None
Cautionary Statement Regarding Forward-Looking Statements
Certain statements in this Annual Report on Form 10-K should be considered forward-looking statements within the meaning of the Securities Act of 1933, as amended (the "Securities Act"), the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the Private Securities Litigation Reform Act of 1995. Forward-looking statements are based on our management’s beliefs and assumptions and on information currently available to our management. All statements other than statements of historical factors are “forward-looking statements” for purposes of these provisions. In some cases, you can identify forward-looking statements by terms such as “may,” “might,” “will,” “should,” “could,” “would,” “expect,” “intends,” “plan,” “anticipate,” “believe,” “estimate,” “project,” “targets,” “predict,” “potential,” and similar expressions intended to identify forward-looking statements. Such forward-looking statements are subject to risks, uncertainties and other important factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by such forward-looking statements. Forward-looking statements are based upon current plans, expectations and beliefs involving risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various risks and uncertainties, including those set forth in Part I, Item 1A, “Risk Factors”, Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and other factors set forth from time to time under the sections captioned “Risk Factors” in our reports and other documents filed with the Securities and Exchange Commission (the “SEC”). Furthermore, such forward-looking statements speak only as of the date of this report. Except as required by law, we undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements.
Summary Risk Factors
Our business is subject to a number of risks and uncertainties that may affect our business, results of operations and financial condition, or the trading price of our common stock or other securities. We are also subject to risks in relation to the proposed merger with Spirit Airlines, Inc. (“Spirit”) (see also Part I, Item 1. Business — “Recent Developments”). We caution the reader that these risk factors may not be exhaustive. We operate in a continually changing business environment, and new risks and uncertainties emerge from time to time. Management cannot predict such new risks and uncertainties, nor can it assess the extent to which any of the risk factors below or any such new risks and uncertainties, or any combination thereof, may impact our business. The risks identified below are more fully described in Part I, Item 1A. Risk Factors. Such factors include:
Risks Related to Our Industry
•the impact the COVID-19 pandemic and measures to reduce its spread continue to have on our business, results of operations and financial condition and the timing and nature of the related recovery of the airline industry;
•certain restrictions on our business in connection with accepting financial assistance under the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) and related legislation;
•the ability to operate in an exceedingly competitive industry against legacy network airlines, low-cost carriers (“LCCs”) and other ultra low-cost carriers (“ULCCs”);
•the price and availability of aircraft fuel;
•any restrictions on or increased taxes applicable to charges for non-fare products and services paid by airline passengers or the imposition of burdensome consumer protection regulations or laws;
•changes in economic conditions;
•competition from air travel substitutes;
•threatened or actual terrorist attacks or security concerns;
•factors beyond our control, including air traffic congestion at airports, air traffic control inefficiencies, government shutdowns, aircraft and engine defects, adverse weather conditions, increased security measures, or outbreak of disease;
•our presence in international emerging markets that may experience political or economic instability;
•increases in insurance costs or inability to secure adequate insurance coverage;
•decline or suspension in funding or operations of the U.S. federal government or its agencies; and
•deployment of new 5G C-band service by wireless communications service providers.
Risks Related to the Merger
•the pendency of the proposed merger may cause disruption in our business;
•failure to complete the merger in a timely manner or at all could negatively impact the market price of our common stock, as well as our future business and our results of operations and financial condition;
•in order to complete the merger, we and Spirit must obtain certain governmental approvals, and if such approvals are not granted or are granted with conditions, completion of the merger may be jeopardized or the anticipated benefits of the merger could be reduced;
•although we expect that the merger will result in synergies and other benefits to us, we may not realize those benefits because of difficulties related to integration, the achievement of such synergies, and other challenges;
•we face challenges in integrating our computer, communications and other technology systems;
•the combined company is expected to incur substantial expenses related to the merger and the integration of Frontier and Spirit;
•uncertainties associated with the merger may cause a loss of management personnel and other key employees which could adversely affect the future business and operations of the combined company;
•the future results of the combined company will suffer if the combined company does not effectively manage its expanded operations following the merger;
•following the closing of the merger, we will be bound by all of the obligations and liabilities of both companies; and
•the need to integrate the Frontier and Spirit workforces following the merger and negotiate new joint labor agreements presents the potential for delay in achieving expected synergies, increased labor costs or labor disputes that could adversely affect the combined company’s operations.
