Tuesday, April 29, 2014

Spirit Airlines 1Q14 Results

Q1 Earnings      
   Spirit Airlines reported 1Q14 earnings today with revenues of 438 million up 18.2 % year over year in line with estimates of 437.91 million.  Earnings per share were reported as 52 cents per share beating estimates by 1 cent.  Profit increased 15.4 % year over year to 37.8 million as well as operating income was up 13% year over year to 60.1 million.  Operating margin was up 13.7% year over year and revenue per available seat mile was down 2.4 % year over year.  Spirit ended the quarter with 544 million dollars in unrestricted cash as well as no debt on their balance sheet.  Staggering data shows that 256 cancellations occurred in the first quarter compared to 59 cancellations last year.  With revenue still growing 18% year over year this data represents Spirits ability to continue to increase revenue growth with their attractively low ticket fares and new destinations.  One last fact to mention is that Spirit reported a 99.8% controllable completion factor which is significant for customer satisfaction.

   Spirit Airline was down about 3.13% to a price of 56.60; which represents the market selling off the facts.  Spirit plans to add Kansas City International in August as well as full year capacity guidance is increased to 17.8% from 17%.  From the beginning of the year we knew that this was going to be a year with increasing costs for Spirit due to new expenditures in adding aircraft as well as pilot costs.  However the investment thesis is still well in tact with Spirit having 40% lower ticket fares than other competitors which has been and will continue to be their main driver.  The aircraft fleet is now at 56 from 2 previously added aircraft's in the first quarter and 9 more are scheduled by the end of the year. Since I do believe the investment thesis is still intact I am remaining my price target of 64$, however it will be important to see how the market reacts over the next week.  If the company hits 52$ a share I will recommend a strong sell which will still give us over a 30% upside from our buying point.

Guillermo Dilone

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