**FORM
      10-Q**





SECURITIES
      AND EXCHANGE COMMISSION


Washington,
      D.C. 20549








[X]
            QUARTERLY
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                ACT OF
                1934For
                the quarterly period ended December 31, 2005[  
                ]
            TRANSITION
                REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT
                OF
                1934











Commission
      file number: 1-12805











**FRONTIER
      AIRLINES, INC.**


(Exact
      name of registrant as specified in its charter)











Colorado
            
            84-1256945(State
                or other jurisdiction of incorporated or organization)
            
            (I.R.S.
                Employer Identification No.)7001
                Tower Road, Denver, CO
            
            80249(Address
                of principal executive offices)
            
            (Zip
                Code)











Issuer’s
      telephone number including area code: (720) 374-4200








Indicate
      by check mark whether the registrant (1) has filed all reports required to
      be
      filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
      the
      preceding 12 months (or for such shorter period that the registrant was required
      to file such reports), and (2) has been subject to such filing requirements
      for
      the past 90 days.


YesX No





Indicate
      by check mark whether the Registrant is a large accelerated filer, an
      accelerated filer, or a non-accelerated filer. See definition of “accelerated
      filer or large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check
      one): Large accelerated filer  Accelerated filer X Non-accelerated
      filer __




Indicate
      by check mark whether the Registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act). YesNo X




The
      number of shares of the Company’s Common Stock outstanding as of January 25,
      2006 was 36,189,705.











**TABLE
      OF CONTENTS**





**PART
      I. FINANCIAL INFORMATION**




Page**Item
                1.**
            **Financial
                Information**Balance
                Sheets (unaudited) at December 31, 2005 and
                March 31, 2005
            3Statements
                of Operations (unaudited) for
                the three and nine months ended December 31, 2005 and
                2004
            4Statements
                of Cash Flows (unaudited) for
                the nine months ended December 31, 2005 and 2004
            5Notes
                to Financial Statements
                (unaudited)
            6**Item
                2.**
            **Management’s
                Discussion and Analysis of Financial Condition
                and Results of Operations**
            13**Item
                3.**
            **Quantitative
                and Qualitative Disclosures about Market
                Risk**
            37**Item
                4.**
            **Controls
                and Procedures**
            38**PART
                II. OTHER INFORMATION****Item
                6.**
            **Exhibits**
            39











-2-


**PART
      I. FINANCIAL INFORMATION**





**FRONTIER
                AIRLINES, INC.****Balance
                Sheets****(Unaudited)**
            
            **December
                31,**
              **2005**
            
            **March
                31,**
              **2005****Assets**Current
                assets:Cash
                and cash equivalents
            
            $
            222,680,115
            
            $
            171,794,772Short-term
                investments
            
            
            -
            
            
            3,000,000Restricted
                investments
            
            
            39,917,028
            
            
            28,011,395Receivables,
                net of allowance for doubtful accounts of $1,239,000and
                $927,000 at December 31, 2005 and March 31, 2005,
                respectively
            
            
            46,168,251
            
            
            37,748,785Security
                and other deposits
            
            
            -
            
            
            1,900,250Prepaid
                expenses and other assets
            
            
            19,904,842
            
            
            18,740,220Inventories,
                net of allowance of $373,000 and $3,973,000 at
              December
                31, 2005 and March 31, 2005, respectively
            
            
            6,714,950
            
            
            7,564,342Assets
                held for sale (note 11)
            
            
            4,069,131
            
            
            1,317,334Deferred
                tax assets
            
            
            6,696,449
            
            
            5,472,643Total
                current assets
            
            
            346,150,766
            
            
            275,549,741Property
                and equipment, net (note 4)
            
            
            512,855,619
            
            
            455,813,682Security
                and other deposits
            
            
            18,466,495
            
            
            18,662,421Aircraft
                pre-delivery payments
            
            
            27,530,507
            
            
            22,976,090Restricted
                investments
            
            
            3,689,465
            
            
            11,126,307Deferred
                loan expenses and other assets
            
            
            8,293,048
            
            
            7,882,430Total
                assets
            
            $
            916,985,900
            
            $
            792,010,671**Liabilities
                and Stockholders’
                Equity**Current
                liabilities:Accounts
                payable
            
            $
            33,523,049
            
            $
            37,240,376Air
                traffic liability
            
            
            109,744,065
            
            
            112,688,811Other
                accrued expenses (note 6)
            
            
            56,527,372
            
            
            55,337,203Current
                portion of long-term debt (note 7)
            
            
            21,984,429
            
            
            18,222,539Short-term
                borrowings
            
            
            -
            
            
            5,000,000Deferred
                revenue and other current liabilities (note 5)
            
            
            10,459,415
            
            
            5,361,422Total
                current liabilities
            
            
            232,238,330
            
            
            233,850,351Long-term
                debt related to aircraft (note 7)
            
            
            318,866,303
            
            
            282,792,222Long-term
                debt - Convertible Notes (note 7)
            
            
            92,000,000
            
            
            -Deferred
                tax liability
            
            
            15,859,690
            
            
            17,331,125Deferred
                revenue and other liabilities (note 5)
            
            
            22,104,797
            
            
            20,116,667Total
                liabilities
            
            
            681,069,120
            
            
            554,090,365Stockholders’equity:Preferred
                stock, no par value, authorized 1,000,000 shares; none
                issued
            
            
            -
            
            
            -Common
                stock, no par value, stated value of $.001 per share,100,000,000
                shares authorized; 36,189,705 and 35,995,342 issued andoutstanding
                at December 31, 2005 and March 31, 2005, respectively
            
            
            36,190
            
            
            35,995Additional
                paid-in capital
            
            
            190,100,752
            
            
            188,165,820Unearned
                ESOP shares
            
            
            -
            
            
            (2,270,652
            )Other
                comprehensive income (note 8)
            
            
            180,578
            
            
            271,267Retained
                earnings
            
            
            45,599,260
            
            
            51,717,876Total
                stockholders’ equity
            
            
            235,916,780
            
            
            237,920,306Total
                liabilities and stockholders’ equity
            
            $
            916,985,900
            
            $
            792,010,671See
                accompanying notes to financial statements.





-3-
 **FRONTIER
                  AIRLINES, INC.****Statements
                  of
                  Operations****For
                  the three and nine months ended December 31, 2005 and
                  2004****(Unaudited)****Three
                  Months Ended**
              
              **Nine
                  Months Ended****December
                  31,**
              
              **December
                  31,**
              
              **December
                  31,**
              
              **December
                  31,****2005**
              
              **2004**
              
              **2005**
              
              **2004**Revenues:Passenger
                  - mainline
              
              $
              217,812,040
              
              $
              182,360,545
              
              $
              655,276,441
              
              $
              539,971,428Passenger
                  - regional partner
              
              
              23,489,827
              
              
              21,582,231
              
              
              69,834,655
              
              
              62,618,444Cargo
              
              
              1,461,832
              
              
              1,188,514
              
              
              4,053,577
              
              
              3,862,018Other
              
              
              4,198,861
              
              
              3,106,181
              
              
              12,631,427
              
              
              8,643,425Total
                  revenues
              
              
              246,962,560
              
              
              208,237,471
              
              
              741,796,100
              
              
              615,095,315Operating
                  expenses:Flight
                  operations
              
              
              35,187,555
              
              
              32,545,417
              
              
              104,097,155
              
              
              96,107,230Aircraft
                  fuel
              
              
              77,649,123
              
              
              53,806,536
              
              
              208,391,165
              
              
              138,524,787Aircraft
                  lease
              
              
              23,370,956
              
              
              23,034,636
              
              
              70,273,868
              
              
              64,232,862Aircraft
                  and traffic servicing
              
              
              35,183,456
              
              
              32,287,621
              
              
              101,050,337
              
              
              95,208,836Maintenance
              
              
              18,487,070
              
              
              19,170,439
              
              
              57,015,422
              
              
              57,326,354Promotion
                  and sales
              
              
              19,851,722
              
              
              18,738,362
              
              
              60,368,849
              
              
              57,827,342General
                  and administrative
              
              
              12,481,000
              
              
              12,827,674
              
              
              36,802,629
              
              
              35,155,449Operating
                  expenses - regional partner
              
              
              29,143,742
              
              
              24,012,344
              
              
              79,569,264
              
              
              68,874,118Aircraft
                  lease and facility exit costs
              
              
              -
              
              
              -
              
              
              3,364,515
              
              
              -(Gains)
                  losses on sales of assets, net
              
              
              (273,565
              )
              
              (119,565
              )
              
              (964,742
              )
              
              484,666Impairments
              
              
              -
              
              
              658,424
              
              
              -
              
              
              5,259,624Depreciation
              
              
              7,545,117
              
              
              6,559,021
              
              
              21,079,516
              
              
              19,783,602Total
                  operating expenses
              
              
              258,626,176
              
              
              223,520,909
              
              
              741,047,978
              
              
              638,784,870Operating
                  income (loss)
              
              
              (11,663,616
              )
              
              (15,283,438
              )
              
              748,122
              
              
              (23,689,555
              )Nonoperating
                  income (expense):Interest
                  income
              
              
              2,559,727
              
              
              1,049,917
              
              
              5,835,209
              
              
              2,406,186Interest
                  expense
              
              
              (5,709,068
              )
              
              (3,384,302
              )
              
              (14,870,882
              )
              
              (9,405,161
              )Other,
                  net
              
              
              (53,016
              )
              
              341,287
              
              
              (203,441
              )
              
              172,570Total
                  nonoperating income (expense), net
              
              
              (3,202,357
              )
              
              (1,993,098
              )
              
              (9,239,114
              )
              
              (6,826,405
              )Loss
                  before income tax benefit
              
              
              (14,865,973
              )
              
              (17,276,536
              )
              
              (8,490,992
              )
              
              (30,515,960
              )Income
                  tax benefit
              
              
              (4,575,753
              )
              
              (6,218,492
              )
              
              (2,372,376
              )
              
              (10,802,228
              )Net
                  loss
              
              $
              (10,290,220
              )
              $
              (11,058,044
              )
              $
              (6,118,616
              )
              $
              (19,713,732
              )Loss
                  per share:Basic
                  and diluted
              
              $
              (0.28
              )
              $
              (0.31
              )
              $
              (0.17
              )
              $
              (0.55
              )Weighted
                  average shares of common stock outstanding:Basic
                  and diluted
              
              
              36,187,528
              
              
              35,623,855
              
              
              36,127,533
              
              
              35,612,440
  See
        accompanying notes to financial statements.
 
 -4-
 **FRONTIER
                    AIRLINES, INC.****Statements
                    of Cash
                    Flows****For
                    the Nine Months Ended December 31, 2005 and 2004****(Unaudited)**
 **Nine
                    Months Ended**Cash
                    flows from operating activities:
                
                **December
                    31,**
                  **2005**
                
                **December
                    31,**
                  **2004**Net
                      loss
                
                $
                (6,118,616
                )
                $
                (19,713,732
                )Adjustments
                    to reconcile net loss to
                  net
                    cash provided (used) by operating activities:Compensation
                    expense under long-term incentive plans
                  and
                    employee ownership plans
                
                
                2,376,792
                
                
                2,182,634Depreciation
                    and amortization
                
                
                21,782,355
                
                
                20,243,474Impairment
                    recorded on long-lived assets
                
                
                -
                
                
                3,996,742Impairment
                    recorded on inventories
                
                
                -
                
                
                1,262,882Deferred
                    income taxes
                
                
                (2,367,092
                )
                
                (10,878,784
                )Unrealized
                    derivative loss (gain)
                
                
                2,254,201
                
                
                (432,009
                )Losses
                    (gains) on disposal of equipment and assets held for sale
                
                
                (998,833
                )
                
                563,319Changes
                    in operating assets and liabilities:Restricted
                    investments
                
                
                (4,502,791
                )
                
                (9,353,583
                )Receivables
                
                
                (8,419,466
                )
                
                1,651,279Security
                    and other deposits
                
                
                108,509
                
                
                (1,589,821
                )Prepaid
                    expenses and other assets
                
                
                (1,164,622
                )
                
                (5,749,344
                )Inventories
                
                
                299,922
                
                
                (2,612,549
                )Other
                    assets
                
                
                640,516
                
                
                1,203,556Accounts
                    payable
                
                
                (3,717,327
                )
                
                (1,728,433
                )Air
                    traffic liability
                
                
                (2,944,746
                )
                
                3,640,943Other
                    accrued expenses
                
                
                1,190,169
                
                
                4,411,793Deferred
                    revenue and other liabilities
                
                
                7,086,123
                
                
                695,319Net
                    cash provided (used) by operating activities
                
                
                5,505,094
                
                
                (12,206,314
                )Cash
                    flows from investing activities:Proceeds
                    from maturities of held-to-maturity investments
                
                
                3,000,000
                
                
                2,000,000Proceeds
                    from the sale of available-for-sale securities
                
                
                -
                
                
                41,250,000Purchase
                    of available-for-sale securities
                
                
                -
                
                
                (136,650,000
                )Aircraft
                    lease and purchase deposits made
                
                
                (21,555,865
                )
                
                (15,848,240
                )Aircraft
                    lease and purchase deposits returned or applied
                
                
                18,989,115
                
                
                24,330,934Decrease
                    in restricted investments
                
                
                2,034,000
                
                
                3,481,600Proceeds
                    from the sale of aircraft and equipment
                
                
                9,080,386
                
                
                77,706,640Capital
                    expenditures
                
                
                (88,640,790
                )
                
                (121,202,098
                )Net
                    cash used in investing activities
                
                
                (77,093,154
                )
                
                (124,931,164
                )Cash
                  flows from financing activities:Proceeds
                    from the exercise of stock options
                
                
                1,551,188
                
                
                348,799Proceeds
                    from long-term borrowings
                
                
                146,700,000
                
                
                22,000,000Principal
                    payments on long-term borrowings
                
                
                (14,864,029
                )
                
                (14,253,415
                )Payment
                    of financing fees
                
                
                (3,913,756
                )
                
                (966,635
                )Payment
                    to bank for compensating balance
                
                
                (2,000,000
                )
                
                -Principal
                    payments on short-term borrowings
                
                
                (5,000,000
                )
                
                -Net
                    cash provided by financing activities
                
                
                122,473,403
                
                
                7,128,749Net
                    increase (decrease) in cash and cash equivalents
                
                
                50,885,343
                
                
                (130,008,729
                )Cash
                    and cash equivalents, beginning of period
                
                
                171,794,772
                
                
                130,008,729Cash
                    and cash equivalents, end of period
                
                $
                222,680,115
                
                $
                -
 See
        accompanying notes to financial statements.
  -5-
  **FRONTIER
        AIRLINES, INC.**
 **Notes
        to Financial
        Statements**
 **December
        31, 2005 (Unaudited)**
 
 
 **1.** **Basis
        of Presentation**
 
 The
        accompanying unaudited financial statements have been prepared in accordance
        with generally accepted accounting principles for interim financial information
        and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly,
        they do not include all of the information and footnotes required by generally
        accepted accounting principles for complete financial statements and should
        be
        read in conjunction with the Company’s Annual Report on Form 10-K for the year
        ended March 31, 2005. The preparation of financial statements in conformity
        with
        generally accepted accounting principles requires management to make estimates
        and assumptions that affect the reported amounts of assets and liabilities
        and
        disclosure of contingent assets and liabilities at the date of the financial
        statements and the reported amounts of revenues and expenses during the
        reporting period. Actual results could differ from those estimates. In the
        opinion of management, all adjustments (consisting only of normal recurring
        adjustments) considered necessary for a fair presentation have been included.
 
 The
        Company operates in one business segment that provides transportation to
        passengers and cargo and includes mainline operations and a regional
        partner.
 
 Financial
        results for the Company and airlines in general, are seasonal in nature.
        More
        recently, results for the Company’s first
        and second
        fiscal quarters have exceeded its third and fourth fiscal quarters. Results
        of
        operations for the three and nine months ended December 31, 2005 are not
        necessarily indicative of the results that may be expected for the year ended
        March 31, 2006.
 
 Recently
        the Company’s services to Cancun, Mexico and New Orleans, Louisiana were
        disrupted by hurricanes and other extreme weather impacting the Company’s
        service levels to these destinations and also impacting revenues and cost
        of
        doing business. The Company maintains business interruption insurance to
        cover
        lost profits and has made claims to recover loss profits related to these
        events. The Company has not recorded any anticipated recoveries as a final
        settlement of the claims has not been reached.
  ***Reclassifications***
 
 Certain
        prior year amounts have been reclassified to conform to the current year
        presentation including the reclassification of investment securities of
        $154,000,000 of auction rate securities, which were included in cash and
        cash
        equivalents at December 31, 2004. As a result of this reclassification, the
        Company’s cash flow from investing activities for the nine months ended December
        31, 2004 now includes the net change in auction rate securities in short-term
        investments.
  **2.** **Stock-Based
        Compensation**
 
 Stock
        options and other stock-based compensation awards are accounted for using
        the
        intrinsic value method prescribed under Accounting Principles Board Opinion
        No.
        25, *“Accounting
        for Stock Issued to Employees”* (“APB
        25”) and related Interpretations in accounting for its employee stock options
        and follows the disclosure provisions of Statement of Financial Accounting
        Standards No. 123 (“SFAS 123”). Accordingly, no compensation cost is recognized
        for options granted at a price equal to the fair market value of the common
        stock on the date of grant. Pro forma information regarding net income and
        earnings per share is required by SFAS 123, which also requires that the
        information be determined as if the Company has accounted for its employee
        stock
        options under the fair value method of that Statement. The fair value of
        each
        option grant was estimated on the date of grant using the Black-Scholes option
        valuation model.
 