Risks Related to Our Business
•our failure to implement our business strategy successfully;
•our ability to control our costs and maintain a competitive cost structure;
•our ability to grow or maintain our unit revenues or maintain our non-fare revenues;
•any increased labor costs, union disputes and other labor-related disruptions;
•our inability to expand or operate reliably and efficiently out of airports where we operate or desire to operate;
•any damage to our reputation or brand image could adversely affect our business or financial results;
•our reputation and business being adversely affected in the event of an emergency, accident, or similar public incident involving our aircraft or personnel;
•any negative publicity regarding our customer service;
•our inability to maintain a high daily aircraft utilization rate;
•any changes in governmental regulation;
•the impact of climate change and related regulations and consumer preferences;
•our ability to obtain financing or access capital markets;
•the long-term nature of our fleet order book and the unproven new engine technology utilized by the aircraft in our order book;
•our maintenance obligations;
•aircraft-related fixed obligations that could impair our liquidity; and
•our reliance on third-party specialists and other commercial partners to perform functions integral to our operations.
PART I
ITEM 1. BUSINESS
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. As of December 31, 2021, we had a fleet of 110 Airbus single-aisle aircraft, consisting of 16 A320ceos, 73 A320neos and 21 A321ceos. Our unique strategy is underpinned by our low-cost structure and superior low-fare brand.
The coronavirus (“COVID-19”) pandemic has presented significant challenges to the global airline industry since March 2020. The rapid spread of COVID-19, along with government-mandated restrictions on travel, required stay-in-place orders, and other social distancing measures, resulted in a drastic decline in near-term air travel demand in the United States, and caused reductions in revenues and income levels as compared to corresponding pre-pandemic periods. The decline in demand for air travel has had a material adverse effect on our business and results of operations for the years ended December 31, 2021 and 2020. Although we have seen significant recovery of demand through the year ended December 31, 2021 as compared to the corresponding prior year period, we are unable to predict the future spread of COVID-19, including future variants of the virus such as the recent Delta and Omicron variants, as well as efficacy and adherence rates of vaccines and related boosters and the resulting measures that may be introduced by governments or other parties and what impact those measures may have on the demand for air travel.
Our History
We were incorporated in September 2013 as a newly-formed corporation initially wholly-owned by an investment fund managed by Indigo Denver Management Company, LLC (“Indigo”), an affiliate of Indigo Partners, LLC (“Indigo Partners”), an experienced and successful global investor in ULCCs. Indigo facilitated the acquisition of Frontier and its holding company from Republic Airways Holdings, Inc. (“Republic”). That acquisition was completed on December 3, 2013. Following the acquisition, Indigo reshaped our management team to include experienced veterans of the airline industry with significant history operating ULCCs. Working with Indigo, our management team developed and implemented our unique strategy, Low Fares Done Right.
On February 2, 2022, we repaid our debt facility with the U.S. Department of the Treasury (the “Treasury”) which included the $150 million principal balance along with accrued interest of $1 million. The repayment terminated the loan agreement and unencumbered our co-branded credit card program and related brand assets that secured the loan. See Note 2 for more information.
On February 5, 2022, we entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Top Gun Acquisition Corp., a direct wholly owned subsidiary of ours (“Merger Sub”), and Spirit Airlines, Inc. (“Spirit”). The Merger Agreement provides that, among other things, the Merger Sub will be merged with and into Spirit (the “Merger”), with Spirit surviving the Merger and continuing as a wholly owned subsidiary of ours.
The closing of the Merger is subject to the satisfaction of customary conditions, including, but not limited to (1) the adoption of the Merger Agreement by Spirit’s stockholders; (2) the expiration or termination of all applicable waiting periods under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and other required regulatory approvals including the receipt of all consents, registrations, notices, waivers, exemptions, approvals, confirmations, clearances, permits, certificates, orders, and authorizations of the U.S. Federal Aviation Administration (“FAA”), the U.S. Department of Transportation (“DOT”), and the Federal Communications
Commission (“FCC”); (3) the absence of any law or order prohibiting the consummation of the transactions; (4) the effectiveness of a registration statement on Form S-4 registering shares of our common stock to be issued in the Merger; (5) the authorization and approval for listing on NASDAQ of our shares to be issued to holders of Spirit’s common stock in the Merger; (6) the accuracy of the parties’ respective representations and warranties in the Merger Agreement, subject to specified materiality qualifications; and (7) compliance by the parties with their respective covenants in the Merger Agreement in all material respects.
Subsequent to the closing of the Merger and at the effective time of the Merger, each share of common stock of Spirit, par value $0.0001 per share, issued and outstanding (other than shares owned by us, Spirit, or their respective subsidiaries immediately prior to the effective time) will be converted into the right to receive 1.9126 of our shares of common stock, par value $0.001 per share, and $2.13 per share in cash, without interest.