Thursday, December 11, 2014

Spirit Airlines falls 12.67% After November Traffic Report Release

On December 9, 2014, Spirit Airlines (SAVE) fell 12.67% to $73.77. There are a couple of reasons for why this occurred. First, today Spirit Airlines reported their November Traffic report. Although they reported gains in revenue passenger miles (15.7%) and total departures (17.3%), they reported a decrease in load factor (1.6%) which indicates a decrease in Spirit’s ability to fill seats. Also, according to the report, Spirit Airlines has noticed a compression in their fare structure for close-in bookings, especially during off-peak hours. This is likely happening because lower fuel costs is driving fare cost down. As a result of this and other factors within the company, Spirit Airlines expects to generate lower profits in the fourth quarter. Furthermore, they adjusted their expected operating margin to 18-19%. This resulted in Raymond James Financial, Inc. downgrading Spirit Airlines from an “Outperform” to a “Market Perform”
Although, Spirit Airlines may not perform as well as the company thought they would, there is still evidence indicating that there will be continued growth going into 2015 as Spirit Airlines takes advantage of low fuel costs. Furthermore, company guidance still estimates that the operating margin for first quarter 2015 will be 20%. Overall, with this news, it seems that the plunge in Spirit Airlines’ stock price was an overreaction as a result of some negative news and with what is going on globally. On December 9th, other airlines fell in price as well such as American Airlines (-4.94%), Delta Airlines (-2.13%), and Southwest Airlines (-3.19%). In short, although the disappointing November Traffic report, Spirit Airlines will continue to see growth going into 2015