Frontier Group Holdings Inc

1. Summary of Significant Accounting Policies

Basis of Presentation

The condensed consolidated financial statements have been prepared in accordance with the generally accepted accounting principles in the United States (“GAAP”) and include the accounts of Frontier Group Holdings, Inc. (“FGHI” or the “Company”) and its wholly-owned direct and indirect subsidiaries, including Frontier Airlines Holdings, Inc. (“FAH”) and Frontier Airlines, Inc. (“Frontier”). All wholly-owned subsidiaries are consolidated, with all intercompany transactions and balances being eliminated.

The Company is an ultra low-cost, low-fare airline headquartered in Denver, Colorado that offers flights throughout the United States and to select international destinations in the Americas, serving approximately 100 airports.

The Company is managed as a single business unit that provides air transportation for passengers. Management has concluded there is onlyone reportable segment.

The accompanying condensed consolidated financial statements include the accounts of the Company and reflect all normal recurring adjustments which management believes are necessary to fairly present the financial position, results of operations and cash flows of the Company for the respective periods presented. Certain information and footnote disclosures normally included in the annual financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for Form 10-Q. These unaudited interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements of the Company and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2023, which was filed with the SEC on February 20, 2024 (the “2023 Annual Report”).

The interim results reflected in the unaudited condensed consolidated financial statements are not necessarily indicative of the results that may be expected for other interim periods or for the full year. The air transportation business is subject to significant seasonal fluctuations and is volatile and highly affected by economic cycles and trends.

Reclassifications

A reclassification of previously reported amounts has been made to conform to the current year’s presentation in the Company’s condensed consolidated statements of operations. The reclassification relates to the removal of transaction and merger-related costs and the reclassification of these costs into other operating expenses. This reclassification did not impact previously reported amounts on the Company’s condensed consolidated balance sheets, condensed consolidated statements of comprehensive income (loss), condensed consolidated statements of cash flows or condensed consolidated statements of stockholders’ equity.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts in the financial statements and accompanying notes. Actual results could differ from those estimates.

2. Revenue Recognition

As of September 30, 2024 and December 31, 2023, the Company’s air traffic liability balance was $294 million and $259 million, respectively, which includes amounts classified within other long-term liabilities on the Company’s condensed consolidated balance sheets. During the nine months ended September 30, 2024,92% of the air traffic liability as of December 31, 2023 was recognized as passenger revenue within the Company’s condensed consolidated statements of operations. Of the air traffic liability balances as of September 30, 2024 and December 31, 2023, $40 million and $60 million, respectively, was related to unearned membership fees.

During the three and nine months ended September 30, 2024 and 2023, the Company recognized $7 million, $25 million, $16 million and $36 million, respectively, of revenue related to expected and actual expiration of customer rights to book future travel in passenger revenues within the Company’s condensed consolidated statements of operations.

Operating revenues are comprised of passenger revenues, which includes fare and non-fare passenger revenues, and other revenues. Disaggregated operating revenues are as follows (in millions):

The Company is managed as a single business unit that provides air transportation for passengers. Operating revenues by principal geographic region, as defined by the U.S. Department of Transportation (the “DOT”), are as follows (in millions):

The Company attributes operating revenues by geographic region based upon the origin and destination of each passenger flight segment. The Company’s tangible assets consist primarily of flight equipment, which are mobile across geographic markets. Accordingly, assets are not allocated to specific geographic regions.

Frequent Flyer Program

The Company’s FRONTIER Miles program provides frequent flyer travel awards to program members based on accumulated miles. Miles are generally accumulated as a result of travel, purchases using the co-branded credit card and purchases from other participating partners. The Company defers revenue for miles earned by passengers under its FRONTIER Miles program based on the equivalent ticket value a passenger receives by redeeming miles for a ticket rather than paying cash.

