Spirit Airlines (SAVE)

(21 October 2016)

SAVE Business Summary

Spirit Airlines, Inc., incorporated on March 8, 1994, is an airline company. The Company’s all-Airbus fleet operates more than 385 daily flights to 56 destinations in the United States, Caribbean and Latin America. Its ultra-low-cost carrier (ULCC) business model provides low, unbundled base fares that remove components traditionally included in the price of an airline ticket.

SAVE Fundamentals

• Price to Earnings: 11.10
• Earnings Per Share: $4.52
• Market Cap: 3.1B
• Current Ratio: 1.95
• Return on Equity: 16.94%
• Dividend Yield: 0.00%
• Total Debt to Equity Ratio: 71.08

Balance Sheet ($ in Thousands)

• Total Assets increased $499,655.
• Total Liabilities increased $141,305.
• Total Stockholder Equity increased $74,007.

Income Statement ($ in Thousands)

• Total Operating Revenues increased $75,500.
• Total Operating Income decreased by $8,432.
  • This is due to increase in operating expenses such as Salaries, wages and Benefits, amortization, and special charges.
• Net income decreased by $10,702.

Cash Flow Statement ($ in Thousands)

• Net Cash provided by operating activities increased $61,187.
• Net Cash used in investing activities decreased $13,446.
• Net Cash provided by financing activities decreased $725.
• Cash and Cash Equivalents at end of period increased $244,756.

Highlights from 10-Q

• During the six months ended June 30, 2016, the Company purchased three A319 aircraft which were formerly financed under operating lease agreements. The purchase price of the three aircraft was $65.9 million, comprised of cash payment of $33.8 million and the application of maintenance and security deposits held by the previous lessors of $32.1 million. The Company estimated the fair value of the aircraft to be $41.2 million and has recorded the three purchased aircraft within flight equipment on the condensed balance sheets. The Company determined the valuation of the aircraft based on a third-party appraisal considering the condition of each aircraft (a Level 3 measurement). The Company recognized the $24.3 million excess of the purchase price paid over the fair value of the aircraft as a cost of terminating the leases within special charges on the statement of operations.
• Our ultra low-cost carrier, or ULCC, business model allows us to compete principally by offering customers our Bare FaresTM, which are unbundled base fares that remove components traditionally included in the price of an airline ticket. We then give customers Frill ControlTM, which provides customers the freedom to save by paying only for the options they choose such as bags, advance seat assignments and refreshments. We record revenue related to these options in our financial statements as non-ticket revenue.
• We allow our customers to see all available options and their respective prices prior to purchasing a ticket, and this full transparency illustrates that our total price, including options selected, is lower than other airlines on average. Through branded campaigns, we educate the public on how our unbundled pricing model works, showing them how it gives them choice on how they spend their money and saves them money compared to other airlines.
• Spirit Airlines became the first American carrier to receive the Airbus A320neo this week, a state-of-the-art aircraft powered by the Pratt & Whitney PurePower Geared Turbofan (GTF). Considered one of the most fuel-efficient aircraft engines ever made, this revolutionary technology will help improve fuel burn, lower emissions and reduce noise levels.
  • “This state-of-the-art technology will burn less fuel and lower our operational costs,” said Ted Christie, Spirit Airlines Chief Financial Officer. “We continue to lead the industry in both reducing our carbon footprint and providing ultra-low fares on air travel. Spirit is thrilled to be the first carrier to bring this innovation to the U.S.”

Sentiment

• Bullish on this company. The entire airline industry is being left for dead, which is where the value is if you’re a contrarian like myself. With pundits saying airlines are stupid, and even some of my colleagues not agreeing with me at all about this pick, I love the small cap play in the airline industry.
• SAVE has what no other airline has, an economically sustainable aircraft, the first of it’s kind in America. This is the type of catalyst that is needed in order to send a small cap value play like this higher. I trust in it’s balance sheets, its cash flows, and it’s determination to making flights more affordable and sustainable.