Discount airline Spirit Airlines Incorporated (NASDAQ:SAVE) is both a survivor and a champion. When oil rose to $147 per barrel, many airlines struggled to survive. When the recession hit, many had their wings clipped. Spirit Airlines, however, defied those odds.
Not only has Spirit been profitable for four years in a row, but its share price has more than doubled since its public debut in May 2011.
The key to Spirit Airlines Incorporated (NASDAQ:SAVE)’s success is a mixture of steady growth, cheap tickets, and optional extra fees – and its growth story has apparently just started. Is this comparatively tiny airline – which now ironically has a larger market cap that American Airlines’ parent company AMR Corporation (PINK:AAMRQ) – about to grow up and become the next Southwest Airlines Co. (NYSE:LUV)?
Fourth quarter and full-year earnings
For its fourth quarter, Miramar, Fla.-based Spirit Airlines earned 27 cents per share, or $19.6 million, a decrease from the 33 cents per share, or $24.0 million, it posted in the prior year quarter. However, this topped the Thomson Reuters consensus of 24 cents per share.
Spirit Airlines Incorporated (NASDAQ:SAVE) attributed the weaker fourth quarter to cancellations resulting from Hurricane Sandy last October. Sandy cost the company an estimated $25 million.
Revenue rose 19.8% from $273.9 million to $328.3 million, also beating the consensus estimate of $327.76 million.
For the full year, Spirit’s profits soared 41.9% to $108.5 million, while revenue improved 23.1% to $1.32 billion. This marks the company’s fourth consecutive profitable year – a rarity in the struggling airline industry.
More flights, more destinations
Spirit Airlines is the fastest growing airline at McCarran Airport in Las Vegas, and averages 19 flights daily to 11 destinations. The airline now offers more flights from Las Vegas than both US Airways Group, Inc. (NYSE:LCC) and Allegiant Travel Company (NASDAQ:ALGT).
Spirit Airlines Incorporated (NASDAQ:SAVE) is still expanding. It started 28 new routes during the fourth quarter, with three routes arriving in or departing from Las Vegas. It also started flights between Las Vegas and Houston in October. The company also added flights to Detroit and Denver, where it intends to run a daily nonstop service between the two cities. Flights from Las Vegas to Baltimore-Washington and Philadelphia will commence on April 25.
To handle the new load, Spirit, which has a fleet of 45 planes, will receive nine new aircraft during the year.
The spirit of efficiency
Spirit is notably more efficient than its rivals in using its existing aircraft. Spirit keeps its planes in the air for 13 hours a day, while its rivals JetBlue Airways Corporation (NASDAQ:JBLU) and Southwest only keep them airborne for 12 and 10.5 hours, respectively.
Spirit Airlines Incorporated (NASDAQ:SAVE)’s aircraft are also a bit more cramped than its rivals – a Spirit Airbus A320 is equipped with 178 seats, while JetBlue Airways Corporation (NASDAQ:JBLU)’s A320 has 150. Revenue from 28 more passengers per flight adds up quickly.
‘That’ll be $100 to check that bag, sir.’
Spirit Airlines’ business model is largely dependent on “ancillary fees” – extra fees for services such as luggage, ticket bookings and food. The company attracts customers with cheap fares (as low as $9), then adds on extra fees for desired services. Discount airline Ryanair Holdings plc (ADR) (NASDAQ:RYAAY) is also known to implement this system of cheap tickets paired with extra fees.
For carry-on luggage (besides a small bag or personal item), Spirit passengers must pay $35 during online booking, while Spirit’s fare club members have to pay $25. If passengers forget to pay in advance, they are required to pay $50 at the airport kiosk.
Checked-in luggage costs $30 during online booking ($20 for members), $45 at the airport kiosk, and $100 if checked at the gate.
