Digital Distribution And Urbanization Will Expand Underserved Markets

Key Takeaways

• Competitor withdrawals and Frontier's emerging dominance on key routes position the company for significant yield and revenue growth as excess capacity unwinds.
  
• Digital and loyalty initiatives, along with cost discipline and fleet efficiency, drive superior margins, reduced distribution costs, and sustained long-term earnings expansion.
  
• Shifts in travel demand, regulatory costs, shifting consumer preferences, weak brand loyalty, and financial constraints threaten Frontier's margins, competitiveness, and long-term stability.

Catalysts

Provides low-fare passenger airline services to leisure travelers in the United States and Latin America.

• Analysts broadly agree that Frontier benefits from industry-wide capacity reductions in its key markets, but the magnitude of this tailwind is likely understated as multiple competitors are aggressively retreating from Frontier's routes, positioning Frontier for accelerating double-digit yield gains and outsized RASM growth into 2026 as excess supply continues to unwind.
  
• Analyst consensus highlights digital distribution and loyalty program growth as margin drivers, but the impact is likely underestimated; the company's rapid multi-channel rollout and co-brand loyalty initiatives are delivering 40%+ year-over-year growth, suggesting that non-fare revenue per passenger may more than double by 2028, driving step-change expansion in both net margins and earnings power.
  
• With ongoing urbanization and population growth in secondary U.S. cities, Frontier's aggressive route launches and first-mover advantage in underserved markets set the stage for structurally higher load factors and an expanding addressable customer base, underpinning elevated long-term revenue growth.
  
• Unique among peers, Frontier's young, fuel-efficient fleet and embedded cost discipline enable them to profitably absorb cyclicality in fuel prices and regulatory pressures, pointing to sustained industry-leading CASM and superior operating leverage as the cycle turns.
  
• Advances in direct booking technology and dynamic pricing using NDC and personalized offers will allow Frontier to further disintermediate high-cost channels, unlocking both higher booking volumes and incremental margin through reduced distribution costs and enhanced ancillary monetization, boosting both top-line and net margins.

Frontier Group Holdings Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Frontier Group Holdings compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Frontier Group Holdings's revenue will grow by 11.7% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from -0.9% today to 6.7% in 3 years time.
• The bullish analysts expect earnings to reach $350.6 million (and earnings per share of $1.54) by about August 2028, up from $-34.0 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 7.9x on those 2028 earnings, up from -32.1x today. This future PE is lower than the current PE for the US Airlines industry at 11.0x.
• Analysts expect the number of shares outstanding to grow by 1.23% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 12.32%, as per the Simply Wall St company report.

Frontier Group Holdings Future Earnings Per Share Growth

Risks

• Long-term demographic shifts such as remote work and virtual collaboration could reduce both business and leisure travel demand, constraining Frontier's load factors and suppressing its ability to drive sustainable revenue growth.
  
• The company's heavy reliance on the ultra-low-cost model with ancillary fees may prove unsustainable if consumer preferences shift toward increased flexibility and higher service expectations, putting ancillary revenue at risk and compressing net margins.
  
• Increasing regulatory focus on environmental factors, including stricter carbon emission requirements and higher costs for sustainable aviation fuel, will likely raise operating expenses for Frontier, eroding its cost leadership and negatively affecting earnings over time.
  
• Frontier's relatively weak brand loyalty and smaller market position compared to legacy and other low-cost competitors leaves it vulnerable to intensified competition and industry consolidation, which may erode its pricing power and reduce revenue through lower load factors.
  
• High leverage and limited financial flexibility could constrain Frontier's ability to invest in fleet renewal, sustainability, and technology, as well as limit its capacity to weather economic shocks, thereby elevating the risk of prolonged losses and threatening long-term solvency.

Valuation

• The assumed bullish price target for Frontier Group Holdings is $8.28, which represents two standard deviations above the consensus price target of $4.72. This valuation is based on what can be assumed as the expectations of Frontier Group Holdings's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $9.0, and the most bearish reporting a price target of just $3.0.
  
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be $5.3 billion, earnings will come to $350.6 million, and it would be trading on a PE ratio of 7.9x, assuming you use a discount rate of 12.3%.
  
• Given the current share price of $4.79, the bullish analyst price target of $8.28 is 42.2% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.