Thursday, February 20, 2014

Spirit Airlines Earnings Report

On January 19th, 2014 Spirit Airlines reported their 4th Quarter financial results.  Spirit Airlines beat consensus earnings per share estimates by 6 cents, $.56, and reported $420.0 million in revenue missing consensus by $1.44 million.  Harsh weather was factored in Spirit's stock price as shareholders were expecting revenue to be impacted by the conditions.  Spirit was up 5% yesterday, reaching a new 52 week high of 51.95.  This was due to shareholder's valuing Spirit's growth year over year, operating revenue was up 27.9% year over year, as well as RASM was up 3% to $.1143.  Another strong result was their completion factor increased to 99.5% compared to 98.4 year over year and CASM ex-fuel down 2.5% year over year.

For 2013, Spirit Airlines grew capacity by 22.2% and net income increased 71% to 178 million year over year.  For the year Spirit's CASM ex-fuel was down 1.5% year over year as well as no debt on their balance sheet, with 531 million in unrestricted cash flow.  Spirit Airline's was able to grow significantly with continuing to offer their customers with low ticket prices, but being able to charge customers for any other fee.

Outlook:  In 2014 Spirit Airlines is expecting higher costs that will ramp for growth in 2015.  These higher costs are due to depreciation and amortization.  There are heavy maintenance events and increases in pilot costs that will drive costs higher.  In the first quarter CASM ex-fuel is expected to grow 1 to 2 percent year over year as well as due to Easter being shifted to April it will affect RASM by 1.5 percent.  The fuel price per gallon is also expected to be $3.17 and capacity is expected to increase by 21 percent year over year.  For the year in 2014 there will be 11 new aircraft's, fuel prices per gallon are expected to be $3.12, capacity increase by 17 percent and full year CASM ex-fuel increases by 2%.  In 2015 the higher costs and expenditure on new aircraft from 2014 will drive lower maintenance costs and revenue from new aircraft will be realized.  In 2015 capacity is expected to grow 29% compared to 2014 with an addition of 14 new aircraft.

Spirit Airlines has continued to show that their extremely low ticket prices are attractive to customers and will continue to be in the future, as well as an increase in their completion factor represents efficiency in travel and customer satisfaction.  It will be important to monitor in 2014 how much higher maintenance costs will affect profit, but given that Spirit has no current debt on their balance sheet I believe they will be able to monitor these costs while continuing to increase operating revenue. Spirit Airlines is still expected to grow capacity by 17% year over year and provide customer's with their valuable prices and services.  Capital expenditure in new aircraft is a positive sign that Spirit is looking to continue expanding. Spirit still has upside in 2014, but monitoring weather effects and higher cost's on operating revenue will be crucial.

Industrial Analyst- Guillermo Dilone

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