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An Investor’s Guide to Spirit Airlines: November 2016 Recap

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Part 2
An Investor’s Guide to Spirit Airlines: November 2016 Recap PART 2 OF 5

Is Spirit Airlines’s Traffic Outpacing Its Capacity Growth?

Spirit Airlines’s traffic growth

Spirit Airlines’s (SAVE) traffic grew 15.5% year-over-year (or YoY) in November 2016, slightly higher than its capacity growth for the month. This is higher than its peers, including low-cost carriers Southwest Airlines (LUV), JetBlue (JBLU), and Allegiant Travel (ALGT).

SAVE’s traffic growth is also higher than legacy carriers Delta Air Lines (DAL), United Continental (UAL), and American Airlines (AAL).

Is Spirit Airlines&#8217;s Traffic Outpacing Its Capacity Growth?

Year-to-date (or YTD), SAVE’s traffic has risen 20.7% YoY. Its traffic growth for fiscal 2015 was higher at 27.1% YoY. Its traffic growth was boosted by lower airfares, strong network expansion, and overall strength in the industry and economy.

Airline traffic is measured by revenue passenger miles (or RPM), which is the number of revenue passengers multiplied by the total distance traveled.

Low-cost strategy

Spirit Airlines (SAVE) has been able to grab market share from other players mostly due its ultra-low-cost strategy. The strategy is to reduce base airfares as much as possible, unbundling other services such as carry-on bags, checked bags, boarding passes, and food and beverages.

Users must pay extra for these services, only paying for services they use without subsidizing other passengers’ travel expenses. This strategy is expected to be a future traffic booster.

Passenger travel demand

Spirit Airlines’s (SAVE) passenger travel demand had a great start in 2016, growing ~6% year-over-year, the highest since 2012. However, the International Air Transport Association (or IATA) suspects the industry might be at the end of the traffic boost phase provided by low oil prices. This suggests travel demand may slow down, which would adversely impact airlines.

Next, we’ll look at Spirit Airlines’s utilization trend. SAVE forms 2.3% of the First Trust Industrials/Producer Durables AlphaDEX ETF (FXR).

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