Discount Airlines Test Investor Appetite With Recent IPOs

Investors Bank on Travel Recovery

This past month and into yesterday, Frontier Group Holdings (ULCC) and Sun Country Airline Holdings Inc. (SNCY), two discount airline operators, launched initial public offerings. The IPOs raised several hundred million dollars each.

Demand for travel tumbled during the pandemic, causing billions of dollars in losses for the airline industry. However, with vaccinations rolling out and cities lifting restrictions, investors are betting the industry is poised for recovery. Airlines have already seen increases in summer bookings. Wall Street is betting that these encouraging trends could provide a nice tailwind for the newly public Frontier Airlines and Sun Country.

Frontier Raises $570 Million

On Wednesday, Frontier sold 30 million shares priced at $19 each. This helped the Denver-based carrier raise $570 million. On its first trading day yesterday Frontier’s stock fell slightly to just below $19 per share.

Though there are hopefully clear skies ahead for Frontier and the rest of the airline industry, the past year has been a difficult one. In 2020 the airline lost $225 million, compared with a profit of $251 million in 2019. With that said, recently things are looking up for the budget carrier. Frontier generated cash in March and the company’s CEO, Barry Biffle says, “the vaccine is unlocking the demand that we’re seeing in the country.”

Sun Country Positioned for Growth

Investors also showed interest in Sun Country Airlines’ IPO which occurred earlier in March. The Midwestern airline raised $250 million, with its stock soaring more than 50% on its first day of trading. Sun Country was able to price its IPO at $24 per share, above the $21-$23 range.

Just like Frontier, Sun Country has been losing money during the pandemic. For 2020 it posted a loss of $3.9 million, compared to net income of $46 million in 2019. Sun Country plans to use proceeds from its IPO for growth, with CEO Jude Bricker recently saying, “we’re spring-loaded to add capacity into a recovery.”

While there is still fierce competition from other discount airlines like Spirit (SAVE) and Allegiant Travel (ALGT), Wall Street is enthusiastic about how pent-up travel demand could benefit airline stocks.

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