Key Takeaways
- Frontier Group jumped 8% today on a surprise adjusted third-quarter profit and record revenue of $1.4 billion, up 53%.
- Higher fares did the work, with unit revenue up 30% against a 56% jump in the price of fuel.
- Southwest, United and Delta raised unit revenue less but earned fatter margins, and Frontier still lost money on a GAAP basis.
- The stock sits near its five-year low on forward sales, and the fourth quarter is the next test.
Frontier Group Holdings (ULCC) is up 8% today. The Frontier Airlines parent posted a surprise adjusted third-quarter profit, which its earnings release says came while “Overcoming High Fuel Prices.”
It got there the same way Southwest Airlines (LUV), United Airlines (UAL) and Delta Air Lines (DAL) did this month: by raising fares to cover fuel. Frontier just pushed hardest.
Fares did the heavy lifting
- Revenue: $1.4 billion, a record, up 53%
- RASM: up 30%
- Average fare: $67.82 per passenger, up 71%
- Fuel: $3.96 a gallon, up 56%, about $150 million of extra cost
That added up to adjusted EPS of $0.18, well above guidance. On a GAAP basis, Frontier still lost $104 million, mostly because of $134 million of charges for handing back 13 A320neos early.
CEO Jimmy Dempsey said the quarter gives the company “confidence in our ability to translate our momentum into sustainable profitability.”
TIKR tracks 12 analysts on Frontier Group Holdings. How many say “Buy”?
See the full breakdown of Buy, Hold, and Sell ratings on Frontier Group Holdings, along with Wall Street’s revenue and earnings estimates, all in one place. More than 500,000 investors use TIKR to research stocks like this one. See Frontier Group Holdings’ Analyst Ratings
The big carriers keep more of each fare
Southwest, which goes after the same price-conscious flyers, grew RASM 21.6% in the third quarter on fuel at $3.92 a gallon, and earned $270 million. For the fourth quarter it guides RASM up 19% to 21%, close to Frontier’s own guide of more than 20%. And it expects cheaper fuel: about $4.55 a gallon, against Frontier’s $4.75.
United and Delta raised unit revenue just 16% and 15%, yet earned adjusted pre-tax margins of 6.2% and 8.5%, against Frontier’s 2.9%. Their premium revenue rose 17% and 18%, while Frontier’s non-fare revenue per passenger rose just 7%. So Frontier needs budget flyers to keep paying more, where United and Delta have other ways to earn.
Now it has to do it again
Frontier’s operating margin has been negative in each of the last five years:
Its fourth-quarter guide runs from an adjusted loss of $0.15 a share to a $0.05 profit, and it assumes fuel about 20% pricier than in the third quarter.
The market isn’t pricing in much of a turnaround. At yesterday’s close, the stock traded at 0.2x forward sales, its five-year low:
Today’s jump still leaves it well below its 0.4x average.
My take: priced near its lows, Frontier doesn’t need Delta’s margins, just fares that keep beating fuel. The fourth-quarter report, early next year, is the test. Its load factor already slipped to 78.8% from 80.7%, so if budget flyers balk, today’s jump won’t hold.
So what is Frontier Group stock actually worth?
TIKR lets you forecast the future price of any stock in less than a minute. Just enter a few assumptions into TIKR’s valuation model and see what Frontier Group could be worth. Start from Wall Street consensus estimates, or adjust the inputs to reflect your own view of the business. It’s free to use.
Disclaimer:
Please note that the articles on TIKR are not intended to serve as investment or financial advice from TIKR or our content team, nor are they recommendations to buy or sell any stocks. We create our content based on TIKR Terminal’s investment data and analysts’ estimates. Our analysis might not include recent company news or important updates. TIKR has no position in any of the stocks mentioned. Thank you for reading, and happy investing!
