Frontier Group Holdings
Additionally, Frontier Group is exposed to the type of travel that has been recovering quickly - visits to see family and friends and trips to vacation destinations. In contrast, it has much less exposure to international flights to different continents and business travel.
Frontier Group Profile and IPO
Frontier Airlines is a low-cost carrier that has routes between 100 different airports and 31 international destinations that are close to the U.S. and typically vacation spots like Cancun or Puerto Rico. It often flies from smaller, regional airports as well, where there is less competition.
It's had a history of bankruptcies, reorganizations, and mergers which is largely a reflection of how tough the airline business has been especially for low-cost carriers. Small changes in demand or companies adding or eliminating routes can have massive downstream effects on smaller airlines. Additionally, there are significant fixed costs given the expense of buying and maintaining airplanes and the staff needed to operate an airline.
However, its recent iteration has shown more progress. From 2013 to 2019, it increased revenue from $1.3 billion to $2.5 billion. Of course, this was disrupted by the pandemic. However, investors still seem enthusiastic about the company's prospects as its IPO opened at $19 which was slightly above its pre-IPO price. Frontier was able to raise $500 million and gave the company a valuation of $4.2 billion.
The IPO is well-timed as it gives investors a way to invest in travel themes, however, due to its recent restructuring, it has less debt than many other airlines. Additionally, it has more exposure to the travel segments with the strongest recoveries.
Stock Price Outlook
Obviously, the biggest short-term variable for Frontier Group will be the coronavirus. On a longer timeframe, there has been significant progress and much reason for optimism. However, cases have stopped falling and simply plateaued, while the outlook for international travel has deteriorated with spikes in parts of the world.
Confidence is returning in the U.S. which is evident from TSA checkpoint travel data which shows travel volumes for late April that are at 1.5 million per day compared to 2.5 million per day in 2019. However, it's much better than 2020 when only 123,000 people were travelling at this time of the year. More importantly, the numbers keep improving on a week-to-week and month-to-month basis.
While the new variant is a concern and has been devastating certain parts of the world, most experts believe that the impact on the U.S. should be muted due to the vaccinations in combination with people already infected is bringing us closer to "herd immunity."