It has not been a good year for the stock of ultra low-cost carrier Spirit Airlines (SAVE 36.89, +3.15, +9.3%). At Wednesday's close, SAVE was down 41.7% year-to-date. The stock, however, has taken flight today following some better-than-feared third quarter results and fourth quarter guidance.
The third quarter of course was a challenging one for all airlines with routes to Texas, along the Gulf Coast, and to the Caribbean. Hurricanes Harvey, Irma, and Maria were the bane of their operating existence, forcing the cancellation of thousands of flights.
Spirit Airlines was in the middle of that hurricane mix, yet it still managed to report a 10.6% increase in operating revenue of $687.2 million and an adjusted profit of $0.94 per diluted share, topping analysts' average expectations on both fronts.
The profit was nice to see, yet it was 24.2% below the same period a year ago on a comparable basis. The decline was driven by higher operating expenses, which involved higher flight volume, higher fuel costs and higher passenger re-accommodation expense. Excluding special items, though, Spirit's adjusted cost per available seat mile (CASM), excluding fuel, decreased 1.1% year-over-year to 5.42 cents.
Total revenue per available seat mile (TRASM), which is a key industry gauge, decreased 6.3% on account of aggressive competitive pricing action in many of Spirit's markets.
The TRASM pressure is expected to persist, although it is now anticipated to be less negative than before. To wit, Spirit said it expects fourth quarter TRASM to be down 4% to 6%. The airline paired that outlook with a forecast for CASM, excluding fuel, to be down 3% to 4%.
It's all relative of course. Spirit is still going to be operating in a challenging environment, yet investors appear to be enthused by the sense that the operating environment will be less challenging than it has been, which could give way to better earnings reports in the future.