The Company has a credit card affinity agreement, as amended from time to time, with its credit card partner, Barclays Bank Delaware (“Barclays”), through 2029, which provides for joint marketing, grants certain benefits to co-branded credit cardholders (“Cardholders”) and allows Barclays to market using the Company’s customer database. Cardholders earn miles under the FRONTIER Miles program and the Company sells miles at agreed-upon rates to Barclays and earns fees from Barclays for the acquisition, retention and use of the co-branded credit card by consumers.

3. Other Current Assets

Other current assets consist of the following (in millions):

4. Financial Derivative Instruments and Risk Management

The Company may be exposed to interest rate risk through aircraft and spare engine lease contracts for the time period between agreement of terms and commencement of the lease, when portions of rental payments can be adjusted and become fixed based on the swap rate. As part of its risk management program, from time to time the Company enters into contracts in order to limit the exposure to fluctuations in interest rates. During each of the three and nine months ended September 30, 2024 and 2023, the Company did not enter into any swaps and, therefore, paidno upfront premiums for options. As of September 30, 2024, the Company hadno interest rate hedges outstanding.

Assets associated with the Company’s derivative instruments are presented on a gross basis and include upfront premiums paid. These assets are recorded as a component of other current assets on the Company’s condensed consolidated balance sheets. There wereno assets outstanding as of September 30, 2024 and December 31, 2023, respectively.

The following table summarizes the effect of interest rate derivative instruments reflected in rent expense within the Company’s condensed consolidated statements of operations (in millions):

The following table presents the net of tax impact of the overall effectiveness of derivative instruments designated as cash flow hedging instruments within the Company’s condensed consolidated statements of comprehensive income (loss) (in millions):

As of September 30, 2024, $7 million was included in accumulated other comprehensive income (loss) related to interest rate hedging instruments that is expected to be reclassified into aircraft rent within the Company’s condensed consolidated statements of operations over the aircraft or engine lease term.

5. Other Current Liabilities

Other current liabilities consist of the following (in millions):

6. Debt

The Company’s debt obligations are as follows (in millions):

(a)The Company has multiple pre-delivery credit facilities which consists of the PDP Financing Facility, the Second PDP Financing Facility and the Third PDP Financing Facility (all as defined below) for the financing of pre-delivery deposit payments (“PDPs”) for its A320neo family aircraft purchase agreement (together, the “Pre-delivery Credit Facilities”). Each of the Pre-delivery Credit Facilities is collateralized by the Company’s purchase agreement for the associated A320neo family aircraft deliveries through the term of the respective facilities. Total commitments (drawn or undrawn) under the Pre-delivery Credit Facilities are $478 million. See Note 9 for the Company’s commitment schedule regarding its A320neo family orderbook.

The Company, through an affiliate, entered into a PDP facility in December 2014 (as amended from time to time, the “PDP Financing Facility”) for the financing of certain aircraft PDPs. In September 2024, the PDP Financing Facility was amended and the total available capacity of the PDP Financing Facility was reduced from $365 million to $135 million. The facility consists of separate loans for each PDP aircraft. Interest is paid every 90 days based on the Secured Overnight Financing Rate (“SOFR”) plus a margin for each separate loan. Each separate loan matures upon the earlier of (i) delivery of that aircraft to the Company by Airbus, (ii) the date one month following the last day of the scheduled delivery month of such aircraft and (iii) if there is a delay in delivery of aircraft, depending on the cause of the delivery delay, up to six months following the last day of the scheduled delivery month of such aircraft. The PDP Financing Facility will be repaid periodically according to the preceding sentence, with the facility maturing in December 2026.

In September 2024, the Company, through an affiliate, entered into a PDP facility (the “Second PDP Financing Facility”) with a lender not otherwise party to the PDP Financing Facility or Third PDP Financing Facility in connection with the financing of PDPs for certain aircraft deliveries not associated with either the PDP Financing Facility or the Third PDP Financing Facility. Interest is paid quarterly based on SOFR plus an applicable margin. Additionally, the Second PDP Financing Facility requires a commitment fee based on the level of the outstanding loan amounts compared to the committed amount. The Second PDP Financing Facility will be repaid when the facility matures in September 2027.

