ANALYSIS-Ultra-low-cost airlines made risky bet on fuel-efficient planes

By Doyinsola Oladipo and Shivansh Tiwary

NEW YORK, March 20 (Reuters) - Ultra-low-cost carriers have some of the newest, most fuel-efficient planes in the industry, but if travel demand in the United States falters as a result of growing macroeconomic uncertainty, paying for the new planes could become a barrier to profit.

U.S. carriers on Tuesday said that they were seeing stronger-than-expected spring travel demand. Still, as the U.S.-Israeli war on Iran has pushed U.S. jet fuel prices above $200 per barrel, legacy carriers are starting to trim capacity like United Airlines or could park aircraft to save on costs, a luxury that Frontier Airlines ULCC.O may not have.

Frontier said it saw an improvement in demand in the first quarter as it filled gaps left by Spirit's contraction on the West Coast. The company's adjusted revenue per available seat mile, a proxy for pricing power, was trending higher before the fuel spike, a company spokesperson said.

Greater fuel efficiency is a clear advantage as airlines' largest expense after labor is jet fuel. On Thursday, jet fuel surpassed $200 per barrel, according to Kloza Advisors principal analyst Tom Kloza, compared to about $105 before the conflict began.

Frontier started 2026 committed to raising its aircraft utilization rate to cut costs and lower fares for customers.

Frontier said it has the most fuel-efficient fleet in the U.S. and that its fuel burn per passenger is 40% below its peers. "We start from a better place on a per-passenger basis, given the high-density business model we have, and the predominance of new aircraft in the fleet," said James Dempsey, Frontier CEO, at the JP Morgan Industrials conference on Tuesday.

KEEPING PLANES MOVING

But low-cost carriers' success depends on keeping the planes moving. The most fuel-efficient planes are the newest and most costly, and if demand starts to waver, it is financially tough to park them, said Michael Linenberg, Deutsche Bank research analyst in a note.

"It is far more 'expensive' for an airline to idle a new aircraft rather than an older one that is fully depreciated and financially unencumbered," Linenberg said, adding that if fuel prices more than double, operating an aircraft that is 15% more efficient than the older generation does not even come close to offsetting the financial pain.

Spirit, aiming to emerge from bankruptcy later this year, decided to return to lessors or sell most, possibly all, of its newer, more fuel-efficient Airbus A320neo aircraft, aviation industry analyst Henry Harteveldt said.

The decision reflects the higher ownership costs of these newer jets, he said, which were too expensive for the airline to retain in its fleet. Spirit declined to comment.

Frontier has also made moves to cut its fleet size, terminating the leases on 24 jets currently in service. It also deferred the induction of 69 A320neo jets, which were expected to be delivered between 2027 and 2030.

The Denver-based carrier's full-year fuel expenses fell 11% to $929 million in 2025 in part due to a 10% decrease in fuel costs. But Frontier's aircraft rent expense rose 11% to $748 million in the same period, as it brought on new aircraft.

A company spokesperson said Frontier was confident in its ability to weather the current volatile fuel environment. Dempsey this week said that Frontier was "following suit" other airlines in raising fares.

As of December 2025, about 85% of Frontier's fleet was the more fuel-efficient Airbus A320neo family aircraft.

Christopher Anderson, a professor at the Cornell SC Johnson College of Business, said carriers with newer fleets face pressure to generate sufficient cash flow to service those aircraft.

The issue is not new, added Tom Fitzgerald, TD Cowen equity analyst. "Even prior to the fuel spike there was a dynamic where ultra-low-cost-carriers with newer planes were lowering utilization and facing the headwind from parking expensive new assets," he said.

Newer planes also come with a higher maintenance bill, Fitzgerald said. "The fuel efficiency gains of the new generation engines came at a price of durability."