Frontier Airlines (NASDAQ:FRNT) jumped 8.5% yesterday, and it's up 33% since late July.

I've been following Frontier's daily gyrations since the stock traded for $6.27 in late July. Not because I own shares (although I'm kicking myself for not throwing real money at it), but because it's one of my big "outperform" winners in our new Motley Fool CAPS beta service.

A few months back, I came across Frontier when I was looking for a flight from Washington, D.C., to Denver. I noticed that Frontier was the only airline offering a nonstop flight -- and at a lower price than the big boys.

I was so impressed with Frontier's service during my flights that I decided to take a look at its financials. While I saw 28.4% annualized revenue growth over the past three years, a recent positive quarterly earnings report, and large institutional purchases from giants like Goldman Sachs (NYSE:GS), I remained skeptical and decided not to put any money behind it.

Frontier's improving financials may have warranted a small purchase, but I'd always been told to avoid airline stocks at all costs. Consider that the AMEX Airline Index is down 42% since 1996. Heck, even Sir Richard Branson, whose Virgin Group owns a majority stake of Virgin Atlantic Airlines, famously said that the quickest way to become a millionaire is to start off as a billionaire and then set up an airline. Branson's aphorism starts to make sense when you think of what happened to Delta and Northwest Airlines, and the shareholder wealth that was wiped out in each case.

One of the hottest sectors
It turns out that Frontier isn't the only airline stock to do well in the recent past. Major airlines as a group are up 15.3% in the past 30 days and 37.1% over the past year. Easing fuel prices and increased fares have certainly played roles in the recent surge.

Will this trend continue for the airlines? No one can know for sure, but CAPS investors are largely bullish on the industry.

Three-Month Return*

Outperform Ratings**







Continental Airlines (NYSE:CAL)



U.S. Airways Group (NYSE:LCC)






Southwest Airlines (NYSE:LUV)



*Data courtesy of Yahoo! Finance.
**Source: Motley Fool CAPS, as of Sept. 20, 2006.

The air up there
Will investor sentiment reflect future stock performance? It has for Frontier -- so far, at least. Or will the airline industry's dubious past rear its ugly head once again?

What do you think? Check out CAPS by following this link (free registration required) and make your voice heard. Maybe you'll even find a few ideas at which to throw some real money.

Fool editor Todd Wenning does not own shares in any company mentioned in this article. In case you were wondering, he did enjoy his trip to Denver. See his CAPS page here. The Fool is investors writing for investors.