In September 2024, the Company entered into a PDP facility (the “Third PDP Financing Facility”) with a lender not otherwise party to the PDP Financing Facility or Second PDP Financing Facility in connection with the financing of PDPs for certain aircraft deliveries not associated with either the PDP Financing Facility or the Second PDP Financing Facility. The Third PDP Financing Facility requires commitment fees to be paid, on a quarterly basis, on each individual aircraft delivery once PDP funding begins, based on the reference amount for that aircraft at a fixed annual rate of the two-year U.S. Treasury Rate plus an applicable margin. The facility consists of separate loans for each PDP aircraft. Each separate loan matures upon the delivery of that aircraft to the Company. The Third PDP Financing Facility will be repaid periodically as covered aircraft are delivered, with the facility maturing in August 2026.

(b)Represents notes with a commercial bank related to the Company’s headquarters. In June 2024, the Company’s previous note related to its headquarters reached maturity and a final payment of $16 million was made to cover all unpaid principal, accrued unpaid interest and other amounts due. Subsequent to this final payment, the Company entered into a $6 million note with a different commercial bank maturing in June 2031 and then entered into a second agreement in September 2024 with the same lender to fund an additional $6 million bringing the total indebtedness to $12 million, with the second $6 million note maturing in September 2031. The Company is required to make regular monthly payments on principal and unpaid interest. Interest on the new notes will accrue on the unpaid principal balance at a fixed annual rate of the seven-year U.S. Treasury Rate plus an applicable margin. On the maturity date, one final balloon payment will be made to cover all unpaid principal, accrued unpaid interest and any other amounts due.

(c)In September 2024, the Company entered into a revolving line of credit available for general corporate purposes (the “Revolving Loan Facility”). The Revolving Loan Facility was undrawn at closing and provided $205 million of commitments secured by the Company’s loyalty programs and brand-related assets. The Revolving Loan Facility will bear interest at a rate of SOFR plus an applicable margin, payable in quarterly installments, on any outstanding balance as well as a quarterly commitment fee at an applicable margin on the undrawn amounts. The Revolving Loan Facility matures in September 2027.

(d)The Company entered into an agreement with Barclays in 2003 which, as amended, provides for joint marketing, grants certain benefits to Cardholders and allows Barclays to market using the Company’s customer database, through 2029. Cardholders earn miles under the FRONTIER Miles program and the Company sells miles at agreed-upon rates to Barclays and earns fees from Barclays for the acquisition, retention and use of the co-branded credit card by Cardholders. In addition, Barclays will pre-purchase miles if the Company so requests and meets certain conditions precedent. The pre-purchased miles facility amount available to the Company is to be reset on January 15 of each calendar year through, and including, January 15, 2028, based on the aggregate amount of fees payable by Barclays to the Company on a calendar year basis and subject to certain other conditions, up to an aggregate maximum facility amount of $200 million. The Company pays interest on a monthly basis, which is based on a one-month Effective Federal Funds Rate (“EFFR”) plus a margin. Beginning December 2028, the facility is scheduled to be repaid in 12 equal monthly installments.

(e)As a result of the Company’s participation in the payroll support programs offered by the U.S. Department of the Treasury (the “Treasury”), the Company obtained a series of 10-year, low-interest loans from the Treasury (collectively, the “PSP Promissory Notes”) that are due between 2030 and 2031. The PSP Promissory Notes include an annual interest rate of 1.00% for the first five years and the SOFR plus 2.00% in the final five years, with bi-annual interest payments. The loans can be prepaid at par at any time without incurring a penalty.

In connection with the term loan facility entered into with the Treasury on September 28, 2020, which was repaid in full on February 2, 2022, and the PSP Promissory Notes, the Company issued warrants to purchase 3,117,940 shares of FGHI common stock at a weighted-average price of $6.95 per share. These warrants will expire between May 2025 and June 2026. No warrants have been exercised as of September 30, 2024.

As of September 30, 2024, the Company hadno outstanding borrowing under the Revolving Loan Facility as the entirety of the $205 million was undrawn.