 Had
        compensation cost for the Company’s stock-based compensation plans had been
        determined using the fair value of the options at the grant date, the Company’s
        pro forma net loss and loss per share would have been as follows:
  -6-
  **Three
                    months ended**
                  **December
                    31,**
                
                **Nine
                    months ended**
                  **December
                    31,****2005**
                
                **2004**
                
                **2005**
                
                **2004
                    (1)**Net
                    loss, as reported
                
                $
                (10,290,220
                )
                $
                (11,058,044
                )
                $
                (6,118,616
                )
                $
                (19,713,732
                )Add:
                    stock-based compensation expense included in reported net earnings,
                    net of
                    tax
                
                
                27,051
                
                
                -
                
                
                66,231
                
                
                -Less:
                    total compensation expense determined under fair value method
                    for all
                    awards, net of tax
                
                
                (134,668
                )
                
                (547,061
                )
                
                (404,964
                )
                
                (3,995,735
                )Pro
                    forma net loss
                
                $
                (10,397,837
                )
                $
                (11,605,105
                )
                $
                (6,457,349
                )
                $
                (23,709,467
                )Loss
                    per share, basic and diluted:As
                    reported
                
                $
                (0.28
                )
                $
                (0.31
                )
                $
                (0.17
                )
                $
                (0.55
                )Pro
                    forma
                
                $
                (0.29
                )
                $
                (0.33
                )
                $
                (0.18
                )
                $
                (0.67
                )
 
 (1)
                During
                    the nine months ended December 31, 2004, the Company’s Board of Directors
                    approved the accelerated vesting of certain of the Company’s stock options
                    with exercise prices in excess of the stock’s current market price. The
                    purpose of the accelerated vesting is to enable the Company to
                    avoid
                    recognizing compensation expense in its statement of operations
                    associated
                    with these options in future periods upon adoption of SFAS No.
                    123(R) in
                    the second quarter of fiscal 2006. As a result, a total of 671,500
                    options
                    became immediately vested. These options originally would have
                    vested
                    between October 2004 and March 2009. Exercise prices for these
                    options
                    ranged from $8.00 to $24.17 per share. There were 35 employees
                    affected by
                    the modification. The total accelerated expense as a result of
                    the
                    modification is approximately $2,997,000, net of taxes, and is
                    included in
                    the pro forma numbers presented in the table above.
  The
          fair
          value of each option grant is estimated on the date of grant using the
          Black-Scholes option-pricing model with the following weighted average
          assumptions used for grants during the nine months ended December 31, 2005:
          dividend yield of 0%; expected volatility of 74.4%; expected life of 5
          years;
          and risk-free interest rate of 4.06%. The weighted average fair value of
          options
          granted during the nine months ended December 31, 2005, was $6.74. The
          following
          weighted average assumptions were used for grants during the nine months
          ended
          December 31, 2004: dividend yield of 0%; expected volatility of 70.7%;
          expected
          life of 6 years; and risk-free interest rate of 3.35%. The weighted average
          fair
          value of options granted during the nine months ended December 31, 2004,
          was
          $5.00.
  In
          September of 2004, our shareholders approved and the Company adopted the
          Frontier Airlines 2004 Equity Incentive Plan (the “2004 Plan”), which authorizes
          the Board of Directors to grant incentive compensation to member of the
          Board
          and certain employees of the Company. Pursuant to the 2004 Plan, each fiscal
          year the Board adopts an annual bonus and long-term incentive plan for
          the
          Company’s officers and director-level employees. The long-term incentive plan
          for the fiscal year ending March 31, 2006 resulted in the issuance of 194,746
          stock appreciation rights payable in stock, 83,386 restricted stock units
          and a
          three-year cash incentive pool. Forfeitures during the nine-months ended
          were
          29,727 stock appreciation rights payable in stock and 9,562 restricted
          stock
          units. Annual bonuses and three-year cash incentive pools will become payable
          based upon pre-tax profits and a modifier based on the Company’s annual pre-tax
          profit performance relative to peer group companies. There was no bonus
          accrual
          under this plan for the nine months ended December 31, 2005 because the
          Company
          has not been profitable in this fiscal year.
  The
          restricted stock awards vest, if the executive is still employed by the
          Company
          at the time, in five years from the grant date. Restricted stock issued
          to
          members of the Board of Directors vest after three years. The fair value
          of the
          restricted stock units on the date of the grant is recorded as compensation
          expense over the vesting period. The stock appreciation rights payable
          in stock
          vest 20% a year over five years. Compensation expense for the stock appreciation
          rights is based on the difference between the market price of the award
          on the
          date of grant and the current market price of the award. During the nine-months
          ended December 31, 2005, compensation expense
   -7-
  of
          $106,000 has been recognized for these awards issued under the 2004 Plan.
 
 **3.**  **Loss
          per share**
 
 Basic
          loss per share is computed by dividing net loss by the weighted average
          number
          of shares of common stock outstanding during the period. Diluted loss per
          share
          includes dilutive common stock equivalents, using the treasury stock method,
          and
          assumes that convertible debt was converted into common stock upon issuance,
          if
          dilutive.
 
 During
          the three and nine months ended December 31, 2005, interest, net of tax,
          on the
          Convertible Notes in the amount of $233,000 and shares of 2,418,000 and
          809,000,
          respectively, that would be issued upon assumed conversion of the Convertible
          Notes, were excluded from the calculation of diluted loss per share due
          to the
          antidilutive effect on loss per share. For the three and nine months ended
          December 31, 2005, outstanding options and warrants of 6,304,000 were excluded
          from the diluted earnings per share because the effect would have been
          anti-dilutive. For the three and nine months ended December 31, 2004,
          outstanding options and warrants of 6,477,000 were excluded from the diluted
          earnings per share because the effect would have been anti-dilutive.
 
 **4.
          Property and Equipment, Net**
 
 As
          of
          December 31, 2005 and March 31, 2005, property and equipment consisted
          of the
          following:
 
 **December
                    31,**
                
                **March
                    31,****2005**
                
                **2005**Aircraft,
                    spare aircraft parts, and improvements to leased aircraft
                
                $
                553,696,193
                
                $
                489,324,022Ground
                    property, equipment and leasehold improvements
                
                
                40,485,042
                
                
                38,524,096Construction
                    in progress
                
                
                839,302
                
                
                231,397595,020,537
                
                
                528,079,515Less
                    accumulated depreciation
                
                
                (82,164,918
                )
                
                (72,265,833
                )Property
                    and equipment, net
                
                $
                512,855,619
                
                $
                455,813,682
  **5.**  **Deferred
          Revenue and Other Liabilities**
 
 At
          December 31, 2005 and March 31, 2005, deferred revenue and other liabilities
          were comprised of the following:
 
 **December
                    31,**
                
                **March
                    31,****2005**
                
                **2005**Deferred
                    revenue related to co-branded credit card
                
                $
                12,968,841
                
                $
                6,557,945Deferred
                    rent credits
                
                
                18,970,515
                
                
                18,271,668Other
                
                
                624,856
                
                
                648,476Total
                    deferred revenue and other liabilities
                
                
                32,564,212
                
                
                25,478,089Less
                    current portion
                
                
                (10,459,415
                )
                
                (5,361,422
                )$
                22,104,797
                
                $
                20,116,667
   -8-
  **6.**  **Other
        Accrued Expenses**
 
 At
        December 31, 2005 and March 31, 2005, other accrued expenses were comprised
        of
        the following:
 
 **December
                  31,**
              
              **March
                  31,****2005**
              
              **2005**Accrued
                  salaries and benefits
              
              $
              33,745,002
              
              $
              30,340,793Federal
                  excise and other passenger taxes payable
              
              
              13,941,059
              
              
              17,251,283Property
                  taxes payable
              
              
              3,908,953
              
              
              2,279,718Remaining
                  lease payments for aircraft and facilitiesabandoned
                  before lease termination date
              
              
              124,012
              
              
              1,063,022Other
              
              
              4,808,346
              
              
              4,402,387$
              56,527,372
              
              $
              55,337,203
 
 **7.**  **Long-term
        Debt**
 
 ***Convertible
        Notes due 2025***
 
 On
        December 7, 2005, the Company completed the sale of $92,000,000 aggregate
        principal amount of 5.0% Convertible Notes due 2025 (“Convertible Notes”) in a
        public offering pursuant to the Company’s shelf registration statement. Interest
        is payable semi-annually, beginning on June 15, 2006. The Convertible Notes
        are
        unsecured and rank effectively junior in right of payment to existing and
        future
        secured debt, including the Company’s Credit Facility and aircraft notes. At any
        time on or after December 31, 2010, the Company may redeem any of the
        Convertible Notes for cash at a redemption price of 100% of the principal
        amount
        plus accrued interest. Holders may require the Company to repurchase the
        Convertible Notes for cash at a repurchase price of 100% of the principal
        amount
        plus accrued interest on December 15, 2010, 2015 and 2020.
 
 The
        Convertible Notes are convertible, at the option of the holders, into shares
        of
        the Company’s common stock at a conversion rate of 96.7352 shares per principal
        amount of notes (representing a conversion price of approximately $10.34
        per
        share), subject to certain adjustments, at any time prior to maturity. Upon
        conversion, the Company will have the right to deliver a combination of cash
        and
        shares of common stock. In addition, holders of the Convertible Notes have
        the
        right to require the Company to repurchase the notes upon the occurrence
        of a
        specified designated event at a price of 100% of the principal amount plus
        accrued interest. Upon the occurrence of a specified designated event prior
        to
        December 15, 2010, the conversion rate will be increased by a specified number
        of shares.
 
 ***Long-term
        Debt Secured by Aircraft***
 
 During
        the nine months ended December 31, 2005, the Company borrowed $54,700,000
        for
        the purchase of two Airbus A319 aircraft, including a junior loan of $4,900,000
        on an aircraft purchased in July 2005. The senior loans have terms of 12
        years
        and are payable in quarterly installments currently of $693,000 and $672,000,
        respectively, as of December 31, 2005, including interest, payable in arrears,
        with a floating interest rate adjusted quarterly based on LIBOR. These loans
        bear interest at rates of 6.49% and 6.04%, respectively, at December 31,
        2005.
        At the end of the term, there are balloon payments of $5,558,000 and $4,900,000,
        respectively. A security interest in the two purchased aircraft secures these
        loans. The junior loan has an eight-year term with quarterly installments
        currently of $241,000. The loan bears interest at a floating interest rate
        adjusted quarterly based on LIBOR, which was 7.94% at December 31,
        2005.
  
 -9-
 ***Credit
          Facilities***
  In
            March
            2005, the Company entered into a 42-month revolving credit facility (“Credit
            Facility”) to be used in support of letters of credit and for general corporate
            purposes. Under this facility, the Company may borrow the lesser of $13,000,000
            (“maximum commitment amount”) or 50% of the current market value of pledged
            eligible spare parts. The amount of letters of credit available is equal
            to the
            amount available under the facility less current borrowings. The amount
            available under the Credit Facility at December 31, 2005 was $10,816,000,
            which
            was reduced by letters of credit issued during the quarter of $6,500,000
            for a
            net amount available for borrowings of $4,316,000. There was $5,000,000
            borrowed
            against the Credit Facility at March 31, 2005, and there were no amounts
            borrowed as of December 31, 2005.
  In
        July
        2005, the Company entered into a twelve-month credit agreement (the “Credit
        Agreement”) with a bank for a $5,000,000 revolving letter of credit. Under the
        Agreement, $3,500,000 may be used for the issuance of letters of credit,
        which
        must be collateralized by a borrowing base consisting of certain receivable
        balances at the time of issuance. As of December 31, 2005, the aggregate
        amount
        of letters of credit issued under the Credit Agreement was $2,270,000 and
        a cash
        compensating balance of
        $2,000,000 was maintained to secure the letters of credit, which has been
        classified as a current restricted investment on the balance sheet. There
        were
        no amounts borrowed at December 31, 2005.
 
 The
        Credit Facility and the Credit Agreement contain standard events of default
        provisions, including a financial covenant to maintain $120,000,000 of
        unrestricted cash with a 30-day cure period.
 
 **8.
        Comprehensive Loss**
 
 A
        summary
        of the comprehensive loss is as follows:
 
 **Three
                  months ended**
                **December
                  31,**
              
              **Nine
                  months ended**
                **December
                  31,****2005**
              
              **2004**
              
              **2005**
              
              **2004**Net
                  loss
              
              $
              (10,290,220
              )
              $
              (11,058,044
              )
              $
              (6,118,616
              )
              $
              (19,713,732
              )Other
                  comprehensive income:Unrealized
                  gain (loss) on derivative instruments, net of tax
              
              
              (35,553
              )
              
              112,170
              
              
              (90,688
              )
              
              361,177Total
                  comprehensive loss
              
              $
              (10,325,773
              )
              $
              (10,945,874
              )
              $
              (6,209,304
              )
              $
              (19,352,555
              )
 
 
 **9.**  **Aircraft
        Lease and Facility Exit Costs**
 
 In
        April
        2005, the Company ceased using three of its Boeing 737-300 leased aircraft
        with
        original lease termination dates in June 2005, August 2005 and May 2006.
        The
        Company negotiated an early return and one-time payment for the one aircraft
        with an original lease termination date of May 2006. This resulted in a charge
        during the first quarter of $3,311,888, representing the estimated fair value
        of
        the remaining lease payments and a negotiated one-time termination payment.
        In
        September 2005, the Company recorded $52,627 of facility lease exit costs
        related to a property in which a sublease was not obtained in a period
        originally estimated for an airport exited in fiscal year 2005. This reflects
        the Company’s revised estimated future payments on this lease. These charges are
        included in the Statement of Operations as aircraft and facility lease exit
        costs. The aircraft facility exit cost liability of $180,739 is included
        in the
        following Balance Sheet accounts: $124,012 in other accrued expenses and
        $56,727
        in other long-term liabilities.
  
 -10-
 
  A
          summary
          of the activity charged to these liabilities is as
          follows:
  **Aircraft**
              
              **Facility**
              
              **Total****Balance,
                  March 31, 2005**
              
              $
              932,800
              
              $
              249,568
              
              $
              1,182,368Additions
              
              
              3,311,888
              
              
              52,627
              
              
              3,364,515Lease
                  payments
              
              
              (4,244,688
              )
              
              (121,456
              )
              
              (4,366,144
              )**Balance,
                  December 31, 2005**
              
              $
              -
              
              $
              180,739
              
              $
              180,739
 
 **10.**  **Retirement
        Health Plan**
 
 In
        conjunction with the Company’s collective bargaining agreement, pilots, retired
        pilots and their dependents may retain medical benefits under the terms and
        conditions of the Health and Welfare Plan for Employees of Frontier Airlines,
        Inc. until age 65. The costs of retiree medical benefits are continued under
        the
        same contribution schedule as active employees.
 
 The
        net
        periodic benefit cost for the three and nine months ended December 31, 2005
        and
        2004 includes the following components:
 
 **Three
                  months ended**
                **December
                  31,**
              
              **Nine
                  months ended**
                **December
                  31,****2005**
              
              **2004**
              
              **2005**
              
              **2004**Service
                  cost
              
              $
              238,479
              
              $
              236,475
              
              $
              715,437
              
              $
              714,203Interest
                  cost
              
              
              67,821
              
              
              54,598
              
              
              203,463
              
              
              163,791Recognized
                  net actuarial loss
              
              
              15,171
              
              
              22,358
              
              
              45,513
              
              
              67,074Net
                  periodic benefit cost
              
              $
              321,471
              
              $
              313,431
              
              $
              964,413
              
              $
              945,068
  **11.
        Assets Held for Sale**
  In
        April
        2005, the Company retired the remaining Boeing aircraft and has classified
        all
        remaining Boeing 737-300 aircraft rotable spare parts and expendable inventories
        as “assets held for sale.” As such, these assets have been valued at the lower
        of the carrying amount or the estimated market value less selling costs.
  In
        August
        2004, the Company began selling Boeing spare parts and entered into agreements
        with two vendors to sell these parts on a consignment basis. The Company
        monitors resale values for Boeing parts quarterly using estimates obtained
        from
        outside vendors. Based on the current market prices and recent sales history,
        the Company has determined that there is currently no additional impairment
        required for the Boeing rotable spare parts and expendable inventories.
 
 Gains
        and
        losses that resulted from the sale of these assets are recognized as they
        are
        sold and reported in income from operations as a component of (gains) losses
        on
        sales of assets, net. During the nine-months ended December 31, 2005, the
        Company realized a net gain of $1,224,000 on the sale of these assets.
 
 
 -11-
 **12.
            Recently Issued Accounting Standards**
 In
          December 2004, the Financial Accounting Standards Board (“FASB”) issued SFAS No.
          123R, “Share-Based Payments”. SFAS No. 123R is a revision of SFAS No. 123,
“Accounting for Stock Based Compensation”, and supersedes APB 25. Among other
          items, SFAS 123R eliminates the use of APB 25 and the intrinsic value method
          of
          accounting, and requires companies to recognize the cost of employee services
          received in exchange for awards of equity instruments, based on the grant
          date
          fair value of those awards, in the financial statements. The effective
          date of
          SFAS 123R will be the beginning of the fiscal year that begins after June
          15,
          2005.
 
 SFAS
          123R
          permits companies to adopt its requirements using either a “modified
          prospective” method, or a “modified retrospective” method. Under the “modified
          prospective” method, compensation cost is recognized in the financial statements
          beginning with the effective date, based on the requirements of SFAS 123R
          for
          all share-based payments granted after that date, and based on the requirements
          of SFAS 123 for all unvested awards granted prior to the effective date
          of SFAS
          123R. Under the “modified retrospective” method, the requirements are the same
          as under the “modified prospective” method, however companies may restate
          financial statements of previous periods based on proforma disclosures
          made in
          accordance with SFAS 123.
 
