Budget airline Frontier Group announced Tuesday that it anticipates a larger second-quarter financial loss than Wall Street analysts had projected, citing escalating jet fuel costs driven by the ongoing conflict in Iran.
The company’s stock price fell 3.6% during pre-market trading following the announcement.
Aviation companies worldwide have been forced to reduce flight schedules and implement additional fees for luggage and fuel surcharges as they grapple with dramatically increased fuel expenses. These costs have surged after Iran closed the Strait of Hormuz, significantly reducing global oil supplies.
Budget airlines face particular challenges compared to traditional full-service carriers, as they have limited options for generating additional revenue streams to offset rising fuel costs, which typically account for roughly 25% of their operational expenses.
The aviation industry suffered its first major casualty from Iran war-related fuel price increases last week when Spirit Airlines, Frontier’s primary competitor, ceased operations after elevated fuel costs derailed its bankruptcy recovery efforts.
Spirit’s closure eliminates Frontier’s main pricing rival on numerous vacation destinations, potentially allowing Frontier to increase ticket prices and gain additional market share in the near term.
Budget airlines across the United States have requested $2.5 billion in federal assistance to manage the fuel cost surge, but Transportation Secretary Sean Duffy indicated the government likely won’t provide bailout funds, stating the airlines “have access to cash.”
Frontier reported maintaining approximately $974 million in available funds during the first quarter and projects having between $900 million and $950 million in liquidity for the second quarter.
The Denver-headquartered airline predicts second-quarter losses between 45 and 60 cents per share, exceeding analysts’ forecasted 43-cent loss according to LSEG data.
During the first quarter ending March 31, Frontier’s adjusted per-share loss increased to 30 cents from 19 cents the previous year, though this performed better than the 36-cent loss analysts had anticipated.
The airline paid an average of $2.88 per gallon for fuel in the first quarter, higher than the $2.50 it had budgeted before the Iran conflict began. For the upcoming second quarter, Frontier expects fuel costs to reach $4.25 per gallon.
