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Here's Why Investors Should Hold on to Spirit Airlines (SAVE)

Spirit Airline, Inc.’s SAVE upbeat air-travel demand is boosting its top line. The company’s efforts to upgrade its fleet are commendable. However, SAVE is grappling with major headwinds like high operating expenses and high capex, which are adversely impacting its bottom line.

Factors Favoring SAVE

Driven by an uptick in leisure air travel demand, Spirit Airlines' consolidated traffic, measured in revenue passenger miles, has been significantly rising, boosting the company's capacity. As a result, available seat miles, a measure of capacity, are anticipated to increase by 2% in the second quarter of 2024 compared to the year-ago quarter. We, too, expect this metric to increase by 2% in the second quarterof 2024 from the 2023 actuals.

In response to steadily improving air travel demand, Spirit Airlines is expanding its network and plans to grow its fleet accordingly. SAVE ended 2023 with 205 aircraft and expects to increase this number to 215 by the end of 2024 and 219 by the end of 2025.

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Declining fuel costs are benefiting the company and improving its bottom line. In the first quarter of 2024, the average fuel cost per gallon decreased by 15.5% to $2.90. For the second quarter of 2024, the average fuel cost per gallon is expected to further decline to $2.80.

Shares of SAVE have risen 6.2% over the past 30 days compared to its industry’s decline of 3.5% in the same time period.

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

Key Risks

High operating expenses, driven by a rise in salaries, wages, benefits, landing fees, rents, maintenance and repairs, impose a threat to SAVE's bottom line. In 2023, total operating expenses (on a reported basis) grew 3.4% year over year.

Spirit Airlines' current ratio (a measure of liquidity) stood at 0.97 at the end of the first quarter of 2024, raising liquidity concerns. A current ratio of less than 1 indicates that the company does not have enough cash to meet its short-term obligations.

Moreover, SAVE’s high capex further raises concerns about the company’s free cash flow generating ability. A high capex value in times of revenue weakness, as is the case with SAVE, is not desirable.

Zacks Rank

SAVE currently carries a Zacks Rank #3 (Hold).

Stocks to Consider

Some better-ranked stocks from the Zacks Transportation sector are Wabtec Corporation WAB and Kirby Corporation KEX.

WAB currently sports a Zacks Rank #1 (Strong Buy) and has an expected earnings growth rate of 22.6% for the current year. You can see the complete list of today’s Zacks #1 Rank stocks here.

WAB has an impressive earnings surprise history. Its earnings outpaced the Zacks Consensus Estimate in three of the trailing four quarters and missed once, delivering an average surprise of 11.5%. Shares of Wabtec have surged 65.5% in the past year.

Kirby currently sports a Zacks Rank #1 and has an expected earnings growth rate of 42.2% for the current year.

The company has an encouraging track record with respect to earnings surprise, having surpassed the Zacks Consensus Estimate in each of the trailing four quarters. The average beat is 10.3%. Shares of KEX have surged 57.2% in the past year.

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

Kirby Corporation (KEX) : Free Stock Analysis Report

Westinghouse Air Brake Technologies Corporation (WAB) : Free Stock Analysis Report

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Zacks Investment Research