Friday, 16 Apr 2021

Denver-based Frontier Airlines reviving its IPO

Having survived the most turbulent year ever in the global aviation industry, Denver-based Frontier Group Holdings, parent of Frontier Airlines, is making plans again to go public, heading full throttle into what it expects will be a strong rebound in leisure travel in the months ahead.

“We believe the restrictions and health concerns that have depressed demand during the pandemic are also likely to lead to increased levels of pent-up demand for leisure travel once the effects of the pandemic decrease. As a result, we expect to see a significant recovery in our performance as the U.S. market recovers,” the airline said in a statement filed with the U.S. Securities and Exchange Commission earlier this week.

The Denver-based carrier registered to go public in March 2017, but despite a robust economy and mostly favorable stock market, it never pulled the trigger on what was supposed to be a $700 million stock offering. In late July last year, the struggling carrier yanked its registration with the SEC.

On Monday, the airline refiled. The offering lists a placeholder amount of $100 million, with the final ask likely to be much larger. And the offering date is still to be determined. The ticker will be FRNT.

The on-again and off-again IPO raises a question: If Frontier Airlines couldn’t successfully launch a stock offering during the good times, what makes it think it can find investor interest after such a difficult period for air travel and tourism in general?

The airline acknowledges that it has suffered a “material decline” in revenues, operating results, financial conditions and liquidity. In 2020, it lost $225 million on $1.25 billion in revenue, compared to income of $251 million on $2.5 billion in revenues in 2019. Each day in 2020, it burned $2 million more cash than it took in on average.

But Frontier goes on to state that it has managed its finances and operations much more nimbly than rivals during the pandemic and that its low-fare strategy has appealed to those brave enough to hop on a plane. Customers have kept coming, despite numerous complaints from irate passengers about the airline’s policies on refunds and credits when flights were canceled during the early months of the pandemic. A $25 roundtrip fare can buy a lot of forgiveness it seems.

Heading into the pandemic, about nine out of 10 passengers on Frontier Airlines were leisure travelers, and that is the segment that has started coming back first and strongest, which is typical coming out of downturns, Frontier said. International and business travel, by contrast, remain moribund.

Frontier also expects an added bump in purchases from remote workers who have moved away and will be responsible for footing the travel bill to attend in-person meetings in the home office.

By running a tight ship, Frontier said it was able to keep the amount of money it had to borrow to get through the pandemic to $1 per passenger versus an average among U.S. airlines of $17 per passenger. But it did borrow, and that means future stock investors won’t see a dividend until a year out, or whenever it pays back the federal loans it took out.

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