A day after Frontier Airlines reported a $32.5 million loss for the quarter ended in December, JPMorgan downgraded the carrier’s stock.
JPMorgan reduced its rating for Frontier from overweight to underweight today.
Although JPMorgan previously thought Southwest Airlines had reached a critical mass in Denver, Southwest announced this month that it will add another 18 flights here and may expand further.
Southwest’s growth means more competition for Frontier, which suggests the Denver-based airline’s unit revenue growth may end, according to the report.
Frontier can sell and lease back some of its aircraft to raise more funds, although “a survival tactic of this manner may not be viewed kindly by the equity market,” said the report by JPMorgan analyst Jamie Baker. Sale-lease back transactions would buy time for conditions to improve or for Frontier to “seek further changes to its strategy.”
Baker also said in the report that absent such transactions or borrowing, “Frontier’s continued solvency is at risk, in our view.”
Frontier chief financial officer Paul Tate said the company has adequate cash and acknowledged the company could sell and lease back some of its planes, but “we just don’t think there’s a need to do that right now.”
Frontier already has sold and leased back five of the 10 Q-400 turboprop planes it ordered for its new Lynx Aviation subsidiary.
Meanwhile, Baker upgraded stock of AirTran Airways, which has a marketing partnership with Frontier, adding that AirTran may play a “pivotal role” in consolidation.
Kelly Yamanouchi: 303-954-1488 or kyamanouchi@denverpost.com