Cash payments for interest related to debt were $25 million and $20 million for the nine months ended September 30, 2024 and 2023, respectively.

The Company has caused standby letters of credit and surety bonds to be issued to various airport authorities and vendors that are collateralized by a portion of the Company’s property and equipment and, as of September 30, 2024 and December 31, 2023, the Company didnot have any outstanding letters of credit that were drawn upon.

As of September 30, 2024, future maturities of debt are payable as follows (in millions):

The Company continues to monitor covenant compliance with various parties, including, but not limited to, its lenders and credit card processors, and as of September 30, 2024, the Company was in compliance with all of its covenants.

7. Operating Leases

Aircraft

As of September 30, 2024, the Company leased 153 aircraft with remaining terms ranging from 5 months to 12 years, all of which are under operating leases and are included within operating lease right-of-use assets and operating lease liabilities on the Company’s condensed consolidated balance sheets. In addition, as of September 30, 2024, the Company leased 30 spare engines which are all under operating leases, with the remaining term ranging fromone month to 12 years. As of September 30, 2024, the lease rates forsix of the engines depended on variable usage-based metrics and, as such, these leases were not recorded on the Company’s condensed consolidated balance sheets as operating lease right-of-use assets or as operating lease liabilities.

During the three and nine months ended September 30, 2024 and 2023, the Company completed sale-leaseback transactions with third-party lessors for 5,17,3 and 7 new Airbus A320neo family aircraft, respectively. The Company didnot enter into any direct leases during the three and nine months ended September 30, 2024 and entered into five andten direct leases for new Airbus A320neo family aircraft during the three and nine months ended September 30, 2023, respectively. Additionally, the Company completed sale-leaseback transactions forone andthree engines during both the three and nine months ended September 30, 2024 and 2023, respectively. All of the leases from the sale-leaseback transactions are accounted for as operating leases. The Company recognized sale-leaseback gain transactions of $70 million, $218 million, $40 million and $97 million during the three and nine months ended September 30, 2024 and 2023, respectively, which are included as a component of other operating expenses within the Company’s condensed consolidated statements of operations.

Aircraft Rent Expense and Maintenance Obligations

During the three and nine months ended September 30, 2024 and 2023, aircraft rent expense was $177 million, $483 million, $150 million and $429 million, respectively. Aircraft rent expense includes supplemental rent, which is made up of maintenance-related reserves and probable lease return condition obligations. Supplemental rent expense (benefit) for maintenance-related reserves was less than $1 million, $(7) million, less than $1 million and $(2) million for the three and nine months ended September 30, 2024 and 2023. The portion of supplemental rent expense related to probable lease return condition obligations was $14 million, $28 million, $13 million and $37 million for the three and nine months ended September 30, 2024 and 2023, respectively. As of September 30, 2024 and December 31, 2023, the Company’s total leased aircraft return cost liability was $39 million and $26 million, respectively, which are reflected in other current liabilities and other long-term liabilities on the Company’s condensed consolidated balance sheets.

During the nine months ended September 30, 2024, the Company reached an agreement with one of its aircraft lessors which eliminated requirements to pay maintenance reserves held as collateral in advance of the Company’s required performance of major maintenance activities on its aircraft leases. As a result of the agreement, the lessor disbursed back to the Company previously paid aircraft maintenance deposits of approximately $104 million, resulting in the Company no longer having any aircraft maintenance deposits with any of its lessors as of September 30, 2024.

During the nine months ended September 30, 2024, the Company extended the term for certain aircraft operating leases that were slated to expire between 2025 and 2027. For the nine months ended September 30, 2024, the Company recorded a benefit of $14 million to aircraft rent in the Company’s condensed consolidated statements of operations related to previously accrued lease return costs that were variable in nature and associated with the anticipated utilization and condition of the airframes and engines at the original return date. Given the extension of these aircraft operating leases, such variable return costs are no longer probable of occurring.

