Penny stocks are well-known for their high risk. But like any risky investment, they’ve also got a reputation for big rewards under the right circumstances, including highly volatile trading conditions. The first step in taking advantage of their wild market action is identifying trends in the stock market. Today, we look closer at a few travel names, specifically airline stocks, after announcing a big industry merger.
Frontier, Spirit Airlines Agree To Merge, $6.6 Billion Deal
Kicking off the second week of February was excitement from the airline industry. Two popular low-fare airline companies agreed to merge. Spirit Airlines (NYSE:SAVE) and Frontier Airlines parent Frontier Group Holdings (NASDAQ:ULCC) agreed to combine. This effectively creates one of the most competitive “ultra-low fare” airlines in the market right now.
Combined, the companies expect to deliver roughly $5.3 billion annual revenues based on 2021 data. The two also expressed an ability to offer significant savings to consumers to the tune of $1 billion annually. More than 1,000 daily flights will be provided to more than 145 destinations across 19 countries in the U.S., Latin America, and the Caribbean.
Spirit Airlines and Frontier Airlines deal break down:
- Spirit equity holders will receive 1.9126 shares of Frontier plus $2.13 in cash for each existing Spirit share they own.
- The implied value per Spirit share at Frontier’s February 4 closing price ($12.39) is $25.83.
- The Frontier/Sprit deal is at a premium based on Friday’s close and last 30-days’ volume-weighted average price of both ULCC and SAVE stocks.
- This merger deal values Spirit at $2.9 billion with a transaction value of $6.6 billion accounting for asumptions of net debt and operating lease liabilities.
- Following the close of this deal, Frontier holders will own 51.5% and curent Spirit stock holders will own roughly 48.5% of the cobined airline.
- The merger is expected to close in the second quarter of this year.
- The Chairman of the combined company will be Frontier Airlines’ Chairman, William A. Franke.
Airline Stocks To Watch
Thanks to the excitement from the SAVE stock and Frontier deal, other airline stocks have gotten some attention. In particular, we’re talking about the smaller airline penny stocks.
- Mesa Air Group (NASDAQ:MESA)
- International Consolidated Airlines Group (OTC:ICAGY)
- Air France-KLM (OTC:AFLYY)
Mesa Air Group (NASDAQ:MESA)
When you think about the top airline stocks to buy right now, more prominent names likely come to mind first. But thanks to deals with smaller discount companies like Spirit Airlines and Frontier, the market may see some opportunities for “the little guys” of the industry.
Mesa Air Group operates Mesa Airlines. As a regional air carrier, the company provides service to 120 cities in 42 states and D.C. It also offers flights in the Bahamas and Mexico. Mesa is far from a ” small ” company with more than 160 aircraft, over 450 daily departures, and thousands of employees. Furthermore, it operates many flights as an affiliate of larger companies, including American, United, and even DHL.
This week Mesa will deliver its first-quarter results for its fiscal year 2022. The market awaits the “big reveal” to see how or if Mesa could turn things around following the last earnings fiasco. In its Q4 and full-year 2021 results, the company missed estimates by wide margins, including earnings per share and sales. Meanwhile, several other initiatives have come into focus. These include strategic investments and cutting-edge delivery service operations.
“We successfully launched our DHL cargo operation with two 737-400F aircraft. We invested in electric aircraft companies Archer Aviation and Heart Aerospace. Our objective is to be the regional airline leader in decarbonization and electric aircraft. Subsequent to the end of the quarter, we also announced that we are working on a drone delivery service in cooperation with SkyDrop (formerly Flirtey).”
Jonathan Ornstein, Chairman and CEO
With earnings this week and thanks to the Spirit/Frontier merger news, MESA stock could be one to watch this week.
International Consolidated Airlines Group (OTC:ICAGY)
We don’t usually cover OTC penny stocks frequently. However, International Consolidates Airlines is far from a start-up by most accounts. It’s one of the world’s largest airline groups as a parent to operating companies, including British Airways, Iberia, Iberia Express, Aer Lingus, and Vueling brands. Furthermore, with a fleet of over 530 aircraft carrying more than 100 million passengers each year, IAG has extended its reach across international markets.
Since mid-December, IAG stock has been on the rebound. So far, shares have bounced back more than 20% off of lows of $3.38. The British Airways owner, like all airlines, has been working to stay ahead of any virus threat. In its last quarterly update, CEO Luis Gallego explained that the company is undergoing a “significant recovery” with its teams taking advantage of every opportunity.
Thanks to the reopening of the transatlantic travel corridor, British Airways, in particular, can serve more U.S. destinations. Meanwhile, the Iberia brand returned to profitability.
“In the short term, we are focused on getting ready to operate as much capacity as we can and ensuring IAG is set up to return to profitability in 2022. Our teams are creating opportunities and implementing initiatives to transform our business and preparing it
for the future so that we emerge more competitive,” said Gallego in the November update.
Air France-KLM (OTC:AFLYY)
Like IAG, Air France, though internationally listed, also trades in the U.S. on the OTC. Regardless, the company operates a large fleet of aircraft ranging from long- and medium-haul to regional and cargo carriers. Meanwhile, servicing over 100 million passengers across more than 200 destinations puts Air France on a much bigger scale than other small airlines.
Among other key initiatives, the most recent focus for Air France and other European carriers is on decarbonization efforts. Earlier this month, Airbus, Dassault Aviation, and Air France-KLM, among others, welcomed a declaration to achieve decarbonization of the sector by 2050. The European Commission and Member States under the French EU Presidency made the declaration.
“We call for the commitments taken by the European Union to be adopted globally to accelerate the decarbonization of our industry. In the meantime, we urge the European Union to implement mechanisms to ensure a level playing field and to avoid any carbon leakage linked to distortion of competition among stakeholders within the global aviation ecosystem.”
Sustainability is at the core of this initiative. Sustainable aviation fuels, “next-generation” aircraft, and engines are the focal points of sustainable investments.
Will Airline Stocks Continue Flying Higher After The Spirit Airlines, Frontier Airlines Merger?
More significant industry or sector news can become sympathy catalysts for related stocks in many cases. In this case, the Spirit and Frontier Airlines merger news has placed a focus on airline stocks and some travel stocks. With this in mind, any “unusual” activity might be credited to this idea of sympathy trading. The big question now: can these airline stocks fly higher this month?
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