 The
          Company currently accounts for stock based compensation under APB 25 and
          utilizes a standard option pricing model (i.e., Black-Scholes) to measure
          the
          fair value of stock options granted to employees. While SFAS 123R permits
          entities to continue to use such a model, the standard also permits the
          use of a
“lattice” model.
 
 SFAS
          123R
          also requires that the benefits associated with the tax deductions in excess
          of
          recognized compensation cost be reported as a financing cash flow, rather
          than
          as an operating cash flow as required under current literature. This requirement
          will reduce net operating cash flows and increase net financing cash flows
          in
          periods after the effective date. These future amounts cannot be estimated
          because they depend on, among other things, when employees exercise stock
          options.
 
 The
          Company currently expects to adopt SFAS 123R effective April 1, 2006, and
          to use
          the modified prospective method; however, the Company has not yet determined
          which of the aforementioned option pricing models it will use. In addition,
          the
          Company has not yet determined the financial statement impact of adopting
          SFAS
          123R.
 
 -12-
  **Item
          2: Management’s Discussion and Analysis of Financial Condition
          and Results of Operations**
 
 *Special
          Note About Forward-Looking Statements - This report contains forward-looking
          statements within the meaning of Section 21E of the Securities Exchange
          Act of
          1934 that describe the business and prospects of Frontier Airlines, Inc.
          and the
          expectations of our company and management. All statements included in
          this
          report that address activities, events or developments that we expect,
          believe,
          intend or anticipate will or may occur in the future, are forward-looking
          statements. When used in this document, the words “estimate,” “anticipate,”
“project” and similar expressions are intended to identify forward-looking
          statements. Forward-looking statements are inherently subject to risks
          and
          uncertainties, many of which cannot be predicted with accuracy and some
          of which
          might not even be anticipated. These risks and uncertainties include, but
          are
          not limited to: the timing of, and expense associated with, expansion and
          modification of our operations in accordance with our business strategy
          or in
          response to competitive pressures or other factors; failure of our new
          markets
          to perform as anticipated; the inability to achieve a level of revenue
          through
          fares sufficient to obtain profitability due to competition from other
          air
          carriers and excess capacity in the markets we serve; the inability to
          obtain
          sufficient gates at Denver International Airport to accommodate the expansion
          of
          our operations; general economic factors and behavior of the fare-paying
          public
          and its potential impact on our liquidity; terrorist attacks or other incidents
          that could cause the public to question the safety and/or efficiency of
          air
          travel; hurricanes and their impact on oil production; operational disruptions,
          including weather; industry consolidation; the impact of labor disputes;
          enhanced security requirements; changes in the government’s policy regarding
          relief or assistance to the airline industry; the economic environment
          of the
          airline industry generally; increased federal scrutiny of low-fare carriers
          generally that may increase our operating costs or otherwise adversely
          affect
          us; actions of competing airlines, such as increasing capacity and pricing
          actions of United Airlines, Southwest Airlines, and other competitors,
          particularly in some of our Mexico destinations due to the increase in
          the
          number of domestic airlines authorized to serve Mexico markets from the
          U.S.;
          the availability of suitable aircraft, which may inhibit our ability to
          achieve
          operating economies and implement our business strategy; the unavailability
          of,
          or inability to secure upon acceptable terms, debt or operating lease financing
          necessary to acquire aircraft which we have ordered; uncertainties regarding
          aviation fuel prices, and various risk factors to our business discussed
          elsewhere in this report. Because our business, like that of the airline
          industry generally, is characterized by high fixed costs relative to revenues,
          small fluctuations in our revenue per available seat mile (“RASM”) or cost per
          available seat mile (“CASM”) can significantly affect operating
          results* *.
          These risks and factors are not exclusive, and we undertake no obligation
          to
          publicly update or revise any forward-looking statements to reflect events
          or
          circumstances that may arise after the date of this filing. A discussion
          of some
          of these risk factors is included in the Company’s Annual Report on Form 10-K
          for the year ended March 31, 2005 and a Form 8-K filed on November 29,
          2005.
          These reports should be read in their entirety since no single section
          deals
          with all aspects of these matters.*
 
 **Our
          Business**
 
 Now
          in
          our 12th year of operations, we are a low cost, affordable fare airline
          operating primarily in a hub and spoke fashion connecting cities coast
          to coast
          through our hub at Denver International Airport (“DIA”). We are the second
          largest jet service carrier at DIA based on departures. As of January 23,
          2006,
          we, in conjunction with Frontier JetExpress operated by Horizon Air Industries,
          Inc. (“Horizon”), operate routes linking our Denver hub to 47 U.S. cities
          spanning the nation from coast to coast and to seven cities in Mexico.
          During
          the year ended March 31, 2005, we began certain point-to-point routes to
          Mexico
          from non-hub cities. As of January 23, 2006, we also provided jet service
          to
          Cancun, Mexico directly from four non-hub cities and service to Puerto
          Vallarta,
          Mexico from Kansas City, Missouri.
 
 We
          were
          organized in February 1994 and we began flight operations in July 1994
          with two
          leased Boeing 737-200 jets. We have since expanded our fleet in service
          to 49
          jets as of January 23, 2006 (33 of which we lease and 16 of which we own),
          consisting of 42 Airbus A319s and seven Airbus A318s. In April 2005, we
          completed our plan to replace our Boeing aircraft with new purchased and
          leased
          Airbus jet aircraft. During the three and nine months ended December 31,
          2005,
          we increased year-over-year capacity by 8.6% and 6.7%, respectively. During
          the
          three and nine months ended December 31, 2005, we increased mainline passenger
          traffic by 9.2% and 12.7% over the prior comparable periods, outpacing
          our
          increase in capacity during both periods. We intend to continue our growth
          strategy and will add frequency to new markets and existing markets that
          we
          believe are underserved.
  -13-
 Recently
          our services to Cancun, Mexico, New Orleans, Louisiana and certain of our
          markets in Florida were disrupted by hurricanes and other extreme weather,
          impacting our service levels to these destinations and also impacting our
          revenues and cost of doing business. We are always at risk of severe weather
          in
          any destination we serve. Although we believe we have developed sound strategies
          for addressing operational issues created by severe weather, we remain
          exposed
          to significant operational interruptions. The two Gulf Coast hurricanes
          also
          severely damaged crude oil production and refinery capacity in the region.
          As a
          result of these disruptions, in October 2005, the cost of jet aviation
          fuel
          increased within weeks by nearly $1.00 per gallon and caused fuel shortages
          at
          several airports that we serve.
 
 In
          addition, with respect to our Mexico service, the U.S. and Mexico recently
          amended their bilateral agreement relating to commercial air service.
          Previously, only two U.S. based airlines were permitted to provide air
          service
          between the U.S. and certain cities in Mexico, primarily the resort destinations
          we serve. In many cases, we were one of the two U.S. based airlines providing
          service to the cities we serve in Mexico. The recent amendments to the
          bilateral
          agreement expanded the authorized service levels to three U.S. based airlines
          per identified city pair. It is therefore highly likely that other airlines
          will
          seek to add service to some of the Mexico destinations we serve, which
          would
          increase competition and perhaps place downward pressure on air fares in
          these
          markets.
 
 In
          September 2003, we signed a 12-year agreement with Horizon, under which
          Horizon
          operates up to nine 70-seat CRJ 700 aircraft under our Frontier JetExpress
          brand. The service began on January 1, 2004 with three aircraft. We increased
          JetExpress aircraft to a total of eight aircraft in service and one spare
          aircraft as of June 1, 2004. We control the scheduling of this service.
          We
          reimburse Horizon for its expenses related to the operation plus a margin.
          The
          agreement provides for financial incentives, penalties and changes to the
          margin
          based on the performance of Horizon and our financial performance. As of
          January
          23, 2006, Frontier JetExpress provides service to Albuquerque, New Mexico;
          Boise, Idaho; Billings, Montana; Dayton, Ohio; El Paso, Texas; Fresno,
          California; Little Rock, Arkansas; Oklahoma City, Oklahoma; Spokane, Washington;
          Tucson, Arizona; and Tulsa, Oklahoma, and supplements our mainline service
          to
          Austin, Texas; Omaha, Nebraska, and San Jose, California.
  We
          currently operate on 16 gates on Concourse A at DIA on a preferential basis.
          We
          use these 16 gates and share use of up to four common use regional jet
          parking
          positions to operate approximately 241 daily mainline flight departures
          and
          arrivals and 52 Frontier JetExpress daily system flight departures and
          arrivals.
  During
          the nine months ended December 31, 2005, we added service from DIA to the
          following new cities with commencement dates as follows:
 
 **Destination**
                **Commencement
                    Date**Detroit,
                    Michigan
                May
                    8, 2005Tulsa,
                    Oklahoma (1)
                May
                    22, 2005Akron-Canton,
                    Ohio
                June
                    15, 2005San
                    Antonio, Texas
                June
                    26, 2005Dayton,
                    Ohio (1)
                August
                    31, 2005Fresno,
                    California (1)
                August
                    31, 2005Kansas
                    City, Missouri to
                  Puerto
                    Vallarta, Mexico
                December
                    17, 2005Denver,
                    Colorado to Cozumel, Mexico
                December
                    17, 2005Denver,
                    Colorado to Acapulco, Mexico (2)
                December
                    18, 2005(1)
                    Operated exclusively by Frontier JetExpress.(2)
                    We will discontinue seasonal service to Acapulco on April 16,
                    2006.
  In
          September 2005, we suspended our one daily flight to New Orleans, Louisiana
          due
          to Hurricane Katrina.
 
 In
          addition to adding Acapulco and Cozumel to cities we serve in Mexico, we
          have
          increased service in Mexico as follows: (1) resumed seasonal service to
          Ixtapa/Zihuatanejo on November 18, 2005, adding an additional
          weekly
   -14-
  frequency
          from the 2004 season for a total of three round-trip frequencies per week,
          (2)
          increased service from Denver to Cabo San Lucas beginning November 18,
          2005 and
          to Puerto Vallarta beginning December 17, 2005, with daily service plus
          an
          additional Saturday frequency during peak periods to both destinations,
          and (3)
          increased to two daily flights to Cancun from Denver during the peak winter
          holiday periods, effective December 17, 2005. This represents an increase
          in our
          Cancun service from Denver and is part of our growing Cancun operation,
          which
          currently includes non-stop service to Cancun from St. Louis, Kansas City,
          Salt
          Lake City, Nashville and Denver.
 
 In
          January 2006, we submitted an application with the DOT and the Canadian
          government for authority to provide round-trip jet transportation to Canada.
          In
          January 2006, we received authorization from the DOT to serve cities located
          in
          Canada. Our applications with Canadian authorities are pending. We have
          also
          submitted applications to the DOT for authority to provide round-trip jet
          transportation for the following routes: (1) Indianapolis, Indiana to Cancun,
          Mexico; (2) Chicago Midway airport to Cancun, Mexico; and (3) Los Angeles
          International Airport to Cabo San Lucas, Mexico. In January 2006, we received
          approval from the DOT for our application to fly from Indianapolis to Cancun.
          Our application with the Mexican authorities is pending.
  Our
          filings with the Securities and Exchange Commission are available at no
          cost on
          our website, www.frontierairlines.com ,
          in the
          Investor Relations folder contained in the section titled “About Frontier”.
          These reports include our annual report on Form 10-K, our quarterly reports
          on
          Form 10-Q, current reports on Form 8-K, Section 16 reports on Forms 3,
          4 and 5,
          and any related amendments or other documents, and are made available as
          soon as
          reasonably practicable after we file the materials with the SEC.
  Our
          corporate headquarters are located at 7001 Tower Road, Denver, Colorado
          80249.
          Our administrative office telephone number is 720-374-4200 and our reservations
          telephone number is 800-432-1359.
 
 **Overview
          of Operations and the Industry**
  We
          intend
          to continue our focused growth strategy, which included the completion
          of a
          fleet transition from a Boeing fleet to an all Airbus fleet in April 2005.
          One
          of the key elements of this strategy is to produce cost savings because
          crew
          training is standardized for aircraft of a common type, maintenance issues
          are
          simplified, spare parts inventory is reduced, and scheduling is more efficient.
          As of January 23, 2006, we have remaining firm purchase commitments for
          11
          Airbus 319 aircraft from Airbus, and we  intend
          to
          lease as many as four additional A319 aircraft from third party lessors
          over the
          next two years. We intend to use these additional aircraft to provide service
          to
          new markets and/or to add frequencies to existing markets that we believe
          are
          underserved.
 
 We
          believe we have a proven management team and a strong company culture and
          will
          continue to focus on differentiating the product and service we provide
          to our
          passengers. We believe our friendly, dedicated employees, affordable pricing,
          accommodating service, in-flight entertainment systems and comfortable
          airplanes
          distinguish our product and service from our competitors. Safety is a primary
          concern, and we are proud that our maintenance staff has been awarded the
          FAA
          Diamond Award for Excellence for seven straight years – an
          award that
          recognizes our commitment to the ongoing training and education of our
          maintenance staff. Our product begins with the Airbus aircraft, which offers
          a
          comfortable passenger cabin that we configure with one class of comfortable
          seating, superb leg room, and in-seat 24 channel live television entertainment.
          We also provide three additional channels that offer current-run pay-per-view
          movies. Augmenting our product is our team of dedicated employees who strive
          to
          offer friendly customer service and keep operations running efficiently,
          which
          we believe leads to lower operating costs.
  The
          airline industry continues to operate in an intensely competitive market
          with
          record high aircraft fuel costs. We expect competition will remain intense.
          Business and leisure travelers continue to reevaluate their travel budgets
          and
          remain highly price sensitive. Increased competition has prompted aggressive
          strategies from competitors through discounted fares and sales promotions.
          Additionally, the intense competition coupled with the record high fuel
          costs
          has created financial hardship for some of our competitors that have been
          forced
          to reduce capacity or have been forced into bankruptcy protection.
 
 **Highlights
          from the Quarter**
 
 ·
                Completed
                    a $92,000,000 public offering of convertible
                    notes
 ·
                Increased
                    the number of Mexico cities we serve to seven with new service
                    to Cozumel
                    and Acapulco.
 ·
                We
                    were ranked as number one in “On
                    Time
                    Arrival Performance” among all carriers at the 33 largest airports in
                    America for the month of September 2005 and in the top five for
                    on time
                    arrival performance for four consecutive months.
 
  -15-
  **Operating
          Statistics**
 
 The
          following table provides certain of our financial and operating data for
          the
          three and nine months ended December 31, 2005 and 2004:
  **Three
                      Months Ended**
                    **December
                      31,**
                  
                  
                  
                  **Nine
                      Months Ended**
                    **December
                      31,****2005**
                  
                  **2004**
                  
                  **Change**
                  
                  **2005**
                  
                  **2004**
                  
                  **Change****Selected
                      Operating Data - Mainline:**Passenger
                      revenue (000s) (1)
                  $
                      217,812
                  
                  $
                      182,361
                  
                  19.4%
                  
                  $
                      655,276
                  
                  $
                      539,971
                  
                  21.4%Revenue
                      passengers carried (000s)
                  1,872
                  
                  1,644
                  
                  13.9%
                  
                  5,784
                  
                  4,978
                  
                  16.2%Revenue
                      passenger miles (RPMs) (000s) (2)
                  1,774,114
                  
                  1,625,146
                  
                  9.2%
                  
                  5,555,093
                  
                  4,928,415
                  
                  12.7%Available
                      seat miles (ASMs) (000s) (3)
                  2,461,668
                  
                  2,267,686
                  
                  8.6%
                  
                  7,326,080
                  
                  6,862,911
                  
                  6.7%Passenger
                      load factor (4)
                  72.1%
                  
                  71.7%
                  
                  0.4
                      pts.
                  
                  75.8%
                  
                  71.8%
                  
                  4.0
                      pts.Break-even
                      load factor (5)
                  75.2%
                  
                  77.6%
                  
                  (2.4)
                      pts.
                  
