Spirit Airlines (SAVE, Financial) is an American ultra-low-cost carrier headquartered in Miramar, Florida. Spirit operates scheduled flights throughout the U.S. as well as the Caribbean, Mexico, and Latin America. Major focus cities include; Ft. Lauderdale, Dallas/Fort Worth, Detroit, Las Vegas, Chicago-O'Hare, Houston-Intercontinental, Atlantic City and Myrtle Beach. Despite Spirit’s consistency, its shares are down about 15% YTD. Given Spirit’s growth plans and cheap valuation, I think investors should consider buying the stock. The company’s earnings have been growing at a good pace and the last quarter was no exception.
Spirit Airlines reported robust results for the result of 1st quarter. In the Q1FY15, net income and operating income escalated 87.1% and 86.3% respectively compared to previous year’s same quarter. Operating margin for this quarter was recorded 22.7% followed by 900 basis points expansion in operating margin.
Due to disruptive winter weather, numerous flights were cancelled. Adjusted CASM ex-fuel declined 5.6% year-over-year to $0.0572. The decrease was primarily driven by lower labor expenditure per ASM and lower airplane lease per ASM (Available seat miles).
Now moving towards cost guidance, the company guesses that their fuel price per gallon will be $2.04. They have protected around 70%, 20% and 17% fuel volume of their second quarter, third quarter and fourth quarter 2015 respectively.
Fuel capacity is expected to up surge 32.2%, 34.5% and 30.6% in the 2nd, 3rd and 4th quarter 2015 followed by full year increment of approximately 30.7%.
For the first quarter 2015, revenue increased 12.6% year over year, with total revenue per ASM decreasing 9.9% on a capacity increase of 25%. Ticket revenue and non-ticket revenue per passenger flight sector declined 11.7% or $9.08 and 2.1% or $1.16 year over year, respectively. The company proclaimed 38 of the new routes with starting of 2015, and over the next two fiscal quarters, they added 12 new aircraft to their fleet.
Oil price
The image of any airline is determined mainly by its operational efficiency. The better the operational efficiency, the higher the position. In the upcoming several months, if oil prices rise, then the value proposal of each airline according to investors will be principally decided by its operational efficiency.
Spirit Airlines belongs in the category of least preferable or least favorite airlines of America, still its operational exemplary has been financially successful. The company is often condemned for charging for everything, and is frequently lambasted for its seating being uncomfortable and congested.
Spirit's total price, including choices, is closely 40 percent lower than other airlines on average. The fares for travelers are very low, when travelling without baggage or anything. As they charge extra for baggage, water bottle, food which are usually free on other airlines.
According to the results of the survey by SITA, American air travelers in common are the unhappiest lot in the world, with 28% reporting some form of disappointment with their carrier, equated to a 22% world average. So it can be concluded that Spirit Airlines' problems are not exclusive to the airline.
Conclusion
Although Spirit Airlines has a great business model and is trading at a cheap valuation, the stock was punished due to the company’s weak RASM guidance. However, after the drop Spirit Airlines looks like a great bet as the company is expanding into various markets. In addition, the company is immune to seasonality and also has a great business model. Hence, I think investors should buy Spirit Airlines.