Frontier’s Earnings

At 8:27 last night, it finally came….
Frontier Airlines (FRNT) had to wait until prime time to deliver its earnings report. I won’t lie. This one had me nervous. I kept thinking of all the horrible things they could announce. They’re already an airline. Is it even possible to get worse?
But we all knew that Frontier had to stand tall. The Evil Sith Knights over at Love Field (LUV) had invaded their turf. This could not stand.
Congratulations Potter & Co., the earnings were out-freakin-standing. The analysts were expecting two cents a share. Frontier made 18 cents a share. Read that again: 18 cents a share. They didn’t just beat the Street—Frontier steamrolled estimates. (Note: Yes, I realize I’m mixing my metaphors, airplanes don’t steamroll, but you get the drift.)
But then Jeff Potter, Frontier’s CEO had to drop this on us:

Although a quarter as strong as this is certainly cause to celebrate and for our employees to congratulate each other on a job well done, we recognize that the ills that continue to plague this industry haven’t disappeared. Fuel remains at historic highs and the market still suffers from overcapacity leading to general weakness in fares. We don’t anticipate a solution to these issues in the coming quarter, and we expect that high fuel costs and weak fares will adversely affect earnings for our fiscal third quarter 2006.

Don’t toy with my feelings like that. Later on, the company says that this quarter’s loss will “likely” exceed last quarter’s gain. The more I think about it, it appears that Frontier is keeping expectations low. The quarter isn’t even one-third over. Plus, fuel costs have been falling. This isn’t good news, but it’s not necessarily bad news.
Let’s look at the positives. Frontier has been able to keep operational costs low. This airline can compete with any low-cost carrier. Total revenues for the quarter increased by over 20%. Also, the company was hampered by a 38% jump in fuel prices. Total fuel costs jumped nearly 60%, yet they still had a great quarter. Fuel makes up nearly 30% of their total costs. If the price for jet fuel falls, Frontier could soar. Let’s hold on and watch how the shares react this morning.
In other news, Southwest came out with its plans for Denver.

Posted by on October 28th, 2005 at 6:56 am


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