                  75.7%
                  
                  75.1%
                  
                  0.6
                      pts.Block
                      hours (6)
                  50,968
                  
                  45,725
                  
                  11.5%
                  
                  149,323
                  
                  136,786
                  
                  9.2%Departures
                  20,835
                  
                  18,136
                  
                  14.9%
                  
                  61,338
                  
                  54,723
                  
                  12.1%Average
                      seats per departure
                  129.4
                  
                  129.9
                  
                  (0.4%)
                  
                  129.4
                  
                  130.2
                  
                  (0.6%)Average
                      stage length
                  913
                  
                  963
                  
                  (5.2%)
                  
                  923
                  
                  963
                  
                  (4.2%)Average
                      length of haul
                  948
                  
                  989
                  
                  (4.1%)
                  
                  960
                  
                  990
                  
                  (3.0%)Average
                      daily block hour utilization (7)
                  11.3
                  
                  10.7
                  
                  5.6%
                  
                  11.4
                  
                  11.2
                  
                  1.8%Yield
                      per RPM (cents) (8), (9)
                  12.04
                  
                  11.10
                  
                  8.5%
                  
                  11.65
                  
                  10.87
                  
                  7.2%Total
                      yield per RPM (cents) (9), (10)
                  12.60
                  
                  11.49
                  
                  9.7%
                  
                  12.10
                  
                  11.21
                  
                  7.9%Yield
                      per ASM (cents) (9), (11)
                  8.68
                  
                  7.95
                  
                  9.2%
                  
                  8.84
                  
                  7.81
                  
                  13.2%Total
                      yield per ASM (cents) (12)
                  9.08
                  
                  8.23
                  
                  10.3%
                  
                  9.17
                  
                  8.05
                  
                  13.9%Cost
                      per ASM (cents)
                  9.32
                  
                  8.80
                  
                  5.9%
                  
                  9.03
                  
                  8.30
                  
                  8.8%Fuel
                      expense per ASM (cents)
                  3.15
                  
                  2.37
                  
                  32.9%
                  
                  2.84
                  
                  2.02
                  
                  40.6%Cost
                      per ASM excluding fuel (cents) (13)
                  6.17
                  
                  6.43
                  
                  (4.0%)
                  
                  6.19
                  
                  6.28
                  
                  (1.4%)Average
                      fare (14)
                  $
                      104.72
                  
                  $
                      102.92
                  
                  1.7%
                  
                  $
                      103.42
                  
                  $
                      101.14
                  
                  2.3%Average
                      aircraft in service
                  49.0
                  
                  46.4
                  
                  5.6%
                  
                  47.8
                  
                  44.4
                  
                  7.7%Aircraft
                      in service at end of period
                  49.0
                  
                  46.0
                  
                  6.5%
                  
                  49.0
                  
                  46.0
                  
                  6.5%Average
                      age of aircraft at end of period
                  2.4
                  
                  2.8
                  
                  (14.3%)
                  
                  2.4
                  
                  2.8
                  
                  (14.3%)Average
                      fuel cost per gallon (15)
                  $
                      2.21
                  
                  $
                      1.64
                  
                  34.8%
                  
                  $
                      1.98
                  
                  $
                      1.39
                  
                  42.4%Fuel
                      gallons consumed (000’s)
                  35,076
                  
                  32,725
                  
                  7.2%
                  
                  105,329
                  
                  99,483
                  
                  5.9%
 
 -16-
 **Three
                      Months Ended**
                    **December
                      31,**
                  
                  
                  
                  **Nine
                      Months Ended**
                    **December
                      31,****2005**
                  
                  **2004**
                  
                  **Change**
                  
                  **2005**
                  
                  **2004**
                  
                  **Change****Selected
                      Operating Data - Regional Partner:**Passenger
                      revenue (000s) (1)
                  $
                      23,490
                  
                  $
                      21,582
                  
                  8.8%
                  
                  $
                      69,835
                  
                  $
                      62,618
                  
                  11.5%Revenue
                      passengers carried (000s)
                  228
                  
                  221
                  
                  3.2%
                  
                  695
                  
                  657
                  
                  5.8%Revenue
                      passenger miles (RPMs) (000s) (2)
                  156,565
                  
                  129,301
                  
                  21.1%
                  
                  442,278
                  
                  403,012
                  
                  9.7%Available
                      seat miles (ASMs) (000s) (3)
                  215,077
                  
                  185,673
                  
                  15.8%
                  
                  608,194
                  
                  554,022
                  
                  9.8%Passenger
                      load factor (4)
                  72.8%
                  
                  69.6%
                  
                  3.2
                      pts
                  
                  72.7%
                  
                  72.7%
                  
                  -Yield
                      per RPM (cents) (8), (9)
                  15.00
                  
                  16.69
                  
                  (10.1%)
                  
                  15.79
                  
                  15.54
                  
                  1.6%Yield
                      per ASM (cents) (9), (11)
                  10.92
                  
                  11.62
                  
                  (6.0%)
                  
                  11.48
                  
                  11.30
                  
                  1.6%Cost
                      per ASM (cents)
                  13.55
                  
                  12.93
                  
                  4.8%
                  
                  13.08
                  
                  12.43
                  
                  5.2%Average
                      fare
                  $
                      103.13
                  
                  $
                      97.51
                  
                  5.8%
                  
                  $
                      100.54
                  
                  $
                      95.24
                  
                  5.6%Aircraft
                      in service at end of period
                  9
                  
                  9
                  
                  -
                  
                  9
                  
                  9
                  
                  -
 
 **Three
                      Months Ended**
                    **December
                      31,**
                  
                  
                  
                  **Nine
                      Months Ended**
                    **December
                      31,****2005**
                  
                  **2004**
                  
                  **Change**
                  
                  **2005**
                  
                  **2004**
                  
                  **Change****Selected
                      Operating Data - Combined:**Passenger
                      revenue (000s) (1)
                  $
                      241,302
                  
                  $
                      203,943
                  
                  18.3%
                  
                  $
                      725,111
                  
                  $
                      602,589
                  
                  20.3%Revenue
                      passengers carried (000s)
                  2,100
                  
                  1,865
                  
                  12.6%
                  
                  6,479
                  
                  5,635
                  
                  15.0%Revenue
                      passenger miles (RPMs) (000s) (2)
                  1,930,679
                  
                  1,754,447
                  
                  10.0%
                  
                  5,997,371
                  
                  5,331,427
                  
                  12.5%Available
                      seat miles (ASMs) (000s) (3)
                  2,676,745
                  
                  2,453,359
                  
                  9.1%
                  
                  7,934,274
                  
                  7,416,933
                  
                  7.0%Passenger
                      load factor (4)
                  72.1%
                  
                  71.5%
                  
                  0.6
                      pts.
                  
                  75.6%
                  
                  71.9%
                  
                  3.7
                      pts.Yield
                      per RPM (cents) (8)
                  12.28
                  
                  11.51
                  
                  6.7%
                  
                  11.96
                  
                  11.23
                  
                  6.5%Total
                      yield per RPM (cents) (9), (10)
                  12.79
                  
                  11.87
                  
                  7.8%
                  
                  12.37
                  
                  11.54
                  
                  7.2%Yield
                      per ASM (cents) (11)
                  8.86
                  
                  8.23
                  
                  7.7%
                  
                  9.04
                  
                  8.07
                  
                  12.0%Total
                      yield per ASM (cents) (12)
                  9.23
                  
                  8.49
                  
                  8.7%
                  
                  9.35
                  
                  8.29
                  
                  12.8%Cost
                      per ASM (cents)
                  9.66
                  
                  9.11
                  
                  6.0%
                  
                  9.34
                  
                  8.61
                  
                  8.5%
 
 
 -17-
 
 (1)
                    “Passenger revenue” includes revenues for
                        reduced rate stand-by passengers, charter revenues, administrative
                        fees,
                        and revenue recognized for unused tickets that are greater
                        than one year
                        from issuance date. The incremental revenue from passengers
                        connecting
                        from regional flights to mainline flights is included in
                        our mainline
                        passenger revenue.
 (2)
                    “Revenue
                        passenger miles,” or RPMs, are determined by multiplying the number of
                        fare-paying passengers carried by the distance flown. This
                        represents the
                        number of miles flown by revenue paying
                        passengers.
 (3)
                  “Available
                      seat miles,” or ASMs, are determined by multiplying the number of seats
                      available for passengers by the number of miles
                      flown.
 (4)
                  “Passenger
                      load factor” is determined by dividing revenue passenger miles by
                      available seat miles. This represents the percentage of aircraft
                      seating
                      capacity that is actually utilized.
 (5)
                  “Break-even
                      load factor” is the mainline passenger load factor that will result in
                      operating revenues being equal to operating expenses, assuming
                      constant
                      revenue per passenger mile and
                      expenses.
 For
        purposes of these calculations, charter revenue is excluded from passenger
        revenue. These figures may be deemed non-GAAP financial measures under
        regulations issued by the Securities and Exchange Commission. We believe
        that
        presentation of break-even load factor excluding charter revenue is useful
        to
        investors because charter flights are not included in RPM’s or ASM’s.
        Furthermore, in preparing operating plans and forecasts, we rely on an analysis
        of break-even load factor exclusive of charter revenue. Our presentation
        of
        non-GAAP financial measures should not be viewed as a substitute for our
        financial or statistical results based on GAAP.
 
 A
        reconciliation of the components of the calculation of mainline break-even
        load
        factor is as follows:
 
 **Three
                  Months Ended**
                **December
                  31,**
              
              **Nine
                  Months Ended**
                **December
                  31,****2005**
              
              **2004**
              
              **2005**
              
              **2004**(In
                  thousands)
              
              (In
                  thousands)Net
                  loss
              
              $
              10,290
              
              $
              11,058
              
              $
              6,119
              
              $
              19,714Income
                  tax benefit
              
              
              4,576
              
              
              6,218
              
              
              2,372
              
              
              10,802Passenger
                  revenue
              
              
              217,812
              
              
              182,361
              
              
              655,276
              
              
              539,971Revenue
                  - regional partner
              
              
              23,490
              
              
              21,582
              
              
              69,835
              
              
              62,618Charter
                  revenue
              
              
              (4,251
              )
              
              (2,006
              )
              
              (7,959
              )
              
              (4,045
              )Operating
                  expenses - regional partner
              
              
              (29,144
              )
              
              (24,012
              )
              
              (79,569
              )
              
              (68,874
              )Passenger
                  revenue - mainline (excluding charter and regional partner revenue)
                  required to break even
              
              $
              222,773
              
              $
              195,201
              
              $
              646,074
              
              $
              560,186The
                  calculation of the break-even load factor follows:**Three
                  Months Ended**
                **December
                  31,**
              **Nine
                  Months Ended**
                **December
                  31,****2005**
              
              
              **2004**
              
              
              **2005**
              
              
              **2004**Passenger
                  revenue - mainline (excluding charter and regional partner revenue)
                  required to break even ($000s)
              
              $
              222,773
              
              $
              195,201
              
              $
              646,074
              
              $
              560,186Mainline
                  yield per RPM (cents)
              
              
              12.04
              
              
              11.10
              
              
              11.65
              
              
              10.87Mainline
                  revenue passenger miles (000s) to break even assuming constant
                  yield per
                  RPM
              
              
              1,850,274
              
              
              1,758,568
              
              
              5,545,700
              
              
              5,153,505Mainline
                  available seat miles (000’s)
              
              
              2,461,668
              
              
              2,267,686
              
              
              7,326,080
              
              
              6,862,911Mainline
                  break-even load factor excluding charter revenue
              
              
              75.2
              %
              
              77.6
              %
              
              75.7
              %
              
              75.1
              %
 
 
 (6)
                “Block
                    hours” represent the time between aircraft gate departure and aircraft
                    gate arrival.
 (7)
                “Average daily block hour
                    utilization”
                    represents the total block hours divided by the number of aircraft
                    days in
                    service, divided by theweighted
                    average of aircraft in our fleet during that period. The number
                    of
                    aircraft includes all aircraft on our operating certificate,
                    which
                    includesscheduled
                    aircraft, as well as aircraft out of service for maintenance
                    and
                    operational spare aircraft, and excludes aircraft removed permanently
                    from
                    revenue service or new aircraft not yet placed in revenue service.
                    This
                    represents the amount of time that our aircraft spend in the
                    air carrying
                    passengers.
 (8)
                “Yield per RPM” is determined by dividing passenger
                  revenues (excluding charter revenue) by revenue passenger
                  miles.
  -18-
 (9)
              For purposes of these yield
                  calculations,
                  charter revenue is excluded from passenger revenue. These figures
                  may be
                  deemed non-GAAP financialmeasures
                  under regulations issued by the Securities and Exchange Commission.
                  We
                  believe that presentation of yield excluding charter revenue is
                  useful to
                  investors because charter flights are not included in RPM’s or ASM’s.
                  Furthermore, in preparing operating plans and forecasts, we rely
                  on an
                  analysis of yield exclusive of charter revenue. Our presentation
                  of
                  non-GAAP financial measures should not be viewed as a substitute
                  for our
                  financial or statistical results based on GAAP. The calculation
                  of
                  passenger revenue excluding charter revenue is as
                  follows:
 
 **Passenger
                  revenue adjustment****Three
                  Months Ended**
                **December
                  31,**
              
              **Nine
                  Months Ended**
                **December
                  31,****2005**
              
              **2004**
              
              **2005**
              
              **2004**Passenger
                  revenues - mainline, as reported
              
              $
              217,812
              
              $
              182,361
              
              $
              655,276
              
              $
              539,971Less:
                  charter revenue
              
              
              4,251
              
              
              2,006
              
              
              7,959
              
              
              4,045Passenger
                  revenues - mainline excluding charter
              
              
              213,561
              
              
              180,355
              
              
              647,317
              
              
              535,926Add:
                  Passenger revenues - regional partner
              
              
              23,490
              
              
              21,582
              
              
              69,835
              
              
              62,618Passenger
                  revenues, system combined
              
              $
              237,051
              
              $
              201,937
              
              $
              717,152
              
              $
              598,544
 
 
 (10)
              “Total
                  yield per RPM” is determined by dividing total revenues by revenue
                  passenger miles. This represents the average amount one passenger
                  pays to
                  fly one mile.
 (11)
              “Yield
                  per ASM” or “RASM” is determined by dividing passenger revenues (excluding
                  charter revenue) by available seat
                  miles.
 (12)
              “Total
                  yield per ASM” is determined by dividing total revenues by available seat
                  miles.
 (13)
              This
                  may be deemed a non-GAAP financial measure under regulations issued
                  by the
                  Securities and Exchange Commission. We believe the presentation
                  of
                  financial information excluding fuel expense is useful to investors
                  because we believe that fuel expense tends to fluctuate more than
                  other
                  operating expenses. Excluding fuel from the cost of mainline operations
                  facilitates the comparison of results of operations between current
                  and
                  past periods and enables investors to forecast future trends in
                  our
                  operations. Furthermore, in preparing operating plans and forecasts,
                  we
                  rely, in part, on trends in our historical results of operations
                  excluding
                  fuel expense. However, our presentation of non-GAAP financial measures
                  should not be viewed as a substitute for our financial results
                  determined
                  in accordance with GAAP.
 (14)
                “Average
                    fare” excludes revenue included in passenger revenue for charter and
                    reduced rate stand-by passengers, administrative fees, and revenue
                    recognized for unused tickets that are greater than one year
                    from issuance
                    date.
 (15)
                “Average fuel cost per gallon” includes
                    unrealized hedging losses of $1,529,000 and $3,202,000 for the
                    three
                    months ended December 31, 2005 and 2004, respectively and unrealized
                    hedging loss of $2,254,000 and an unrealized hedging gain of
                    $432,000 for
                    the nine months ended December 31, 2005 and 2004,
                    respectively.
 
 
 -19-
  **Results
        of Operations**
 
 **Summary**
 
 During
        the quarter ended December 31, 2005, we had a net loss of $10,290,000, or
        28¢
per diluted share, as compared to a net loss of $11,058,000, or 31¢ per diluted
        share, for the quarter ended December 31, 2004. The domestic U.S. airline
        environment continues to have extremely challenging conditions due to sustained
        widespread price competition and record high fuel costs. Fuel costs have
        risen
        sharply since January 2004 and increased substantially after September 2005
        following Hurricanes Katrina and Rita. Our average fuel cost per gallon,
        including hedging activities, was $2.21 during the quarter ended December
        31,
        2005, compared to $1.64 during the quarter ended December 31, 2004, an increase
        of 34.8%. The average cost of fuel for the quarter ended December 31, 2005
        includes unrealized hedging losses of $1,529,000, or $0.04 per gallon, as
        compared to $3,202,000 of unrealized hedging losses, or $0.10 per gallon,
        for
        the quarter ended December 31, 2004.
 
 Included
        in our net loss for the quarter ended December 31, 2005 were the following
        items
        before the effect of income taxes: unrealized losses on fuel hedges of
        $1,529,000 and gains of $274,000 related primarily to the sale of Boeing
        parts
        held for sale. These items, net of income taxes, increased our net loss for
        the
        quarter ended December 31, 2005 by 3¢ per share. Included in our net loss for
        the quarter ended December 31, 2004 were the following items before the effect
        of income taxes: a gain on the sale of assets of $120,000, a write down of
        $658,000 of the carrying value of expendable Boeing 737 inventory, and an
        unrealized loss on fuel hedges of $3,202,000. These items, net of income
        taxes,
        increased our net loss for the quarter ended December 31, 2004 by 7¢ per
        share.
 
 Our
        mainline passenger yield per RPM was 12.04¢ and 11.10¢ for the quarters ending
        December 31, 2005 and 2004, respectively, an increase of 8.5%. Our mainline
        average fare was $104.72 for the quarter ended December 31, 2005 as compared
        to
        $102.92 for the quarter ending December 31, 2004, an increase of 1.7%. Our
        length of haul was 948 and 989 miles for the quarters ended December 31,
        2005
        and 2004, respectively, a decrease of 4.1%. Our average fare increase is
        partially due to several industry fare increases that we have matched. Our
        mainline passenger revenue per available seat mile for the quarter ended
        December 31, 2005 and 2004 were 8.68¢ and 7.95¢, respectively, an increase of
        9.2%.
 
 We
        continue to focus on controlling non-fuel costs. Our mainline cost per available
        seat mile (“CASM”) for the quarters ended December 31, 2005 and 2004 were 9.32¢
and 8.80¢, respectively, an increase of .52¢ per ASM or 5.9%. The increase in
        mainline CASM was largely due to an increase in fuel expense to 3.15¢ per ASM
        from 2.37¢ per ASM for the quarters ended December 31, 2005 and 2004,
        respectively, an increase of 32.9%. Mainline CASM, excluding fuel was 6.17¢ and
        6.43¢, respectively, a decrease of .26¢ per ASM or 4.0%. However, included in
        mainline CASM for the quarter ended December 31, 2005 was a reduction of
        our
        sales and promotion expense of $1,300,000, or 0.5¢ per ASM, due to a favorable
        sales and use tax credit on the taxation of ticketing services which related
        to
        the periods starting with September 2001 through December 2004.
 
