It is a tough environment for airlines, but Frontier Group (ULCC +3.52%) announced today that it produced a smaller-than-expected loss in the fourth quarter and said revenue should trend up for 2024. Investors are climbing on board, up 21% as of 1:30 p.m. ET on Tuesday.
Smooth flying in a time of turbulence
Airline investors have had a lot to digest this earnings season. Demand held up surprisingly well in the last three months of 2023, but with inflation and a slowing economy front of mind plenty of questions remain about how long that will last. Meanwhile, competitors JetBlue Airways and Spirit Airlines are battling with regulators over a proposed merger that could take a significant amount of capacity out of the system at an opportune time.
Frontier appears to be navigating the environment as well as can be expected. The discount airline lost $0.17 per share in the fourth quarter, on revenue of $891 million, losing less than the $0.23 per share Wall Street had expected on revenue that was just shy of expectations.
Total operating revenue was down 2% year over year, but costs per available seat mile, a common industry metric, fell by 10%. Part of that was lower fuel costs, but when fuel expense is backed out costs were still down about 8%.
"Fourth quarter results significantly outperformed guidance on strong operational performance and cost execution, providing a solid foundation as we enter 2024," CEO Barry Biffle said. "Leveraging this momentum, we intend to expand profitability in 2024 by executing on our network simplification plan, focusing growth on overpriced and underserved markets, further diversifying our revenue stream, enhancing customer engagement, and further lowering our unit costs."
The airline expects to grow capacity by 5% to 7% in the current quarter, and by 12% to 15% for the year.
NASDAQ: ULCC
Key Data Points
Is Frontier a buy after a better-than-expected quarter?
Even with the Tuesday bump, Frontier shares are down 54% over the past year and are 70% below their all-time highs. There remains a lot investors don't know about how airlines will perform in 2024, and with all the uncertainty it is hard to get too excited about the near-term prospects.
For those with a longer-term focus, Frontier is a rare growth story in the industry thanks to its large order book, relatively small size, and its position as a cost leader. Airlines tend to be cyclical, and investors should be aware of the ups and downs that come with flying before buying in. But for those interested in buying in for the long haul, Frontier is an attractive stock to consider.
