cash requirements for such replacements; and other companies in our industry may calculate Adjusted net income (loss), EBITDA and Adjusted EBITDA differently than we do, limiting its usefulness as a comparative measure. Because of these limitations, Adjusted net income (loss), EBITDA and Adjusted EBITDA should not be considered in isolation from or as a substitute for performance measures calculated in accordance with GAAP. In addition, because derivations of Adjusted net income (loss), EBITDA and Adjusted EBITDA are not determined in accordance with GAAP, such measures are susceptible to varying calculations and not all companies calculate the measures in the same manner. As a result, derivations of Net income and EBITDA, including Adjusted net income (loss) and Adjusted EBITDA, as presented may not be directly comparable to similarly titled measures presented by other companies.

For the foregoing reasons, each of Adjusted net income (loss), EBITDA and Adjusted EBITDA has significant limitations which affect its use as an indicator of our profitability. Accordingly, you are cautioned not to place undue reliance on this information.

(b)EBITDAR and Adjusted EBITDAR are included as a supplemental disclosure because we believe them to be useful solely as valuation metrics for airlines as their calculations isolate the effects of financing in general, the accounting effects of capital spending and acquisitions (primarily aircraft, which may be acquired directly, directly subject to acquisition debt, by capital lease or by operating lease, each of which is presented differently for accounting purposes), and income taxes, which may vary significantly between periods and for different airlines for reasons unrelated to the underlying value of a particular airline. However, EBITDAR and Adjusted EBITDAR are not determined in accordance with GAAP, are susceptible to varying calculations and not all companies calculate the measure in the same manner. As a result, EBITDAR and Adjusted EBITDAR, as presented, may not be directly comparable to similarly titled measures presented by other companies. In addition, EBITDAR and Adjusted EBITDAR should not be viewed as a measure of overall performance since they exclude aircraft rent, which is a normal, recurring cash operating expense that is necessary to operate our business. Accordingly, you are cautioned not to place undue reliance on this information.

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(a)See “Reconciliation of CASM to CASM (excluding fuel), Adjusted CASM (excluding fuel), Adjusted CASM, CASM including net interest and Adjusted CASM including net interest” above for discussion on adjusting items.

(b)Represents aircraft rent expense included in Adjusted EBITDA. Excludes aircraft rent expense of $10 million for the year ended December 31, 2021 for costs incurred due to the early termination of our A319 leased aircraft. See footnote (f) under the caption “Reconciliation of CASM to CASM (excluding fuel), Adjusted CASM (excluding fuel), Adjusted CASM, CASM including net interest and Adjusted CASM including net interest”.

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Comparative Operating Statistics

The following table sets forth our operating statistics for the years ended December 31, 2022 and 2021. These operating statistics are provided because they are commonly used in the airline industry and, as such, allow readers to compare our performance against our results for the corresponding prior year periods, as well as against the performance of our peers.

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(a)See “Glossary of Airline Terms” for definitions of terms used in this table.

(b)These metrics are not calculated in accordance with GAAP. For the reconciliation to corresponding GAAP measures, see “—Results of Operations—Reconciliation of CASM to CASM (excluding fuel), Adjusted CASM (excluding fuel), Adjusted CASM, CASM including net interest and Adjusted CASM including net interest.”

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Liquidity, Capital Resources and Financial Position

Overview

As of December 31, 2022, we had $761 million in total available liquidity, made up of cash and cash equivalents. We had $429 million of total debt, net, of which $157 million was short-term. Our total debt, net is comprised of our $277 million pre-delivery deposit payment facility (“PDP Financing Facility”), $71 million pre-purchased miles facility with Barclays Bank Delaware (“Barclays”), $66 million in PSP Promissory Notes and $17 million in secured indebtedness for our headquarters building, partly offset by $2 million in deferred debt acquisition costs and other discounts.

On February 2, 2022, we repaid the Treasury Loan, which included the $150 million principal balance along with accrued interest and associated fees of $1 million. As a result, we recognized a $7 million non-cash charge from the write-off of unamortized deferred financing costs associated with the Treasury Loan for the year ended December 31, 2022. By repaying the amounts outstanding under the Treasury Loan, our co-branded credit card program and related brand assets that collateralized the Treasury Loan are now unencumbered.

