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Spirit Airlines' Problems: No End in Sight?

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Part 2
Spirit Airlines' Problems: No End in Sight? PART 2 OF 7

Can Spirit Airlines’ Passenger Demand Keep Up with Capacity Growth?

Traffic growth

Spirit Airlines’ traffic grew 20.6% year-over-year or YoY in August 2017, slightly lower than its capacity growth for the month. Year-to-date or YTD August, traffic has grown 13.5% YoY, 2.9% slower than the capacity growth for the period. In fact, Spirit Airlines’ traffic growth has lagged its capacity growth throughout 2017.

Can Spirit Airlines&#8217; Passenger Demand Keep Up with Capacity Growth?

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Peer comparison

Demand for Allegiant Travel’s (ALGT) service couldn’t keep up with capacity growth either. Regional carrier JetBlue Airways’ (JBLU) traffic also lagged behind its capacity growth by 0.4% YoY YTD 2017, and Southwest Airlines’ (LUV) traffic growth lagged behind capacity growth by 0.2% YoY. Legacy player United Continental’s (UAL) traffic demand also lagged behind its capacity growth by 0.2% YoY.

On the other hand, American Airlines’ (AAL) traffic demand was similar to its capacity growth. Alaska Air’s (ALK) traffic growth outpaced its capacity growth by 0.8% YoY. Delta Air Lines (DAL) fared the best among airlines with traffic outpacing demand by 1.7% YTD 2017.

Passenger travel demand

For the long term, passenger travel demand is expected to record good growth, given the increasing number of people traveling and increasing disposable incomes. Demand growth has been great so far in 2017 (YTD July 2017), with growth of 7.7% YoY.

However, for the rest of 2017, the International Air Transport Association (or IATA) expects travel industry growth to slow down as airlines refrain from further discounting.

Investors can gain exposure to Spirit Airlines by investing in the SPDR S&P Transportation ETF (XTN), which invests 2.6% of its portfolio in SAVE.

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