Categories Analysis, Industrials

Spirit Airlines stock turns cheaper after hitting a 2-year low

Spirit Airlines Inc. (NYSE: SAVE) stock dropped to a two-year low of $35.09 on Wednesday as the company has been worst hit by flight cancellations arising due to hurricane Dorian. Also, the low-fare airline services provider has been facing the heat of trade tensions despite having little or no impact due to non-operations in other countries.

The company has canceled 150 flights on Sunday, 272 flights on Monday and 192 flights on Tuesday as high winds forced numerous airports in Florida to close including Orlando International Airport and Fort Lauderdale-Hollywood International Airport. Spirit could take days to return its operations back to normal after the weather disruption.

Sprint flies only Airbus A320 family aircraft, which provides the company significant operational and cost advantages compared to airlines that operate multiple aircraft types. Thus, Sprint remained unaffected by the Boeing (NYSE: BA) 737 Max debacle. Since March, the 737 Max aircraft have been grounded for testing and evaluation purposes as two similar crashes claimed hundreds of lives.

Spirit Airlines stock turns cheaper after hitting 2-year low
Photo Courtesy: Spirit Airlines

As of June 30, 2019, Spirit had 135 Airbus A320-family aircraft in its fleet that comprised 31 of A319s, 62 of A320s, 30 of A321s, and 12 of A320neos. With the scheduled delivery of eight aircraft during the remainder of 2019, the company expects to end 2019 with 143 aircraft in its fleet.

In the past, the general worldwide economy has experienced downturns due to the effects of the European debt crisis, unfavorable US economic conditions, and slowing growth in certain Asian economies. A weak economy or a reduction in discretionary spending could lower the airlines’ bookings. It can also hurt the ability of airlines to raise fares to help offset increased fuel, labor, and other costs.

The airline industry is highly competitive with respect to routes, fares, and services. Spirit’s principal competitors on domestic routes are Southwest Airlines (NYSE: LUV), American Airlines (NYSE: AAL), Delta Air Lines (NYSE: DAL), and United Airlines (NYSE: UAL). In the Caribbean and Latin America, the company’s competitors include American Airlines, JetBlue Airways (NASDAQ: JBLU), Southwest and United Airlines.

Read: Tesla stock will continue to fall on tariff uncertainty?

The company has been struggling in the midst of giants who have merged in attempts to restructure their debt and lower operating costs. The mergers between AMR Corp. and US Airways Group, between Delta Air Lines and Northwest Airlines, between United Airlines and Continental Airlines, between Southwest Airlines and AirTran Airways, and between Alaska Airlines and Virgin America, have created five very large and powerful network airlines. This creates a challenging pricing environment for smaller airlines.

Apart from this, Spirit has been facing an increase in its debt levels. For the most recent second quarter, the company’s total debt stood at $3.33 billion while having total cash of $1.22 billion. The company has been aggressive in financing its growth with debt due to the higher debt-to-equity number. The share value has fallen as the cost of debt financing outweighs the increased income generated during the recent quarter.

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