Yahoo Finance Spirit Airlines’ Margins Fell in 1Q16: Will the Decline Continue?
Spirit Airlines' 1Q16 Earnings Analysis: What’s in Store for 2016?
1Q16 performance
For the first quarter of 2016, Spirit Airlines’ adjusted operating profit fell by 7.3% year-over-year (or YoY) to $101 million. Operating margins fell by 18.8% in 1Q16, lower than the expected margin of 19%–20.5%.
Net profits also fell by 10.3% to $62 million while earnings per share (or EPS) fell by 8.5% to $0.86. However, adjusted net profit grew by 2% to $72.3 million.
Fuel savings help
The huge decline in crude prices has helped airlines decrease expenses tremendously. For 1Q16, fuel expenses fell by 23.5% YoY.
Fuel cost per gallon for 1Q16 fell by 37.4% to $1.22 per gallon as compared to the $1.95 in 1Q15. Its fuel cost per available seat mile is $1.44. This is the lowest among peers, followed by Alaska Air (ALK) at $1.6, JetBlue Airways at $1.7, American Airlines (AAL) at $1.9, Delta (DAL) and United Continental (UAL) at $2.1 each, and Southwest Airlines (LUV) at $2.4.
Expenses increase despite CASM decline
SAVE’s cost per available seat mile excluding fuel (or CASM) fell by 2.3% to 5.6 cents. This is lower than the expected 4.5% decline due to one-time accrual related to a flight attendant agreement. As a result, operating expenses rose by ~14% YoY to $437 million.
Expectations
For 2Q16, Spirit Airlines expects fuel cost to decline to $1.45 per gallon and an operating margin of 20.5% to 22.5%.
For 2016, SAVE expects non-fuel costs to further decline by 0% to 1% year-over-year. Fuel costs are expected to decline. However, the benefits will not be as high as those seen in 2015. Thus, operating margins are expected to decline. As unit revenue pressures ease from 3Q16 onwards, margins may improve slightly. However, they may not expand in comparison to 2015.
Investors can gain exposure to airline stocks by investing in the iShares Transportation Average ETF (IYT), which invests ~21% of its portfolio in airlines.
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