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Spirit Airlines' Problems: No End in Sight?

PART:
1 2 3 4 5 6 7
Part 3
Spirit Airlines' Problems: No End in Sight? PART 3 OF 7

Spirit Airlines’ Utilization Fell for an 11th Consecutive Month

Fastest declining utilization

After five months of improvement in capacity utilization, Spirit Airlines (SAVE) is back to its old ways. The carrier’s capacity growth has outpaced traffic growth from January 2015 to April 2016, leading to a 16- month consecutive utilization decline. Utilization has been on a downtrend again since October 2016.

Spirit Airlines&#8217; Utilization Fell for an 11th Consecutive Month

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For August 2017, Spirit Airlines’ utilization fell 0.9% to 86.2%. Peers JetBlue Airways (JBLU) and United Continental (UAL) also reported a drop in utilization while Delta Air Lines (DAL), American Airlines (AAL), and Southwest Airlines’ (LUV) utilization has improved for the month.

Load factor is the most commonly used measure of an airline’s capacity utilization. It’s calculated as revenue passenger miles divided by available seat miles. A higher load factor indicates better utilization of aircraft capacity.

Yields decline

For 1Q17, Spirit’s average yield fell 0.7% YoY to 10.54 cents. Just as investors thought SAVE was getting back on track, along came the pilot strikes. Despite this setback, Spirit managed to improve yields by 7.1% YoY to 11.28 cents in the second quarter of 2017. This improvement was mainly due to the shift of Easter holidays in Q2, which led to increased demand for the airline as well as the carrier’s other revenue initiatives.

Unit revenues follow

For the first quarter of 2017, Spirit airlines’ unit revenue or TRASM (total operating revenue per ASM) reported a decline of 4.2% YoY to 8.61 cents. For the second quarter, TRASM improved by 5.7% YoY to 9.62 cents.

However, the recent hurricanes that hit the US coast again wreaked havoc on Spirit. Read the next part of this series to find out how. Investors can gain exposure to Spirit Airlines by investing in the First Trust Industrials/Producer Durables AlphaDEX Fund (FXR), which invests 1.1% of its portfolio in SAVE.

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