Spirit Airlines, known for its bright yellow planes and “bare-bones” travel experience, has carved a niche in the competitive airline industry. Spirit Airlines stocks have long been viewed as a potential high-risk, high-reward opportunity.
Spirit’s stock dropped 50% in response to the news, bringing shares down more than 90% over the previous ten years and severely underperforming the main market indices.
About Spirit Airlines
Spirit Airlines, Inc. provides value-conscious travelers (Guests) with reasonably priced travel. The company has one of the most fuel-efficient fleets in the US, consisting only of Airbus vehicles. In the United States, Latin America, and the Caribbean, it serves about 93 destinations in 15 countries.
It competes primarily by providing Guests with unbundled base rates, which exclude items typically included in the cost of an airline ticket, as part of its ultra-low-cost carrier (ULCC) business model.
Starting with an unbundled fare, it offers customizable travel alternatives. As a result, guests can only pay for the extras they select, such as Wi-Fi, baggage, seat assignments, and refreshments—a feature the company refers to as A La Smarte.
The company has a subscription-based loyalty program called Spirit Saver$ Club, which gives members access to extra-low, unpublished tickets, discounted bags and seats, expedited boarding, and security.
Financial Performance
The recent financial performance of Spirit Airlines stock presents a mixed picture. On the positive side:
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Revenue Growth
In the year that ended December 31, 2023, Spirit Airlines had $5.36 billion in revenue, a 5.80% increase from the previous year. For the quarter ended December 31, 2023, revenue came to $1.32 billion, a -5.00% down from the previous year. Spirit Airlines saw a 5.80% increase in sales to $5.36 billion in 2023.
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Improved Cash Flow
It anticipates turning a profit in the second quarter and beginning to generate cash in March. Spirit claimed that its $1.3 billion in cash “should be more than adequate to sustain” the company until then. According to the company, it is also evaluating its options for debt that is scheduled to mature in 2025 and 2026.
However, some financial concerns raise caution:-
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Profitability Woes
Compared to a loss of $270.7 million, or $2.49 per share, a year earlier, Spirit reported a fourth-quarter loss of $183.7 million, or $1.68 per share. The adjusted loss per share came in at $1.36, less than the $1.42 per share that FactSet’s panel of analysts had predicted.
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High Debt Levels
With $500 million in short-term debt and lease obligations, $3 billion in long-term debt, and $3.3 billion in long-term lease commitments, the corporation has only $1 billion in cash on hand.
Market Position: King of the budget Airlines?
Spirit dominates the US budget airline sector, competing primarily with Frontier Airlines and Allegiant Air. Here’s how Spirit stacks up:
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Market Share
Spirit boasts the largest market share among budget airlines in the US, carrying over 60 million passengers annually. This comprehensive network allows them to offer a wider range of destinations and potentially negotiate better rates with airports.
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Cost Advantage
Spirit attracts travelers looking for affordable travel because its strong cost-cutting methods maintain ticket costs low. This tactic has shown to be effective, especially when Spirit Airlines’ stock price sensitivity rises during uncertain economic times.
Recent News and Stock Price Fluctuations
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Fuel Cost Fluctuations
All airlines, including Spirit, are quite concerned about the unstable price of oil. Growing fuel expenses can swiftly undermine profitability in the low-cost strategy. Spirit’s stock has been under some downward pressure due to recent changes in oil prices.
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Merger Talks with Frontier
Rumors of possible merger negotiations between Spirit and Frontier surfaced in late 2023. Even though the sale eventually fell through, the talks made investors uneasy, affecting the stock price.
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Travel Demand and Economic Outlook
Economic growth and travel demand heavily influence Spirit Airlines Inc.’s stock performance. A robust rebound in travel and a steady state of the economy would benefit the airline. However, some investors have been cautious due to worries about inflation and a possible recession affecting the stock price.
Spirit Airlines vs. the Competition: A Comparative Analysis
Let’s compare Spirit Airlines with other airline stocks, which are American Airlines and Delta Airlines–
| Factors | Spirit Airlines | American Airlines | Delta Airlines |
| Stock Price | 4.29 USD | 13.96 USD | 43.12 USD |
| Market Capitalization | 469.66 Million USD | 9.14 billion USD | 27.74 Billion USD |
| Analyst Rating | More Risk-Oriented | Mix of hold/buy ratings | Mostly buy ratings |
| Dividend Yield | None | ~5% | ~3.5% |
| Growth Potential | High | Moderate | Moderate |
Risks and Rewards of Investing in Spirit Airlines Stock
Spirit Airlines encourages investors with its low-cost approach and well-established brand, making it the bright yellow icon of affordable travel. But before you buy, think about the advantages and disadvantages of purchasing Spirit stock.
Risks
- Spirit is susceptible to changes in fuel prices because of its low-cost business model. A comfortable flight might soon become a financial disaster due to rising oil prices.
- The formerly azure, clean sky is being cluttered. Spirit’s market share may be threatened by Frontier Carriers’ aggressive expansion and the low-cost alternatives provided by conventional carriers, which could stifle their growth.
- Spirit faces difficulties maintaining a steady profit even in the face of growing revenue. Their emphasis on low fares at the expense of significant operating costs causes financial statements to become unstable.
- Spirit is highly indebted, reducing their financial flexibility and making them vulnerable to economic downturns. They might have to make difficult choices during a recession, which would affect investment returns.
- Recent pilot disputes raise concerns about potential disruptions. Strikes or increased operational costs could throw a wrench into Spirit’s flight schedule and investor confidence.
Rewards
- Spirit and other low-cost airlines prosper when passengers make financial cuts. Spirit’s cheap flights become even more alluring during a recession, which might increase earnings and the company’s stock price.
- Out of all US low-cost airlines, Spirit has the biggest market share. This equates to a larger network of destinations, offering them bargaining power and cost-cutting opportunities when negotiating airport agreements.
- Spirit’s stock price may rise as a result of a notable increase in passengers and revenue as the post-pandemic travel recovery progresses.
- Beyond its existing low-cost strategy, Spirit may be able to further optimize operations and reduce expenses, boosting profitability and inspiring more confidence in investors.
Should You Invest in Spirit Airlines Stock?
Investing in Spirit Airlines is a gamble. While their low-cost model attracts budget-conscious travelers and they boast the biggest market share among US budget airlines, challenges abound.
Competition, excessive debt levels, and profitability issues threaten their future. Uncertainty in the economy and variations in fuel prices exacerbate the situation. Before determining whether Spirit Airlines merits a place in your portfolio, consider your investment objectives and risk tolerance.
