A successful no-frills approach helps make this airline today’s Stock of the Week.
Spirit Airlines, Inc. (SAVE) is a no-frills discount airline that charges extra for almost everything beyond a basic nonreclining seat on a flight, including carry-on luggage and a drink of water. The approach is likely to help Spirit prosper even in a slow-growth economy. Lately, the new CEO, Robert Fornaro, has been saying there will be greater focus on improving the airline’s often criticized customer service—including a friendlier attitude and cleaner planes—and improving the weak on-time performance, a step that in itself could cut down on overtime costs and the cost of refunds for canceled flights. He has said this can be accomplished without pushing up overall costs or changing the airline’s low-fare approach.
Spirit has 425 daily flights to 56 destinations in the US, the Caribbean and Latin America. That includes all but three of the 25 biggest US metro areas. And it is adding some midsize markets later this year. It flies only Airbus single-aisle planes, which creates greater efficiency. Its flight times and chosen airports are selected to keep costs down—it may offer a single daily 1:00 am flight when other airlines might offer three at more convenient times. Spirit has the industry’s best profit margins—24% before interest and taxes, compared with 15% or less for larger carriers.
If oil prices drift higher, earnings will be squeezed, but revenue will likely continue rising, from $2.14 billion last year to $2.3 billion this year and $2.69 billion in 2017. Spirit has less than 5% of US domestic market share, which gives it lots of room to expand its profitable niche strategy.
Earnings per share: 2017 est./$4.01…2016 est./$3.89…2015/$4.37.
Tim Kang is senior vice president and senior research analyst at Olstein Capital Management, Purchase, New York, where he chooses stocks for the $655 million Olstein All Cap Value Fund (OFALX) and $145 million Olstein Strategic Opportunities Fund (OFSAX). OlsteinFunds.com
Whether the next president is Hillary Clinton or Donald Trump, the effects on your taxes, investments and retirement benefits will be major. A top political and economic consultant explains what is likely to happen in the article How the New President Will Affect Your Bottom Line from the latest issue of Bottom Line Personal.
And for an upcoming issue of Bottom Line Personal, we are working on an article about attractive alternatives to a recently closed Vanguard mutual fund. You can subscribe here.
—Harry Berkowitz, editor