We continue to monitor our covenant compliance with various parties, including, but not limited to, our lenders and credit card processors. As of the date of this report, we are in compliance with all of our covenants.

The following table presents the major indicators of our financial condition and liquidity:

Use of Cash and Future Obligations

We expect to meet our cash requirements for the next twelve months through use of our available cash and cash equivalents, our PDP Financing Facility and cash flows from operating activities. We expect to meet our long-term cash requirements with cash flows from operating and financing activities, including, but not limited to, potential future borrowings on our credit facility and/or potential issuance of debt or equity. Our primary uses of cash are for working capital, aircraft PDPs, debt repayments and capital expenditures.

Our single largest capital commitment relates to the acquisition of aircraft. As of December 31, 2022, we operated all of our 120 aircraft under operating leases. PDPs relating to future deliveries under our agreement with Airbus are required at various times prior to each aircraft’s delivery date. As of December 31, 2022, we had $371 million of PDPs held by Airbus which have been partially financed by our PDP Financing Facility. As of December 31, 2022 our PDP Financing Facility, which allows us to draw up to an aggregate of $290 million, had $277 million outstanding. As of December 31, 2022, we had a firm obligation to purchase 221 A320neo family

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aircraft and 19 additional spare engines to be delivered by 2029. Of our aircraft commitments, eight had committed operating leases for 2023 deliveries, and we are evaluating financing options for the remaining aircraft.

Additionally, we are required by some of our aircraft lease agreements to pay maintenance reserves to our respective aircraft lessors in advance of the performance of major maintenance activities; these payments act as collateral for the lessors to ensure aircraft are returned in the agreed upon condition at the end of the lease period. Qualifying payments that are expected to be recovered from lessors are recorded as aircraft maintenance deposits on our consolidated balance sheets. A portion of our cash is, therefore, unavailable until after we have completed the scheduled maintenance in accordance with the terms of the operating leases. During the years ended December 31, 2022 and 2021, we made $18 million and $20 million, respectively, in maintenance deposit payments to our lessors. As of December 31, 2022, we had $117 million in recoverable aircraft maintenance deposits on our consolidated balance sheets, of which $12 million was included in accounts receivable because the eligible maintenance had been performed and the remaining $105 million was included within aircraft maintenance deposits.

The following table summarizes current and long-term material cash requirements as of December 31, 2022, which we expect to fund primarily with operating and financing cash flows (in millions):

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(a)Includes principal commitments only associated with our PDP Financing Facility pertaining to deliveries through 2024, our floating rate building note through 2023, our affinity card unsecured debt due through 2029 and the PSP Promissory Notes through 2031. See “Notes to Consolidated Financial Statements — 9. Debt”.

(b)Represents interest on debt obligations.

(c)Represents gross cash payments related to our operating lease obligations that are not subject to discount as compared to the obligations measured on our consolidated balance sheets. See “Notes to Consolidated Financial Statements — 10. Operating Leases”.

(d)Represents purchase commitments for aircraft and engines. See “Notes to Consolidated Financial Statements — 14. Commitments and Contingencies”.

(e)Represents fixed maintenance reserve payments for aircraft including estimated amounts for contractual price escalations. See “Notes to Consolidated Financial Statements — 10. Operating Leases”.

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Cash Flows

The following table presents information regarding our cash flows in the years ended December 31, 2022 and 2021:

Operating Activities

During the year ended December 31, 2022, net cash used in operating activities totaled $78 million, which was driven by a $37 million net loss, $14 million of outflows from changes in operating assets and liabilities and non-cash adjustments totaling $27 million.

The $14 million of outflows from changes in operating assets and liabilities includes:

•$94 million in increases in other long-term assets driven by increases in prepaid maintenance and capitalized maintenance;

•$40 million in increases in supplies from increased consumable and fuel inventory balances as well as increases to other current assets driven by swaption derivative premiums;

•$28 million in increases in accounts receivable;

•$18 million in increases in aircraft maintenance deposits; and

•$4 million in decreases in accounts payable; partially offset by

•$130 million in increases in other liabilities driven by growth in the business primarily through increased leased aircraft return costs, aircraft maintenance costs, and other related accruals; and

•$40 million in increases in our air traffic liability as a result of increased bookings.

