Why is Frontier Group stock soaring today?

Frontier Group Holdings (ULCC 5.84%) There is a more optimistic mood about the current quarter, and investors are happy to get on board.

The discount carrier’s stock opened up as much as 12% after Frontier raised its margin guidance for the quarter and was up 8% as of 10 a.m. ET.

It’s not as bad as I feared

Investors are unsure what to think about airline stocks right now. The industry has performed well since the pandemic ended, but higher interest rates and a weaker job market have combined to raise questions about travel demand.

There are still many people who want to fly, but as consumers become more price sensitive, airlines have less control over pricing.

For Frontier, things appear to be going better than the company feared. The airline updated its guidance for Q3 pretax margins to -2% from flat, an improvement from its previous range of -3% to -6%.

Frontier said in regulatory filings that most of the improvement was attributable to revenue, which it said was “trending higher than previously anticipated.”

Airlines now expect to increase capacity by only 4-5% per year, compared with previous estimates of 4-6%. A slower increase in capacity means fewer seats to fill, which helps with pricing.

Should You Buy Frontier Stock?

While there’s not much to look forward to when it breaks even, it’s no wonder investors are breathing a sigh of relief, considering Frontier’s stock is down about 50% from its 2024 high.

Airlines stocks are risky because of the cyclical nature of the industry, and investors should be aware that if the economy declines from here, the stocks are likely to decline as well.

Still, for those willing to brave the turbulence, Frontier is one of the industry’s most compelling growth stories. Fasten your seatbelt while you travel.