During the nine months ended September 30, 2023, the Company extended the term for certain aircraft operating leases that were slated to expire in the fourth quarter of 2023. For the nine months ended September 30, 2023, the Company recorded an $18 million benefit to aircraft rent in the Company’s condensed consolidated statement of operations related to previously accrued lease return costs that were variable in nature and associated with the anticipated utilization and condition of the airframes and engines at the original return date. Given the extension of these aircraft operating leases, such variable return costs are no longer probable of occurring.

Airport Facilities

The Company’s facility leases are primarily for space at approximately 100 airports, primarily in the United States. These leases are classified as operating leases and reflect the use of airport terminals, ticket counters, office space and maintenance facilities. Generally, this space is leased from government agencies that control the use of the airport. The majority of these leases are short-term in nature and renew on an evergreen basis. For these leases, the contractual term is used as the lease term. As of September 30, 2024, the remaining lease terms vary fromone month to 10 years. At the majority of the U.S. airports, the lease rates depend on airport operating costs or use of the facilities and are reset at least annually, and because of the variable nature of the rates, these leases are not recorded on the Company’s condensed consolidated balance sheets as right-of-use assets and lease liabilities.

Other Ground Property and Equipment

The Company leases certain other assets such as flight training equipment, building space, and various other equipment. Certain of the Company’s leases for other assets are deemed to contain fixed rental payments and, as such, are classified as operating leases and are recorded on the Company’s condensed consolidated balance sheets as a right-of-use asset and liability. The remaining lease terms ranged fromone month toseven years as of September 30, 2024.

Lease Costs

The table below presents certain information related to lease costs for operating leases during the three and nine months ended September 30, 2024 and 2023 (in millions):

(a) Expenses are included within aircraft rent, station operations, maintenance, materials and repairs and other operating within the Company’s condensed consolidated statements of operations.

During the three and nine months ended September 30, 2024 and 2023, the Company acquired, through new or modified operating leases, operating lease assets totaling $232 million, $1,058 million, $283 million and $621 million, respectively, which are included in operating lease right-of-use assets on the Company’s condensed consolidated balance sheets. During the three and nine months ended September 30, 2024 and 2023, the Company paid cash of $156 million, $458 million, $137 million and $394 million, respectively, for amounts included in the measurement of lease liabilities.

8. Stock-Based Compensation

During the three and nine months ended September 30, 2024 and 2023, the Company recognized $3 million, $12 million, $3 million and $10 million, respectively, in stock-based compensation expense, which is included as a component of salaries, wages and benefits within the Company’s condensed consolidated statements of operations.

Stock Options and Restricted Stock Units

There wereno stock options granted during the nine months ended September 30, 2024. During the nine months ended September 30, 2024,758,217 vested stock options were exercised with a weighted-average exercise price of $1.25 per share. As of September 30, 2024, the weighted-average exercise price of outstanding stock options was $5.26 per share.

During the nine months ended September 30, 2024,1,700,690 restricted stock units were issued with a weighted-average grant date fair value of $5.23 per share. During the nine months ended September 30, 2024,1,057,898 restricted stock units vested, of which 296,760 restricted stock units were withheld to cover employees’ tax withholding obligations, with a weighted-average grant date fair value of $11.42 and $12.21 per share, respectively.

Stockholders’ Equity

As of September 30, 2024 and December 31, 2023, the Company had authorized common stock (voting), common stock (non-voting) and preferred stock of 750,000,000,150,000,000 and 10,000,000 shares, respectively, of which only common stock (voting) were issued and outstanding. All classes of equity have a par value of $0.001 per share.

9. Commitments and Contingencies

Flight Equipment Commitments

As of September 30, 2024, the Company’s firm aircraft and engine purchase orders consisted of the following:

(a) While the schedule presented reflects the contractual delivery dates as of September 30, 2024, the Company has recently experienced delays in the deliveries of Airbus aircraft which may persist in future periods.

The Company is party to certain aircraft purchase agreements with Airbus (as amended from time to time, the “Airbus Purchase Agreements”) pursuant to which, as of September 30, 2024, the Company had commitments to purchase an aggregate of 27 A320neo and 166 A321neo aircraft, with deliveries expected through 2031 per the latest delivery schedule.

