Frontier Group to Benefit Most from Spirit Airlines' Restructuring, Deutsche Bank Predicts

Frontier Group Holdings is seen as the top beneficiary of Spirit Airlines' restructuring, according to Deutsche Bank. The holding company operates through its subsidiary, Frontier Airlines, which is an ultra-low-cost carrier. The airline offers flights throughout the US and to select near-international destinations in the Americas, with a fleet of 136 Airbus single-aisle aircraft. Frontier Group primarily provides air transportation for passengers and offers flexible optional services for an additional cost.

Deutsche Bank has upgraded Frontier Group Holdings to a "Buy" rating, citing the low-fare carrier as the primary beneficiary of Spirit Airlines' bankruptcy. The upgrade follows Spirit's recent filing for Chapter 11 bankruptcy protection, aiming to shed billions in liabilities and cut costs. Deutsche Bank believes that Frontier's extensive route overlap with Spirit's, particularly in the current quarter, will significantly boost Frontier's market share.

Frontier Group Holdings operates through its subsidiary, Frontier Airlines, which is an ultra-low-cost carrier. With a fleet of approximately 136 Airbus single-aisle aircraft, Frontier primarily provides air transportation for passengers, serving approximately 90 airports throughout the United States and international destinations in the Americas [2]. The company offers flexible optional services for an additional cost, catering to leisure travelers.

The overlap in routes between Frontier and Spirit is substantial. In the current quarter, about 35% of Frontier's routes overlap with Spirit's, a figure expected to rise to roughly 40% by the December quarter after Frontier adds 20 new routes later this year. These new routes are currently served by Spirit, indicating a potential increase in Frontier's passenger base and market share.

Deutsche Bank has raised its price target for Frontier to $8 from $4, implying a 63% upside from its current levels. The bank values the stock at 8.5 times its 2025 EBITDAR forecast, which is above its historical trading range of 5 to 8 times but still within range for 2026 and 2027. However, risks to this call include a weaker U.S. economy, jet fuel volatility, tighter regulation, labor costs, and geopolitical disruptions.

Spirit Airlines, with 214 planes but only 157 in use, faces significant challenges. The airline has 38 planes grounded due to Pratt & Whitney engine issues and plans to sell 19 more. Deutsche Bank expects the active fleet could shrink by another 50 aircraft post-restructuring. This reduction in fleet size is likely to result in lower costs and improved efficiency for Spirit, which could indirectly benefit Frontier by reducing competition.

In conclusion, Frontier Group Holdings appears well-positioned to capitalize on Spirit Airlines' restructuring. The upgrade by Deutsche Bank reflects the potential for Frontier to expand its market share and improve its financial performance in the coming years. Investors should monitor the progress of Spirit's restructuring and Frontier's expansion plans closely.

References:
[1] https://www.investing.com/news/stock-market-news/deutsche-bank-upgrades-frontier-as-spirit-bankruptcy-to-boost-its-market-share-4219778
[2] https://www.marketscreener.com/news/frontier-group-viewed-as-top-beneficiary-of-spirit-airlines-restructuring-deutsche-bank-says-ce7c50d3d180f72c