Why airline stocks like JetBlue and Frontier are rising today

Parent shares Frontier Airlines Frontier Group Holdings (ULCC 17.54%) were up 18% as of midday Friday, closely followed by JetBlue Airways (JBLU 14.87%) 16% increase. Both rallies are in response to reports that the rival carrier Spirit Airlines (SAVE -27.23%) is considering filing for bankruptcy. If true, it could mean selling part or all of the struggling airline.

Bankruptcy imminent?

Take the report with a grain of salt, as it didn’t come from the firm itself. Rather, Wall Street Journal hinted at that possibility Thursday night, citing only “people familiar with the matter” as a source.

Still, it’s a credible possibility. Spirit CEO Ted Christie admitted following the company’s disappointing second-quarter results that he was in conversations with bondholders about the upcoming maturity of much of the debt. In no real position to repay that principal or even refinance those loans, then — Standard & Poor’s downgraded the airline’s bonds from a CCC+ rating to just CCC, or junk status, in June — the carrier did not is probably in a better position to do so now.

The upshot for JetBlue, Frontier and most other airlines is clear: Even if the Chapter 11 bankruptcy filing would legally allow Spirit to continue operating as is, it is still on the defensive, turning into opportunities for its competitors. If Spirit’s bondholders seek to sell part or all of the airline to repay that loan, the opportunities for its rivals to expand further expand.

Hence, too much risk and too little reward

It’s tempting to join the crowd and show off the JetBlue or Frontier stock while a competitor is on the ropes. But don’t take the bait.

That’s not to say there isn’t a real opportunity here. Although still unconfirmed by the company, Wall Street JournalHis reporting makes sense in light of Spirit’s recent struggles (it hasn’t been profitable in any quarter since late 2021). Other airlines are rightfully licking their chops if Spirit is forced to restructure.

The problem, rather, is the extent of today’s backlash. If there really is any tangible edge in Spirit’s battle for Frontier or JetBlue, it’s already priced into their respective stocks now. If there is not any tangible advantage, both stocks are now overvalued. And anyway, both of Friday’s highs are likely to invite at least a bit of profit sooner rather than later.

At the very least, interested speculators will want to wait for today’s dust to settle before entering.