The Airbus Purchase Agreements also provide for, among other things, varying purchase incentives for each aircraft type (e.g., A320neo versus A321neo), which are allocated proportionally by aircraft type over the remaining aircraft to be delivered so that each aircraft’s capitalized cost upon induction would be equal. Therefore, as cash paid for deliveries is greater than the capitalized cost due to the allocation of these purchase incentives, a deferred purchase incentive is recognized, which will ultimately be offset by future deliveries of aircraft with lower cash payments than their associated capitalized cost. As of September 30, 2024 and December 31, 2023, the Company had $91 million and $78 million, respectively, of deferred purchase incentives recognized within other assets on the Company’s condensed consolidated balance sheets.

As of September 30, 2024, purchase commitments for these aircraft and engines, including estimated amounts for contractual price escalations and PDPs, consisted of the following (in millions):

Litigation and Other Contingencies

The Company is subject to commercial litigation claims and to administrative and regulatory proceedings and reviews that may be asserted or maintained from time to time. During 2023, the DOT sent the Company a request for information to assist in its investigation into whether the Company cared for its customers as required by law during Winter Storm Elliott, which caused significant operational disruptions and spanned from December 21, 2022 to January 2, 2023, including providing adequate customer service assistance, prompt flight status notifications, and proper and timely refunds. The Company is fully cooperating with the DOT request.

The Company regularly evaluates the status of such matters to assess whether a loss is probable and reasonably estimable in determining whether an accrual is appropriate. Furthermore, in determining whether disclosure is appropriate, the Company evaluates each matter to assess if there is at least a reasonable possibility that a loss or additional losses may have been incurred and whether an estimate of possible loss or range of loss can be made.

The ultimate outcome of legal actions is unpredictable and can be subject to significant uncertainties, and it is difficult to determine whether any loss is probable or even possible. Additionally, it is also difficult to estimate the amount of loss and there may be matters for which a loss is probable or reasonably possible but not currently estimable. Thus, actual losses may be in excess of any recorded liability or the range of reasonably possible loss. The Company believes the ultimate outcome of any potential lawsuits, proceedings and reviews will likely not, individually or in the aggregate, have a material adverse effect on its condensed consolidated financial position, liquidity or results of operations and that the Company’s current accruals cover matters where loss is deemed probable and can be reasonably estimated.

In situations where the Company may be a plaintiff and receives, or expects to receive, a favorable ruling related to litigation, the Company follows the accounting standards codification guidance for gain contingencies. The Company does not recognize a gain contingency within its condensed consolidated financial statements prior to the settlement of the underlying events or contingencies associated with the gain contingency. As a result, the consideration related to a gain contingency is recorded in the Company’s condensed consolidated financial statements during the period in which all underlying events or contingencies are resolved and the gain is realized. During the three months ended September 30, 2024, the Company agreed to settlement with a former aircraft lessor regarding a breach of contract for $40 million in damages. The settlement amount is final and may not be appealed further by either party. For the three months ended September 30, 2024, the $40 million was recognized within other operating expenses on the Company’s condensed consolidated statements of operations. As of September 30, 2024, $40 million was included as a component of accounts receivable on the Company’s condensed consolidated balance sheets and final cash proceeds were received in October 2024.

Employees

The Company hasseven union-represented employee groups that together represented approximately 87% of all employees as of September 30, 2024. The table below sets forth the Company’s employee groups and status of the collective bargaining agreements as of September 30, 2024:

(a) Subject to standard early opener provisions.

(b) ALPA filed for mediation through the National Mediation Board in January 2024, and the parties are meeting regularly as part of the mediation process.

(c) In November 2023, AFA-CWA exercised their contractual right to open negotiations early. Negotiations are currently ongoing.

(d) The Company’s collective bargaining agreements with its aircraft appearance agents, material specialists, and maintenance controllers, each represented by IBT, were still amendable as of September 30, 2024, and pursuant to the Railway Labor Act the parties continue to be bound by the existing agreements as negotiations continue.

