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Buckle Up Your Seat-Belts, Time to Fly

January 24, 2014 | About:

In this competitive and globalized world, people have become busier than before. Travelling has become a part and parcel of life. Daily, people have to travel from here and there for work. Spirit Airlines Incorporated (NASDAQ:SAVE) empowers customers to save money on air travel by offering ultra low base fares with a range of optional services for a fee, allowing customers the freedom to choose only the extras they value.

 This Miramar, Florida based company has made its name by becoming the clear price leader in the U.S. airline market. Spirit operates about 250 flights to 50 destinations in the U.S., Latin America, and popular holiday destinations in the Caribbean. The company is also offering service from the United States to the expanding markets of Panama and Colombia.

Positive Numbers

In 2013, compared to its peers Delta Air Lines (NYSE:DAL) and Southwest Airlines (NYSE:LUV), Spirit’s stock was higher by more than 153%. The company’s adjusted net income for the third quarter 2013 increased 130.3% to $57.9 million ($0.79 per diluted share) compared to $25.2 million ($0.35 per diluted share) for the third quarter 2012. Spirit achieved an adjusted pre-tax margin of 20.3%, the highest quarterly adjusted pre-tax margin in the Company's history. Its return on invested capital (before taxes and excluding special items) for the last twelve months ended September 30, 2013 was 31.3%. Spirit ended the third quarter 2013 with $540 million in unrestricted cash.

Traffic (revenue passenger miles) in December 2013 increased 24.8% versus December 2012 with a capacity (available seat miles) increase of 20.3%. The load factor for December 2013 was 87.9%, an increase of 3.2 points as compared to December 2012. Spirit's preliminary completion factor for December 2013 was 98.9%.

Chart courtesy: spirit.com

Flying High

Spirit's profits are signs of steady growth. Since 2010, Annual passenger revenue and net income have both increased steadily. Spirit generated 24.4% growth in revenue passenger miles (RPM), while the available seat miles (ASM), and grew 24.8%. On the other hand, Delta's mainland division had 8.6 million RPM.  On a revenue basis, Spirit is equivalent to about 3.2% of the total revenue of the combined Delta and US Airways, now part of American Airlines Group (NASDAQ:AAL).

As I said earlier that Spirit Airlines offers ultra low base fares with a range of optional services for a fee, allowing customers the freedom to choose only the extras they value. This innovative approach is pushing the travelling market one step ahead and also creates new job opportunities. From 2012-2013, Spirit Airlines increased its employee ranks by 24%, while American, Delta, and Southwest, are all reducing staffs. The company’s new fleet of airlines and combined with innovative techniques enable Spirit to burn less fuel per seat than competitors, making Spirit the most environmentally-friendly U.S. carrier. Spirit will also add 11 A320s aircraft to its fleet in 2014.

Spirit’s only and only focus is to keep the costs down and this has allowed it to achieve mid- to high-double-digit operating margins. Through the first nine months of 2013, Spirit has expanded its operating margin from 14.3% to 17.4% which is more than its peers. Spirit has a better financial leverage than its peers because the company has no debt on its balance sheet, while others are heavily funded by debt.

On a Concluding Note

The company's strengths can be seen in multiple areas, such as its huge revenue growth, largely solid financial position with reasonable debt levels, impressive record of earnings per share growth, compelling growth in net income, and good cash flow from operations. The company has also assured that in 2014, they are going to reduce more unit costs, and this will help to accelerate its growth in the future. Further, Spirit has a strong fundamental base that will drive its future growth potential. I am therefore pretty bullish that this airline company will provide its valued customers as well as investors a great ride.

Rating: 3.7/5 (6 votes)


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GuruFocus has detected 3 Warning Signs with Spirit Airlines Inc $SAVE.
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