Frontier Still in the Woods

For most Denver residents, myself included, the city's two December blizzards were an annoyance. But for Frontier Airlines (Nasdaq: FRNT  ) , which counts Denver International Airport as its primary hub, the storms whitewashed profits. Frontier's third-quarter net loss grew to $0.39 from last year's $0.28.

The back-to-back storms, which piled four feet of snow in front of our house, canceled 875 flights and affected 105,000 passengers. Frontier consequently estimates that it missed out on $12.2 million in mainline revenue; $1 million in revenue from its regional partner, Horizon Air; and $0.27 in after-tax per-share profits.

If that's true -- remember, executives are guessing here -- then without the storms, Frontier's net loss would have improved dramatically and sales would have grown by better than 13%. That may explain why investors have thus far been forgiving. Since Thursday's close, Frontier's stock has actually traded 3% higher.

I'm not sure that's justified. Sure, the storms hurt. But the airline faces other problems that won't go away soon. Southwest Airlines (NYSE: LUV  ) tops the list for me. With Southwest's presence in Denver, Frontier's average fare declined by nearly 3% to $101.68.

Sound bad? You have no idea. Motley Fool Stock Advisor pick JetBlue (Nasdaq: JBLU  ) couldn't make money in its third quarter, despite booking $123.41 per fare with its planes flying at more than 80% of capacity.

Southwest, meanwhile, flew its planes at 70% of capacity during its fourth quarter, yet earned a $0.07-per-share profit. And its average fare was up 6% to $104.07. How do you compete with that if you're Frontier?

Not very well, apparently. But the cuddly carrier is still a fun airline to fly. Its onboard TV service is as good as anything JetBlue offers. Plus, a code-sharing partnership with AirTran (NYSE: AAI  ) and an expanding route structure should prove useful to frequent fliers. That, in turn, could make it easier to raise fares on select routes.

Watch for that if you're an investor. But so long as Frontier faces descending fares and turbulent margins, it will remain unprofitable and unworthy of your investing dollars.

Prepare for takeoff with related Foolishness:

JetBlue is a Motley Fool Stock Advisor pick. Want a backstage look at all the stocks that are helping David and Tom Gardner beat the S&P 500 by nearly 40% as of this writing? Get your 30-day free pass by clicking here now. There's no obligation to subscribe.

Fool contributor Tim Beyers, ranked 855 out of more than 21,000 in Motley Fool CAPS, likes to travel first class on the cheap. Check out his five tips for a Foolish trip if that's you, too. Tim didn't own shares in any of the stocks mentioned in this story at the time of publication. Get the skinny on all of the stocks in his portfolio by checking Tim's Fool profile. Motley Fool's disclosure policy is always on time for departure.


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