The Company is self-insured for health care claims, subject to a stop-loss policy, for eligible participating employees and qualified dependent medical and dental claims, subject to deductibles and limitations. The Company’s liabilities for claims incurred but not reported are determined based on an estimate of the ultimate aggregate liability for claims incurred. The estimate is calculated from actual claim rates and adjusted periodically as necessary. The Company had accrued $6 million and $5 million for health care claims estimated to be incurred but not yet paid, as of September 30, 2024 and December 31, 2023, respectively, which are included as a component of other current liabilities on the Company’s condensed consolidated balance sheets.

General Indemnifications

The Company has 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, the Company is party to joint and several liability regarding environmental damages. Under others, where the Company is a member of an LLC or other entity that contracts directly with the airport operator, liabilities are borne through the fuel consortia structure.

The Company’s aircraft, services, equipment lease and sale and financing agreements typically contain provisions requiring the Company, 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. The Company believes that its insurance would cover most of its 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 the Company’s aircraft and other financing transactions include provisions that require 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, the Company also bears 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. The Company cannot reasonably estimate the potential future payments under the indemnities and related provisions described above because it cannot predict (i) when and under what circumstances these provisions may be triggered, and (ii) 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.

10. Earnings (Loss) per Share

Basic and diluted earnings (loss) per share are computed pursuant to the two-class method. Under the two-class method, the Company attributes net income to common stock and other participating rights (including those with vested share-based awards). Basic earnings per share is calculated by taking net income, less earnings allocated to participating rights, divided by the basic weighted-average common stock outstanding. Loss per share is calculated by taking net loss divided by basic weighted-average common stock outstanding as participating rights do not share in losses. In accordance with the two-class method, diluted earnings per share is calculated using the more dilutive impact of the treasury-stock method or from reducing net income for the earnings allocated to participating rights.

The following table sets forth the computation of earnings (loss) per share on a basic and diluted basis pursuant to the two-class method for the periods indicated (in millions, except for share and per share data):

Approximately 7,729,362 and 5,229,528 shares were excluded from the computation of diluted weighted-average shares for the three and nine months ended September 30, 2024, respectively, due to anti-dilutive effects. Approximately 2,128,892 shares were excluded from the computation of diluted weighted-average shares for the nine months ended September 30, 2023. Due to the net loss incurred during the three months ended September 30, 2023, diluted weighted-average shares outstanding are equal to basic weighted-average shares outstanding because the effect of all equity awards is anti-dilutive.

11. Income Taxes

The Company’s provision for income taxes during interim reporting periods has historically been calculated by applying an estimate of the annual effective tax rate for the full fiscal year to pretax income (loss) excluding unusual or infrequently occurring discrete items for the reporting period. When a reliable estimate cannot be made, the Company computes the interim provision based on the actual effective tax rate for the year-to-date period by applying the discrete method. The Company determined that given small changes in estimated ordinary income would result in significant variation in the estimated annual effective tax rate for the current year and the resulting uncertainty of the impact on the valuation allowance, the discrete method represents the best estimate of the actual effective tax rate and the Company has calculated its effective tax using the discrete method for thethree and nine months ended September 30, 2024. The Company’s effective tax rate for thethree and nine months ended September 30, 2024 was anexpense of 3.7% and 11.4%, respectively, on pre-taxincome. The Company’s effective tax rate for thethree and nine months ended September 30, 2023 was a benefit of 28.9% and a rate of 0%on pre-taxloss and income, respectively. The effective tax rate for the three and nine months ended September 30, 2024 was lower than the statutory rate primarily due to a decrease in the Company’s valuation allowance relating to U.S. federal and state net operating losses, partially offset by the non-deductibility of certain executive compensation and other employee benefits. The Company’s effective tax rate for the three months ended September 30, 2023 was higher than the statutory rate primarily due to the loss before taxes for the quarter coupled with the tax benefits associated with the Company’s stock-based compensation arrangements. The effective tax rate for the nine months ended September 30, 2023 was lower than the statutory rate primarily due to tax benefits associated with the Company’s stock-based compensation arrangements.

