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Frontier gaining altitude

Airline's stock spikes since word of CEO change

Chris Walsh, Rocky Mountain News

Published September 5, 2007 at midnight

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Shares of Frontier Airlines have jumped nearly 16 percent in the month since CEO Jeff Potter announced his decision to leave the company, recovering from a steep slide in July.

But it's unclear whether the upward trend will continue when Potter officially steps down Thursday and new chief Sean Menke takes the helm. Menke worked at Frontier before taking an executive job at Air Canada in 2005.

Investors have greeted the changing of the guard with tempered optimism.

Frontier shares closed Tuesday at $5.81, up from $5.03 on Aug. 2 when the carrier revealed Potter's decision to leave.

The Denver-based company's stock, which had dipped precipitously in the weeks leading up to Potter's announcement, briefly touched $6.17 in late August but has fallen a bit since then.

Still, the 16 percent spike over the past five weeks far outpaces the less than 1 percent increase in the Amex airline index during that time. The S&P 500 rose just over 1 percent.

Some observers say the uptick in Frontier's stock signals that investors might be ready for a change of pace at the airline, which has struggled financially in recent years amid soaring fuel prices and other challenges.

"The fact that there is such a disparity in Frontier's stock performance compared with the performance of the rest of the industry in the past month probably indicates that it's time for a change in the eyes of Frontier investors," said George Hamlin, a managing director at aviation consulting firm Airline Capital Associates.

Others say investing heavyweights are hunting for bargains as the airline industry recovers financially. Frontier might represent such an opportunity, they say.

The stock increase "is less of an indictment of Jeff Potter's legacy and more about many institutional investors looking at airline stocks as a place for a significant rebound," said Bruce G. Allen, who heads his own investment firm in Denver.

And, of course, there's the ongoing talk - fueled by the departure of Potter and Chairman Sam Addoms - that Frontier could be positioning itself for an acquisition or merger. Frontier has tried to squash that talk, but the speculation could be another factor behind the stock jump.

Despite the recent increase, Frontier shares are down 21 percent this year and are on the low end of their historical levels. Investors remain concerned about Frontier's challenges, which include competition from Southwest Airlines and United Airlines.

While Frontier has managed to boost its market share in Denver, the company continues to lose money. There also have been some hiccups and delays as the company tries to diversify its business into new types of markets, while questions remain about how effective those moves will be financially.

Investors should take heart, though. The return of new CEO Menke represents a vote of confidence in the company.

"Obviously, he was in demand elsewhere in the industry," consultant Hamlin said. "If he felt the company were fundamentally flawed, I think he'd still be with Air Canada."

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