 An
        airline’s
        mainline break-even load factor is the passenger load factor that will result
        in
        operating revenues being equal to operating expenses, assuming constant revenue
        per passenger mile and expenses. For the quarter ended December 31, 2005,
        our
        mainline break-even load factor was 75.2% compared to our achieved passenger
        load factor of 72.1%. Our mainline break-even load factor for the quarter
        ended
        December 31, 2004, was 77.6% compared to our achieved passenger load factor
        of
        71.7%. Our mainline break-even load factor decreased from the prior comparable
        period as a result of an increase in our total mainline RASM of 10.3%, which
        was
        partially offset by a 5.9% increase in mainline CASM during the quarter ended
        December 31, 2005 (primarily due to increases in fuel costs).
 
 Small
        fluctuations in our RASM or CASM can significantly affect operating results
        because we, like other airlines, have high fixed costs in relation to revenues.
        Airline operations are highly sensitive to various factors, including the
        actions of competing airlines and general economic factors, which can adversely
        affect our liquidity, cash flows and results of operations.
 
 To
        a
        large extent, changes in operating expenses for airlines are driven by changes
        in capacity, or ASMs. The following table provides our operating revenues
        and
        expenses for our mainline operations expressed as cents per total mainline
        ASMs
        and as a percentage of total mainline operating revenues, as rounded, for
        the
        three and nine month ended December 31, 2005 and 2004. Regional partner
        revenues, expenses and ASMs were excluded from this table.
 
 -20-
 **Three
                  Months Ended**
                **December
                  31,**
              
              **Nine
                  Months Ended**
                **December
                  31,****2005**
              
              **2004**
              
              **2005**
              
              **2004****Per**
              ****
              **%**
              ****
              **Per**
              ****
              **%**
              ****
              **Per**
              ****
              **%**
              ****
              **Per**
              
              **%****total**
              
              **of
                  Total**
              
              **total**
              
              **of
                  Total**
              
              **total**
              
              **of
                  Total**
              
              **total**
              
              **of
                  Total****ASM**
              
              **Revenue**
              
              **ASM**
              
              **Revenue**
              
              **ASM**
              
              **Revenue**
              
              **ASM**
              
              **Revenue**Revenues:Passenger
              
              
              8.85
              
              
              97.5
              %
              
              8.04
              
              
              97.7
              %
              
              8.94
              
              
              97.5
              %
              
              7.87
              
              
              97.7
              %Cargo
              
              
              0.06
              
              
              0.6
              %
              
              0.05
              
              
              0.6
              %
              
              0.06
              
              
              0.6
              %
              
              0.05
              
              
              0.7
              %Other
              
              
              0.17
              
              
              1.9
              %
              
              0.14
              
              
              1.7
              %
              
              0.17
              
              
              1.9
              %
              
              0.13
              
              
              1.6
              %Total
                  revenues
              
              
              9.08
              
              
              100.0
              %
              
              8.23
              
              
              100.0
              %
              
              9.17
              
              
              100.0
              %
              
              8.05
              
              
              100.0
              %Operating
                  expenses:Flight
                  operations
              
              
              1.43
              
              
              15.7
              %
              
              1.44
              
              
              17.5
              %
              
              1.43
              
              
              15.5
              %
              
              1.40
              
              
              17.4
              %Aircraft
                  fuel
              
              
              3.15
              
              
              34.7
              %
              
              2.37
              
              
              28.8
              %
              
              2.84
              
              
              31.0
              %
              
              2.02
              
              
              25.1
              %Aircraft
                  lease
              
              
              0.95
              
              
              10.5
              %
              
              1.01
              
              
              12.3
              %
              
              0.95
              
              
              10.5
              %
              
              0.94
              
              
              11.6
              %Aircraft
                  and traffic servicing
              
              
              1.43
              
              
              15.7
              %
              
              1.42
              
              
              17.3
              %
              
              1.38
              
              
              15.0
              %
              
              1.39
              
              
              17.2
              %Maintenance
              
              
              0.75
              
              
              8.3
              %
              
              0.85
              
              
              10.3
              %
              
              0.78
              
              
              8.4
              %
              
              0.83
              
              
              10.4
              %Promotion
                  and sales
              
              
              0.80
              
              
              8.9
              %
              
              0.83
              
              
              10.0
              %
              
              0.82
              
              
              9.0
              %
              
              0.84
              
              
              10.5
              %General
                  and administrative
              
              
              0.51
              
              
              5.6
              %
              
              0.56
              
              
              6.9
              %
              
              0.50
              
              
              5.5
              %
              
              0.51
              
              
              6.4
              %Aircraft
                  lease and facility exit costs
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              0.05
              
              
              0.5
              %
              
              -
              
              
              -(Gains)
                  losses on sales of assets, net
              
              
              (0.01
              )
              
              (0.1
              )%
              
              -
              
              
              -
              
              
              (0.01
              )
              
              (0.1
              )%
              
              0.01
              
              
              0.1
              %Impairments
              
              
              -
              
              
              -
              
              
              0.03
              
              
              0.4
              %
              
              -
              
              
              -
              
              
              0.07
              
              
              0.9
              %Depreciation
              
              
              0.31
              
              
              3.4
              %
              
              0.29
              
              
              3.5
              %
              
              0.29
              
              
              3.1
              %
              
              0.29
              
              
              3.6
              %Total
                  operating expenses
              
              
              9.32
              
              
              102.7
              %
              
              8.80
              
              
              107.0
              %
              
              9.03
              
              
              98.4
              %
              
              8.30
              
              
              103.2
              %
  
 **Three
        Months ended December 31, 2005 as Compared to the Three Months ended December
        31, 2004**
 
 **Mainline
        Revenues**
 
 Industry
        fare pricing behavior has a significant impact on our revenues. Because of
        the
        elasticity of passenger demand, we believe that increases in fares may at
        certain levels result in a decrease in passenger demand in many markets.
        We
        cannot predict future fare levels, which depend to a substantial degree on
        actions of competitors and the economy. When sale prices or other price changes
        are initiated by competitors in our markets, we believe that we must, in
        most
        cases, match those competitive fares in order to maintain our market share.
        In
        addition, certain markets we serve are destinations that cater to vacation
        or
        leisure travelers, resulting in seasonal fluctuations in passenger revenues
        in
        these markets.
 
 ***Passenger
        Revenue*** **s —** ***Mainline.*** Mainline
        passenger revenues totaled $217,812,000 for the quarter ended December 31,
        2005
        compared to $182,361,000 for the quarter ended December 31, 2004, an increase
        of
        19.4%.
  -21-
  Mainline
        passenger revenue includes revenues for reduced rate standby passengers,
        administrative fees, revenue recognized for tickets that are not used within
        one
        year from their issue dates, and revenue recognized from our co-branded credit
        card arrangement. We carried 1,872,000 mainline revenue passengers during
        the
        quarter ended December 31, 2005 compared to 1,644,000 mainline revenue
        passengers during the quarter ended December 31, 2004, an increase of 13.9%.
        We
        had an average of 49.0 aircraft in service during the quarter ended December
        31,
        2005 compared to an average of 46.4 aircraft in service during the quarter
        ended
        December 31, 2004, an increase of 5.6%. Mainline ASMs increased to 2,461,668,000
        for the quarter ended December 31, 2005 from 2,267,686,000 for the quarter
        ended
        December 31, 2004, an increase of 8.6%. Mainline RPMs for the quarter ended
        December 31, 2005 were 1,774,114,000 compared to 1,625,146,000 for the quarter
        ended December 31, 2004, an increase of 9.2%, outpacing the increase in mainline
        ASMs. Our mainline RASM increased to 8.68¢ from 7.95¢, an increase of 9.2%. Our
        mainline average fare was $104.72 for the quarter ended December 31, 2005
        as
        compared to $102.92 for the quarter ended December 31, 2004, an increase
        of
        1.7%. Our length of haul was 948 and 989 miles for the quarters ended December
        31, 2005 and 2004, respectively, a decrease of 4.1%. We started downsizing
        our
        service in Los Angeles, California (“LAX”) on August 15, 2004 and shifted
        service to Mexico beginning in October 2004. By February 2005 we were out
        of LAX
        as a focus city, which included transcontinental flights between the east
        and
        west coast, introductory fares and disappointing load factors. The LAX service
        resulted in longer system-wide length of haul relative to our non-LAX route
        structure we currently have in place. Our average fare increase is partially
        due
        to the lower fares offered last year for the LAX focus city and is also due
        to
        several industry fare increases that have sustained in the market
        place.
 
 *Cargo
        Revenues**.* Cargo
        revenues, consisting of revenues from freight and mail service, totaled
        $1,462,000 and $1,189,000 for the quarters ended December 31, 2005 and 2004,
        representing 0.7% and 0.6% of total operating revenues excluding regional
        partner revenues, respectively for each of the quarters ended December 31,
        2005
        and 2004, respectively, an increase of 23.0%.
 
 ***Other
        Revenues*** **.**  Other
        revenues, comprised principally of interline and ground handling fees, liquor
        sales, LiveTV sales, pay-per-view movies and excess baggage fees, totaled
        $4,199,000 and $3,106,000, or 1.9% and 1.7% of total operating revenues
        excluding regional partner revenues for the quarters ended December 31, 2005
        and
        2004, respectively, an increase of 35.2%. Other revenue increased over the
        prior
        comparable period primarily as a result of increased passenger purchases
        of
        LiveTV and pay-per-view movies and an increase in revenue from ground handling
        fee agreements with other airlines.
  
 -22-
 **Mainline
        Operating Expenses**
 
 Mainline
        operating expenses include expenses related to flight operations, aircraft
        and
        traffic servicing, maintenance, promotion and sales, general and administrative,
        depreciation and expenses related to our transition to an all Airbus fleet.
        Total mainline operating expenses were $229,482,000 and $199,509,000 for
        the
        quarters ended December 31, 2005 and 2004, respectively, and represented
        102.7%
        and 107.0% of total mainline revenue, respectively. Operating expenses decreased
        as a percentage of revenues during the quarter ended December 31, 2005 largely
        a
        result of an increase in our average fare coupled with an increase in our
        load
        factor of 0.4 points. This decrease was significantly offset by an increase
        of
        34.8% in our aircraft fuel cost per gallon for the quarter ended December
        31,
        2005 as compared to the quarter ended December 31, 2004.
 
 ***Salaries,
        Wages and Benefits.*** We
        record salaries, wages and benefits within the specific expense category
        identified in our statements of operations to which they pertain. Salaries,
        wages and benefits increased 6.7% to $55,492,000 compared to $52,013,000,
        and
        were 24.8% and 27.9% of total mainline revenues for the quarters ended December
        31, 2005 and 2004, respectively. Salaries, wages and benefits increased over
        the
        prior comparable periods largely as a result of general wage increases,
        increases in heath insurance costs and increases in workers compensation
        insurance. Our employee count increased from approximately 4,500 in December
        2004 to approximately 4,600 in December 2005, or an increase of 2.2%. Our
        employee count remained relatively flat despite an 8.6% increase in ASMs
        due to
        economies of scale.
 
 ***Flight
        Operations.*** Flight
        operations expenses increased 8.1% to $35,188,000 as compared to $32,545,000,
        and were 15.7% and 17.5% of total mainline revenue for the quarters ended
        December 31, 2005 and 2004, respectively. Flight operations expenses increased
        partially due to an increase in mainline block hours from 45,725 for the
        quarter
        ended December 31, 2004 to 50,968 for the quarter ended December 31, 2005,
        an
        increase of 11.5%. Flight operations expenses include all expenses related
        directly to the operation of the aircraft excluding depreciation of owned
        aircraft and aircraft lease expenses and including insurance expenses, pilot
        and
        flight attendant compensation, in-flight catering, crew overnight expenses,
        flight dispatch and flight operations administrative expenses.
 
 Pilot
        and
        flight attendant salaries before payroll taxes and benefits increased 12.5%
        to
        $20,927,000 compared to $18,599,000, and were 9.6% and 10.2% of passenger
        mainline revenue for the quarters ended December 31, 2005 and 2004,
        respectively. We employed approximately 1,400 pilots and flight attendants
        at
        December 31, 2005 as compared to 1,300 at December 31, 2004, an increase
        of
        7.7%. The 7.7% increase in the number of pilots and flight attendants is
        less
        than the 11.5% increase in block hours due to a decrease in required pilot
        training after the completion of the Airbus transition. The increase in salaries
        was due to general increases in wage rates.
 
 Aircraft
        insurance expenses totaled $2,334,000 (1.0% of total mainline revenue) and
        $2,398,000 (1.3% of total mainline revenue) for the quarters ended December
        31,
        2005 and 2004, respectively. Aircraft insurance expenses were .13¢ and .15¢ per
        RPM for the quarters ended December 31, 2005 and 2004, respectively. We renewed
        our aircraft hull and liability coverage renewed on June 7, 2004 through
        December 31, 2005 with a 30% decrease in premiums from the prior policy year
        and
        we extended our policy on June 7, 2005 through December 31, 2005 at premiums
        that were further reduced by 13%. In December 2002, through authority granted
        under the Homeland Security Act of 2002, the U.S. government expanded its
        insurance program to enable airlines to elect either the government’s excess
        third-party war risk coverage or for the government to become the primary
        insurer for all war risks coverage. We elected to take primary government
        coverage in February 2003 and dropped the commercially available war risk
        coverage. The current FAA war risk policy is in effect until August 31, 2006.
        We
        do not know whether the government will extend the coverage beyond August
        2006,
        and if it does how long the extension will last. We expect that if the
        government stops providing excess war risk coverage to the airline industry,
        the
        premiums charged by aviation insurers for this coverage will be substantially
        higher than the premiums currently charged by the government or the coverage
        will not be available from reputable underwriters.
  ***Aircraft
        Fuel.*** ** Aircraft
        fuel expenses include both the direct cost of fuel, including taxes, as well
        as
        the cost of delivering fuel into the aircraft. Aircraft fuel costs of
        $77,649,000 for 35,076,000 gallons used and $53,807,000 for 32,725,000 gallons
        used and resulted in an average fuel cost of $2.21 and $1.64 per gallon for
        the
        quarters ended December 31, 2005 and 2004, respectively, an increase of 34.8%
        per gallon. Aircraft fuel costs, excluding unrealized
  -23-
 hedging
        gains, were $2.17 and $1.55 per gallon for the quarters ended December 31,
        2005
        and 2004, respectively, an increase of 40.0% per gallon. Aircraft fuel expenses
        represented 34.7% and 28.8% of total mainline revenue for the quarters ended
        December 31, 2005 and 2004, respectively. Fuel prices are subject to change
        weekly, as we purchase a very small portion in advance for inventory. The
        results of operations for the quarter ended December 31, 2005 include an
        unrealized derivative loss of $1,529,000 and realized gains of $1,264,000
        in
        cash settlements received from a counter-party recorded as a decrease in
        fuel
        expense. The results of operations for the quarter ended December 31, 2004
        include an unrealized derivative loss of $3,202,000 and realized gains of
        $1,948,000 in cash settlements received from a counter-party recorded as
        a
        decrease in fuel expense. Fuel consumption for the quarters ended December
        31,
        2005 and 2004 averaged 688 and 716 gallons per block hour, respectively,
        a
        decrease of 3.9%. Fuel consumption per block hour decreased during the quarter
        ended December 31, 2005 from the prior comparable period because of the
        completed transition to the more fuel-efficient Airbus aircraft as compared
        to
        the Boeing fleet; by  limiting
        the use of the auxiliary power units on the aircraft during take off and
        taxi to
        and from gates; by tanking fuel from lower fuel cost cities; and by performing
        single engine taxis.
 
 ***Aircraft
        Lease.*** Aircraft
        lease expenses totaled $23,371,000 (10.5% of total mainline revenue) and
        $23,035,000 (12.3% of total mainline revenue), an increase of 1.5%, for the
        quarters ended December 31, 2005 and 2004, respectively. Aircraft lease expenses
        remained relatively flat due to approximately the same average number of
        leased
        aircraft in the periods (32.4 in 2004 as compared to 33.0 in 2005). The increase
        is primarily due to increases in lease rates for four of our aircraft that
        have
        variable rents based on LIBOR.
 
 ***Aircraft
        and Traffic Servicing.*** Aircraft
        and traffic servicing expenses were $35,183,000 and $32,288,000, an increase
        of
        9.0%, for the quarters ended December 31, 2005 and 2004, respectively, and
        represented 15.7% and 17.3% of total mainline revenue. Aircraft and traffic
        servicing expenses include all expenses incurred at airports including landing
        fees, facilities rental, station labor, ground handling expenses, and
        interrupted trip expenses associated with delayed or cancelled flights.
        Interrupted trip expenses are amounts paid to other airlines to protect
        passengers as well as hotel, meal and other incidental expenses. Aircraft
        and
        traffic servicing expenses will increase with the addition of new cities
        to our
        route system. As of December 31, 2005, we served 45 cities with mainline
        only
        services as compared to 40 cities as of December 31, 2004, an increase of
        10.0%.
        During the quarter ended December 31, 2005, our departures increased to 20,835
        from 18,136 for the quarter ended December 31, 2004, an increase of 14.9%.
        Aircraft and traffic servicing expenses were $1,689 per departure for the
        quarter ended December 31, 2005 as compared to $1,780 per departure for the
        quarter ended December 31, 2004, a decrease of 5.1%. This decrease in the
        amount
        of expenses per departure is related to the realization of economies of
        scale.
 
