Spirit Airlines Does Not Soar

By Meryl Baer - September 18, 2012 | Tickers: DAL, LUV, SAVE, LCC | 0 Comments

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Spirit Airlines (NASDAQ: SAVE) is the airline equivalent of your local city transit system. It is cheap, crowded, somewhat chaotic, yet most of the time gets you where you want to go.

An outperform to market perform downgrade by Raymond James caused Spirit stock to slump during trading September 14^th. The analyst stated, “This is the fourth quarter in a row where we and the Street have overestimated Spirit’s profitability and earnings predictability, and it appears that the business may not have the margin expansion opportunity we had previously anticipated.”

I am not surprised. In the past year I have flown Spirit to Boston (more than once) and Guatemala (through Ft. Lauderdale). Spirit’s flights to Boston from my local airport are constantly changing. Flights are seasonal and inconsistent when scheduled. I will be flying to Denver, Colorado in November. I can get home from Denver via Spirit, but cannot get there. Go figure…

Maneuvering the Spirit website can be an exercise in frustration. Begin booking a flight, and you are urged to join their $9 club, sign up for a credit card, then asked about paying extra for a better seat and checked luggage. An initial cheap flight can end up costing as much or more than similar flights on other airlines. Spirit flies mainly along the Northeast corridor with numerous flights to Florida, and several Caribbean and Latin American destinations.

Spirit’s motto should be, “you get what you pay for.” I booked a cheap round trip flight to Guatemala, and my pocketbook is grateful. The planes were packed and seats close fitting. I cannot imagine a tall person fitting into a seat (unless paying additional for exit row seats) without their legs hitting the back of the seat in front, or an obese person fitting into the seat at all.

Spirit Airlines went public May 2011. Here is a chart of the stock’s price history since then:

SAVE data by YCharts

I am not a fan of any airline stock. Airline stocks are risky. Shareholders need to watch their investment closely. These are stocks to sell on an upsurge or sizable decline. Unfortunately there are times a stock will tank with no warning. Airlines are prone to disasters (e.g. - crashes) that permanently damage the company, and a shareholder’s investment. Airlines are also very economy-sensitive. Business and personal travel are one of the first areas negatively affected during recessions and slow economic periods.

Below is a list of several of the larger airline bankruptcies since 2001: 

That said, investors dabbling in risk and airlines might want to take a closer look at Spirit. The table below compares certain financial ratios with three other airlines, US Airways, Delta and Southwest. Here are some numbers to consider:

The income/employee ratio and operating margin are measures of operating and management efficiency. Spirit compares favorably to its competitors.

If you believe the economy is on an upswing, air travel will surge. Individuals and families will once again consider flying to vacation destinations. I purposely do not mention business travel because I doubt any business traveler uses Spirit, unless it is a small business owner concerned about his personal/business expenses.

Spirit may not have met analyst expectations over the past year, but it has been a tough year for businesses and industries dependent on mainly discretionary and disposable income dollars.

If you are not averse to investing a few dollars in stocks subject to extreme volatility and events unknown, take a closer look at Spirit. You might also want to take a look at Southwest, although their P/E indicates investors take a wait-and-see stance.

As for me, I will continue flying Spirit when possible and enjoy the cost savings.

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