Why Frontier Group stock is flying high today

Frontier Group Holdings (ULCC 4.57%) is feeling more bullish about the current quarter and investors are happy to hit the road.

Shares of the discount airline opened up as much as 12% and were trading up 8% at 10 a.m. ET after Frontier raised its margin guidance for the quarter.

Not as bad as he feared

Investors aren’t sure what to make of airline stocks right now. The industry has fared well since the end of the pandemic, but a combination of higher interest rates and a weakening jobs picture has raised questions about travel demand.

There are still plenty of people who want to fly, but as consumers become more price-sensitive, airlines are unsure of their pricing power.

For Frontier, things seem to be going better than the company feared. The airline upgraded its third-quarter pretax margin guidance to flat to negative 2 percent, an improvement from a previous range of negative 3 percent to negative 6 percent.

In a regulatory filing, Frontier said most of the improvement was attributable to revenue, “which trended above prior expectations.”

The airline now expects to grow capacity by just 4% to 5% year-over-year, compared with previous estimates of 4% to 6%. Moderating capacity growth means fewer seats to fill, which helps with pricing.

Is Frontier stock a buy?

The break-even point is nothing to get excited about, but with Frontier shares down about 50% from their 2024 highs, it’s no wonder investors are breathing a sigh of relief.

Airline stocks are dangerous because of the cyclical nature of the industry, and investors should be warned that if the economy goes south from here, the stock will likely go with it.

That said, for those willing to ride out the turbulence, Frontier is one of the most attractive growth stories in the industry. Just keep your seat belts on during the ride.