Our net loss of $37 million was also adjusted by the following non-cash items to arrive at cash used in operating activities:

•$87 million in gains recognized on sale-leaseback transactions; and

•$8 million in deferred tax benefits; partly offset by

•$45 million in depreciation and amortization;

•$15 million in stock-based compensation expense;

•$7 million in losses on extinguishment of debt; and

•$1 million in amortization of cash flow hedges, net of tax.

During the year ended December 31, 2021, net cash provided by operating activities totaled $216 million, which was driven by $338 million of inflows from changes in operating assets and liabilities partly offset by a $102 million net loss resulting from the significant impact the COVID-19 pandemic had on our operations and non-cash adjustments totaling $20 million.

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The $338 million of inflows from changes in operating assets and liabilities includes:

•$174 million of cash inflows from supplies and other current assets due primarily to the decrease in other current assets, $158 million of which is related to the receipt of our 2020 federal income tax receivable;

•$138 million in increases in our air traffic liability as a result of increased bookings; and

•$84 million in increases in other liabilities and $13 million in increases in accounts payable as our operational related accruals increased during 2021 in line with demand, capacity and overall departure increases.

These cash inflows due to changes in our operating assets and liabilities were partly offset by an increase to our other long-term assets as well as higher maintenance and credit card receivables and increases to our aircraft maintenance deposits.

Our net loss of $102 million includes the following significant items that were adjusted in arriving at cash provided by operating activities:

•$60 million in gains recognized on sale-leaseback transactions;

•$32 million in deferred tax benefits; partly offset by

•$38 million in depreciation and amortization;

•$22 million in unrealized losses on the mark to market adjustments of our warrant liability with the Treasury;

•$11 million in stock-based compensation expense; and

•$1 million in amortization of cash flow hedges, net of tax.

In response to the COVID-19 pandemic, beginning in 2020, we were granted payment deferrals on leases included in our right-of-use assets for certain aircraft and engines from lessors along with airport facilities and other vendors that are not included in our right-of-use assets. As these deferred payments are made, they are recognized in aircraft rent or station operations, as applicable, in our consolidated statements of operations. The payback of all previous aircraft and engine rent deferrals was completed as of December 31, 2021, and, therefore, there was no impact to operating cash flows for the year ended December 31, 2022. The payback of station deferrals during the year ended December 31, 2022 decreased operating cash flows by $3 million. The deferrals for the year ended December 31, 2021 decreased operating cash flows and unfavorably impacted our results of operations by $22 million, including a $31 million unfavorable impact to aircraft rent, partially offset by a $9 million favorable impact to station operations. As of December 31, 2022, we had $8 million in station deferrals which will be recognized to station operations within our consolidated statements of operations in future periods as the deferrals are repaid.

As of December 31, 2022, we did not have any other off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our results of operations, financial condition or cash flows.

Investing Activities

During the year ended December 31, 2022, net cash used in investing activities totaled $154 million, driven by:

•$111 million in net payments for pre-delivery deposit activity;

•$41 million in cash outflows for capital expenditures; and

•$2 million in cash outflows relating to other investing activity.

During the year ended December 31, 2021, net cash used in investing activities totaled $67 million, driven by:

•$36 million in net payments for pre-delivery deposit activity;

•$27 million in cash outflows for capital expenditures; and

•$4 million in cash outflows relating to other investing activity.

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Financing Activities

During the year ended December 31, 2022, net cash provided by financing activities was $75 million, primarily driven by:

•$273 million in cash proceeds from debt issuances, consisting of $217 million in draws on our PDP Financing Facility, net of issuance costs, and a $56 million draw on our Barclays facility;

•$71 million in net proceeds received from sale-leaseback transactions; and

•$1 million in proceeds from the exercise of stock options; partially offset by

•$266 million in cash outflows from principal repayments on debt, which include the paydown of the $150 million Treasury Loan, $115 million in PDP Financing Facility payments and $1 million in payments pursuant to our floating rate building note; and

•$4 million of payments for tax withholdings related to vesting of share-based awards.