The Company accounts for income taxes using the asset and liability method. Deferred income taxes are recognized for the tax consequences of temporary differences between the tax and financial statement reporting bases of assets and liabilities. Quarterly, the Company assesses whether it is more likely than not that sufficient taxable income will be generated to realize deferred income tax assets, and a valuation allowance is recorded when it is more likely than not that some portion, or all, of the Company’s deferred tax assets, will not be realized. The Company considers sources of taxable income from prior period carryback periods, future reversals of existing taxable temporary differences, tax planning strategies and future projected taxable income when assessing the future realization of deferred tax assets.

In assessing the sources of taxable income and the need for a valuation allowance, the Company considers all available positive and negative evidence, which includes a recent history of cumulative losses. As of September 30, 2024, the Company remains in a historical three-year cumulative loss position, which is significant objective negative evidence in considering whether deferred tax assets are realizable. Such objective negative evidence outweighs other subjective positive evidence, such as the projection of future taxable income. As a result, as of September 30, 2024, the Company has a valuation allowance of$29 million against its deferred tax assets for U.S. federal and state net operating loss carryforwards, which includes reductions in the Company’s valuation allowance of$6 million and $8 million, respectively, recorded during thethree and nine months ended September 30, 2024.

12. Fair Value Measurements

Under ASC 820, Fair Value Measurements and Disclosures, disclosures relating to how fair value is determined for assets and liabilities are required, and a hierarchy for which these assets and liabilities must be grouped is established, based on significant levels of inputs, as follows:

Level 1—Quoted prices in active markets for identical assets or liabilities.

Level 2—Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The Company utilizes several valuation techniques in order to assess the fair value of its financial assets and liabilities.

Cash, Cash Equivalents and Restricted Cash

Cash, cash equivalents and restricted cash are comprised of liquid money market funds, time deposits and cash, and are categorized as Level 1 instruments. The Company maintains cash with various high-quality financial institutions and holds restricted cash to secure medical claims paid. Cash, cash equivalents and restricted cash are carried at cost, which management believes approximates fair value. As of September 30, 2024 and December 31, 2023, the Company had less than $1 million of restricted cash.

Debt

The estimated fair value of the Company’s debt agreements has been determined to be Level 3 measurement, as certain inputs used to determine the fair value of these agreements are unobservable. The Company utilizes a discounted cash flow method to estimate the fair value of the Level 3 debt.

The carrying amounts and estimated fair values of the Company’s debt are as follows (in millions):

The tables below present disclosures about the fair value of assets and liabilities measured at fair value on a recurring basis on the Company’s condensed consolidated balance sheets (in millions):

The Company had no transfers of assets or liabilities between fair value hierarchy levels between December 31, 2023 and September 30, 2024.

13. Related Parties

Management Services

Indigo Partners LLC (“Indigo Partners”) managed an investment fund, Indigo Frontier Holdings Company, LLC (“Indigo Frontier”), that was the controlling stockholder of the Company until April 2024, when Indigo Frontier distributed all of its shares held to its members on a pro rata basis, in-kind and without consideration. Certain affiliates of Indigo Partners continue to be substantial stockholders of the Company. Indigo Partners continues to provide management services to the Company, for which the Company is assessed a quarterly fee. The Company recorded less than $1 million for each of the three months ended September 30, 2024 and 2023 and $1 million for each of the nine months ended September 30, 2024 and 2023 for these fees, which are included as other operating expenses within the Company’s condensed consolidated statements of operations.

Codeshare Arrangement

The Company entered into a codeshare agreement with Controladora Vuela Compañía de Aviación, S.A.B. de C.V. (an airline based in Mexico doing business as “Volaris”) during 2018. Two of the Company’s directors are members of the board of directors of Volaris andone is an honorary director.

In August 2018, the Company and Volaris began operating scheduled codeshare flights. Each party bears its own costs and expenses of performance under the codeshare agreement. The codeshare agreement is subject to automatic renewals and may be terminated by either party at any time upon the satisfaction of certain conditions.