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.
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