Frontier Airlines sees opportunity to absorb demand ceded by Spirit

By Nandan Mandayam and Shivansh Tiwary

May ‌5 (Reuters) - Frontier Airlines ​said ​on Tuesday it expects to absorb significant demand from the shutdown of rival Spirit Airlines, a move it says will boost unit revenue thanks to a ‌large number of shared routes.

Spirit's collapse removes Frontier's fiercest competitor on over 100 ⁠of overlapping routes and affords Frontier room to capture market share and boost its pricing power.

"Drawing on the benefits ‌realized from prior Spirit capacity adjustments, ‌we believe their exit supports in a revenue per available seat mile (RASM) uplift of three to five percent going forward," Frontier Chief Commercial Officer Robert Schroeter said during a call ​with analysts.

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.

It expects ⁠to recover about 35%-45% of elevated fuel costs in the second quarter.

"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 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.

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.

The Denver-based ​airline is considering purchasing Spirit's assets, including aircraft, CEO Jimmy Dempsey said, adding that the company would remain disciplined in its decisions.

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.

(Reporting by Nandan Mandayam in Bengaluru; Editing by ‌Maju Samuel)

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