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Spirit Airlines' Problems: No End in Sight?

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Spirit Airlines' Problems: No End in Sight? PART 1 OF 7

Will Spirit Airlines’ High Capacity Growth Last the Rest of 2017?

Capacity growth

After reducing capacity growth from mid-2016 to mid-2017, Spirit Airlines (SAVE) has again increased its capacity growth in the third quarter of 2017. In August 2017, SAVE’s capacity rose 21.9% year-over-year or YoY.

Will Spirit Airlines&#8217; High Capacity Growth Last the Rest of 2017?

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Year-to-date or YTD for August 2017, SAVE’s capacity grew 16.4% YoY. For 2016, Spirit Airlines recorded 20% YoY growth in capacity, and it saw 30% YoY capacity growth in 2015.

Outlook

Spirit Airlines’ (SAVE) capacity is expected to rise 21.1% YoY in the third quarter of 2017. However, for full-year 2017, capacity growth is expected to average around 16.5%, given the low growth of 15% in the first half of 2017.

Investors can expect Spirit Airlines’ capacity growth to average 16% for the remaining four months of 2017.

Peer comparison

Spirit Airlines should remain the fastest-growing airline in 2017. Another ultra-low-cost carrier, Allegiant Travel (ALGT), is expected to bring down its capacity growth to 9%–10% in 2017. Low-cost carriers Southwest Airlines (LUV) and JetBlue (JBLU) are expected to grow their capacity by 3.5% YoY and 6% YoY, respectively, for 2017.

Niche legacy player Alaska Air (ALK) hasn’t updated its capacity guidance. Among legacy players, United Continental (UAL) should see the highest growth of 2.5%–3.5% YoY. American Airlines (AAL) should see average capacity growth of 1% YoY. Delta Air Lines’ (DAL) capacity is expected to grow in the range of 0%–1% YoY for 2017.

Investors can gain exposure to airline stocks by investing in the iShares Transportation Average ETF (IYT), which invests ~21% of its portfolio in airlines.

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