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Spirit Airlines to Continue Aggressive Expansion in 2018

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Capacity growth

Spirit Airlines (SAVE) reduced its capacity growth to mid-double digits at the beginning of 2017. However, with legacy carriers Delta Air Lines (DAL), American Airlines (AAL), and United Continental (UAL) introducing basic economy fares to compete with low-cost carriers, SAVE decided to respond with equally aggressive tactics.

As a result, the carrier returned to high double-digit growth in the third quarter of 2017 when it increased capacity by 17.8% YoY (year-over-year). In October 2017, SAVE’s capacity increased 21.2% YoY. In November, it rose 17.1% YoY.

Year-to-date in November 2017, SAVE’s capacity has risen 16.2% YoY. It recorded a 20% YoY growth in capacity in 2016 and a 30% YoY growth in 2015.

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Outlook

Spirit Airlines’ (SAVE) capacity is expected to increase 17.5% YoY in the fourth quarter of 2017, leading to a 2017 capacity growth of 16.5%. That’s due to the 15% YoY growth in the first half of 2017. The carrier is expected to continue its aggressive capacity growth in 2018. It plans to grow 22%–25% in the next year as it takes on legacy carriers.

Peer comparison

In 2017, Allegiant Travel (ALGT) expects to reduce its capacity growth to 9%–10%. JetBlue Airways (JBLU) and Southwest Airlines (LUV) are expected to have capacity growth of 6% and 3.5%, respectively, YoY.

Investors can gain exposure to Spirit Airlines by investing in the First Trust Industrials/Producer Durables AlphaDEX ETF (FXR), which has 2.3% of its portfolio in SAVE.

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