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How Flight Cancellations Affected Spirit Airlines’ Margins in 2Q17

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2Q17 performance

For 2Q17, Spirit Airlines’ adjusted operating profit improved 8.9% year-over-year (or YoY) to $132.7 million. Operating margins also fell to 18.9% in 2Q17 as compared to 20.9% in 2Q16. Adjusted net profits rose 6.9% to $78.1 million, while earnings per share (or EPS) rose 8.7% to $1.12.

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CASM increases

During the pilot strike, Spirit Airlines was forced to re-accommodate customers on canceled flights with other carriers, which naturally came at a cost and led SAVE’s cost per available seat mile excluding fuel (or CASM ex fuel) to increase by 10% YoY to 5.8 cents. As a result, operating expenses rose ~14% YoY to $437 million.

Fuel expenses rose too

Spirit Airlines’ fuel expense rose 25.7% YoY in the quarter to $142.3 million, which was a result of both price and volume increases. Fuel costs per gallon for 2Q17 rose 12.9% YoY to $1.66 per gallon as compared to the $1.47 in 2Q16. Volumes rose 11.1% YoY.

Expectations

For 3Q17, Spirit Airlines expects fuel costs to rise to $1.67 per gallon. The CASM-ex-fuel cost is expected to be in the range of down 1% to up 1% YoY.

For the full-year 2017, SAVE expects the CASM-ex-fuel cost to rise 2% to 3% as compared to its earlier guidance of flat to down 1%. Investors can gain exposure to Spirit Airlines by investing in the First Trust Industrials/Producer Durables AlphaDEX Fund (FXR), which invests 1.8% of its portfolio in Spirit Airlines. FXR also invests 2% each in Delta Air Lines (DAL), United Continental (UAL), and JetBlue Airways (JBLU).

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