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Why is Spirit Airlines (SAVE) Stock Down 10% in 6 Months?

Shares of Spirit Airlines, Inc. SAVE have declined 10.8% in the past six months, performing even worse than the industry’s 6.8% decrease.


Reasons Behind the Downfall

High fuel costs are a persistent problem with airlines, and Spirit Airlines is no exception. As fuel costs constitute a major portion of airline expenses, rise in the same has potential to limit bottom-line growth. Notably, fuel costs rose 21.5% in the first quarter of 2018 and were primarily responsible for the bottom line’s contraction.

Moreover, oil prices have been on an uptrend of late and are trading above the $66 a barrel mark. This adversity is likely to hurt the bottom line in the second quarter as well. Fuel costs in the current quarter are projected at $2.23 per gallon, much higher than $1.66 reported in the year-ago period.

Capacity overexpansion is another problem at the carrier. Load factor (% of seats filled by passengers) declined 60 basis points to 81% in the first quarter as traffic rise (21.4%) was outpaced by capacity growth (22.3%).

The decline in unit revenues also raises a concern. Total revenue per available seat miles (TRASM-a key measure of unit revenues) dipped 2.4% in the first quarter as a result of 1.7% slip in operating yields and a 4.1% increase in average stage length. The company’s guidance for TRASM in the second quarter is also disappointing. It expects the metric to decline in the 6.5-7.5% range.

The air of negativity revolving around the stock can be gauged from the Zacks Consensus Estimate for current-quarter earnings being revised 11.8% downward in the last 60 days. Also, the consensus mark for full-year earnings has been moved 3.8% southward over the same time period.

The company’s unimpressive Momentum Score of F further highlights its short-term unattractiveness.

Zacks Rank & Key Picks

Spirit Airlines carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the broader Transportation sector are GATX Corporation GATX, Expeditors International of Washington, Inc. EXPD and SkyWest, Inc. SKYW. While Expeditors sports a Zacks Rank #1 (Strong Buy), GATX and SkyWest carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Shares of GATX, Expeditors and SkyWest have rallied more than 22%, 39% and 68%, respectively, in a year.

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Spirit Airlines, Inc. (SAVE): Free Stock Analysis Report
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