A rating on Frontier Airlines stock has been downgraded to “underweight” by Prudential Equity Group analyst Robert McAdoo, who wrote in a report that Southwest Airlines’ impact is growing.
Frontier hasn’t cut back its service since Southwest started flying to Denver, McAdoo wrote.
He said US Airways successfully competed with Southwest by cutting capacity and courting passengers willing to pay for extra amenities.
“With Frontier’s ‘we won’t blink approach,’ we see little chance for meaningful progress or profits at (Frontier) until early calendar 2008, at best,” McAdoo wrote.
The downgrade comes after Frontier lowered its guidance for December quarter earnings. McAdoo believes the carrier’s weakness in unit revenue is tied to Southwest’s expansion in Denver.
Separately, analyst Ray Neidl said in a report that Frontier “would be a likely dance partner” if there is more consolidation among smaller low-cost carriers, “since it is being squeezed in its main area of operations, Denver, by United and Southwest.”
Frontier “would be a good fit from a route viewpoint with most of the other low-cost carriers,” Neidl wrote. He pointed to AirTran, JetBlue and Spirit Airlines as good fits.
For airlines generally, the fourth quarter “appears to be a mild disappointment” because of reasons such as the December blizzards in Denver, Neidl wrote.
Staff writer Kelly Yamanouchi can be reached at 303-954-1488 or kyamanouchi@denverpost.com.
