Shares of Spirit Airlines (NYSE:SAVE) and Frontier Group Holdings (NASDAQ:ULCC) are nosediving in today’s trading after Raymond James downgraded both companies. The downgrade to Underperform from Market Perform comes as weaker fare trends and insufficient post-summer capacity adjustments pose medium-term risks for these discount airlines. In fact, four-star analyst Savanthi Syth describes the outlook for Q3 2024 for Spirit and Frontier as “clear as mud.”
She points to rapid market and product changes, along with potential headwinds from softer consumer trends, the Paris Olympics, and the impact of any travels related to elections. Syth notes that while legacy carriers like Delta (DAL) and United (UAL) are experiencing some difficulties, they are better positioned to navigate industry turbulence.
Furthermore, the pricing situation is especially tricky for Frontier, as its new bundled offerings are aimed at providing a more premium experience. The analyst mentioned how bundled products are a new approach for Frontier, and with the firm expanding rapidly in traditional airline markets, especially against American Airlines (AAL), and Basic Economy competing with the more unbundled options, there’s a chance this strategy could misfire and negatively impact fares beyond Basic Economy.
It’s worth noting that, so far, Syth has enjoyed a 51% success rate on her ratings, with an average return of 6.8% per rating.
Which Airline Stock Is the Best Buy?
Wall Street analysts believe that UAL stock is the best airline stock to Buy. Although ULCC has the most upside potential, it is only rated a Hold, whereas UAL has a Strong Buy rating with an upside potential that isn’t too far away, as pictured below. Interestingly, professional money managers seem to agree, as UAL stock also has a Positive Hedge Fund Signal.
