Frontier Airlines sees opportunity to absorb Spirit demand

By Nandan Mandayam and Shivansh Tiwary

May 5 (Reuters) - Frontier Airlines said on Tuesday it expects to capture a significant share of demand left by the recent shutdown of Spirit Airlines, as it has more overlapping routes with the now-defunct carrier than any other airline.

The budget airline expects unit revenue to rise 20% in the second quarter, driven by efforts to recoup elevated fuel costs, resilient travel demand and Spirit’s exit.

About 2 percentage points of the unit revenue growth are expected to stem directly from Spirit’s departure, as the two carriers previously competed on more than 100 overlapping routes.

Frontier forecast a bigger-than-expected second-quarter loss on Tuesday, as a run-up in jet fuel prices due to the war in Iran erodes its margins.

Soaring fuel prices tied to the war claimed their first victim in aviation last week, with Spirit shutting down after higher fuel expenses upended its plans to emerge from bankruptcy.

Frontier’s shares jumped nearly 6% on Tuesday on hopes the company will gain ground after Spirit’s exit. It also posted a narrower‑than‑expected first-quarter loss on a rebound in U.S. travel demand.

Low-cost carriers, unlike their full-service counterparts, have fewer levers to raise ancillary revenue to weather a spike in fuel prices that typically form about a quarter of their operating expense.

Spirit’s collapse removes Frontier’s fiercest price competitor on dozens of overlapping leisure routes, which could lift near‑term fares and give Frontier room to capture market share.

"All else equal, the cessation of operations by Spirit reduces competitive capacity in its markets and removes the typical lowest fare option for consumers, which can drive prices higher as share consolidates upwards," Jefferies’ analysts said in a note.

Frontier said it had about $974 million in liquidity in the first quarter and expects second-quarter liquidity in the range of $900 million to $950 million.

For the second quarter, Frontier expects a loss in the range of 45 cents to 60 cents, bigger than analysts’ expectation of 43 cents, according to data compiled by LSEG.

It reported an adjusted loss of 30 cents per share for the first quarter. Analysts had expected a 36-cent loss.

It paid an average price of $2.88 per gallon of fuel in the first quarter, above the $2.5 it expected to pay before the war in Iran. For the second quarter, it expects to pay $4.25 per gallon of jet fuel.