Spirit Airlines (SAVE) Rides on Air Travel Demand Amid Cost Woes
Spirit Airlines, Inc.’s SAVE top line is benefiting from an improvement in air-travel demand, increased flight volume and higher operating yields. In response to the demand swell, the carrier has expanded its capacity.
In fourth-quarter 2022, the company’s capacity increased 12.1% year over year. The load factor (percentage of seats filled by passengers) increased 1.2 points to 81% in the fourth quarter. Total operating revenue per available seat miles jumped 25.7% to 10.81 cents in the reported quarter. The average yield increased 23.7% to 13.34 cents. Management expects first-quarter 2023 operating revenue per available seat miles to increase 23-24.5% year over year on strong demand.
In response to the gradually improving air-travel demand, Spirit Airlines is expanding its network. SAVE also intends to expand its fleet in response to the better air-travel demand scenario. It ended 2022 with 194 planes in its fleet, up 33.8% from 2019-end. SAVE expects to end 2023 and 2024 with fleet sizes of 206 and 227, respectively.
On the flip side,rising fuel costs do not bode well for the airline and are hurting its bottom line. Average fuel cost per gallon in the December-end quarter jumped 47.3% year over year to $3.55. The fuel price per gallon is anticipated to be $3.20 in the first quarter of 2023.
Apart from high fuel costs, expenses on labor are increasing and hurting the bottom line. Evidently, expenses on salaries, wages and benefits increased 13.3% year over year and 47.1% from that reported in fourth-quarter 2019.
Adjusted operating expenses escalated 27.3% year over year to $1,333.7 million in the December-end quarter. SAVE expects adjusted operating expenses for the March-end quarter to be $1,390-$1,400 million. Our estimate is pegged at $1,392 million.
High capital expenditure may play spoilsport and dent the company's free cash flow-generating ability. In 2022, capital expenditure was $237.6 million, primarily related to the purchase of spare parts. Capex for 2023 is expected to be $360 million.
Currently, Spirit Airlines carries a Zacks Rank #3 (Hold).
Investors interested in better-ranked stocks from the Zacks Transportation – Airline industry can consider Copa Holdings, S.A. CPA, Alaska Air Group, Inc. ALK and American Airlines AAL. Copa Holdings presently sports a Zacks Rank #1 (Strong Buy), Alaska Air and American Airlines carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Copa Holdings has an expected earnings growth rate of 39.83% for the current year. CPA delivered a trailing four-quarter earnings surprise of 33.35%, on average.
The Zacks Consensus Estimate for CPA’s current-year earnings has improved 21.1% over the past 90 days. Shares of CPA have risen 32.6% over the past six months.
Alaska Air has an expected earnings growth rate of 32.64% for the current year. ALK delivered a trailing four-quarter earnings surprise of 8.98%, on average.
The Zacks Consensus Estimate for ALK’s current-year earnings has improved 11.4% over the past 90 days.
AAL has an expected earnings growth rate of more than 100% for the current year. AAL delivered a trailing four-quarter earnings surprise of 7.79%, on average.
The Zacks Consensus Estimate for AAL’s current-year earnings has improved 31.1% over the past 90 days. Shares of AAL have gained 13.8% over the past six months.
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