Updated Version 3 - Frontier Airlines achieves unexpected profitability, driven by rising ticket prices, with quarterly losses smaller than expected

Updated the second paragraph with stock price information, added analyst comments in the fifth paragraph, and supplemented details throughout the article.

Reuters, October 28 - Frontier Airlines (ULCC.O) on Wednesday forecast a smaller-than-expected loss for the fourth quarter and reported an unexpected profit for the third quarter, as rising ticket prices helped offset the impact of high fuel costs.

The Denver-based company's shares recently rose 6%.

To counteract rising fuel costs caused by the war in Iran (link), Frontier Airlines, like most carriers, has raised fares, reduced capacity, and added surcharges—including checked baggage fees.

As an indicator of pricing power, Frontier Airlines’ revenue per seat jumped 30% this quarter, exceeding its own forecast of more than 20% growth, while unit costs rose 18%.

Raymond James analyst Savanthi Syth noted in a research report that in addition to benefiting from the departure of low-cost rival Spirit Airlines, Frontier’s shorter booking window allowed it to capitalize on stronger pricing power and convert it to revenue faster than its peers.

Frontier expects unit revenue to grow by more than 20% in the fourth quarter, but the increase is expected to be offset by rising fuel costs.

The company projects an average fuel price of $4.75 per gallon in the fourth quarter, up from $3.96 per gallon in the previous quarter, which itself was already up 82% from a year earlier. The company said that if fuel prices rise by 10% over the first nine months, expenses would increase by $113 million based on fuel consumption through September.

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However, Frontier says that the average fuel efficiency of its Airbus narrow-body fleet is more than 40% higher than that of major U.S. airlines, which allows it to carry more passengers and fly further on the same amount of fuel.

Earlier this week, leisure airline rival JetBlue (JBLU.O) reported a larger-than-expected loss (link), but despite higher ticket prices boosting revenue, the company (link) reaffirmed its long-term goal of achieving $1 earnings per share by 2028.

Unexpected quarterly profit

Frontier reported adjusted earnings of 18 cents per share for the third quarter, compared with a loss of 34 cents per share a year ago. Analysts had expected a loss of 4 cents per share.

However, $134 million in lease termination charges and $6 million in technician union contract costs widened its net loss to $104 million from $76 million a year earlier.

Quarterly revenue surged 53% to a record $1.36 billion—the strongest growth among U.S. airlines that have reported earnings so far.

The company expects its fourth-quarter per-share loss to be between 15 cents and a profit of 5 cents. According to data compiled by LSEG, the midpoint of that range is a loss of 5 cents—better than analysts' expectations of a 6-cent loss per share.

So far this year, Frontier shares have risen 23%, making it the best performer on the NYSE Arca Airline Index .XAL, compared with a 15% decline in the index overall.

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