Frontier Group Holdings (ULCC) is facing increased scrutiny from Wall Street due to a severe drop in traveler demand and soaring fuel costs, negatively impacting its earnings projections. The low-cost airline recently closed on a nine-week decline streak, the longest in its history. This downturn surpasses its previous record of five consecutive weeks from December 2022, with shares dwindling by over 15% since the start of this week, signifying its most significant weekly drop since February.
Adding to the industry's challenges, Frontier and its counterpart, Spirit Airlines (SAVE) announced that consumer travel expenditures have dwindled, attributing this to the inflationary pressures on household budgets. As a direct consequence, Spirit announced fare reductions leading up to Thanksgiving, in tandem with its slashed revenue and adjusted operating margin predictions. Concurrently, Frontier identified a notable sudden shift in reservations and sales that fell below expected trends.
Analysts, in response to this bleak outlook, have become increasingly cautious about Frontier. Just recently, Evercore ISI downgraded its stock recommendation due to the airline's weak revenue and margin trajectory. Similarly, Citi (C), highlighting Frontier's decelerating domestic booking data and its projected seasonal demand drop, revised its stock recommendation to neutral from buy. Furthermore, Citi slashed its price target for Frontier to a disheartening $5.50.
The airline industry at large grapples with dwindling domestic travel demand while also confronting escalating capacity and fuel expenses. With benchmark brent crude's price witnessing a surge of about 25% since July's onset, Frontier's shares have depreciated by 54% year-to-date, making it the least performing asset in the US Global JETS Index (JETS). Bloomberg Intelligence suggests that the airline might report a loss in the third quarter due to these adversities, particularly as average fares could potentially drop by 25% to $43.
