Shares of Spirit Airlines (SAVE - Free Report) declined 4.5% on Sep 5 to close the trading session at $32.51. The significant downturn was due to the company's third-quarter guidance cut with respect to total revenue per available seat mile (TRASM: a key measure of unit revenue).
Harvey Weighs on Q3 TRASM Guidance
Harvey, which has wreaked havoc particularly in Houston — the fourth largest city in the country — causing multiple flight cancellations is the main reason behind the bleak outlook provided by the Miramar, FL-based carrier as it has a significant exposure to the city.
The low-cost carrier expects its top line to shrink to the tune of approximately $8.5 million due to the natural calamity. This view takes into account the multiple flights cancelled by the company as well as the continued soft demand for air travel to and from the affected areas due to the hurricane.
Currently, Spirit Airlines anticipates TRASM in the current quarter to decline between 7% and 8.5% (the previous guidance had called for a decline in the band of 2% and 4%). In fact, per the company 100 basis points of the trimmed guidance can be attributed to the negative impact of Harvey. Also, aggressive competitive pricing in its key markets contributed to the bleak forecast.
On a brighter note, the company revised its unit cost (non-fuel) guidance for the current-quarter favorably owing to better operational performance. Spirit Airlines now expects adjusted cost per available seat miles to decline between 2% and 3% on a year-over-year basis (the previous guidance had projected the metric in the band of -1% and +1%).
The stock has been struggling of late, mainly due to the dispute with its pilots. Consequently, shares of the company have underperformed its industry in the last three months. While the stock was down 41.3%, the industry declined 6.5% during the same period.
Furthermore, the trimmed guidance acts as a dampener for this Zacks Rank #5 (Strong Sell) stock.
Stocks to Consider
Meanwhile, investors interested in the airline space can consider SkyWest, Inc. (SKYW - Free Report) , Deutsche Lufthansa Aktiengesellschaft and GOL Linhas Aereas Inteligentes S.A. (GOL - Free Report) . While SkyWest and Deutsche Lufthansa sport a Zacks Rank #1 (Strong Buy), GOL Linhas carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
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