Spirit Airlines“SAVE’s transformation initiatives are commendable. The company’s efforts to modernize and expand its fleet are also commendable. However, SAVE struggles with high operating costs and weak liquidity.
Factors in favour of SAVE
In the second quarter of 2024, Spirit Airlines initiated a transformation plan to better adapt to market dynamics. The introduction of diverse travel options, from premium to budget-friendly, reflects the company’s commitment to providing a more personalized and flexible experience for all travelers.
Improvements such as priority check-in, improved boarding and guest-friendly policies demonstrate a clear focus on customer satisfaction and operational efficiency. This move not only aims to appeal to a wider audience, but also positions Spirit to compete more effectively in a dynamic travel industry.
Spirit will achieve $100 million in annual cost savings, with $75 million expected by the end of 2024. Key initiatives include pausing hiring, granting unpaid leave, reducing overhead, furloughing pilots and rebalancing the network by exiting 42 markets and entering 77 new markets.
SAVE’s efforts to expand and modernise its fleet are commendable. The company has added eight new A320neo and A321neo aircraft to its fleet, retired five A319ceo aircraft and ended the June quarter with 210 aircraft.
Spirit Airlines secured $37.2 million in AOG credits from Pratt & Whitney and recorded $7.1 million in credits. The company expects to average 20 AOG aircraft in 2024 and plans to negotiate additional agreements after December 31, 2024.
Key risks
Increased operating costs are negatively impacting Spirit Airlines’ bottom line. This increase in operating costs is primarily due to increased labor and fuel costs.
In the second quarter of 2024, labor costs, consisting of salaries and benefits (29.2% of total operating costs), increased 2.6% year-over-year to $418.4 million, and fuel costs increased 4.2% year-over-year. The average fuel cost per gallon was set at $2.78, an increase of 6.1% year-over-year. The average fuel cost per gallon is expected to be $2.65 in the September quarter.
Spirit Airlines ended the second quarter of 2024 with a liquidity ratio (a measure of liquidity) of 0.94, which raises liquidity concerns. A liquidity ratio of less than 1 indicates that the company does not have enough cash to meet its short-term obligations. In addition, Spirit Airlines’ high capital expenditures are a concern, as high capital expenditures are not desirable during times of weak sales, as is the case with the company.
SAVE shares have fallen 83% over the past year, compared to the industry’s growth of 20.1% over the same period.
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Zacks Rank
SAVE currently has a Zacks Rank of 3 (Hold).
Stocks to be considered
Some better-rated stocks in the Zacks Transportation sector that investors should consider are CH Robinson worldwide CHRW and Westinghouse Air Brake Technologies WAB.
CH Robinson Worldwide currently has a Zacks Rank #1 (Strong Buy). You can find the complete list of today’s Zacks #1 Rank stocks here. CHRW expects earnings growth of 25.5% for the current year.
The company has an impressive earnings track record. Earnings have beaten the Zacks Consensus Estimate in three of the last four quarters and missed it once, for an average surprise of 7.3%. CHRW shares have risen 8.4% over the past year.
WAB currently has a Zacks Rank #2 (Buy) and is expected to post 26% earnings growth rate for the current year.
The company has an encouraging track record of earnings surprise, beating the Zacks Consensus Estimate in each of the trailing four quarters. The average beat is 11.8%. WAB shares have gained 45.6% over the past year.
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CH Robinson Worldwide, Inc. (CHRW): Free Stock Analysis Report
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