we are in a K shaped economy. The middle class is getting screwed with 30% increases on all other spending. Not only does our product suck, but we are losing more people everyday due to costs rising in all other areas of their lives.

after COVID the wealth transfer to the boomer generation was insane. It’s the first time that our kids have a likely worse future then we do economically.

it’s really that simple, be big enough to operate a network that maximizes people’s desire to hold your credit card, have a good product/schedule, and don’t let any competitors grow in your fortress hubs.

consolidation will need to occur in the low cost space not just for scale, but to rationalize domestic capacity. We aren’t done with M&A. I still think once spirit is gone there will be another merger in the ULCC/LCC space. Airlines big take an immense amount to flat out liquidate. Just look how long spirit has stuck around when they should have been gone a year ago.

I understand the counter points, but just look at the last 20 years in the us aviation industry. The success that has been created by the top 4 airlines came from failing airlines merging after BK or something similar.

just some food for thought.

You don't want an economic downturn or for the post-COVID spending spree to end. Ignoring the impact that would have on all other facets of people's lives (including those who are doing well), it would not be a positive for the LCCs...the majors own their planes and have massive fleets and networks with different sized planes, allowing them to be nimble based on the environment. The LCCs lease their planes and would be instantly gone if there is a significant downturn in demand...wouldn't be a "trading down" scenario. Maybe you can argue that if there was a serious downturn, during the recovery Americans would be more willing to fly LCCs, but that would be a new crop of airlines. Also, Frontier is in a far worse financial situation than JetBlue.

This is my thoughts exactly...

DL and UA focused on INTL and premium/business class stuff while AA and everyone else basically focused on domestic. Everyone rolled the dice during/after covid and DL and UA are the two who struck gold. Do people remember DL was almost gone 15 years ago?

AA focused on Domestic travel and absolutely decimated their INTL widebody fleet, that came back to haunt them because right now they are bringing in BILLIONS in revenue, but only profited what? like 100m?

Southwest is doing ok...

Spirit is nosediving because of a **** show of problems that all happened at once, which ended up being the nail in the coffin because of their huge debt load, something we don't have here at F9.

JB is in a bind with their terrible route network and product that is on par with legacies, but somehow no one knows anything about it because they have like 10 routes. They just bled like 400m this last quarter.

Allegiant is doing ok because they have focused on what makes them profitable and literally nothing else, now aquiring sunny, which is also profitable, both are small and niche market carriers.

Avelo is basically in the dumpster.

Breeze seems......... meh?

We can't sit here and act like somehow these airlines will all do super well or poorly forever, because they won't. Everyone has their ups and downs as mentioned above with market and demand shifts.

I mostly agree with this except that last sentence.

JetBlue has lost $1.4 Billion dollars over the last 2 years. We were profitable last year and expected to be profitable going forward.

I definitely think JetBlue is in worse shape than us.

For stressed/distressed companies, the income statement is not so useful--you really want to check out the balance sheet and cash flows. Excluding SLBs, Frontier has burned $484M in cash over the past 4 quarters; even if you include those SLBs, they have burned $157M--they weren't profitable last year and current market consensus estimates does not have them turning a profit in 2026 either. At this point, Frontier has under $600M in cash and is now drawing down credit facilities due to that lack of liquidity...with no owned assets, they can't raise long-term debt financing, and are essentially totally reliant upon their Airbus deliveries coming in on time and being sold to lessors, which then increases their costs with higher lease rates. JetBlue's financial performance has been really bad as well (worse, probably), but they have almost $3B in cash, while still owning the majority of their planes. Many of those planes are unencumbered (have no debt out against them), so when they need more cash, they can raise debt backed by those planes...they can also sell the planes at a premium to the value at which they are marked on their books due to the current market. Also, anecdotally, JetBlue's product is really good, and I am seeing a good number of routes where they are undercutting the majors by 10-15%, while I personally would be willing to pay the same amount or even a slight premium to fly JetBlue... With their assets and product, I think JetBlue has some value either in an acquisition or by raising prices and fixing the route network, while it is difficult to say the same for Frontier (sorry; you pilots do a great job and are at no fault).

With this in mind... Should we not be looking at legacies without their CC income?

You can't just disregard a source of revenue when it is revenue. SLB is what we do and it works.... until it doesnt.

Nope, the CC income is a continuous income source that is part of/deeply integrated into their airline operations. SLBs are a non-operating revenue source that will go away once the order is fulfilled...SLBs are not a strategy for an airline, and cannot be capitalized -- they are valued separately as a limited-time cash flow stream.

Just for context on the SLBs, the revenue that is booked is the gain on sale, not the price of the sale: lets say they purchased each plane at an average price of $35M at the market lows during COVID, and the market value for each now averages $50M...they can book $15M in revenue. However, lease rates are tied to current market values, so Frontier's leasing costs go up...lessors are financials businesses and they are generally not buying planes (even in a competitive SLB market) if they don't see a good return on them.

The proper way to account for SLB revenue is to separate them from the airline operations business, and to value them as a one-time stream of cash flows. At a high level, with rough numbers and assumptions, let's say you believe the average airline should be worth 6x their profits (lets use EBITDAR in this case), and that Frontier is no different than the average airline in terms of what it should be worth as a business. If Frontier's EBITDAR in a normalized scenario is $700M, then the company should be worth $4.2B. Let's say you spread the cash flows from the SLBs and come up with a value of about $1B for the SLBs...now you have the company as worth $5.2B. To get to the equity value you subtract the debt (including leases), let's say approximately $5B...you get just $200M left for the equity. Instead, if you don't separate out the SLBs and treat them as normal earnings...you would be adding ~$300M to revenue with little to no costs, which you would then be capitalizing at 6x, as if it is recurring the same way your normal airline profits are. That would leave you with $1B in EBITDAR, giving you a $6B value and $1B for the equity...

To put it in another way, imagine you own a small manufacturing business that generates $100k in profits every year. 10 years ago you purchased a factory for $1M, and now that factory is on prime real estate for data centers, and you get an offer to sell that factory for $11M. You sell and book the gain-on-sale profit of $10M (ignoring depreciation). Do you think that your business should be valued like a business generating $100k in profits per year or $10.1M in profits per year?

Good point.

The CC income at a legacy isn't free money. There is a cost to that revenue just like any other cost. Its like saying the legacies would not be profitable with their US Mail contracts, or cargo, or all their profit comes from 1st class. You can't just strip out a source of revenue without also stripping out the costs associated with that, and ALSO not considering the revenue they would make if they did not sell those seats.

For example if United/Delta didn't have CC miles, they would now have more seats to sell, because those CC seats are now empty. So those people going to Hawaii with their miles have a choice to make. Do they still go and now just buy tickets, or do they skip the trip altogether. Would they have gone on the trip without the miles, or are the miles just a convenient way to get a discount they would have just paid for originally.

The key is that you can't just remove CC miles revenue with and hold everything else constant. It doesn't work that way. This happened in Australia where CC exchange fees were capped...guess what happened? Airline revenues increased. They just found other ways to monetize the CC that didn't include tying them to exchange fees.

SLB is not a business model. Its an income opportunity. You would never raise money in venture capital markets to start a business where this was the strategy. There are times where SLB can be exploited and times when it can not.

Your posts are excellent by the way.

This is a good analogy. A lot of people don't realize that an asset or liability can undergo derecognition where it causes an associated loss or gain on the income statement. Obviously these do not get calculated as part of enterprise value, just like a business that had some short term arbitrage gains would have that as part of its enterprise value, but the IRS will levy taxes either way on those gains.