Traveling has become a regular activity in this globalized economy and people want faster, safer and cheaper transport facility to reach their destination. Spirit Airlines Incorporated (SAVE, Financial) can be taken into consideration as this company offers its customers an ultra low base fares with a range of optional services for a fee, allowing customers the freedom to choose only the extras they value. Spirit’s Fit Fleet is one of the youngest flying and is one of the most fuel efficient in the industry. This innovative approach grows the traveling market and stimulates new economic activity while creating new jobs. The company has 60 aircraft serving over 150 non-stop markets, which are shown below.
A look at the recent performance
On Oct. 28, 2014, this Miramar, Florida-based company reported third quarter adjusted operating margin of 21.3%, up from 20.3% a year ago. Spirit's total operating revenue for the third quarter was $519.8 million, an increase of 13.8% compared to the third quarter 2013. Growth in flight volume and higher operating yields are the reasons behind this increase. Total operating expenses for the third quarter 2014 increased 12.5% to $409.2 million on a capacity increase of 14.7%, and total operating expenses increased 16.9% year over year to $419.6 million.
Spirit’s adjusted net income for the third quarter 2014 increased 27.6% to $73.9 million ($1.01 per diluted share) compared to $57.9 million ($0.79 per diluted share) for the third quarter 2013. The company’s return on invested capital (before taxes and excluding special items) for the twelve months ended September 30, 2014 was 31.6%. For the third quarter, this airline giant reported unrestricted cash and cash equivalents of $588.5 million. For the nine months ended September 30, 2014, Spirit incurred capital expenditures of $26.3 million, paid $116.0 million in pre-delivery deposits for future deliveries of aircraft, net of refunds, and recorded an increase of $29.0 million in maintenance deposits, net of reimbursements. Further, a chart has been provided below to show Spirit’s third quarter 2014 financial highlights.
Why Spirit?
Spirit is an industry innovator. The company’s innovative techniques enable Spirit to burn less fuel per seat than competitors, making Spirit the most environmentally friendly U.S. carrier. Fuel normally accounts for about 30% of an airline's operating costs. From September 2014, jet fuel prices have fallen by about 15%, and this fall in price will help Spirit to perform well. The company’s core principle is to keep the costs down. Its business model is different than most other airlines, and for this reason the company has a high demand for its low fares. Its non-ticket innovations allow to offer low base fares. Spirit is in the process of introducing several new products and rolling out enhancements to some of its existing non-ticket offerings.
This airline giant has higher asset utilization, optimized the variable components of its cost structure, and is keeping a low cost mindset. The company’s low fare allows more people to go more places. Further, Spirit’s unit cost advantage is one of its most important assets as it grows, which is shown below.
As per Bloomberg, Spirit has doubled revenue to $1.6 billion, from $700 billion in 2009, and expects 30% growth in 2015. Spirit took delivery of one new A320 aircraft, ending the quarter with 58 aircraft in its fleet. Earlier in the month of October, the company took delivery of a new A320 aircraft and has six more new A320 aircraft scheduled for delivery by year-end 2014. This is not the end, Spirit is expanding its wings by adding seven new routes in the fourth quarter and seven new routes in the first quarter of 2015.
On a concluding note
The company’s strength is in multiple areas such as strong credit position and cash balance to fund growth opportunities, impressive record of earnings per share growth, positive growth in net income, and its strong business model which drives high margins.
Source: Company website
Further, Spirit’s disciplined growth strategy has resulted in positive net margin for over five consecutive years, through volatile economic environments. I feel bullish that this leading airline company has plenty of opportunities in the long run.
