Is Spirit Airlines Flying Right?

Spirit Airlines (SAVE) announced third quarter ended September 30, 2015 total operating revenue of $574.8 million, up 10.6 percent year-over-year from $519.8 million in the third quarter of 2014.

Spirit declared third quarter of 2015 adjusted net income of $97.3 million or $1.35 of diluted earnings per share, compared to $73.9 million or $1.01 of diluted earnings per share during the same period last year.

The key airlines reported notable year-over-year growths in both its top and bottom lines primarily due to a significant growth in flight volume, somewhat offset by a decline in the key yield from operations.

The adoption of a lower-cost structure to provide much lower fares and accelerated addition of more seats on its planes coupled with superior time utilization that enhances the company’s bottom line but is again RASM dilutive.

Flying in the right direction

The addressable market of Spirit Airlines has expanded significantly and the airlines major currently serve nearly 185 markets, which significantly exceeds the forecasted number of new markets to be introduced over the forthcoming five years from 2016 till 2020, which is approximately 125 new markets.

Spirit Airlines is observed to be keen on growing its total revenue per available seat mile by increasing the number of seats in the aircraft and minimizing the key operational expenditures which is again supported by the ongoing global depressed commodity pricing environment including the airlines fuel, adding to the company’s adjusted pre-tax margins.

Spirit airlines reported 13.1 percent year-over-year decline in total revenue per passenger flight segment ("PFS") during the third quarter of 2015 to $120.35, mainly due to a 20.8 percent fall in ticket revenue per PFS.
The reduction in ticket revenue per PFS was allowed by weaker fare levels owing to enhanced competition coupled with a greater percentage of the company’s markets still in a growth stage as against the previous year. Non-ticket revenue only witnessed a nominal 1.2 percent year-over-year decline to $53.39 on a per flight segment basis. This decline in non-ticket revenue was mainly due to the airline’s onboard catering service being outsourced to a third-party supplier and somewhat weaker bag revenue per flight segment. But, these reductions were somewhat offset by improved per segment convenience charges as against the same period in 2014.

Spirit Airlines has strategically executed nearly $99 million of its consolidated $100 million of share repurchase program, buying back nearly 0.5 million shares in the third quarter of 2015 and about 1.5 million shares repurchased year-till-date. Importantly, The Board of Directors at Spirit Airlines authorized an innovative share buyback program of nearly $100 million worth of its common stock.

Going forward, Spirit Airlines is focused on containing a slight year-over-year decline in its top line while returning a majority of the invested capital to its key stakeholders through planned share repurchase programs and in form of dividends, in line with its continued commitment to deliver improved shareholder returns.


Overall, the investors are advised to purchase equity in Spirit Airlines, Inc. looking at the logical company valuations with trailing P/E and forward P/E ratios of 9.04 and 9.35 respectively, depicting a low-cost stock and better than the expensive industry’s average P/E of 14.52. The PEG ratio of 0.57 indicates healthy company growth and comparable to the industry’s growth average of 0.36. The profit margin of 14.25% seems attractive. Moreover, Spirit has a strong balance sheet with significant total cash position of $748.90 million against smaller total debt of $537.91 million, encouraging the company to make future growth investments while delivering enhanced shareholder returns.
Published on Jan 12, 2016
By Yaggyaseni Mittra

Copyrighted 2020. Content published with author's permission.

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