Spirit Airlines (SAVE) reported earnings, beating on earnings by reporting $.91 versus $.89 from consensus and beating on revenue by reporting $499.3 million versus estimates of $499.3 million. Driving revenue was the passenger ticket growth and non-ticket growth increasing by 25.5% and 18.4% year over year, respectively.
Non-ticket revenue saw major growth due to passengers choosing to purchase seat assignments at kiosks and a closer management of seat inventory being distributed. Spirit saw expansion into Kansas City last quarter, with more expansion being made to connect Houston to San Diego, Fort Lauderdale, New Orleans, and Atlanta. SAVE ended the quarter with $567 in unrestricted cash, after adding one new A320 aircraft to their fleet, with seven additional aircrafts scheduled to arrive by the year end. SAVE has been in talk to secure debt financing for four of their 2014 deliveries and the first eleven deliveries of 2015, with a preliminary agreement for this financing in place. For the rest of 2014, Spirit estimates that their price per gallon of fuel should be around $3.09. Capacity for the full year is expected to be up 17.8%. Year long CASM guidance has been increased by 50 basis points, which should provide a better cost structure and provide confidence in reliability of Spirit.
Spirit’s stock price has remained relatively flat since earnings reported, with the stock slightly down in the hours after. Our investment thesis remains strongly intact, as Spirit is still the leader in low cost airfare. With the free cash that Spirit has, expanding its fleet should not be a problem for them and expansion can be done. The valuation on Spirit will need to be reevaluated, as we are sitting near our price target, and we can establish our position from there.