Denver-based Frontier Airlines has held early-stage talks with investment banks about an initial public offering, according to people familiar with the matter.
The no-frills carrier is considering starting a formal IPO process next year, the people said, asking not to be identified because the plans are private. There are a number of factors that could influence the decision, and Frontier might choose not to proceed, they said.
Frontier spokesman Jim Faulkner declined to comment. Indigo Partners, which acquired Frontier in 2013, also didn’t comment.
With oil languishing close to $40 per barrel, the coming months could be seen as a favorable time to entice investors to buy shares in an airline, one of the people said.
However, low ticket prices — Frontier’s tagline is “Low Fares Done Right” — have slowed revenue growth across the industry and could act as a deterrent to a deal, another person said.
But according to an Airline Weekly analysis in September, Frontier has become the fifth-most-profitable U.S. airline, with a net profit of $54 million and an operating margin of 21 percent from April through June.
Frontier has changed hands twice since filing for bankruptcy protection in April 2008. Republic Airways Holdings bought the carrier in October 2009 for $108.8 million and agreed at the time not to pursue a $150 million unsecured bankruptcy claim.
Indigo, a private-equity firm led by veteran airline executive William Franke, agreed to buy Frontier from Republic for $36 million in cash, with a total transaction value of $145 million, including debt. Franke is now chairman of the carrier.
After the Indigo buyout, Frontier transitioned to an ultra-low-cost carrier, offering inexpensive base fares and adding fees for everything else.
A U.S.-listed airline IPO is a rare occurrence. Only three companies have completed initial share sales in the past five years: Mexican low-cost carrier Controladora Vuela Cia. de Aviacion SAB, known as Volaris; Virgin America; and Spirit Airlines.
Indigo bought a stake in Spirit in 2006 before the deal, and Franke was chairman of the board until 2013.
Airline carrier shares rallied this week after Delta Air Lines reported a 1.5 percent increase in November for revenue from each seat flown a mile, the first positive number in a year at the world’s third-biggest carrier. That helped ease concerns that the industry’s revenue is being hurt by fare cuts and increased capacity.
Stocks have also been boosted by a decline in crude oil prices, which is refined into jet fuel, and the expectation that low prices will continue into 2017.
The Bloomberg U.S. Airlines Index, made up of 11 domestic carriers, has gained 103 percent from the day before Indigo acquired Frontier through Wednesday’s close in trading. This year, the measure has slumped 2.2 percent.