Frontier Poised to Gain from Spirit's Second Bankruptcy

Spirit Airlines' recent bankruptcy announcement indicates a surge in fortunes for its competitor.

On Tuesday, Frontier Airlines experienced a notable 14.5% increase in its share price. This rise followed an upgrade in its stock rating to 'Buy' by Deutsche Bank analysts.

Furthermore, the analysts at Deutsche Bank adjusted Frontier's 12-month stock price target from $4 to $8, with the stock recently closing at $5.61.

According to Michael Linenberg from Deutsche Bank, Frontier is strategically positioned to capitalize on Spirit's financial troubles, as it directly competes with Spirit in numerous markets.

Frontier's stock witnessed an impressive jump of 29% when Spirit initially flagged its financial woes last month.

Savanthi Syth of Jefferies, in a commentary titled 'Spirit's Distress Equals Opportunistic Times for Competitors,' echoed positive sentiments towards Frontier's prospects.

Analysts forecasted that nearly 40% of Frontier's routes in the fourth quarter would overlap with those offered by Spirit.

Expanding Route Footprint

Frontier announced the introduction of 20 new routes last week, with all but two overlapping existing Spirit routes, showcasing an aggressive expansion strategy.

Besides Frontier, JetBlue stands to benefit from its 26% alignment with Spirit's existing route map, followed by Southwest, American, and Delta Airlines, each with approximately 20% overlap.

Frontier's newest route plans prioritize key Spirit markets such as Fort Lauderdale and Detroit.

Spirit's Restructuring Moves

In response to its financial situation, Spirit is realigning its route network to concentrate on high-priority markets during its Chapter 11 bankruptcy proceedings.

Another part of Spirit's plan includes optimizing its aircraft fleet.

With 214 aircraft in total, Spirit currently utilizes 157, with 19 slated for sale and 38 grounded due to engine issues with Pratt & Whitney.

Deutsche Bank analysts anticipate a potential shrinkage of Spirit's active fleet by up to 50 aircraft based on management insights.

Implications of Reduced Competition

While these developments favor Frontier and its investors, budget airline customers might face challenges.

Analyses from Jefferies previously highlighted a 15% drop in fares on routes where both Frontier and Spirit compete. A reduced presence from Spirit might lead other carriers to increase their prices.