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Spirit (SAVE) Stock Up on Improved Q3 Unit Revenue View

Zacks Equity Research

Spirit Airlines SAVE issued an upbeat projection on total revenue per available seat miles (TRASM: a key measure of unit revenues) for third-quarter 2019 at an investor update. Detailed results should be out on Oct 23.

The bullish guidance update found favor with investors. As a result, shares of this low-cost carrier gained 3.9% in after-market trading on Oct 10.

Delving Deeper

Spirit Airlines now expects third-quarter TRASM to decline 2% year over year (earlier projection had called for a decline in the 2.5-3.5% range). This improvement in projection can be primarily attributed to the fact that the impact of Hurricane Dorian on forward bookings was not as severe as anticipated initially. Despite the adversity, passenger volume was strong and exceeded expectations.

The guidance with respect to costs was also encouraging. This Zacks Rank #5 (Strong Sell) company now expects adjusted operating expense per available seat mile excluding fuel (CASM ex-fuel) to increase approximately 8.5% year over year in third-quarter 2019 (earlier projection had called for a 9-10% year-over-year increase).

The improved CASM ex-fuel view is attributable to the company’s impressive operating performance, which resulted in lower crew disruption and costs pertaining to passenger re-accommodation. In fact, since early September, the controllable completion factor at Spirit Airlines was better than expected despite a significant number of flights cancelations due to bad weather.

Fuel cost per gallon (economic) is expected to be $2.08 in third-quarter 2019 compared with the earlier expectation of $2.13. Additionally, capacity is now expected to expand at roughly 11.6% year over year (earlier guidance: 13%). Lower capacity is also a favorable development for unit revenues.

Stocks to Consider

Investors interested in the Zacks Airline industry may consider Allegiant Travel Company ALGT, SkyWest SKYW and GOL Linhas GOL, carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Shares of Allegiant, SkyWest and GOL Linhas have gained 49%, 24.2% and 19%, respectively, so far this year.

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