Spirit Airlines (SAVE, Financial) may be the most hated airline in the U.S., but the stock has certainly performed well over the last few trading sessions. Despite the fluctuating oil price environment, Spirit Airlines has managed to deliver strong results in many of the recent quarters. Throughout the past 10 quarters, the company’s revenue has surged at an average of 13%. Not only this, in terms of earnings, the company successfully surpassed estimates in the past nine out of ten quarters.
Jet fuel prices declined due to the lower oil prices, which was a good thing for all the companies. But, lower jet fuel costs have permitted major airlines to be more price-competitive with Spirit airline, which is its key customer attraction, thus deteriorating its share price.
However, in the most recent quarter, the company’s total revenue per available seat mile plunged 14.3% year-over-year, but it has managed to conserve very high-profit margins in spite of the revenue pressure, mainly due to its tremendously good cost performance.
As a matter of fact, an abrupt drop in unit costs endorsed the company to deliver year-over-year earnings growth in the previous quarter. But once again, oil prices have started to move upward from its multiyear lows, and due to this, the company’s year-over-year fuel cost savings has declined. Still, the company saved 29% per gallon in the previous quarter equated to the same quarter of the previous year.
Moreover, the company has strategized to ramp up its service in Florida, as it is counter-seasonal compared to the majority of United States airline routes, with fairly robust demand throughout the winter season.
Currently, the Florida leisure travel market is not tactically vigorous to any of the legacy carriers, and this is the primary reason why Southwest (LUV, Financial) as well as JetBlue (JBLU, Financial) have been able to grasp a massive portion of that traffic.
Recently, Southwest Airlines signed a new deal, according to which its pilots will receive a 15% wage increase and 3% increment after each year. This will certainly increase costs for Southwest, which would be highly valuable for low-cost airlines such as Spirit.
Final words
Spirit Airlines’ terrific growth over the last few years has not reflected in its share price. However, the market will realize the stock’s potential sooner rather than later and patient investors will be rewarded. Thus, I think investors should consider adding Spirit Airlines to their portfolios.
Disclosure: No position in any of the stocks.
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