Frontier forecasts third-quarter profit above estimates on higher airfares, easing competition after Spirit's exit

Ultra-low-cost carrier Frontier Airlines `ULCC.O` on Wednesday forecast third-quarter earnings above Wall Street estimates, betting on stronger pricing power following rival Spirit's exit to help mitigate higher fuel costs driven by the Middle East conflict. Frontier said broader U.S. capacity reductions amid higher jet fuel costs and the liquidation of Spirit Airlines allowed it to raise fares by more than 50% during the second quarter, limiting the impact of a ballooning fuel bill on its margins. Shares of the Denver-based carrier were up 4.4%. Frontier paid $4.17 per gallon of fuel in the three months ended June 30, 77% higher than the previous year, with total fuel costs nearly doubling to $436 million. The company anticipates returning to profitability in the second half of the year, with third-quarter earnings per share to range between a 10 cents loss and a 10 cents profit, compared with analysts' expectations of a 29 cents loss, according to data compiled by LSEG. It also forecast fourth-quarter profit between break even and 20 cents per share, while analysts expect a 24 cents per share profit. The carrier expects an average fuel cost of $3.70 per gallon in the third quarter and $3.50 per gallon in the fourth quarter. Meanwhile, Frontier said its revenue for the second quarter was a record $1.28 billion "driven by strong travel demand, favorable competitive capacity." Its adjusted net loss for the quarter narrowed to $22 million from $70 million a year earlier, while adjusted quarterly loss came in at 10 cents per share, smaller than the 31 cents per share recorded the previous year. Analysts had expected a 48 cents per share loss, while the company previously estimated an adjusted loss of 45 cents to 60 cents per share. "Frontier’s second quarter EPS result was well ahead of expectations with a notable beat on topline, but also better execution across the board," said Raymond James equity analyst Savanthi Syth. CEO Jimmy Dempsey said he expects revenue per available seat mile, a proxy for pricing power, to increase 20% in the third quarter from a year earlier, marking the third consecutive quarter of double-digit growth. "The structure of the competitive capacity that's happening is a big positive for Frontier and we're benefiting from that, and that's enabling us to mitigate high oil at the moment," said Dempsey on an earnings call. Frontier flew 14% more passengers during the second quarter compared to the same period last year, while fare revenue per passenger rose 54%. Uncertainty around the war in the Middle East has made it difficult for airlines to accurately forecast earnings, but visibility is improving as fuel prices have moderated from their spring highs. U.S. carriers have reported success in passing on a higher portion of fuel costs to travelers than previously anticipated during the second quarter.

Frontier forecasts third-quarter profit above estimates on higher airfares, easing competition after Spirit's exit

Third-quarter outlook tops estimates

Quarter results and full-year outlook

Management cites stronger pricing power

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