 ***Maintenance.*** Maintenance expenses of $18,487,000 and $19,170,000, a decrease of 3.6% for
        the
        quarters ended December 31, 2005 and 2004, respectively, and represented
        8.3%
        and 10.3% of total revenue. Maintenance expenses include all labor, parts
        and
        supplies expenses related to the maintenance of the aircraft. Maintenance
        cost
        per block hour was $363 and $419 for the quarters ended December 31, 2005
        and
        2004, respectively, a decrease of 13.4%. Maintenance cost per block hour
        decreased as a result of our transition to an all Airbus fleet that is less
        costly to maintain than our older Boeing aircraft, offset slightly by costs
        associated with the cost of maintenance associated with meeting the return
        condition requirements of one Boeing aircraft during the period. Our mainline
        average age of aircraft was 2.4 years as of December 31, 2005 as compared
        to 2.8
        years as of December 31, 2004. As the Airbus aircraft age, they will require
        more maintenance and maintenance expenses per block hour will increase.
 
 ***Promotion
        and Sales*** ***.*** Promotion
        and sales expenses totaled $19,852,000 and $18,738,000 and were 8.9% and
        10.0%
        of total revenue excluding revenues from our regional partner operations
        for the
        quarters ended December 31, 2005 and 2004, respectively, an increase of 5.9%.
        These expenses include advertising expenses, telecommunications expenses,
        wages
        and benefits for reservation agents and related supervision as well as marketing
        management and sales personnel, credit card fees, travel agency commissions,
        computer reservations costs. These expenses are partially offset by marketing
        programs in which we received proceeds for the sale of frequent flyer miles.
        During the quarter ended December 31, 2005, promotion and sales expense included
        a favorable sales and use tax credit of $1,300,000 with respect to the taxation
        of ticketing services which related to the periods from September 2001 through
        December 2004. During the quarter ended December 31, 2005, promotion and
        sales
        expenses, excluding the sales tax adjustment in 2005, per mainline passenger
        decreased to $11.30 from $11.40 during the quarter ended December 31, 2004.
        Promotion and sales expenses per mainline passenger decreased as a result
        of an
        increase in frequent flyer miles sold related to our co-branded credit card
        and
        a new point exchange agreement with American Express.
 
 -24-
 ***General
        and Administrative.*** General
        and administrative expenses for the quarters ended December 31, 2005 and
        2004
        totaled $12,481,000 and $12,828,000, respectively, a decrease of 2.7%, and
        were
        5.6% and 6.9% of total mainline revenue. General and administrative expenses
        include the wages and benefits for our executive officers and various other
        administrative personnel including legal, accounting, information technology,
        corporate communications, training and human resources and other expenses
        associated with these departments. Employee health benefits, accrued vacation
        and bonus expenses, and general insurance expenses including worker’s
        compensation. General and administrative expenses decreased, despite increased
        rates for heath insurance and worker’s compensation, due to a decrease in wages
        paid for the Sabre implementation.
  ***Gains
        and Losses on Sales of Assets, net*** **.** During
        the quarter ended December 31, 2005, we recognized net gains totaling $274,000
        which were primarily for the sale of Boeing spare parts as compared to net
        gains
        of $120,000 recognized during the quarter ended December 31, 2004.
  ***Depreciation.*** Depreciation expenses of $7,545,000 and $6,559,000 were approximately 3.4%
        and
        3.5% of total mainline revenue for the quarters ended December 31, 2005 and
        2004, respectively, an increase of 15.0%. These expenses include depreciation
        of
        aircraft and aircraft components, office equipment, ground station equipment,
        and other fixed assets. Depreciation expense increased year over year due
        to the
        fact that the average number of aircraft owned was 15.3 during the quarter
        ended
        December 31, 2005 as compared to 14.0 during the quarter ended December 31,
        2004, an increase of 9.3%, offset by Boeing rotable parts that were depreciated
        in 2004 but are not currently depreciated because they are classified as
        assets
        held for sale.
 
 ***Nonoperating
        Income (Expense).*** Net
        nonoperating expense totaled $3,202,000 for the quarter ended December 31,
        2005
        as compared to net nonoperating expense of $1,993,000 for the quarter ended
        December 31, 2004, an increase of 60.7%.
 
 Interest
        income increased to $2,560,000 from $1,050,000 during the quarter ended December
        31, 2005 from the prior comparable period as a result of an increase in
        short-term interest rates earned on investments and an increase in our cash
        position as a result of the net proceeds of $88,707,000 from our convertible
        notes offering in December 2005. Interest expense increased to $5,709,000
        for
        the quarter ended December 31, 2005 from $3,384,000 for the quarter ended
        December 31, 2004, an increase of 68.7%. The increase in interest expense
        was a
        result of additional debt for the acquisition of two additional purchased
        aircraft, an increase in the weighted average borrowing rate, and additional
        debt of $92,000,000 from our convertible notes offering in December 2005.
        Interest on our convertible notes is at a fixed rate of 5.0%.  Debt
        related to aircraft increased from $305,134,000 as of December 31, 2004 to
        $340,851,000 as of December 31, 2005 with an increase in the average weighted
        interest rate from 4.38% to 6.20% as of December 31, 2004 and 2005,
        respectively.
 
 **Regional
        Partner**
 
 Regional
        partner revenues are derived from Frontier JetExpress operated by Horizon
        and do
        not include the incremental revenue from passengers connecting from regional
        flights to mainline flights, which are included in our mainline passenger
        revenue. Operating expenses include all direct costs associated with Frontier
        JetExpress operated by Horizon plus payments of performance bonuses if earned
        under the contract.  Certain expenses such as aircraft lease, maintenance
        and crew costs are included in the operating agreement with Horizon in which
        we
        reimburse these expenses plus a margin. Operating expenses also include
        other direct costs incurred for which we do not pay a margin.   These
        expenses are primarily composed of fuel, airport facility expenses and passenger
        related expenses.
 
 ***Passenger
        Revenues - Regional Partner*** **.**
        Regional partner revenues, totaled $23,490,000 for the quarter ended December
        31, 2005 and $21,582,000 for the quarter ended December 31, 2004, an 8.8%
        increase. The increase in revenue is primarily due to an increase in the
        average
        fare to $103.13 for the quarter ended December 31, 2005 from $97.51 for the
        quarter ended December 31, 2004, an increase of 5.8%.
 
 ***Operating
        Expenses - Regional Partner.*** Regional
        partner expense for the quarter ended December 31, 2005 and 2004 totaled
        $29,144,000 and $24,012,000, respectively, was 124.1% and 111.3% of total
        regional partner revenues, respectively, an increase of 21.3%. The increase
        in
        expenses is primarily due to an increase in fuel cost and additional performance
        bonuses paid.
   -25-
 **Nine
        Months ended December 31, 2005 as Compared to the Nine Months ended December
        31,
        2004**
 
 **Summary**
 
 We
        had a
        net loss of $6,119,000 or 17¢ per diluted share for the nine months ended
        December 31, 2005, as compared to a net loss of $19,714,000 or 55¢ per diluted
        share for the nine months ended December 31, 2004. Included in our net loss
        for
        the nine months ended December 31, 2005 were the following items before the
        effect of income taxes: a charge of $3,365,000 relating to three leased Boeing
        737-300 aircraft that we ceased using during the first quarter, gains of
        $965,000 related to the sale of Boeing parts held for sale and other assets
        and
        an unrealized loss on fuel hedges of $2,254,000. These items, net of income
        taxes, increased our net loss by 9¢ per share. Included in our net loss for the
        nine months ended December 31, 2004 were the following items before the effect
        of income taxes: a loss of $485,000 on the sale of two Airbus A319 aircraft
        in
        sale-leaseback transactions and other assets, a write down of $5,260,000
        of the
        carrying value of expendable Boeing 737 inventory, and an unrealized gain
        on
        fuel hedges of $432,000. These items, net of income taxes, increased our
        net
        loss by 10¢ per share.
 
 Our
        mainline passenger yield per RPM was 11.65¢ and 10.87¢ for the nine months ended
        December 31, 2005 and 2004, respectively, an increase of 7.2%. Our mainline
        average fare was $103.42 for the nine months ended December 31, 2005 as compared
        to $101.14 for the nine months ended December 31, 2004, an increase of 2.3%.
        Our
        length of haul was 960 and 990 miles for the nine months ended December 31,
        2005
        and 2004, respectively, a decrease of 3.0%. Our RASM for the nine months
        ended
        December 31, 2005 and 2004 was 8.84¢ and 7.81¢, respectively, an increase of
        13.2%.
  Our
        mainline CASM for the nine months ended December 31, 2005 and 2004 was 9.03¢ and
        8.30¢, respectively, an increase of 8.8%. The increase in mainline CASM was
        largely due to an increase in fuel expense of 0.82¢ per ASM from 2.02¢ to 2.84¢
per ASM for the periods ending December 31, 2005 and 2004, respectively,
        an
        increase of 40.6%. Mainline CASM, excluding fuel was 6.19¢ per ASM as compared
        to 6.28¢ per ASM for the periods ending December 31, 2005 and 2004,
        respectively, a decrease of 1.4%.
  For
        the
        nine months ended December 31, 2005, our mainline break-even load factor
        was
        75.7% compared to our achieved passenger load factor of 75.8%. Our mainline
        break-even load factor for the nine months ended December 31, 2004, was 75.1%
        compared to our achieved passenger load factor of 71.8%. Our mainline break-even
        load factor increased from the prior comparable period as a result of an
        increase in our mainline CASM to 9.03¢ during the nine month period ended
        December 31, 2005 (primarily due to increases in fuel costs) from 8.30¢ during
        the nine month period ended December 31, 2004, or 8.8%, partially offset
        by an
        increase in our mainline RASM of 13.2%.
 
 -26-
 **Mainline
        Revenues**
 
 ***Passenger
        Revenue*** **s** ***-
        Mainline.*** Mainline
        passenger revenues totaled $655,276,000 for the nine months ended December
        31,
        2005 compared to $539,971,000 for the nine months ended December 31, 2004,
        an
        increase of 21.4%. We carried 5,784,000 mainline revenue passengers during
        the
        nine months ended December 31, 2005 compared to 4,978,000 mainline revenue
        passengers during the nine months ended December 31, 2004, an increase of
        16.2%.
        We had an average of 47.8 aircraft in service during the nine months ended
        December 31, 2005 compared to an average of 44.4 aircraft in service during
        the
        nine months ended December 31, 2004, an increase of 7.7%. Mainline ASMs
        increased to 7,326,080,000 for the nine months ended December 31, 2005 from
        6,862,911,000 for the nine months ended December 31, 2004, an increase of
        6.7%.
        Mainline RPMs for the nine months ended December 31, 2005 were 5,555,093,000
        compared to 4,928,415,000 for the nine months ended December 31, 2004, an
        increase of 12.7%, outpacing the increase in mainline ASMs. Our mainline
        RASM
        increased to 8.84¢ from 7.81¢, an increase of 13.2%. Our mainline average fare
        was $103.42 for the nine months ended December 31, 2005 as compared to $101.14
        for the nine months ended December 31, 2004, an increase of 2.3%. Our length
        of
        haul was 960 and 990 miles for the nine months ended December 31, 2005 and
        2004,
        respectively, a decrease of 3.0%.
 
 *Cargo
        Revenues**.* Cargo
        revenues, consisting of revenues from freight and mail service, totaled
        $4,054,000 and $3,862,000 for the nine months ended December 31, 2005 and
        2004,
        representing 0.6% and 0.7% of total operating revenues excluding regional
        partner revenues, respectively, an increase of 5.0%. During the quarter ended
        June 30, 2004, we determined that carrying mail for the United States Postal
        Service was not profitable and we terminated our contract effective July
        1,
        2004. As such, cargo revenues for the nine months ended December 31, 2005
        only
        included revenue from our freight service.
 
 ***Other
        Revenues*** **.**  Other
        revenues, comprised principally of interline and ground handling fees, liquor
        sales, LiveTV sales, pay-per-view movies and excess baggage fees, totaled
        $12,631,000 and $8,643,000 or 1.9% and 1.6% of total operating revenues
        excluding regional partner revenue for the nine months ended December 31,
        2005
        and 2004, respectively, an increase of 46.1%.
 
 -27-
 **Mainline
        Operating Expenses**
 
 Total
        mainline operating expenses were $661,479,000 and $569,911,000 for the nine
        months ended December 31, 2005 and 2004, respectively, and represented 98.4%
        and
        103.2% of total mainline revenue, respectively. Operating expenses decreased
        as
        a percentage of revenue during the quarter ended December 31, 2005 largely
        a
        result of an increase in our RASM coupled with an increase in our load factors
        of 4.0 points. This increase was significantly offset by an increase of 42.4%
        in
        our aircraft fuel cost per gallon for the nine months ended December 31,
        2005 as
        compared to the prior comparable period.
 
 *Salaries,
        Wages and Benefits**.* Salaries, wages and benefits increased 9.8% to $163,983,000 compared to
        $149,401,000, and were 24.4% and 27.0% of total mainline revenues for the
        nine
        months ended December 31, 2005 and 2004, respectively. Salaries, wages and
        benefits increased over the prior comparable periods largely as a result
        of
        general wage increases, increases in heath insurance costs and workers
        compensation insurance. Our employee count remained relatively flat with
        an
        increase of 2.2% from the same comparable period last year despite a 6.7%
        increase in ASMs.
 
 ***Flight
        Operations.*** Flight
        operations expenses increased 8.6% to $104,097,000 as compared to $96,107,000,
        and were 15.5% and 17.4% of total mainline revenue for the nine months ended
        December 31, 2005 and 2004, respectively. Flight operations expenses increased
        due to an increase in mainline block hours from 136,786 for the nine months
        ended December 31, 2004 to 149,323 for the nine months ended December 31,
        2005,
        an increase of 9.2%.
  Pilot
        and
        flight attendant salaries before payroll taxes and benefits increased 15.3%
        to
        $60,846,000 compared to $52,770,000, and were 9.3% and 9.8% of passenger
        mainline revenue for the nine months ended December 31, 2005 and 2004,
        respectively. We employed approximately 7.7% more pilot and flight attendants
        as
        compared to the comparable period last year. The increase of 7.7% in the
        number
        of pilots and flight attendants is less than the 9.2% increase in block hours
        due to a decrease in required pilot training after the completion of the
        Airbus
        transition. The increase in salaries was due to general increases in wage
        rates.
 
 Aircraft
        insurance expenses totaled $7,582,000 (1.1% of total mainline revenue) and
        $7,678,000 (1.4% of total mainline revenue) for the nine months ended December
        31, 2005 and 2004, respectively, a decrease of 1.3%. Aircraft insurance expenses
        were .14¢ and .16¢ per RPM for the nine months ended December 31, 2005 and 2004,
        respectively, a decrease of 12.5%. Our aircraft hull and liability coverage
        renewed on June 7, 2004 for one year with a 30% decrease in premiums from
        the
        prior policy year and we extended our policy on June 7, 2005 through December
        31, 2005 at premiums that were further reduced by 13%.
  ***Aircraft
        Fuel.*** ** Aircraft
        fuel costs of $208,391,000 for 105,329,000 gallons used and $138,525,000
        for
        99,483,000 gallons used and resulted in an average fuel cost of 1.98¢ and 1.39¢
per gallon for the nine months ended December 31, 2005 and 2004, respectively,
        an increase of 42.4% per gallon. Aircraft fuel costs, excluding unrealized
        hedging losses and gains, were 1.96¢ and 1.40¢ per gallon for the nine months
        ended December 31, 2005 and 2004, respectively. Aircraft fuel expenses
        represented 31.0% and 25.1% of total mainline revenue for the nine months
        ended
        December 31, 2005 and 2004, respectively. Fuel prices are subject to change
        weekly, as we purchase a very small portion in advance for inventory. The
        results of operations for the nine months ended December 31, 2005 include
        an
        unrealized derivative net loss of $2,254,000 and realized gains of $5,228,000
        in
        cash settlements received from a counter-party recorded as a decrease in
        fuel
        expense. The results of operations for the nine months ended December 31,
        2004
        include an unrealized derivative net gain of $432,000 and a realized gain
        of
        approximately $2,490,000 in cash settlements received from a counter-party
        recorded as a decrease in fuel expense. Fuel consumption for the nine months
        ended December 31, 2005 and 2004 averaged 705 and 727 gallons per block hour,
        respectively, a decrease of 3.1%.
 
 ***Aircraft
        Lease.*** Aircraft
        lease expenses totaled $70,274,000 (10.5% of total mainline revenue) and
        $64,233,000 (11.6% of total mainline revenue) for the nine months ended December
        31, 2005 and 2004, respectively, an increase of 9.4%. The increase in lease
        expense is due to an increase in the average number of leased aircraft from
        26.2
        to 32.4, or 19.1%, costs associated with the late return of certain Boeing
        aircraft, increases in lease rates for four of our aircraft that have variable
        rents based on LIBOR, and additional rent related to two spare engine leases.
 
 -28-
 ***Aircraft
        and Traffic Servicing.*** Aircraft
        and traffic servicing expenses were $101,050,000 and $95,209,000, an increase
        of
        6.1%, for the nine months ended December 31, 2005 and 2004, respectively,
        and
        represented 15.0% and 17.2% of total mainline revenue. Aircraft and traffic
        servicing expenses will increase with the addition of new cities to our route
        system. During the nine months ended December 31, 2005, our departures increased
        to 61,338 from 54,723, an increase of 12.1%. Included in the nine months
        ended
        December 31, 2005 was a credit granted as a result of the 2004 DIA landing
        fee
        and facilities calendar 2004 cost reconciliation of $45 per departure. Aircraft
        and traffic servicing expenses, excluding the DIA landing fee and facility
        calendar adjustment, were $1,692 per departure for the nine months ended
        December 31, 2005 as compared to $1,740 per departure for the nine months
        ended
        December 31, 2004, a decrease of 2.8%.
 
 ***Maintenance.*** Maintenance expenses of $57,015,000 and $57,326,000 were 8.4% and 10.4% of
        total
        mainline revenue for the nine months ended December 31, 2005 and 2004,
        respectively, a decrease of 0.5%. Maintenance cost per block hour was $382
        and
        $419 for the nine months ended December 31, 2005 and 2004, respectively,
        a
        decrease of 8.8%.
 
