Spirit Airlines, Inc. SAVE, plagued by high costs of late, has shed more than 16% of value so far this year against the industry’s 5.6% increase.
Reasons Behind the Price Plunge
Spirit has been grappling with high labor costs for quite some time due to contracted rate increases for pilots since last March. Evidently, expenses on salaries, wages and benefits surged 31.5% in the first quarter of 2019. Such steep costs might take a toll on the company’s bottom-line growth.
Additionally, the carrier has issued a dismal view for non-fuel unit costs (adjusted) in the second quarter due to the construction activity scheduled at Ft. Lauderdale airport during 2019 summer and a severe storm on Apr 19, which caused multiple fight cancellations and incurred additional costs of $6 million. Adjusted CASM-ex fuel is anticipated to increase approximately 4.6% in the ongoing quarter. Moreover, the above-mentioned headwinds are expected to elevate costs in the full year. Consequently, non-fuel unit costs are predicted to increase 2-3% year over year this year.
Further adding to the company’s woes is the recent upsurge in fuel prices. Fuel expenses comprise a major chunk of airline operating expenses. Thus, an uptick in fuel costs pushes up operating expenses, thereby denting the company’s profits. Notably, the company anticipates economic fuel cost to be $2.25 per gallon in the second quarter, higher than $2.09 reported in the first quarter of 2019.
Surrounded by negativities, the Zacks Consensus Estimate for the company’s current-quarter earnings has moved 19.4% south in the last 60 days.
Zacks Rank & Key Picks
Spirit carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the broader Transportation sector are Hertz Global Holdings, Inc HTZ, Hub Group, Inc. HUBG and SkyWest, Inc. SKYW. While SkyWest sports a Zacks Rank #1 (Strong Buy), Hertz Global and Hub Group carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Shares of Hertz Global, Hub Group and SkyWest have gained more than 28%, 14% and 32%, respectively, on a year-to-date basis.
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