Frontier Airlines, a ultra-low-cost carrier, predicted on Wednesday (July 29) that its third-quarter earnings would surpass Wall Street’s expectations. The airline’s pricing power is expected to strengthen after its competitor Spirit Airlines exited the market, helping to alleviate the impact of rising fuel costs due to the conflict in the Middle East.
Based in Denver, the airline saw its stock price rise by 4.4% on Wednesday.
Frontier stated that with the increase in aviation fuel costs and the bankruptcy liquidation of Spirit Airlines, overall capacity in the U.S. decreased, leading to higher ticket prices. This allowed Frontier to raise fares by over 50% in the second quarter, offsetting the continuous rise in fuel costs on its profit margin.
CEO of Frontier Airlines, Jimmy Dempsey, anticipates a 20% growth in revenue per available seat mile in the third quarter compared to the same period last year, marking the third consecutive quarter of double-digit growth.
Dempsey mentioned during a financial conference call, “The current competitive landscape is a huge advantage for Frontier, and we are reaping the benefits, enabling us to mitigate the impact of the current high oil prices.”
Compared to the same period last year, Frontier saw a 14% increase in passenger traffic and a 54% increase in revenue per passenger in the second quarter.
Frontier reported that its second-quarter revenue hit a record $1.28 billion, attributing it to robust travel demand and favorable competitive capacity.
Raymond James stock analyst Savanthi Syth remarked, “Frontier’s second-quarter earnings far exceeded expectations, with revenue significantly surpassing forecasts, and overall execution has also improved.”
The company also projects a fourth-quarter profit between break-even and 20 cents per share, with analysts expecting earnings per share to be 24 cents.
The uncertainty brought by the Middle East war has made it challenging for airlines to accurately forecast profits. For the three months ending June 30, Frontier paid $4.17 per gallon of fuel, a 77% increase from the same period last year, nearly doubling fuel costs to reach $436 million.
However, with fuel prices decreasing from the spring highs, the outlook is gradually becoming clearer. Airlines have successfully passed on a higher proportion of fuel costs to passengers than expected in the second quarter, as reported by all companies.
The company expects average fuel costs for the third quarter to be $3.70 per gallon and $3.50 per gallon for the fourth quarter.
Frontier narrowed its adjusted net loss for the quarter to $22 million, lower than the $70 million from the same period last year; the adjusted loss per share was 10 cents, down from 31 cents in the previous year. Analysts had previously expected a loss of 48 cents per share, while the company had projected an adjusted loss per share of 45 to 60 cents.
According to data compiled by the London Stock Exchange Group (LSEG), Frontier is expected to return to profitability in the second half of this year. The third-quarter earnings per share are expected to range between a loss of 10 cents and a profit of 10 cents, with analysts previously forecasting a loss of 29 cents.
(Reference: Reporting by Reuters)