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Spirit (SAVE) Backed by Low Fuel Cost Amid Capacity Cut

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We recently issued an updated report on Spirit Airlines, Inc. (SAVE - Free Report) .

Like any other transportation company, Spirit Airlines also has been significantly affected by coronavirus woes.

Due to the coronavirus-induced low demand scenario, passenger revenues have been declining significantly. Notably, passenger revenues fell 54.5% year over year in the first nine months of 2020. With coronavirus cases noticing a spike again in the United States, the slight improvement in air-travel demand suffered a setback.

Owing to capacity cuts, unit costs are increasing substantially. In third-quarter 2020, cost per available seat mile (CASM), excluding operating special items and fuel, escalated more than 36%.  With capacity at a low level, the metric is likely to be high in the fourth quarter too.

With coronavirus affecting demand significantly, low fuel prices are helping Spirit Airlines partly offset the adversities. Notably, average fuel cost per gallon fell 26.5% year over year to $1.55 in the first nine months of 2020. Fuel price per gallon is expected to be $1.31 in the December quarter, lower than the $2.10 reported in fourth-quarter 2019.

Improvement in cash burn is also encouraging. For the fourth quarter, the company predicts average daily cash burn to improve to about $2 million per day, from $2.3 million reported in the September quarter.

Zacks Rank & Stocks to Consider

Spirit Airlines currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the broader Zacks Transportation sector are Knight-Swift Transportation Holdings Inc. (KNX - Free Report) , Landstar System, Inc. (LSTR - Free Report) and Herc Holdings Inc. (HRI - Free Report) . Landstar carries a Zacks Rank #2 (Buy), while Knight-Swift and Herc Holdings sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term expected earnings per share (three to five years) growth rate for Knight-Swift, Landstar and Herc Holdings is pegged at 15%, 12% and 12.6%, respectively.

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