Spirit Airlines (SAVE 34.22, -0.61, -1.8%) is an ultra-low cost carrier. Florida and the Caribbean account for approximately 45% of its network; and approximately 10% of its network touches Houston. Mindful of that, it should come as little surprise that Spirit Airlines is tempering its third quarter and fourth quarter outlook due to the operational impact of Hurricanes Harvey and Irma.
The airline made its announcement after Thursday's close and it has taken some steam out of the stock, which had risen 7.1% since September 5 versus a 1.8% gain for the Russell 2000 over the same period. Currently, shares of SAVE are down 1.8% in pre-market trading.
The warning itself was a bit vague, because it is difficult at this point to assess the full impact of the situation. Accordingly, there was no specific earnings guidance provided, only a sense that earnings will not live up to analysts' prior expectations.
While operations to Houston have been fully restored, Spirit Airlines anticipates a lingering impact from a reduction in travel demand to and from the affected areas reached by Houston. For those areas affected by Hurricane Irma, the company said it is too soon to assess the financial impact on its third quarter and fourth quarter results, but that it is expected to be significant.
The airline industry was already under pressure prior to the hurricanes from an extremely competitive pricing environment that prompted several carriers to cut their third quarter passenger unit revenue guidance. The hurricanes, then, took a tough operating climate and simply made it tougher for carriers like Spirit Airlines, which had material exposure to the regions impacted by the hurricanes.
Those challenging conditions had the stock of Spirit Airlines in a tailspin before the hurricanes hit, which is why the initial response to its warning has been relatively modest in scope. To that end, SAVE plunged 36% between July 17 and August 24 (i.e. before Hurricane Harvey reached Texas) and is down 40% year-to-date.
The aforementioned warning was issued in conjunction with a traffic update for August. Spirit said revenue passenger miles increased 20.6% year-over-year on a capacity increase of 21.9%. Its load factor in August was 86.2% versus 97.1% in August 2016.