During the year ended December 31, 2021, net cash provided by financing activities was $391 million, primarily driven by:

•$266 million aggregate net proceeds from our IPO;

•$66 million in proceeds from the issuance of long-term debt net of principal repayments due to $33 million of proceeds from the PSP2 and PSP3 Promissory Notes in addition to $33 million in net borrowings under our PDP Financing Facility;

•$59 million in net proceeds received from sale-leaseback transactions; and

•$3 million in proceeds from the exercise of stock options; partially offset by

•$3 million of payments for tax withholdings related to vesting of share-based awards.

Commitments and Contractual Obligations

Our contractual purchase commitments as of December 31, 2022 include future aircraft and engine acquisitions. Except to the extent set forth in the applicable notes to our consolidated financial statements, the table below does not include commitments that are contingent on events or other factors that are uncertain or unknown at this time.

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(a)    While the commitments presented above reflect the agreed-upon delivery dates as of December 31, 2022, we have recently experienced delays in the deliveries of Airbus aircraft which may persist in future periods.

During October 2019, we entered into an amendment with Airbus that allows us the option to convert 18 A320neo aircraft to A321XLR aircraft. This conversion right is available until June 2023, per the latest amendment, and is not reflected in the table above as this option has not been exercised.

In November 2021, we entered into an amendment with Airbus to add an additional 91 A321neo aircraft to the committed purchase agreement, which are expected to be delivered starting in 2024 and continuing through 2029 per the latest delivery schedule, all of which are reflected in the table above.

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In April 2022, the agreement with Pratt & Whitney, a provider of engines for us, was amended to include additional spare engine commitments and adjust the timing of remaining deliveries, which has been reflected in the table above.

As of December 31, 2022, all 120 aircraft in our fleet were subject to operating leases. These leases expire between 2023 and the end of 2034. Leases for 21 of our aircraft could generally be renewed at rates based on fair market value at the end of a lease term for extensions ranging from less than one year to four years.

As of December 31, 2022, we had signed lease agreements with two of our leasing partners to add ten additional A321neo aircraft through direct leases, with deliveries beginning in the first quarter of 2023 continuing into the third quarter of 2023 based on the latest delivery schedule. None of these ten aircraft are reflected in the table above given they are not committed purchase agreements.

Separately, we have various leases with respect to real property as well as various agreements among airlines relating to fuel consortia or fuel farms at airports. Under some of these contracts, we are party to joint and several liability regarding damages. Under others, where we are a member of an LLC or other entity that contracts directly with the airport operator, liabilities are borne through the fuel consortia structure. Our aircraft, services, equipment lease and sale and financing agreements typically contain provisions requiring us, as the lessee, obligor or recipient of services, to indemnify the other parties to those agreements, including certain of those parties’ related persons, against virtually any liabilities that might arise from the use or operation of the aircraft or such other equipment. We believe that our insurance would cover most of our exposure to liabilities and related indemnities associated with the commercial real estate leases and aircraft, services, equipment lease and sale and financing agreements described above.

Certain of our aircraft and other financing transactions include provisions that require us to make payments to preserve an expected economic return to the lenders if that economic return is diminished due to certain changes in law or regulations. In certain of these financing transactions and other agreements, we also bear the risk of certain changes in tax laws that would subject payments to non-U.S. entities to withholding taxes.

Certain of these indemnities survive the length of the related financing or lease. We cannot reasonably estimate our potential future payments under the indemnities and related provisions described above because we cannot predict when and under what circumstances these provisions may be triggered and the amount that would be payable if the provisions were triggered because the amounts would be based on facts and circumstances existing at such time.

Recently Adopted Accounting Pronouncements

See “Notes to Consolidated Financial Statements — 1. Summary of Significant Accounting Policies” included in Part II, Item 8 of this Annual Report on Form 10-K for a discussion of recent accounting pronouncements.

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GLOSSARY OF AIRLINE TERMS

Set forth below is a glossary of industry terms:

“A320 family” means, collectively, the Airbus series of single-aisle aircraft, including the A319ceo, A320ceo, A320neo, A321ceo and A321neo aircraft.

“A320neo family” means, collectively, the Airbus series of single-aisle aircraft that feature the new engine option, including the A320neo and A321neo aircraft.

“Adjusted CASM” is a non-GAAP measure and means operating expenses, excluding special items, divided by ASMs. For a discussion of such special items and a reconciliation of CASM to CASM (excluding fuel), Adjusted CASM (excluding fuel), Adjusted CASM, CASM including net interest and Adjusted CASM including net interest, please see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations.”

