Yesterday (5/20) Spirit Airlines (SAVE) hosted an analyst conference day. Spirit continued to voice its objectives for the year as well as its longer term plans in keeping customers happy, and reiterated how the best way to keep customers returning to Spirit is to keep costs for customers down. Spirit boasts the lowest fares and the lowest total costs to fly in the entire industry, and its a la carte pricing in regards to tickets and add-ons is a major driver in this.
A continued initiative that Spirit is focusing on is reducing its CASM (Costs per available seat mile). It plans to combat price inflation in the coming years by continuing to expand their fleet with more costs efficient A320, and beginning to include A320neo's when they begin to come available in 2016. Fuel accounts for approximately 40% of all expenses, so working towards more fuel efficiency should keep margins strong amidst price inflation in other areas.
Spirit is also looking to improve its customer image moving forward, as they believe too many people believe that Spirit doesn't care about its customers. Although not planning on launching any major marketing campaigns, it is looking to be more flexible with customers regarding deadlines including voucher deadlines amongst others. Also, as a result of a recent survey that showed 80% of fliers listed price as most important, Spirit is looking to move its image from having the lowest fare to emphasizing having the lowest total price in the industry. That stems from a feeling amongst fliers that having the lowest fare doesn't equal the lowest price as a result of nickel and diming customers along the way. Spirit believes focusing on this will continue to improve their passenger volumes at a rate faster than the industry average.
Finally, Spirit is continuing to look to expand into new markets. Currently they have about 400 markets that they hope to move into down the road, and currently are looking to expand at a rate of approximately 3 new markets per year. Spirit is focused on expansion, but also keeping customers happy in their current markets. They believe that rapid expansion into new markets in the past has hurt their on-time arrivals percentage, as it has lagged approximately 10 percent behind the industry. They believe this is attributable in part to expansion outpacing fleet capacity, something they hope to correct moving forward, while still balancing expansion into new markets.
Spirit traded up approximately 1.9% today, closing at 29.32. Moving forward, we reiterate our BUY rating on Spirit Airlines (SAVE) with a price target of $33.80, representing approximately 15 percent upside over their current price.