Shares of U.S. airlines have cratered over the past month as the scale of the COVID-19 pandemic has come into focus. Even two weeks ago, airline executives saw COVID-19 as an event that would significantly impact their 2020 profitability but not as an existential threat.
Since then, air travel demand has plummeted to near zero as officials have called for increasingly severe "social distancing" measures. This has led to multiple rounds of deepening schedule cuts throughout the industry. As a result, airline stocks have continued to plumb new depths. No U.S. airline stock has been hit harder than Spirit Airlines (SAVE). Shares of the budget carrier lost 80% of their value in the span of a month beginning in mid-February, falling below the $10 mark, before recovering some of that ground over the past few days (particularly Tuesday).
This would seem to imply that investors think Spirit Airlines will be hurt more than any other U.S. airline by the temporary evaporation of air travel demand. However, the airline has ample liquidity to survive the current downturn. Moreover, Spirit is likely to experience a swifter profit recovery than many of its larger, higher-cost peers. This makes Spirit Airlines stock an intriguing (albeit high-risk) speculative buy at its current, marked-down price.
A big cash stockpile cures most ills
Obviously, for Spirit Airlines stock to have significant upside potential, the airline must first survive the COVID-19 pandemic. While it doesn't have the best balance sheet among U.S. airlines (that award would go to Southwest Airlines (LUV)), the risk of COVID-19 driving Spirit into bankruptcy is quite modest.
Fellow Seeking Alpha contributor Luke Thomas recently did a thorough deep dive into Spirit's liquidity, analyzing the company's ability to survive an extended period of extremely weak revenue. Rather than duplicating his work, I recommend that interested readers
