Barclays Says Spirit Airlines Model Is 'Growing Stronger'

David Fintzen of Barclays on Wednesday commented in a note that

continues to be a Top Pick within the US airline sector as it trades at a premium to US airlines, but not to the degree that is justified given the company's combination of best-in-class returns and growth potential. Spirit Airlines continues to see competitive pricing on off-peak days due to lower oil costs. However, the company's Total Revenue Per Available Seat Mile (TRASM) guide of a nine percent to 11 percent decline is steeper than expected, Fintzen notes that changes in catering and distribution "optically" drag on TRASM, and investors should focus instead on the company's pre-tax margin that is "more telling." Fintzen also notes that the company is on pace for around a 970 basis points improvement in first quarter margins, 60 basis points better than expected. Looking forward to the full year, the company will be one of only two airlines within the analyst's coverage that will see its non-fuel Cost Per Available Seat Mile (CASM) decline. As such, the analyst is now raising his 2015 earnings per share estimate to $5.55 from $5.15. "Big picture, model only growing strong," Fintzen said. "Success as a LCC hinges on both relative and absolute costs, and both look to be improving for Spirit Airlines." Bottom line, Spirit Airlines' focus on price sensitive travelers means that it can reach deeper down the demand curve at industry leading returns, further developing a customer base that remains unappealing to its higher cost competitors. Shares remain Overweight rated with a $110 price target.