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Spirit Airlines' May Load Factor Falls, Q2 CASM View Raised

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Spirit Airlines (SAVE - Free Report) saw a 6.6% rise in traffic (measured in Revenue Passenger Miles or RPMs) to approximately 2.05 billion in May 2017 on a year-over-year basis. Available Seat Miles (ASMs) increased 9% to 2.41 billion. Load factor (the percentage of seats filled by passengers) decreased 190 basis points (bps) to 85.3% as capacity expansion outpaced traffic growth. Additionally, the airline recorded a 69.1% on-time performance and 94% completion factor for the same month.

On a year-to-date basis, Spirit Airlines witnessed a 10.2% year-over-year rise in RPMs to 9.63 billion. ASMs rose 13.2% to 11.64 billion. Load factor decreased 220 bps to 82.8%. Additionally, passenger flight segments in the first five months of 2017 rose to 9.62 billion, up 10.7%.

Notably, the company has been in the news recently due to the dispute with its pilots. Consequently, the carrier had to cancel multiple flights resulting in customer dissatisfaction. But the situation has been resolved, for now, following the temporary restraining order (TRO) issued by the U.S. District Court.

However, as a result of the disruption in its services caused by the dispute, the company had to incur costs pertaining to passenger re-accommodation and other factors. In fact, due to these costs this Zacks Rank #3 (Hold) low-cost carrier revised its second-quarter 2017 expectations for cost per available seat miles, excluding fuel (CASM). The metric is now expected to increase year over year in the band of 9% to 10% (old guidance had called for an increase in the range of 3.5% to 4.5%). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

We note that the guidance for total revenue per available seat miles (TRASM) has been trimmed as the disruptions pressurized the top line due to refunds to passengers. The metric is now expected to grow in the band of 4% to 5% in the second quarter of 2017 (old guidance had hinted at growth in the range of 4.5% to 5.5%). Capacity for the same period is projected to grow 14.5% (old guidance hinted at a 16.7% year-over-year growth). Also, fuel cost per gallon (economic) is now pegged at $1.66 per gallon compared with $1.76 expected earlier.

Price Performance

Shares of Spirit Airlines have underperformed the Zacks categorized Transportation-Airline industry over the last one month mainly due to the dispute with its pilots. The stock contracted 0.4% as against the industry’s gain of 2.5% during the period.

We note that passenger related issues have hurt other US carriers too of late, including the likes of American Airlines Group (AAL - Free Report) , Delta Air Lines (DAL - Free Report) and United Continental Holdings (UAL - Free Report) .

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