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Summary

  • The company beat earnings yet again.
  • This only confirms our thesis that Spirit is one of the best buys in the airline industry.
  • Per our initial article, we felt that the margin expansion and earnings growth the company is seeing would materialize.

Spirit Airlines (NASDAQ:SAVE) is down 3% since announcing 2Q earnings. The company has beat earnings in each of the last four quarters. It posted EPS of $0.91 (compared to $0.90 consensus expectations) and revenues also beat, although marginally.

During 2Q, its pre-tax margin jumped to 21.3%, a 350 basis point improvement y/y. And total revenue per available seat mile rose nearly 5%. Shares are up right at 9% since we first profiled Spirit in March. It's still 9% below our initial $71 price target. We noted then:

Spirit can also upsell to higher margin services. Right now, the spread from ticket revenue to total passenger revenue, is mainly bag fees and other convenience fees. However, there is a big opportunity to increase ancillary revenues...Higher ancillary revenue brings the opportunity to lower fare prices, which increases traffic and provides a greater opportunity to upsell to higher margin revenues.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.

Source: Update: Spirit Airlines Earnings

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