Seeking Alpha
Profile| Send Message| ()  

Introduction

Known for abstract marketing campaigns and ultra low fares, Spirit Airlines (SAVE) has found moderate success providing passenger service to several markets within the United States, the Caribbean, and South America. Based in Mirimar, Florida, with a fleet of 49 aircraft, Spirit is currently able to serve over 57 destinations. Many of Spirits routes serve the Florida market from Ft. Lauderdale, although the airline has been increasing service to and from Las-Vegas. At the time of writing Spirit shares were trading at $25.36, just under the 52-week high of $26.28 and well above the 52-week low of $15.64.

Investor Value

  • Spirit has demonstrated a greatly improved financial position over the past three years. Revenues, profits, and net income have climbed substantially. Additionally Spirit's cash position and total assets have increased significantly. Furthermore, management announced in February that Spirit had completed four consecutive years of profitability. This information can be seen in the chart below.

    Date

    Revenues

    Gross Profits

    Net Income

    Cash

    Dec. 2010

    $781,265.00

    $356,561.00

    $72,481.00

    $155,450.00

    Dec. 2011

    $1,071,186.00

    $479,844.00

    $76,448.00

    $343,328.00

    Dec. 2012

    $1,318,388.00

    $585,225.00

    $108,846.00

    $416, 816.00

    *Numbers Stated in Thousands

  • Spirit has initiated research into handling sequestration-related tower closures. In reference to a tower closure at the Arnold Palmer Regional Airport in Pennsylvania, Spirit responded by reaffirming the airline's FAA certification to operate at the airport when the tower was closed. Following the tower closure announcements in February, Spirit and competitor Allegiant (ALGT) had in fact initiated some discussions with management at nearby Pittsburgh International Airport, about possibly moving operations to the facility.

  • Spirit is not impacted by the FAA mandated inspection of Boeing (BA) 737 Aircraft as the airline operates a fleet composed entirely of Airbus aircraft. In comparison, Southwest Airlines (LUV), United Airlines (UAL), American Airlines(AAMRQ.OK), Delta Air Lines (DAL), and Alaska Air (ALK) operate substantial numbers of the plane and could be burdened by new maintenance requirements. A Forbes report states this amount to be at $9,627 per aircraft. Fleet counts can be displayed in the chart below:

    Airline

    Number of 737 Aircraft

    LUV

    936 (With Orders)

    UAL

    423

    AAMRQ

    407

    DAL

    286

    ALK

    181

    Additionally, the discount European airline Ryanair (RYAAY), has generated some increased investor attention after placing a record order with Boeing for 175 new 737-800 jets. Ryanair currently operates over 300 737-800 aircraft. While not under the jurisdiction of the FAA, investors should consider the potential ramifications of new maintenance on the all 737-800 fleet of Ryanair.

  • Spirit's CEO has acknowledged that Spirit will find success as a result of mergers and acquisitions within the industry. Ben Baldanza stated on CNBC that he believed that recent mergers would help grow the price gap in fares between legacy carriers and Spirit, thus creating opportunity for the company to increase market share using the low fare model.

Conclusion

Investors need to look towards the facts stated in the balance sheet. Spirit's strategy of low fares, low cost airports, and ancillary revenues are generating profits on a continuous basis. Spirit has demonstrated that the company has taken steps to evaluated the impacts of FAA mandated tower closures. Investors should find security in the fact that the company is ensuring that profitable routes from these small airports can still operate. Finally, investors should feel positive about Spirit's ability to capitalize on greater price gaps as a result of mergers and the potential grounding and inspection of competitors' fleets on competing routes.

Source: Is Spirit Airlines Worthy Of Investor Love?

Additional disclosure: One should complete their own due diligence before making investment decisions.