Airline Alert: Spirit CEO Suggests Q4 Unit Revenues Better Than Guidance

• After declined steadily from April through October, Spirit Airlines Incorporated SAVE shares staged a recovery, and have gained 18 percent since November 4.
• Credit Suisse’s Julie Yates said that Airline outlooks appear bright, with managements reaffirming a healthy demand environment, stable pricing, and easing competitive capacity trends.
• Spirit’s commentary was relatively more positive, Yates added.

Several airline companies attended the 3rd Annual Credit Suisse Industrials Conference. Spirit indicated that prices are likely to be stable at the current low levels in 2016, while hesitating from terming any recent shifts in competitive pricing behavior as a trend.

“The off peak post-holiday periods will be a better indication and we expect by SAVE's Q4 call the carrier will be in a better place to comment,” analyst Julie Yates wrote. She added that the most significant shift for Spirit and the rest of the industry could come if American Airlines Group Inc AAL begins “abandoning lower fares earlier in the booking curve.”

Spirit expects 2016 to be another year of RASM decline, although it projected a sequential improvement with flat TRASM by yearend. There are a couple of non-ticket revenue initiatives on the horizon, Yates said, citing “1) more dynamic pricing (bags and seats) and 2) sell more things to customers (hotels, rental cars etc. - SAVE gets paid through commissions).”

Spirit indicated that the market “misunderstands how resilient the business model is” and that it has significant control because of the “nimbleness of the model,” the Credit Suisse report stated.

Spirit further suggested that it could generate mid-teens margins in about any environment. “SAVE was never sold as a margin growth story, 2013-2015 has been a unique period allowing this sort of margin expansion,” Yates pointed out.

The company’s shares jumped 13 percent since Monday, after its positive commentary.