 ***Promotion
        and Sales*** ***.*** Promotion
        and sales expenses totaled $60,369,000 and $57,827,000 and were 9.0% and
        10.5%
        of total mainline revenue for the nine months ended December 31, 2005 and
        2004,
        respectively, an increase of 4.4%. During the nine months ended December
        31,
        2005 promotion and sales expense was reduced by $4,444,000 due to a favorable
        sales and use tax credit on the taxation of ticketing services which related
        to
        September 2001 to March 2005. During the nine months ended December 31, 2005,
        promotion and sales expenses, excluding the sales tax adjustment in 2005,
        per
        mainline passenger decreased to $11.21 from $11.62 for the nine months ended
        December 31, 2004. Promotion and sales expenses per mainline passenger decreased
        as a result of advertising expenses incurred during the nine months ended
        December 31, 2004 for advertising in the Los Angeles, California area to
        promote
        brand awareness for the then new focus city which was offset by an increase
        in
        frequent flyer miles sold.
  ***General
        and Administrative.*** General
        and administrative expenses for the nine months ended December 31, 2005 and
        2004
        totaled $36,803,000 and $35,155,000, respectively, an increase of 4.7%, and
        were
        5.5% and 6.4% of total mainline revenue, respectively.
  ***Aircraft
        Lease Exit Costs.*** ** In
        April
        2005, we finalized our transition to an all Airbus fleet and ceased using
        three
        of our Boeing 737-300 leased aircraft which had original lease termination
        dates
        in September 2005, August 2005 and May 2006. We negotiated an early termination
        fee for the aircraft with an original termination date of May 2006. As such,
        we
        recorded a charge of $3,312,000 in the quarter ended June 30, 2005 to reflect
        the estimated fair value of the remaining lease payments and a one-time early
        return payment. There were no similar costs incurred during the nine months
        ended December 31, 2004.
 
 ***Gains
        and Losses on Sales of Assets, Net*** **.** During
        the nine months ended December 31, 2005, we had net gains totaling $965,000,
        which related primarily on the sale of Boeing spare parts. During the nine
        months ended December 31, 2004, we incurred a loss totaling $489,000 on the
        sale-leaseback of two Airbus A319 aircraft and net losses of $485,000 on
        the
        sale of other assets.
 
 ***Depreciation.*** Depreciation expenses of $21,080,000 and $19,784,000 and were approximately
        3.1%
        and 3.6% of total mainline revenue for the nine months ended December 31,
        2005
        and 2004, respectively, an increase of 6.6%.
 
 ***Nonoperating
        (Income) Expense.*** Net
        nonoperating expense totaled $9,239,000 for the nine months ended December
        31,
        2005 as compared to net nonoperating expense of $6,826,000 for the nine months
        ended December 31, 2004, an increase of 35.4%
 
 Interest
        income increased to $5,835,000 from $2,406,000 during the nine months ended
        December 31, 2005 from the prior comparable period. Interest expense increased
        to $14,871,000 for the nine months ended December 31, 2005 from $9,405,000
        for
        the nine months ended December 31, 2004.
 
 ***Income
        Tax Benefit.*** ** We
        recorded an income tax benefit of $2,372,000 during the nine months ended
        December 31, 2005 at a 27.9% rate, compared to an income tax benefit of
        $10,802,000 during the nine months ended December 31, 2004 at a 35.4% rate.
        The
        fluctuation in our tax rate is due to the impact of permanent differences
        as a
        percentage of income.
  -29-
 **Regional
        Partner**
 
 ***Passenger
        Revenues - Regional Partner*** **.**
        Regional partner revenues totaled $69,835,000 for the nine months ended December
        31, 2005 and $62,618,000 for the nine months ended December 31, 2004, an
        11.5%
        increase. The increase in revenue is due to an increase in the average fare
        to
        $100.54 from $95.24, an increase of 5.6%.
  ***Operating
        Expenses - Regional Partner.*** Regional
        partner expense for the nine months ended December 31, 2005 and 2004 totaled
        $79,569,000 and $68,874,000, respectively, and was 113.9% and 110.0% of total
        regional partner revenues, respectively. The increase in expenses is primarily
        due to a 48.5% increase in fuel cost and an increase in performance bonuses
        paid.
  
 -30-
  **Liquidity
        and Capital Resources**
 
 Our
        liquidity depends to a large extent on the number of passengers who fly with
        us,
        the fares they pay, our operating and capital expenditures, our financing
        activities, and the cost of fuel. We depend on lease or mortgage-style financing
        to acquire all of our aircraft, including 15 additional Airbus aircraft that
        as
        of December 31, 2005 are scheduled for delivery through March 2008. We have
        financing commitments on seven of the 15 aircraft scheduled for
        delivery.
 
 We
        had
        cash, cash equivalents and short-term investments of $222,680,000 and
        $174,795,000 at December 31, 2005 and March 31, 2005, respectively. At December
        31, 2005, total current assets were $346,151,000 as compared to $232,238,000
        of
        total current liabilities, resulting in working capital of $113,913,000.
        At
        March 31, 2005, total current assets were $275,550,000 as compared to
        $233,850,000 of total current liabilities, resulting in working capital of
        $41,700,000.
 
 *Operating
        Activities.* Cash
        provided by operating activities for the nine months ended December 31, 2005
        was
        $5,505,000 as compared to a use of cash of $12,206,000 for the nine months
        ended
        December 31, 2004. The increase in operating cash flows was primarily due
        to
        better operating results during the nine months ended December 31, 2005 as
        compared to the same period last year, which was offset by an increase of
        $1,993,000 in working capital needs.
 
 *Investing
        Activities* .
        Cash
        used in investing activities for the nine months ended December 31, 2005
        was
        $77,093,000. Capital expenditures were $88,641,000 for the nine months ended
        December 31, 2005 and included the purchase of two Airbus A319 aircraft,
        the
        purchase of LiveTV equipment, the purchase of one spare engine that was
        delivered to us and that we sold in a sale-leaseback transaction, rotable
        aircraft components, aircraft improvements and ground equipment. We received
        $9,080,000 from the sale of the spare engine that we sold in a sale-leaseback
        transaction, the sale of Boeing spare parts held for sale and other
        assets.  Aircraft
        lease and purchase deposits made during the period were $21,556,000, which
        was
        offset by pre-delivery payments totaling $18,989,000 applied against the
        purchase of two Airbus A319 aircraft and LiveTV equipment.
 
 Cash
        used
        in investing activities for the nine months ended December 31, 2004 was
        $124,931,000. Capital expenditures were $121,202,000 for the nine months
        ended
        December 31, 2004, and included the purchase of one Airbus A318 aircraft,
        two
        Airbus A319 aircraft and one spare engine that was delivered to us and that
        we
        sold in sale-leaseback transactions. Additionally, capital expenditures included
        the purchase of LiveTV equipment, rotable aircraft components, aircraft
        improvements and ground equipment. Aircraft lease and purchase deposits made
        during the period were $15,848,000. We applied the pre-delivery payments
        totaling $6,412,000 for the purchase of an Airbus A318 aircraft to the purchase
        of that aircraft and the pre-delivery deposits totaling $14,716,000 for the
        two
        Airbus A319 aircraft were returned to us. We received $77,707,000 from the
        sale
        of the two new A319 aircraft that we sold in sale-leaseback transactions,
        two
        spare engines that we sold in sale-leaseback transactions, one spare engine
        for
        our Boeing fleet and other Boeing spare parts. Net cash used in the purchase
        and
        sale of available-for-sale securities was $95,400,000.
 
 *Financing
        Activities.* Cash
        provided by financing activities for the nine months ended December 31, 2005
        was
        $122,473,000. On December 7, 2005, we completed the issuance of $92,000,000
        principal amount of 5% convertible notes due 2025, raising net proceeds of
        approximately $88,707,000. The net proceeds from our convertible debt offering
        are being used for general working capital purposes, including capital
        expenditures related to the purchase of financing of aircraft and expansion
        of
        our operations. During the nine months ended December 31, 2005, we borrowed
        $54,700,000 for the purchase of two Airbus A319 aircraft, paid $14,864,000
        of
        debt principal payments on our 16 owned aircraft and we repaid short-term
        borrowings of $5,000,000 under a revolving line of credit. During the nine
        months ended December 31, 2005, we also received $1,551,000 from the exercise
        of
        common stock options and paid $578,000 of fees for aircraft debt financing.
 
 Cash
        provided by financing activities for the nine months ended December 31, 2004
        was
        $7,128,000. During the nine months ended December 31, 2004, we borrowed
        $22,000,000 for the purchase of one Airbus A318 aircraft and paid $14,253,000
        of
        debt principal payments.
  -31-
 ***Other
        Items That Impact Our Liquidity***
 
 In
        August
        2004, we entered into an agreement with two vendors to market and sell all
        of
        our remaining Boeing 737 spare parts inventories and rotables. As of September
        30, 2005, we transferred the remaining Boeing inventories to these vendors.
        As
        of December 31, 2005, the carrying value of our Boeing rotables and expendable
        spare parts classified as assets held for sale totaled $4,069,000. This amount
        represents the estimated market value of the remaining Boeing spare parts
        based
        on estimates obtained from our vendors, less selling costs. If the actual
        net
        proceeds received for these Boeing parts are less than the amounts we have
        estimated, we may recognize additional impairments on these parts. During
        the
        nine month period ended December 31, 2005, we have received $3,256,000 in
        gross
        proceeds resulting in a net gain on our expendable and rotable inventory
        totaling approximately $1,224,000.
 
 We
        continue to assess our liquidity position in light of our aircraft purchase
        commitments and other capital requirements, the economy, our competition,
        and
        other uncertainties surrounding the airline industry. In September 2005,
        we
        filed a registration statement with the Securities and Exchange Commission,
        which will enable us to periodically sell up to $250,000,000 in preferred
        and
        common stock and debt and other securities. In December 2005, under the first
        offering under this shelf registration, we issued $92,000,000 of 5% Convertible
        Notes due 2025. We intend to continue to examine domestic or foreign bank
        aircraft financing, bank lines of credit and aircraft sale-leasebacks, and
        other
        transactions as necessary to support our capital and operating needs. For
        further information on our financing plans and activities and commitments,
        see
“Contractual Obligations” and “Commercial Commitments” below.
 
 We
        have
        obtained financing for all of our aircraft deliveries scheduled for calendar
        year 2006 and expect to have adequate liquidity to cover our contractual
        obligations. However, we cannot predict future trends or predict whether
        current
        trends and conditions will continue. Our future liquidity and capital resources
        may be impacted by many factors, including “Risk Factors” discussed in Item 1 of
        our annual report on Form 10-K and a Form 8-K filed on November 29,
        2005.
 
 In
        January 2006, our maintenance personnel ratified a three-year contract
        with a wage increase of 3% over the term of the agreement. Also, in January
        2006
        the National Mediation Board had received a petition for an election by the
        material services employees.
 
 
 -32-
 **Contractual
        Obligations**
 
 The
        following table summarizes our contractual obligations as of December 31,
        2005:
 
 **Less
                  than**
              
              **1-3**
              
              **4-5**
              
              **After****1
                  year**
              
              **years**
              
              **years**
              
              **5
                  years**
              
              **Total**Long-term
                  debt - principal payments (1)
              
              $
              21,984,000
              
              $
              47,858,000
              
              $
              53,901,000
              
              $
              309,107,000
              
              $
              432,850,000Long-term
                  debt - interest payments (1)
              
              
              24,821,000
              
              
              44,744,000
              
              
              38,824,000
              
              
              106,020,000
              
              
              214,409,000Operating
                  leases (2)
              
              
              132,524,000
              
              
              265,835,000
              
              
              248,989,000
              
              
              617,712,000
              
              
              1,265,060,000Unconditional
                  purchase obligations (3) (4) (5)
              
              
              157,465,000
              
              
              304,687,000
              
              
              6,371,000
              
              
              -
              
              
              468,523,000Total
                  contractual cash obligations
              
              $
              336,794,000
              
              $
              663,124,000
              
              $
              348,085,000
              
              $
              1,032,839,000
              
              $
              2,380,842,000
  (1)
                At
                    December 31, 2005, we had 16 loan agreements for 11 Airbus A319
                    aircraft
                    and five Airbus A318 aircraft. Two of the loans have a term of
                    10 years
                    and are payable in equal monthly installments, including interest,
                    payable
                    in arrears. These loans require monthly principal and interest
                    payments of
                    $215,000 and $218,000, bear interest with rates of 6.71% and
                    6.73%, with
                    maturities in May and August 2011, at which time a balloon payment
                    totaling $10,200,000 is due with respect to each loan. The remaining
                    14
                    loans have interest rates based on LIBOR plus margins that adjust
                    quarterly or semi-annually. At December 31, 2005, interest rates
                    for these
                    loans ranged from 5.50% to 6.73%. Each of these loans has a term
                    of 12
                    years, and each loan has balloon payments ranging from $2,640,000
                    to
                    $7,770,000 at the end of the term. All of the loans are secured
                    by the
                    aircraft. Actual interest payments will change based on changes
                    in LIBOR.
                    In July 2005, we also entered into a junior loan in the amount
                    of
                    $4,900,000 on an aircraft purchased in July. This loan has a
                    seven year
                    term with quarterly installments of $241,000. The loan bears
                    interest at a
                    floating rate adjusted quarterly based on LIBOR, which was 7.94%
                    on
                    December 31, 2005.In
                    December 2005, we issued $92,000,000 of 5% convertible notes
                    due 2025. At
                    any time on or after December 20, 2010, we may redeem any of
                    the
                    convertible notes for the principal amount plus accrued interest.
                    Note
                    holders may require us to repurchase the notes for cash for the
                    principal
                    amount plus accrued interest only on December 15, 2010, 2015
                    and 2020 or
                    at any time prior to their maturity following a designated event
                    as
                    defined in the indenture for the convertible notes. In the obligation
                    table above, the convertible notes are reflected based on their
                    stated
                    maturity of December 2025 with the corresponding interest payments.
                    However, these notes may be called prior to the stated maturity
                    dates
                    which would impact the timing of the principal payments and the
                    amount of
                    interest paid.(2)
                As
                    of December 31, 2005, we leased 31 Airbus A319 type aircraft
                    and two
                    Airbus A318 aircraft under operating leases with expiration dates
                    ranging
                    from 2006 to 2017. Under all of our leases, we have made cash
                    security
                    deposits or arranged for letters of credit representing approximately
                    two
                    months of lease payments per aircraft. At December 31, 2005,
                    we had made
                    cash security deposits of $15,889,000. Additionally, we are required
                    to
                    make additional rent payments to cover the cost of major scheduled
                    maintenance overhauls of these aircraft. These additional rent
                    payments
                    are based on the number of flight hours flown and/or flight departures
                    and
                    are not included as an obligation in the table above.During
                    the fiscal year ended March 31, 2004, we entered into additional
                    aircraft
                    lease agreements for two Airbus A318 aircraft and 18 Airbus A319
                    aircraft.
                    Three of the aircraft leases were a result of sale-leaseback
                    transactions
                    of three new Airbus aircraft. As of December 31, 2005, we have
                    taken
                    delivery of 16 of these aircraft. The remaining four aircraft
                    are
                    scheduled for delivery beginning in March 2006 through February
                    2007. As
                    of December 31, 2005, we have made $668,000 in security deposit
                    payments
                    for future leased aircraft deliveries. Total operating lease
                    obligations
                    include the four aircraft not yet
                    received.
   -33-
  We
                    also lease office and hangar space, spare engines and office
                    equipment for
                    our headquarters and airport facilities, and certain other equipment
                    with
                    expiration dates ranging from 2006 to 2015. In addition, we lease
                    certain
                    airport gate facilities on a month-to-month basis. Amounts for
                    leases that
                    are on a month-to-month basis are not included as an obligation
                    in the
                    table above.(3)
                As
                    of December 31, 2005, we have remaining firm purchase commitments
                    for 11
                    additional aircraft which have scheduled delivery dates beginning
                    in June
                    2006 and continuing through March 2008. We also have remaining
                    firm
                    purchase commitments for one spare engine scheduled for delivery
                    in May
                    2006. Included in the purchase commitments are the remaining
                    amounts due
                    Airbus and amounts for spare aircraft components to support the
                    additional
                    purchase and leased aircraft. We are not under any contractual
                    obligations
                    with respect to spare parts. Under the terms of the purchase
                    agreement, we
                    are required to make scheduled pre-delivery payments for these
                    aircraft.
                    These payments are non-refundable with certain exceptions. As
                    of December
                    31,2005,
                    we had made pre-delivery payments on future deliveries totaling
                    $27,531,000 to secure these aircraft.We
                    have signed a letter of intent for the sale-leaseback of one
                    owned and
                    three spare engines scheduled for delivery between October 2004
                    and
                    February 2006. In October 2004, we completed the sale-leaseback
                    of two of
                    these engines with proceeds totaling $12,186,000. In December
                    2005, we
                    completed the sale-leaseback of one additional engine with proceeds
                    of
                    $5,789,000. The terms of the letter of intent allow us to sell
                    each spare
                    engine to the buyer at the time of delivery, and then lease the
                    engines
                    back for a period of ten years commencing on the delivery date.
                    The
                    agreement will provide financing for an additional two spare
                    engines which
                    we expect we will order in the future.(4)
                In
                    October 2002, we entered into a purchase and 12-year services
                    agreement
                    with LiveTV to bring DIRECTV AIRBORNETM satellite programming to every
                    seatback in our Airbus fleet. We intend to install LiveTV in
                    every new
                    aircraft we place in service. The table above includes amounts
                    for the
                    installation of DirectTV for the remaining 11 aircraft we currently
                    expect
                    to be purchased and the remaining four aircraft we currently
                    expect to be
                    leased, less deposits made of $691,000.(5)
                In
                    March 2004, we entered into a services agreement with Sabre,
                    Inc. for its
                    SabreSonicTMpassenger solution to power our reservations and check-in capabilities
                    along with a broad scope of technology for streamlining our operations
                    and
                    improving revenues. The table above includes minimum annual fees
                    for
                    system usage fees. Usage fees are based on passengers booked
                    and actual
                    amounts paid may be in excess of the minimum per the contract
                    terms.
  **Commercial
        Commitments**
 
 ***Letters
        of Credit and Cash Deposits***
 
 As
        we
        enter new markets, increase the amount of space we lease, or add leased
        aircraft, we are often required to provide the airport authorities and lessors
        with a letter of credit, bond or cash security deposits. These generally
        approximate up to three months of rent and fees. We also provide letters
        of
        credit for our workers’ compensation insurance. As of December 31, 2005, we had
        outstanding letters of credit, bonds, and cash security deposits totaling
        $12,459,000, $1,867,000, and $18,466,000, respectively. We have a letter
        of
        credit agreement with a financial institution which expired on December 1,
        2005,
        which has been extended for existing letters of credit. This facility can
        be
        used only for the issuance of standby letters of credit and no new letters
        of
        credit can be issued. Any amounts drawn under this facility are fully
        collateralized by certificates of deposit, which are carried as restricted
        investments on our balance sheet. As of December 31, 2005, we have utilized
        $3,689,000 under this credit agreement for standby letters of credit that
        provide credit support for certain leases. We are in the process of moving
        these
        letters of credit under letters of credit. In the event that the surety
        companies determined that issuing bonds on our behalf were a risk they were
        no
        longer willing to underwrite, we would be required to collateralize certain
        of
        these lease obligations with either cash security deposits or standby letters
        of
        credit, which would decrease our liquidity .
 