“Adjusted CASM including net interest” or “Adjusted CASM + net interest” is a non-GAAP measure and means the sum of Adjusted CASM and Net interest expense (income) excluding special items divided by ASMs. For a discussion of such special items and a reconciliation of CASM to CASM (excluding fuel), Adjusted CASM (excluding fuel), Adjusted CASM, CASM including net interest and Adjusted CASM including net interest, please see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations.”

“Adjusted CASM (excluding fuel)” is a non-GAAP measure and means operating expenses less aircraft fuel expense, excluding special items, divided by ASMs. For a discussion of such special items and a reconciliation of CASM to CASM (excluding fuel), Adjusted CASM (excluding fuel), Adjusted CASM, CASM including net interest and Adjusted CASM including net interest, please see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations.”

“Air traffic liability” means the value of tickets, unearned membership fees and other related fees sold in advance of travel.

“Ancillary revenue” means the sum of non-fare passenger revenue and other revenue.

“Available seat miles” or “ASMs” means the number of seats available for passengers multiplied by the number of miles the seats are flown.

“Average aircraft in service” means the average number of aircraft used in flight operations, as calculated on a daily basis.

“Average daily aircraft utilization” means block hours divided by number of days in the period divided by average aircraft.

“Average stage length” means the average number of miles flown per flight segment.

“Block hours” means the number of hours during which the aircraft is in revenue service, measured from the time of gate departure before take-off until the time of gate arrival at the destination.

“CASM” or “unit costs” means operating expenses divided by ASMs.

“CASM (excluding fuel)” is a non-GAAP measure and means CASM less fuel expenses divided by ASMs.

“CASM including net interest” or “CASM + net interest” is a non-GAAP measure and means the sum of CASM and Net interest expense (income) divided by ASMs.

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“CBA” means a collective bargaining agreement.

“CBP” means the United States Customs and Border Protection.

“DOT” means the United States Department of Transportation.

“EPA” means the United States Environmental Protection Agency.

“FAA” means the United States Federal Aviation Administration.

“Fare revenue” consists of base fares for air travel, including mileage credits redeemed under our frequent flyer program, unused and expired passenger credits, other redeemed or expired travel credits and revenue derived from charter flights.

“Fare revenue per passenger” means fare revenue divided by passengers.

“FTE” means full-time equivalent employee.

“GDSs” means Global Distribution Systems such as Amadeus, Sabre and Travelport, used by travel agencies and corporations to purchase tickets on participating airlines.

“LCC” means low-cost carrier.

“Load factor” means the percentage of aircraft seat miles actually occupied on a flight (RPMs divided by ASMs).

“Net interest expenses (income)” means interest expense, capitalized interest, interest income and other.

“NMB” means the National Mediation Board.

“Non-fare passenger revenue” consists of fees related to certain ancillary items such as baggage, service fees, seat selection, and other passenger-related revenue that is not included as part of base fares for travel.

“Non-fare passenger revenue per passenger” means non-fare passenger revenue divided by passengers.

“OTA” means Online Travel Agent.

“Other revenue” consists primarily of services not directly related to providing transportation, such as the advertising, marketing and brand elements of the Frontier Miles affinity credit card program and commissions revenue from the sale of items such as rental cars and hotels.

“Other revenue per passenger” means other revenue divided by passengers.

“Passengers” means the total number of passengers flown on all flight segments.

“Passenger revenue” consists of fare revenue and non-fare passenger revenue.

“PDP” means pre-delivery deposit payments, which are payments required by aircraft manufacturers in advance of delivery of the aircraft.

“RASM” or “unit revenue” means total revenue divided by ASMs.

“Revenue passenger miles” or “RPMs” means the number of miles flown by passengers.

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“RLA” means the United States Railway Labor Act.

“Total ancillary revenue per passenger” means ancillary revenue divided by passengers.

“Total Revenue per passenger” means the sum of fare revenue, non-fare passenger revenue, and other revenue (collectively, “Total Revenue”) divided by passengers.

“Treasury” means the United States Department of the Treasury.

“TSA” means the United States Transportation Security Administration.

“ULCC” means ultra low-cost carrier.

“VFR” means visiting friends and relatives.