Estimated read time: 2-3 minutes
- Frontier Airlines forecasts a larger-than-expected Q2 loss due to rising fuel costs.
- The Iran war has increased jet fuel prices, impacting low-cost carriers' margins.
DENVER — Frontier Group, the parent of low-cost carrier Frontier, forecast a bigger-than-expected second-quarter loss on Tuesday, as the war in Iran drives jet fuel prices higher and erodes margins.
Airlines around the world have cut capacity and raised fees for checked bags and added fuel surcharges to contend with skyrocketing fuel expenses after Iran's closure of the Strait of Hormuz drastically cut oil supplies.
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.
Soaring fuel prices tied to the Iran war claimed their first victim in aviation last week, with Frontier's nearest competitor, Spirit Airlines, shutting down after higher fuel expenses upended its plans to emerge from bankruptcy.
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 & 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 a 43-cent loss, according to data compiled by LSEG.
However, the Denver-based airline reported a smaller-than-expected loss of 30 cents per share for the first quarter on the back of a rebound in domestic travel demand. Analysts had expected a 36-cent loss per share.
Shares of the carrier rose 3% in early trading as falling oil prices lifted the broader airline sector.
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.