 We
        also
        have an agreement with another financial institution where we can issue letters
        of credit of up to 50% of certain spare parts inventories less amounts borrowed
        under the credit facility. As of December 31, 2005, we had $10,816, 000
        available under this facility, which is reduced by letters of credit issued
        of
        $6,500,000.
 
 -34-
 In
        July
        2005, we entered into an additional agreement with another financial institution
        for a $5,000,000 revolving letter of credit where we can issue letters of
        credit
        up to $3,500,000. As of December 31, 2005, we have utilized $2,270,000 under
        this agreement for standby letters of credit that provide credit support
        for
        certain facility leases.
 
 We
        have a
        contract with a bankcard processor that requires us to pledge a certificate
        of
        deposit equal to a certain percentage of our air traffic liability associated
        with bankcard customers. As of December 31, 2005, that amount totaled
        $36,904,000. The amount is adjusted quarterly in arrears based on our air
        traffic liability associated with bankcard transactions. As of February 1,
        2006,
        based on our air traffic liability as of December 31, 2005, this resulted
        in a
        decrease of approximately $4,142,000 in the required amount of certificate
        of
        deposits pledged.
 
 We
        use
        the Airline Reporting Corporation (“ARC”) to provide reporting and settlement
        services for travel agency sales and other related transactions. In order
        to
        maintain the minimum bond (or irrevocable letter of credit) coverage of
        $100,000, ARC requires participating carriers to meet, on a quarterly basis,
        certain financial tests such as, but not limited to, working capital ratio,
        and
        percent of debt to debt plus equity. As of December 31, 2005, we met these
        financial tests and presently are only obligated to provide the minimum amount
        of $100,000 in coverage to ARC. If we were to fail the minimum testing
        requirements, we would be required to increase our bonding coverage to four
        times the weekly agency net cash sales (sales net of refunds and agency
        commissions). Based on net cash sales remitted to us for the week ended January
        20, 2006, the coverage would be increased by approximately $10,383,000 if
        we
        failed the tests. If we were unable to increase the bond amount as a result
        of
        our then financial condition, we could be required to issue a letter of credit
        that would restrict cash in an amount equal to the letter of
        credit.
 
 ***Hedging
        Transactions***
  In
        November 2002, we initiated a fuel hedging program comprised of swap and
        collar
        agreements. Under a swap agreement, the cash settlements are calculated based
        on
        the difference between a fixed swap price and a price based on an agreed
        upon
        published spot price for the underlying commodity. If the index price is
        higher
        than the fixed price, we receive the difference between the fixed price and
        the
        spot price. If the index price is lower, we pay the difference. A collar
        agreement has a cap price, a primary floor price, and, in the case of a
        three-way collar, a secondary floor price. When the hedged product’s index price
        is above the cap, we receive the difference between the index and the cap.
        When
        the hedged product’s index price is below the primary floor but above the
        secondary floor, we pay the difference between the index and the primary
        floor.
        However, when the price is below the secondary floor, we are only obligated
        to
        pay the difference between the primary and secondary floor prices. When the
        price is between the cap price and the primary floor, no payments are required.
        Unrealized net losses recorded on fuel derivative contracts for the three
        and
        nine months ended December 31, 2005 were $1,529,000 and $2,254,000,
        respectively, and realized gains for hedge cash settlements during the three
        and
        nine months ended December 31, 2005 were $1,264,000 and $5,228,000,
        respectively. We have entered into the following swap and collar agreements
        that
        cover periods during fiscal year 2006:
 
 **Date**
              **Product
                  ***
              **Notional
                  volume ** (barrels per month)**
              **Period
                  covered**
              **Price
                  (per gallon or barrel)**
              **Percentage
                  of estimated fuel purchases**November
                  2004
              Jet
                  A
              75,000
              April
                  1, 2005 -
                June
                  30, 2005
              $1.34
                  per gallon, with a floor of
                $1.20
                  per gallon
              28%May
                  2005
              Crude
                  Oil
              60,000
              July
                  1, 2005 -
                December
                  31, 2005
              $53.00
                  per barrel cap, with a
                floor
                  of $50.73
              20%November
                  2005
              Jet
                  A
              60,000
              January
                  1, 2006 -
                March
                  31, 2006
              $1.83
                  per gallon, with a floor of
                $1.685
                  per gallon
              20%November
                  2005
              Jet
                  A
              50,000
              April
                  1, 2006 -
                June
                  30, 2006
              $1.83
                  per gallon, with a floor of
                $1.6925
                  per gallon
              15%
 
 
 -35-
 *Jet
        A is
        Gulf Coast Jet A fuel. Crude oil is West
        Texas Intermediate crude oil.
 **
        One
        barrel is equal to 42 gallons.
  In
        March
        2003, we entered into an interest rate swap agreement with a notional amount
        of
        $27,000,000 to hedge a portion of our LIBOR based borrowings through June
        30,
        2007. Under the interest rate swap agreement, we are paying a fixed rate
        of
        2.45% and receive a variable rate based on the three month LIBOR over the
        term
        of the swap that expires in March 2007. During the three and nine months
        ended
        December 31, 2005, interest expense was decreased by $63,000 and $146,000,
        respectively, for this agreement. During the three and nine months ended
        December 31, 2004, interest expense was increased by $32,000 and $183,000,
        respectively, for this agreement. Approximately $291,000 of unrealized gains
        are
        included in accumulated other comprehensive income, net of income taxes of
        $110,000, as of December 31, 2005.
 
 ***Maintenance
        Contracts***
  Effective
        January 1, 2003, we entered into an engine maintenance agreement with GE
        Engine
        Services, Inc. (“GE”) covering the scheduled and unscheduled repair of our
        aircraft engines used on most of our Airbus aircraft. The agreement was
        subsequently modified and extended in September 2004. The agreement is for
        a
        12-year period from the effective date for our owned aircraft or May 1, 2019,
        whichever comes first. For each leased aircraft, the term coincides with
        the
        initial lease term of 12 years. This agreement precludes us from using another
        third party for such services during the term. The agreement requires monthly
        payments at a specified rate multiplied by the number of flight hours the
        engines were operated during that month. The amounts due based on flight
        hours
        are not included in the Contractual Obligations table above. The costs under
        this agreement for our purchased aircraft for the nine months ended December
        31,
        2005 and 2004 were approximately $1,922,000 and $1,930,000, respectively.
        For
        our leased aircraft, we do not make the flight hour payments to GE under
        the
        agreement. Instead we make engine maintenance reserve payments as required
        under
        the applicable lease agreements. At the time a leased engine makes a scheduled
        shop visit, the lessors pay GE directly for the repair of aircraft engines
        from
        reserve accounts established under the applicable lease documents.
 
 **Critical
        Accounting Policies**
 
 Our
        critical accounting policies have not changed from those reported in
        Management’s Discussion and Analysis of Financial Condition and Results of
        Operations in our 2005 Annual Report on Form 10-K.
 
 **New
        Accounting Standards**
  In
        December 2004, the FASB issued SFAS No. 123R, Share-Based Payments. SFAS
        No.
        123R, revised FASB Statement No. 123, Accounting for Stock-Based Compensation
        and supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees.
        SFAS No. 123(R) focuses primarily on the accounting for transactions in which
        an
        entity obtains employee services in share-based payment transactions. SFAS
        No.
        123(R) requires companies to recognize in the statement of operations the
        cost
        of employee services received in exchange for awards of equity instruments
        based
        on the grant-date fair value of those awards (with limited exceptions). In
        April
        2005, the effective date for SFAS No. 123(R) was changed to the first fiscal
        year that begins after June 15, 2005. We plan to adopt SFAS No. 123(R) on
        April
        1, 2006 and use the modified prospective transition method. Under the
        modified-prospective method, we will recognize compensation expense in the
        financial statements issued subsequent to the date of adoption for all
        share-based payments granted, modified or settled after April 1, 2006 as
        well as
        for any awards that were granted prior to April 1, 2006 for which requisite
        service has been provided as of April 1, 2006. As we currently account for
        share-based payments under APB 25, we will recognize compensation expense
        on
        awards granted subsequent to April 1, 2006 using the fair values determined
        by a
        valuation model prescribed by SFAS No. 123R. The compensation expense on
        awards
        granted prior to April 1, 2006 will be recognized using the fair values
        determined for the pro forma disclosures on stock-based compensation. The
        amount
        of compensation expense that will be recognized on awards that have not fully
        vested will exclude the compensation expense cumulatively recognized in the
        pro
        forma disclosures on stock-based compensation.
  -36-
 **Item
        3: Quantitative and Qualitative Disclosures about Market
        Risk**
 
 ***Aircraft
        Fuel***
 
 Our
        earnings are affected by changes in the price and availability of aircraft
        fuel.
        Market risk is estimated as a hypothetical 10 percent change in the average
        cost
        per gallon of fuel for the nine months ended December 31, 2005. Based on
        actual
        fuel usage for the nine months ended December 31, 2005, such a change would
        have
        had the effect of increasing or decreasing our mainline and regional partner
        aircraft fuel expense by approximately $23,500,000, excluding the impact
        of our
        fuel hedging. Comparatively, based on projected fiscal year 2006 fuel usage
        for
        our mainline operations and regional partner, this would have the effect
        of
        increasing or decreasing our aircraft fuel expense by approximately $31,732,000,
        in fiscal year 2006 as compared to approximately $21,492,000 for fiscal year
        2005, excluding the effects of our fuel hedging arrangements.
 
 On
        November 12, 2004, we entered into a two-way collar agreement that hedged
        approximately 28% of our expected fuel requirements for the quarter ended
        June
        30, 2005. This collar used Gulf Coast Jet A as its basis. The additional
        derivative transaction is a collar agreement that uses West Texas Intermediate
        crude oil as its basis. The cap price is set at $1.34 per gallon, and the
        floor
        is set at $1.20 per gallon. On May 13, 2005, we entered into an additional
        derivative transaction that uses West Texas Intermediate crude oil as its
        basis
        and hedge approximately 20% of our projected fuel requirements for the period
        from July 1, 2005 to December 31, 2005. This collar agreement has a cap price
        of
        $53.00 per barrel and the floor is set at $50.73 per barrel. On November
        28,
        2005, we entered into a zero cost
        collar agreement that hedges approximately 20% of our
        expected fuel requirements for the period from January 1, 2006 through
        March 31, 2006, and 15% of our expected fuel requirements for the period
        from
        April 1, 2006 through June 30, 2006.  The collar uses Gulf Cost Jet A as
        its basis.  The cap price is set at $1.83 per gallon for both quarters, and
        the floor is set at $1.6850 for the period from January 1, 2006 through March
        31, 2006, and $1.6925 for the period from April 1, 2006 through June 30,
        2006.
        When the U.S. Gulf Coast Pipeline Jet index price is above the
        cap, we receive the difference between the index and
        the cap.  When the U.S. Gulf Coast Pipeline Jet index price is
        below the floor, we pay the difference between the index and
        the floor.  When the price is between the cap price and the
        floor, no payments are required.
 
 Our
        results of operations for the nine months ended December 31, 2005 include
        an
        unrealized derivative loss of $2,254,000 that is included in fuel expense
        and
        realized gains of $5,228,000 in cash settlements received from a counter-party
        recorded as a decrease in fuel expense with respect to these three agreements.
        As of December 31, 2005, the fair value of the November 2005 hedge agreement
        recorded on the balance sheet as an asset was $885,000.
 
 ***Interest***
 
 We
        are
        susceptible to market risk associated with changes in variable interest rates
        on
        long-term debt obligations we incurred and will incur to finance the purchases
        of our Airbus aircraft. Interest expense on 70.0% of our debt is subject
        to
        interest rate adjustments every three to nine months based upon changes in
        the
        applicable LIBOR rate. A change in the base LIBOR rate of 100 basis points
        (1.0%) would have the effect of increasing or decreasing our annual interest
        expense by $3,031,000 assuming the loans outstanding that are subject to
        interest rate adjustments at December 31, 2005 totaling $303,066,000 are
        outstanding for the entire period.
 
 In
        March
        2003, we entered into an interest rate swap agreement with a notional amount
        of
        $27,000,000 to hedge a portion of our LIBOR based borrowings. Under the interest
        rate swap agreement, we are paying a fixed rate of 2.45% and receive a variable
        rate based on the three month LIBOR over the term of the swap that expires
        in
        March 2007. As of December 31, 2005, we had hedged approximately 4.4% of
        our
        variable interest rate loans that are based on three-month LIBOR rates. As
        of
        December 31, 2005, the fair value of the swap agreement is recorded in the
        balance sheet as an asset of $158,000.
  
 -37-
 **Item
        4.****Controls
        and Procedures**
 
 ***Evaluation
        of Disclosure Controls and Procedures***
 
 The
        Company’s
        management, including the Chief Executive Officer and Chief Financial Officer,
        evaluated the effectiveness of the design and operation of the Company’s
        disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e)
        under the Securities Exchange Act of 1934, as amended (the “Exchange
        Act”)) as
        of the end
        of the period covered by this report. Based upon that evaluation, the Company’s
        management, including the Chief Executive Officer and Chief Financial Officer,
        concluded that the Company’s disclosure controls and procedures are effective in
        ensuring that information relating to the Company required to be included
        in the
        Company’s Exchange Act filings is resolved, processed, summarized and reported
        within the time specified in the applicable rules and forms.
 
 
 ***Changes
        in Internal Controls***
 
 There
        were no changes made in the Company’s internal controls over financial reporting
        that occurred during the Company’s most recent fiscal quarter that have
        materially affected, or are reasonably likely to materially affect, the
        Company’s internal controls over financial reporting.
   -38-
  **PART
        II. OTHER INFORMATION**
 
 **Item
                  6:**
              **Exhibits****Exhibit****Numbers**
              **Description
                  of Exhibits**1.1
              Underwriting
                  Agreement dated December 1, 2005, by and among Frontier
                  Airlines, Inc., Morgan Stanley & Co. Incorporated, and
                  Citigroup Global Markets, Inc. (Exhibit 1.1 to a Form 8-K filed on
                  December 7, 2005).4.5
              Indenture
                  dated December 7, 2005, by and between Frontier Airlines, Inc.
                  and U.S. Bank National Association, as Trustee (Exhibit 4.1 to
                  Amendment No. 1 to Frontier’s Registration Statement on
                  Form S-3, File No. 333-128407, filed on November 23,
                  2005).4.6
              First
                  Supplemental Indenture dated December 7, 2005, by and between
                  Frontier Airlines, Inc. and U.S. Bank National Association, as
                  Trustee (Exhibit 4.2 to a Form 8-K filed on December 7,
                  2005).31.1*
              Certification
                  of President and Chief Executive Officer pursuant to Section 302
                  of the
                  Sarbanes-Oxley Act of 2002.31.2*
              Certification
                  of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
                  Act of 2002.32**
              Certification
                  of Chief Executive Officer and Chief Financial Officer pursuant
                  to Section
                  906 of the Sarbanes-Oxley Act of 2002.
 
 
 * Filed
        herewith.
 **  Furnished herewith .
   -39-
  **SIGNATURES**
 
 Pursuant
        to the requirements of Section 13 or 15(d) of the Securities Exchange Act
        of
        1934, the registrant has duly caused this report to be signed on its behalf
        by
        the undersigned, thereunto duly authorized.
 
 
 FRONTIER
                  AIRLINES, INC.Date:
                  January 30, 2006
              By:/s/
                  Paul H.
                  TatePaul
                  H. Tate, Senior Vice President andChief
                  Financial OfficerDate:
                  January 30, 2006
              By:/s/
                  Elissa A.
                  PotucekElissa
                  A. Potucek, Vice President, Controller,Treasurer
                  and Principal Accounting Officer
 
 -40-