Frontier Debut Fizzles in Second U.S. Airline IPO in a Month
(Bloomberg) -- Frontier Group Holdings Inc. struggled to gain traction in its trading debut after selling shares at the bottom of a marketed range.
The stock slipped less than 1% to close at $18.85 in New York after an initial public offering late Wednesday at $19 a share. By contrast, rival discounter Sun Country Airlines Holdings Inc. opened with a pop after an IPO in mid-March and was up 43% from the offering price through Wednesday.
Frontier is betting that accelerating vaccination efforts and pent-up travel demand will buoy U.S. airline traffic this summer, after last year’s unprecedented collapse in flying because of the coronavirus pandemic. But carriers from giants such as United Airlines Holdings Inc. to a pair of startups will be competing fiercely for the leisure travelers that are Frontier’s lifeblood.
“If you think about the coronavirus as being a dam and the customers as the water, the vaccine is just chipping away at that dam and you’re slowly seeing the people flow through,” Frontier Chief Executive Officer Barry Biffle said in an interview. “By the time you get to Memorial Day, everyone who wants to be vaccinated will have been vaccinated.”
The Denver-based discounter is looking to use its $266 million in IPO proceeds to fuel an aggressive growth plan in the coming years. Frontier’s offering raised a total $570 million, but half the shares sold came from existing stockholders and the company will get nothing from that part of the transaction.
William Franke, Frontier’s 83-year-old chairman and biggest investor, planned to sell 14.2 million shares in the offering, according to securities filings. Franke’s Indigo Partners, which invests in low-cost airlines around the world, acquired Frontier in 2013. Frontier had filed to go public in 2017 but dropped that effort last July.
The airline’s optimism now stems from the elevated U.S. savings rate and the most recent round of government economic stimulus checks, Biffle said. The accelerated pace of vaccination campaigns is also likely to spur airline travel for summer and beyond.
Frontier has 156 of Airbus SE’s A320neo-family jets on order through 2028 and sees “plenty of white space out there to grow,” Biffle said. The company uses 96% of its capacity domestically and will look to nearby international markets, including Canada, over time. But for now “being domestic is pretty popular” because of Covid-19, Biffle said.
The company will face plenty of competition as airline giants revamp their networks to focus more on vacationers and less on business travelers, their traditional bread and butter. In addition, two new-leisure focused carriers -- Avelo and Breeze -- plan to begin flying before the end of May.
Frontier features colorful animal portraits on its planes and crams passengers into seats with a 28-inch pitch -- the distance from a point on one seat to the same point on the seat in front of it. The tight fit for customers enables Frontier to compete on price. The company’s ticker, ULCC, refers to its “ultra low-cost carrier” business model.
“If you’re going to sell low fares you better have low costs, right?” Biffle said. “There’s an ante to play in this type of game and that ante is low cost.”
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