Will 2018 Bring Better Tidings For Spirit Airlines Stock?

We are at the tail end of 2017 and it can be safely said that low-cost carrier Spirit Airlines (NASDAQ:SAVE) has not had the best of times due to multiple headwinds. The stock has shed 22.4% of its value so far this year, where as its industry has gained 13.2%.

Why the Underperformance in 2017

In May, Spirit Airlines had to cancel multiple flights owing to a dispute with its pilots, which resulted in customer dissatisfaction. Consequently, the company had to incur significant costs pertaining to passenger re-accommodation and other factors. The increased costs hurt its bottom line appreciably.

Apart from Spirit Airlines, the likes of United Continental Holdings (NYSE:UAL) , Delta Air Lines (NYSE:DAL) and American Airlines Group (NASDAQ:AAL) have also faced customer-related issues this year.

Additionally, Spirit Airlines continues to suffer owing to capacity overexpansion. Evidently, load factor (percentage of seats filled by passengers) has declined 170 basis points to 83.4% in the first 11 months of the year, due to traffic growth (13.9%) being outpaced by capacity expansion (16.2%). Pricing pressures have also hurt its performance.

Moreover, the carrier’s operations were negatively impacted by the back-to-back hurricanes. As a result, Spirit Airlines had to cancel more than 1,650 flights in the third quarter of 2017. In fact, the dispute with its pilots coupled with the affects of hurricanes caused this low-cost carrier’ top line to shrink to the tune of approximately $40 million in the same period. The rising fuel costs have hurt its bottom line as well.

In the final quarter of 2017, high costs are expected to hurt the bottom line. The company's guidance for fourth-quarter total revenue per available seat miles (TRASM: a key measure of unit revenues) is also disappointing. The company expects TRASM for the fourth quarter to decline in the range of 4-6%.

Will the Stock Recover in 2018?

Spirit Airlines has been making efforts to make a turnaround going forward. In 2018, this Zacks Rank #3 (Hold) company expects adjusted unit costs (non-fuel) to decline in the band of 3-5% owing to its prudent cost management initiatives. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Furthermore, the carrier's efforts to modernize its fleet raise optimism. The fleet strength is expected to be 112 by Dec 31 and increase to 122 by 2018-end. The company’s efforts to reward stockholders through share buybacks are impressive as well.

In October 2017, the company’s board also authorized a share repurchase program worth up to $100 million in aggregate value. The date of expiration of the authorization is Oct 25, 2018.

In addition, Spirit Airlines announced a change at its helm in a bid to improve efficiencies. To this end, it appointed Ted Christie — the company’s current executive vice president and chief financial officer — as the new chief executive officer (CEO). He will succeed Bob Fornaro with effect from Jan 1, 2019. However, before assuming that role, Christie will serve as the president and join the company's board of directors from Jan 1, 2018 onward. He will look into the finance, revenues, operations, IT and human resource functions of the organization.

Therefore, it can be safely said that Spirit Airlines is leaving no stone unturned to revive its fortunes.However, only time will tell the extent to which the company is successful in its efforts.

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