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Can SAVE Continue Its Strong Operational Performance in 2016?

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Aug. 18 2020, Updated 5:17 a.m. ET

Traffic growth

For the fourth quarter of 2015, Spirit Airlines (SAVE) recorded a solid 27.5% year-over-year (or YoY) growth in its traffic numbers. The traffic growth was boosted by lower airfares, strong network expansion, and overall strength in the industry and economy. The traffic growth for the full year also stood at a similar 27.1% YoY.

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Capacity growth exceeds demand

Like all other airline companies, Spirit Airlines also took advantage of the low oil cost environment to expand its capacity. The airline’s capacity growth, as measured by available seat miles (or ASM), grew by 30% YoY for both the quarter and the full year. The airline took delivery of three new A321 aircraft, ending the year with 79 aircraft in the fleet.

Load factor fell on capacity growth

The strong traffic and capacity growth were offset by a decline in average operating yields and slightly lower load factors. The load factor fell by 1.9 points and 2 points, respectively, for 4Q15 and 2015.

The airline also reported a system-wide controllable completion factor excluding weather-related cancellations at 99.7%. Its system-wide on-time percentage averaged about 74.5% for the year.

Outlook

For 2016, Spirit Airlines (SAVE) expects to continue its aggressive expansion plan. Capacity is expected to increase by 27.5% YoY in the first quarter and then trend downward thereafter, bringing its 2016 capacity up by around 20% for the year.

However, one of the major differences to the past capacity expansion is that SAVE plans to focus on routes that are unserved by legacy players American Airlines (AAL), Delta Air Lines (DAL), and United Continental (UAL). SAVE had previously aggressively targeted the largest hubs that are served by the legacy carriers. This will help keep a check on the price wars, which was one of the major concerns for SAVE in 2015.

Investors can gain exposure to airline stocks by investing in the iShares Transportation Average ETF (IYT), which invests ~24% of its portfolio in airlines.

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