By Nandan Mandayam and Doyinsola Oladipo
Oct 28 (Reuters) - Frontier Airlines has a healthy balance between ticket prices and passenger volume, its chief executive said on Wednesday, after the airline posted a surprise profit on higher fares and forecast a smaller-than-expected quarterly loss.
To offset higher fuel costs driven by the Iran war, the ultra-low-cost carrier, like most airlines, has turned to fare hikes, capacity cuts and additional fees, but has nevertheless seen margins take a hit as fuel prices
have surged some 90% since the Iran war that began in late February.
The Denver-based airline's shares extended their gains to trade up 9% in afternoon trading.
While larger US airline peers are favoring higher fares over fuller planes, Frontier CEO Jimmy Dempsey said the airline is taking a more measured approach.
"At the moment, we have a nice balance between yield and volume in our business, given the supply-demand dynamic that exists in the environment, we feel pretty good about it," Dempsey told analysts on an earnings call.
Quarterly revenue climbed 53% to a record $1.36 billion — the strongest growth among US airlines that have reported earnings so far. Its fare revenue per passenger rose 71% year-over-year to $67.82.
The company's quarterly loyalty-related revenue was up 37% from a year ago.
"If other airlines are chasing yield over volume, that's something that's their prerequisite. We like volume," Dempsey added.
Larger airlines such as Delta, American, United, Alaska Air and Southwest have emphasized cutting capacity and protecting margins over filling planes.
Dempsey said Frontier is targeting 5% to 7% capacity growth in 2027 and similar levels in 2028.
Frontier, one of the smallest major US airlines with a fleet of 164 aircraft, has been benefitting from rival Spirit's exit alongside JetBlue.
Its shorter booking curve lets stronger pricing flow through to revenue faster than peers, Raymond James analyst Savanthi Syth said in a note.
FARE BOOST DELIVERS SURPRISE PROFIT
Frontier reported a third-quarter adjusted profit of 18 cents per share, compared with a year-ago loss of 34 cents. Analysts had expected a loss of 4 cents per share.
However, $134 million in lease termination costs as the carrier looks to right-size its fleet and a $6 million technicians' union contract widened its net loss to $104 million from $76 million a year earlier.
Its revenue per seat, a measure of pricing power, jumped 30% in the September quarter, helped in part by fare hikes and Spirit's exit, according to Dempsey.
Frontier sees fourth-quarter revenue per seat growing over 20%, though higher fuel costs are expected to blunt gains.
It expects to pay $4.75 per gallon on average for fuel in the fourth quarter, up from $3.96 last quarter — which itself was an 82% jump year-on-year. A 10% rise in fuel rates during the first nine months would have added $113 million to expenses based on fuel use through September, it said.
The airline expects to post between a loss of 15 cents per share and a profit of 5 cents per share in the fourth quarter. The midpoint, a 5-cent loss, is narrower than analysts' estimate of a loss of 6 cents, according to data compiled by LSEG.
Frontier is up 23% this year, the best performer on the NYSE Arca Airline index, which is down 15%.
(Reporting by Nandan Mandayam and Doyinsola Oladipo in New York; Editing by Anil D'Silva, Vijay Kishore and Shreya Biswas)
