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Spirit Airlines‘ latest bankruptcy filing has Wall Street tapping its rival to flourish.
Frontier Airlines‘ share price jumped 14.5% on Tuesday, as Deutsche Bank analysts upgraded the stock to a “Buy” rating.
They also doubled their 12-month price target from $4 to $8. The stock last closed trading at $5.61.
Deutsche Bank’s Michael Linenberg wrote that Frontier is “best-positioned to be the biggest beneficiary of Spirit’s bankruptcy” because it competes the most with the struggling budget airline.
When Spirit warned of financial difficulties last month, Frontier’s stock soared 29%.
In a Monday note titled “Spirit’s Dismay Is Rivals’ Pay Day,” Jefferies’ Savanthi Syth was also bullish on Frontier.
Both notes estimated that, for the fourth quarter, around 40% of routes offered by Frontier will also be offered by Spirit.
That comes after Frontier announced 20 new routes last week, only two of which didn’t overlap with ones offered by Spirit.
Syth also said that JetBlue could benefit from its 26% overlap with Spirit’s flight network. Southwest Airlines, American Airlines, and Delta Air Lines followed, at just under one in five.
Frontier’s planned new routes largely focus on major Spirit hubs like Fort Lauderdale, its home base, and Detroit.
Meanwhile, as part of its restructuring during the Chapter 11 process, Spirit plans to redesign its network to focus on such key markets.
It also said it would “rightsize” its fleet of aircraft.
The Deutsche Bank analysts said Spirit has a total fleet of 214, but utilizes 157 of them. 19 of those that are grounded are being prepared to be sold, while the other 38 aren’t flying due to an issue with their Pratt & Whitney engines.
“Based on management commentary around potential aircraft savings per the bankruptcy filings, we would not be surprised to see the active fleet shrink by another ~50 aircraft,” the note said.
While this could all spell good news for Frontier and its investors, it’s likely to be harder for people hoping to fly on a budget.
Jefferies previously reported that fares are 15% lower on routes where Frontier and Spirit compete. Spirit shrinking means that other airlines could therefore raise prices.
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