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Shares of Spirit Airlines (NYSE:SAVE) and Frontier Group Holdings (NASDAQ:ULCC) are both trading with a loss ~2% in premarket trading following a downgrade to both carriers from Raymond James as weaker fare trends and insufficient post summer capacity adjustments remains a medium-term risk for the discount carriers.
Raymond James now gives Spirit Airlines (SAVE) and Frontier (ULCC) an Underperform rating from Market Perform.
Raymond James’ Savanthi Syth sees the setup into Q3 2024 outlook for SAVE and ULCC “clear as mud” due to rapid market and product modifications and potential headwinds from softer consumer trends, the Paris Olympics, and a “pre-election corporate travel impact.” Syth views legacy carriers Delta (DAL) and United (UAL) starting to experience some “chop” even as they are able to fly above much of the “industry turbulence.”
The pricing environment also presents challenges, specifically for ULCC its newly launched bundled offering which includes further steps to provide a premium offering.
“Bundled products are new for ULCC…but with ULCC growing aggressively in legacy airline markets, noticeably against American of late, and Basic Economy set to compete against the more unbundled offering, there is a risk of a miscalculated response that erodes fares beyond [Basic Economy],” Syth says.
Wall Street analysts are much more bearish towards Spirit Airlines (SAVE) with an average Sell rating and Strong Sell rating from Seeking Alpha’s Quant rating.
For Frontier (ULCC) Wall Street analysts and Seeking Alpha’s Quant rating give the stock a Hold rating, while Seeking Alpha authors rate Frontier (ULCC) as a Buy.