Despite this rapid growth, Spirit has also been one of the most profitable airlines in the country; the company has actually been improving its already-stellar pre-tax margin recently. Last month, Consumer Reports ranked Spirit at the bottom of the airline industry in terms of customer service, but passengers continue to flock to the airline because of its rock-bottom fares.
With revenue and earnings consistently increasing, Spirit Airlines Incorporated (NASDAQ:SAVE) ordered 20 new Airbus A321 aircraft at last week’s Paris Air Show to meet the significant untapped demand for its services. The company also upgraded 10 of its Airbus A320 aircraft on order to the larger A321 model. This order signals that management intends for Spirit to continue its rapid growth for the foreseeable future. As the company expands, it could become an increasingly potent threat to higher-priced competitors.
Rapid growth to continue
Spirit Airlines Incorporated (NASDAQ:SAVE) currently operates a fleet of 50 Airbus aircraft, consisting of 29 A319s seating 145 passengers, 19 A320s seating 178 passengers, and two A321s seating 218 passengers. All three models are part of the A320 aircraft “family,” which means that they have a similar design and a common cockpit. This allows Spirit to deploy planes based on the level of demand in each market while avoiding much of the crew scheduling and maintenance complexity that comes from flying different types of aircraft.
A Spirit Airlines A320 (courtesy of Spirit Airlines).
As of the end of 2012, Spirit Airlines Incorporated (NASDAQ:SAVE) operated 45 airplanes and planned to grow its fleet to 78 planes by the end of 2016. However, the company was scheduled to see fleet growth taper off to just two aircraft per year in 2017 and 2018 before accelerating again at the end of the decade.
Last week’s order allows Spirit to grow capacity by 15% or more per year (on average) for the next five years. Spirit executives have frequently stated that they see ample growth opportunities ahead, with more than 400 potentially viable markets today. Even with all of these aircraft on order, the company will be able to satisfy just a small portion of that demand.
The choice of A321 aircraft is also a testament to management’s confidence in the robust demand for Spirit’s low-fare, no-frills product. Whereas the majority of Spirit’s planes today are A319s seating 145 passengers, the A321s are 50% larger, with 218 seats. Clearly, Spirit executives think that they could fill more seats in many markets if the company had additional capacity.
A competitive threat
For the most part, Spirit Airlines Incorporated (NASDAQ:SAVE) has been successful by flying under the radar of the major carriers. It is still a very small carrier compared to the major airlines: AMR Corp (OTCBB:AAMRQ), Delta Air Lines, Inc. (NYSE:DAL), Southwest Airlines Co. (NYSE:LUV), and United Continental Holdings Inc (NYSE:UA). Moreover, it generally appeals to a different type of customer than those carriers: one who is extremely price-sensitive.
