- Frontier Airlines, the largest US budget carrier, said fare revenue averaged $67.82 per passenger in the third quarter, up 71% from $39.74 a year earlier, as it tried to pass along soaring jet fuel prices. Including fees for bags and other extras, total revenue per passenger rose 30% to $138.22.
- Customers kept flying. Passenger count rose 18% to more than 9.8 million, about 1.5 million more than a year earlier, and the company said demand remains strong even at higher prices.
- Fuel still swamped the gains. Frontier’s fuel bill jumped 82% to $425 million, and its third-quarter loss widened to $104 million from $77 million a year earlier.
- The stock rose about 6% in early trading after Frontier forecast a fourth-quarter result ranging from an adjusted loss of 15 cents a share to adjusted earnings of up to 5 cents a share.
What Happened?
Frontier reported results Wednesday showing how airlines are using pricing to cope with record jet fuel costs, which are their biggest expense after labor. Carriers from Delta to Frontier have said customers are mostly continuing to book despite higher fares, but fuel is eroding profits. Frontier had overtaken Spirit Airlines as the country’s biggest discount carrier even before Spirit collapsed in May.
Why It Matters?
A 71% fare increase at the country’s largest budget airline is a striking sign of how record jet fuel prices are feeding into what travelers pay. Frontier’s ability to raise fares while growing passengers 18% suggests the collapse of Spirit has given it pricing power in the budget segment. But a widening loss shows that pricing alone has not kept up with fuel, leaving earnings highly sensitive to oil prices.
What’s Next?
Investors will watch whether Frontier can deliver on its forecast of a possible fourth-quarter profit, which depends heavily on fuel prices staying in check. Any escalation in the Middle East that pushes jet fuel higher would threaten that outlook. Holiday booking trends and capacity decisions across the industry will also show whether demand holds up as fares keep rising.
Affected Tickers and Coins: ULCC, DAL, JETS
Source: CNBC
