Will Spirit Airlines Continue Flying?SAVE) announced fourth quarter ended December 31, 2015 total operating revenue of $519.8 million, up 9.6 percent year-over-year from $474.5 million during the same period last year.
Spirit declared fourth quarter of 2015 adjusted net income of $73.3 million or $1.02 per diluted share, up 24.9 percent year-over-year from $58.7 million or $0.80 per diluted share in fourth quarter of 2014.
The airlines company reported continued year-over-year expansion in both its top and bottom lines primarily driven by the company’s superior cost execution and capability to adapt to the rapidly changing global environment.
A closer look
Spirit Airlines is believed to be the top-tier and stable non-ticket revenue stream provider with prospective growth estimated to be achieved from expanding take rate through improved customized pricing, providing better products with enhanced travel pricing and improving loyalty expenditures by upgrading products and providing superior benefits.
The advanced business model of Spirit has a solid track record of registering better margins coupled with superior growth in several economic and operational environments, targeted towards achieving long-term objective of becoming a robust expansion carrier, delivering mid-teen margins and offering attractive returns.
At present, the global airline operator has nearly 80 aircraft that are serving non-stop more than 190 international markets with the selection of flight routes based on improved utilization and optimization of operating margins. Spirit has over 375 daily flights operating to and from 56 assigned destinations with a highly diversified flying network.
The company has a majority of point-to-point weak flying frequency and serves nearly 88% of the most-popular 25 metros of the US. Spirit Airlines has a demographic attraction towards Caribbean and Ft. Lauderdale. In addition, Spirit is expected to be the least net price airline services provider with minimized base fare and optional services costs.
The notable contribution of non-ticket services to the overall company’s revenue stream in addition to an extremely well-diversified operational environment allows Spirit to offer the least-priced airline tickets, much ahead of its key competitors and increasingly attracting the global low-cost airlines traveling customers towards Spirit.
The significant unit cost benefit of Spirit Airlines is believed to be the company’s most crucial assets as it expands with this unique cost-advantage achieved through notable scale. The capacity expansion in a range of 15% to 20% provides a short-term buffer. Reliably consistent operations, smaller operating recovery expenses, greater seat density, and innovative engine options all assist in providing greater fuel efficiency, wages, salaries and other gains on a per-ASM basis to reduce inflationary expense pressures.
Finally, Spirit experiences gains from aircraft ownership optimization for buying an aircraft instead of leasing an aircraft that totals an approximate yearly pre-tax gain of about $1 million per aircraft. Importantly, the company’s net revenue per passenger is lower than the key rival’s breakeven expenditure, which again allows for offering customers much lower total fares.
Spirit Airlines is continuing to record excellent margins in emerging and mature markets, which illustrates its robust deployment of core assets. In addition, the company’s market growth opportunities at present, which are over 190 markets, exceed the forecasted number of newly discovered markets to be introduced in the next five years, projected to be approximately 125. The share of ULCC in expanding US domestic market is estimated to grow notably.
The impressive operational costs optimization strategy of Spirit Airlines is believed to assist the company in driving smoothly through the ongoing globally tough operating environment while delivering superior profitability and attractive shareholder returns.
Spirit Airlines is believed to have consistently superior operating margins (one of the best in the US industry), highly-optimized cost structure with attractive revenue contributions, profitable expansion opportunities in key domestic and international markets, and a robust financial position with improved liquidity and lower leverage.
Importantly, Spirit Airlines repurchased nearly 1.5 million shares for about $99 million in 2015 under the company’s strategic share buyback program and further authorized an additional $100 million share buyback program, in line with its continued commitment to deliver enhanced shareholder returns.
The superior cost-optimization strategy of Spirit has, in particular, has allowed it to transfer the cost benefits to its passengers while delivering improved investor returns through planned share repurchase programs and dividends.
Overall, the investors are advised to “buy” equity in Spirit Airlines, Inc. considering significant near-term and long-term growth prospects. The company is supported by its strong balance sheet with a notable total cash position of $803.63 million against a weaker total debt position of only $646.33 million, encouraging the company to make future growth investments. The profit margin of 14.81% also seems attractive. However, the PEG ratio of -4.67 is misguiding and depicts no company growth but instead a decline compared to somewhat healthier industry’s growth average of 0.23.
Published on Apr 11, 2016By Subhen Mittra