Frontier forecasts third-quarter profit above estimates on strong demand, higher airfares after rival's exit

Low-cost carrier Frontier forecast third-quarter earnings above Wall Street estimates on Wednesday, betting on higher airfares and strong demand following its rival Spirit's exit, even as the Middle East conflict keeps jet fuel costs elevated.

The company's shares were up 2.4% in premarket trading.

Uncertainty around the war in the Middle East has made it increasingly difficult for airlines to accurately forecast earnings and jet fuel costs that form roughly one-fourth their operating expenses.

But the exit of its closest rival Spirit Airlines has allowed Frontier to raise fares at a faster pace and limit the impact of a ballooning fuel bill on its margins. The U.S. carrier has also reined in costs by deferring deliveries of newer Airbus aircraft, while prematurely returning older ones to lessors.

Denver-based Frontier expects third-quarter earnings per share to range between a 10 cents loss and a 10 cents profit, compared with analysts' expectation of a 29 cents loss, according to data compiled by LSEG.

It also forecast fourth-quarter profit between breakeven and 20 cents per share, while analysts expected a 24 cents per share profit.

The airline said revenue for the second quarter was a record $1.28 billion "driven by strong travel demand, favorable competitive capacity." Rival Spirit Airlines exited the U.S. market in May.

Indeed, unit revenue, a measure of pricing, jumped 28% from a year earlier to 11.52 cents during the quarter, while capacity only grew 8%.

However, the airline 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.

Frontier posted a loss of 10 cents per share for the quarter, narrower than the 31 cents per share loss a year earlier and above analysts' expectations of a 48 cents per share loss.