Spirit Airlines’ 3rd-quarter earnings beat expectations
31 October 2012
31 Oct. 2012 10:06 a.m.
While most airlines are cutting capacity to become more profitable, the fastest-growing airline at McCarran International Airport in the past year is expanding, and the strategy led to an 11.7 percent increase in third-quarter earnings.
Miramar, Fla.-based Spirit Airlines, which now has an average 21 daily flights to and from Las Vegas, today reported earnings of $30.9 million, or 43 cents a share, on revenue of $342.3 million for the quarter that ended Sept. 30. The performance beat Wall Street expectations of an average 35 cents a share.
That compares with earnings of $27.7 million, or 38 cents a share, on revenue of $288.7 million for the same quarter a year earlier.
Since early 2011, Spirit has expanded its Las Vegas presence with new flights and a crew base. While the growth pace has slowed here, the airline lately has been adding flights at Dallas-Fort Worth International Airport and recently announced a new base there. Spirit’s dominant market is in South Florida and the Caribbean.
Earlier this month, Spirit added nonstop service between Las Vegas and Houston’s George Bush Intercontinental Airport, but it discontinued flights between Las Vegas and Phoenix-Mesa Gateway Airport.
On the airline’s conference call on earnings today, Barry Biffle, Spirit’s chief marketing officer, said the withdrawal from the Las Vegas-Mesa market was more the result of fare cuts from airlines serving nearby Sky Harbor International Airport in Phoenix than a market battle with Allegiant Air, which has four flights a week to and from Mesa.
The airline has been adding capacity by acquiring new Airbus A320 twin-engine jets. Spirit has added seven jets since the third quarter of 2011 and the fleet now stands at 42 with two more deliveries expected in the fourth quarter. In addition, the company announced earlier this month that it will lease three used A319 jets and five next-generation A320s, which will join the fleet in December and January.
“As we grow our network, we are pleased to continue to offer our customers the lowest fares in our markets,” Ben Baldanza, Spirit’s president and CEO, said in a release accompanying the company’s earnings report.
“Giving our customers the freedom to choose only the services and products they value allows them to save money and helps us keep our costs low which, in turn, provides value to our shareholders,” he said. “We remain on target to achieve our goal of growing capacity 15 to 20 percent while sustaining an annualized (cash flow) margin of 24 to 26 percent for the full year 2012.”
Spirit uses a controversial business model of vastly discounted fares and high ancillary costs for bags and carryon luggage. Next month, Spirit will increase its carryon bag fee from $30 to $35 online, $35 to $40 through its reservation center and $40 to $50 at an airport kiosk or ticket counter. If purchased at the gate, the carryon fee soars to $100.
In the company’s conference call this morning, Baldanza said that while some say Spirit “is taking a pounding in the press” over the $100 fee, the company views it favorably because of the exposure the airline has received on it.
He said the high fee is an operational strategy — not a revenue strategy — to push customers to plan bag management in advance, which helps the airline board passengers on planes more efficiently.
The strategy seems to be working. The average ticket revenue per flight segment is down 12.1 percent to $71.85, while non-ticket revenue is up 11.5 percent to $49.80 for the quarter.
Baldanza said Spirit doesn’t know yet how much impact Hurricane Sandy will have on the company’s bottom line in the fourth quarter, but the storm roared through the heart of the airline’s most popular routes. The company offered to rebook passengers without a change fee through mid-November.
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