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Could Spirit Airlines’ Revenue Rise in 2017?

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Analysts’ estimates

For 2016, analysts are estimating that Spirit Airlines’ (SAVE) revenue will rise 8.0% to $2.3 billion. That’s higher than the 7.6% rise expected after 3Q16 and lower than the ~9.3% rise expected at the end of 2Q16.

SAVE’s strong revenue estimates are backed by its industry-leading capacity growth and its ability to fill up extra seats.

Capacity growth is expected to lead to revenue growth in 2017. For 1Q17, analysts estimate that Spirit Airlines’ revenue will rise 13.7% to $612.0 million. It’s then expected to rise 20.2% in 2Q17 to $702.0 million, 21.7% in 3Q17 to $756.0 million, and 23.6% in 4Q17 to $715.0 million.

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Capacity growth to continue

Spirit Airlines’ capacity is expected to rise 15.4% in 4Q16. That’s lower than 24.7% in the first half of 2016 and 16.2% in 3Q16. However, it’s still higher than all the other players.

The company has guided to further increase capacity 18.5% in 2017. It comes at a time when legacy carriers aren’t increasing capacity and regional players such as Southwest Airlines (LUV) and JetBlue (JBLU) are increasing capacity in just the low single digits.

Outlook

For 4Q16, SAVE’s TRASM (total revenue per available seat mile) has fallen 3.6%, at the midpoint of the company’s guidance of 3.0%–4.5%. Its performance is better than the 7.0% fall in 3Q16 and significantly better than the 14.0% fall in the first half of 2016.

However, players across the industry are cutting capacity, and pressure on yields is declining. Legacy player American Airlines (AAL) has managed to return to flat unit revenues, followed closely by Delta Air Lines (DAL) and United Continental Holdings (UAL).

These players benefited from increased fares on last-minute business travel bookings. Spirit Airlines, on the other hand, had a higher share of leisure travelers compared to business travelers. So its unit revenue trends should typically improve, although increasing capacity will add to stress on unit revenues.

You can get exposure to airline stocks by investing in the First Trust Industrials/Producer Durables AlphaDEX ETF (FXR), which invests ~1.3% of its portfolio in airlines.

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