Frontier Group Holdings (ULCC -1.65%) is feeling more upbeat about the current quarter, and investors are happy to go along for the ride.
Shares of the discount airline opened up as much as 12% and were trading up 8% at 10 a.m. ET after Frontier raised its margin guidance for the quarter.
Not as bad as feared
Investors aren't sure what to think about airline stocks right now. The industry has done well since the end of the pandemic, but a combination of higher interest rates and a weakening jobs picture has raised questions about travel demand.
There are still plenty of people who want to fly, but with consumers becoming more price-sensitive, airlines are unsure about pricing power.
For Frontier, things appear to be going better than the company feared. The airline updated its guidance for third-quarter pre-tax margin to flat to negative 2%, an improvement from a prior range of negative 3% to negative 6%.
In a regulatory filing, Frontier said most of the improvement is attributable to revenue, "which has been trending above prior expectations."
The airline now expects to grow capacity by only 4% to 5% year over year, compared to previous estimates of 4% to 6%. Capacity growth moderation means fewer seats to fill, which helps with pricing.
Is Frontier stock a buy?
Breakeven to a slight loss isn't much to get excited about, but with Frontier shares down about 50% from their 2024 highs, it is no surprise investors are breathing a sigh of relief.
Airline stocks are dangerous because of the cyclical nature of the industry, and investors should be warned that if the economy goes south from here, the stock will likely go with it.
That said, for those willing to ride out the turbulence, Frontier is one of the more attractive growth stories in the industry. Just keep your seat belts fastened during the journey.
