We recently compiled a list of the 11 Worst Aviation Stocks to Buy According to Analysts. In this article, we are going to take a look at where Spirit Airlines, Inc. (NYSE:SAVE) stands against the other aviation stocks.
The aviation industry has been one of the most important segments of the market in the 20th and 21st centuries. The future of aviation is closely tied to the broader landscape of mobility, which is important for economic growth, social connectivity, and access to services like trade, healthcare, and education.
According to the International Air Transport Association (IATA), the airline industry has made a strong recovery from the COVID-19 crisis, with global traffic surpassing pre-pandemic levels by February 2024. Domestic travel rebounded first, which reached pre-Covid levels by spring 2023, while international travel followed more recently.
However, the global network has shifted since 2019. China’s international travel recovered slowly due to the delayed easing of restrictions, economic uncertainties, and geopolitical issues. On the other hand, domestic travel in China hit record highs, driven by internal tourism. Routes between Asia and Europe continue to be affected by the war in Ukraine.
Most regions are expected to exceed 2019 traffic levels in 2024, with global passenger numbers forecasted to grow 10.4% year-over-year.
The report states that Asia Pacific is the fastest-growing region, which is projected to contribute over half of global passenger growth by 2043 and it is led by India and China. Despite risks like geopolitical conflicts and climate policies, improved economic conditions may boost demand.
Air connectivity, a main driver of global economic growth, is set to hit a record in 2024 with over 22,000 unique city pairs, aided by declining ticket fares. Meanwhile, air cargo demand has rebounded, driven by e-commerce and shipping disruptions. The global capacity is expected to increase further, though the cargo load factor will likely decrease as capacity exceeds demand.
Use of AI in the Industry
Like most industries of today, airlines are also implementing AI to improve the efficiency of their operations. According to an August report by CNBC, these companies are using AI for tasks like ground control, customer service, and optimizing flight routes.
American Airlines introduced its AI-powered “smart gating” system at its Dallas-Fort Worth control center. The tool automatically assigns gates to incoming flights, which cut runway taxi time by around 20%, or two minutes per flight, across five airports. The system also helps passengers, baggage, and crews make quicker connections, which improves overall efficiency.
Alaska is using AI to streamline flight paths and optimize aircraft turnaround times at gates. Its tool is described as “Waze for the skies,” and it uses AI to plan faster routes, which saves fuel and reduces delays. Additionally, the system monitors ground operations as it tracks when fuel, catering, and baggage trucks arrive and depart, which allows agents to address delays immediately.
United has implemented generative AI for customer service, especially during flight disruptions. The AI generates detailed, empathetic messages explaining delays, which has increased customer satisfaction by 4% since its rollout on 6,000 flights.
Despite these advancements, the airlines said that AI is not replacing jobs but is improving operational efficiency. AI tools allow airlines to improve areas where humans may struggle to handle complex tasks as efficiently. These things, like reducing flight delays or cutting minutes off turnaround times, aim to improve overall service without completely automating operations.
Our Methodology
For this article, we used stock screeners and ETFs to identify 65 companies above $50 million market cap that have significant operations in the aviation industry. We narrowed our list to 11 companies where less than 50% of the analysts that have covered the stock have Buy-equivalent ratings. In addition, we skipped stocks with an average analyst price target upside above 15%. The stocks are listed in descending order of their average analyst price target upside.
We also added the hedge fund sentiment around each stock which was taken from our database of over 900 elite hedge funds. Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
An Airbus single-aisle aircraft overfly a major city, showcasing the airline services of the company.
Spirit Airlines, Inc. (NYSE:SAVE)
Average Analyst Price Target Upside as of September 16: -10%
Number of Hedge Fund Holders: 15
One of the worst aviation stocks according to analysts, Spirit Airlines, Inc. (NYSE:SAVE) operates as a low-cost carrier, providing airline services to over 90 destinations across 15 countries in the United States, Latin America, and the Caribbean. The airline also offers hotel and car rental services, adding value to its travel packages.
The stock has 4 Hold ratings and 8 Sell ratings by analysts. The average price target of $2.25 is 10% below the current levels, as of September 16.
The company faced a significant setback in January when its proposed merger with JetBlue was blocked by regulators. The merger was expected to improve its position in the market by creating a larger discount airline.
However, concerns that such a merger would reduce competition and increase ticket prices led to the court’s decision, which resulted in a substantial drop in its stock price.
The company’s financial performance has been under pressure for a while now. In the second quarter, Spirit Airlines (NYSE:SAVE) reported a non-GAAP EPS of -$1.44, which was worse than analysts’ expectations of -$1.36 per share. Revenue for the quarter was $1.28 billion, marking a 10.5% decline compared to the previous year. The downturn is a reflection of broader challenges in the airline industry, including increased competition and an oversupply of seats in the domestic market.
The airline has also been dealing with operational issues, especially with its Pratt & Whitney engines. The problems have led to a significant number of aircraft being grounded for maintenance and inspections.
Management expects up to 70 aircraft to be out of service by the end of 2025 due to these engine issues, compared to an average of about 20 grounded planes this year. The situation has added to the company’s difficulties, which has impacted its ability to manage capacity and maintain service levels.
In response to these challenges, the airline is taking aggressive cost-cutting measures. It has announced plans to furlough approximately 240 pilots and suspend all aircraft deliveries from Airbus.
Additionally, it is downgrading around 100 captains, offering voluntary unpaid leaves to flight attendants, and halting the recruitment and training of new pilots and flight attendants. The measures are aimed at conserving cash amid ongoing financial strain.
Despite the setbacks, Spirit Airlines (NYSE:SAVE) remains focused on adapting to market conditions. However, the forecast for the third quarter suggests that the airline may experience a steeper loss, with a negative adjusted operating margin projected between 26% and 29%. It shows ongoing competitive pressures and the oversupply of seats, which continue to challenge the airline’s profitability.
Overall SAVE ranks 3rd on our list of the worst aviation stocks to buy. While we acknowledge the potential of SAVE as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than SAVE but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.