Discount Airlines Taps Stock Market As Investors Bet On Resumption Of Travel

As air travel increasingly shows signs of rebounding from its pandemic low, airlines that focus on offering cheap fares to leisure travelers are capitalizing on the stock market.

Frontier Group Holdings Inc.’s initial public offering raised $ 570 million after shares of the Denver-based budget carrier were valued at $ 19 each. Sun Country Airlines Holdings Inc., which largely flies the Midwest to sunny vacation spots, raised more than $ 250 million when it went public in March.

US airlines lost some $ 35 billion last year, and most are still losing money. But stock offers are a sign that investors are betting that some of the industries hardest hit by the pandemic are ready to bounce. Airports are busier than they’ve ever been in the past year with busy spring break traffic, and airlines say summer bookings have resumed.

In the latest sign of an expected upturn in travel,

United Airlines Holdings Inc.

plans to restart the pilot hiring process it interrupted last year, the company told Pilots in a memo.

Airports in Paris and Singapore, along with airlines such as United and JetBlue, are experimenting with apps that verify travelers are not Covid before boarding. WSJ visits an airport in Rome to see how a digital health passport works. Photo credit: AOKpass

United plans to start with 300 pilots who received conditional job offers last year or whose new hire training was canceled during the pandemic. The hiring was first reported by CNBC. Some other airlines have also said they plan to hire this year.

Frontier and Sun Country all say they will benefit as vaccinations accelerate and spark an increased appetite for travel.

“The vaccine is unleashing the demand that we are seeing across the country,” said Barry Biffle, Managing Director of Frontier, in an interview.

Yet another wave of infections, rising fuel prices and fierce competition for the same pool of travelers all present challenges. Frontier stocks slipped in their market debut on Thursday, falling 15 cents to $ 18.85. The stock trades on the Nasdaq under the symbol ULCC, an industry acronym for the Ultra Low Cost carrier.

Airlines have had little trouble raising funds during the pandemic, despite industry struggles. With U.S. government grants and loans boosting investor confidence in the ability of carriers to weather the lean months, airlines were able to sell stocks and mortgage everything from planes to frequent flyer programs to bring in billions of dollars in. cash.

Today, Frontier and Sun Country hope to return to the rapid growth trajectory they followed before the pandemic struck.

“We’re ready to add capacity to a recovery,” said Jude Bricker, Managing Director of Sun Country, in an interview. “This money is intended for growth, for the purchase of planes and for the hiring of personnel,” he said of the cash raised as part of the public offering.

Neither company escaped the pandemic unscathed. Frontier lost $ 225 million in 2020 after posting a profit of $ 251 million in 2019. Sun Country lost $ 3.9 million in 2020, just one year after a financial turnaround propelled the small airline at a profit of $ 46 million in 2019.

Things change. Frontier said its operation generated cash in March. Sun Country said it repaid a government loan taken out in October.

John F. Kennedy International Airport Terminal 5 last Friday. Airports are busier than they have ever been in the past year.


Photo:

Angus Mordant / Bloomberg News

In times of economic crisis, slim budget airlines are often able to seize opportunities while traditional carriers with complex international networks, expensive hubs and high overheads need to cut back.

So far, this upturn in travel is playing on the strengths of discounters. Travelers who travel to see family and friends in the United States or to nearby vacation spots like the Caribbean are much faster to return than business and international travelers who have traditionally been the mainstays of major global airlines. .

Many of these major airlines have also borrowed heavily to survive the pandemic. They will likely have to charge higher rates to cover the additional interest payments, said Helane Becker, an analyst at Cowen & Co. That could be an advantage for more agile low-cost airlines it didn’t go so deeply into debt last year.

Yet the competition is likely to be fierce. Competitive discounters like

Spirit Airlines Inc.

and

Allegiant Travel Co.

start adding more routes. Spirit announced service to Puerto Vallarta, Mexico on Wednesday, the ninth new destination the airline has added to its network since the start of the pandemic.

Big airlines are also looking to the increasingly crowded domestic market. United announced plans to fly last week more than two dozen of new national roads. Many of these routes are the type of flights that ultra-low cost carriers typically dominate, including from Midwestern cities that bypass major hubs and go directly to vacation destinations.

United chief executive Scott Kirby said this week the airline’s indoor leisure activities were almost back to normal.

American Airlines Group Inc.

said this week that its domestic flights were 80% full and that the previous week’s bookings were almost back to pre-pandemic levels. He plans to get nearly all of his jets back to work this summer.

In the meantime,

Delta Airlines Inc.

said on Wednesday that he will start to occupy the middle seats in May after blocking them for over a year for social distancing purposes, a move that will immediately increase Delta’s carrying capacity.

Frontier CEO Mr Biffle said he was confident the demand was more than enough. “Everyone has been locked up for a year now,” he said.

Indigo Partners LLC, a private equity firm run by longtime airline investor William Franke, bought Frontier in 2013 after Mr. Franke failed to persuade Spirit Airlines, where he was chairman, of the buy.

Mr. Franke and Mr. Biffle, a former Spirit executive, cut costs and rebuilt Frontier on the model of billing extremely low fares, while also collecting fees for additions like carry-on baggage and the allocation of seats in advance. The airline has grown rapidly. It flies to 110 airports, up from 61 in 2017. Frontier made plans for an IPO that year, but didn’t pull the trigger and finally cut the offer last summer in the middle of the air rout.

Sun Country was also in the midst of a turnaround before the pandemic, after being bought out by the private equity firm

Global management of Apollo Inc.

in 2018. The airline has a unique business model. In addition to its scheduled passenger flights which take customers from its base in Minneapolis and other Midwestern cities to sunny and warm-weather destinations, it operates a freight service under contract with

Amazon.com Inc.

and charters flights for clients such as NCAA, Major League Soccer and the US Defense Department.

Mr Bricker said Sun Country began planning for its market debut following positive vaccine news and seeing shares of other airlines start to rise. The airline’s shares have fallen since they started trading, but at $ 33.50 it remains above the IPO price of $ 24.

Write to Alison Sider at [email protected]

Copyright © 2020 Dow Jones & Company, Inc. All rights reserved. 87990cbe856818d5eddac44c7b1cdeb8


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