investor analysis for spirit airlines
TRANSCRIPT
Nick Giacona, Randi Roehling, Sara Stacharczyk,
Kelly Burns, Katie Johnson, Mark Woodiring
Satchell, A. (2010, December 22). Spirit airlines:$50 off fare deal . Retrieved from http://blogs.sun-sentinel.com/south-florida-travel/2010/12/22/spirit-airlines50-off-
fare-deal/
Customer Reviews
Unknown. (n.d.). Skytrax web reviews. Retrieved from
http://www.airlinequality.com/Forum/spirit.htm
“Don‟t be fooled by „low prices‟! A
great airline if you get a discount
flight and don‟t take anything with
you. The food and beverage
options were poor, and they even
charge for a cup of water.”
“I could‟ve flown on a cheaper
flight with American or Copa. The
bags are included, and I could‟ve
gotten a drink. You don‟t know if
Spirit is a rip-off until you check
in.”
“Extremely disappointed
in the service, you get
what you pay for.”
Thesis
Don‟t FLY Spirit Airlines, BUY their
stock!
Invest in Spirit Airlines over other airlines
because they have…. :
Leading industry returns
Ultra Low-Cost Carrier (ULCC) business model
Innovative revenue generation
Significant growth opportunities
Agenda
1. What Proves Spirit‟s Strength?
2. How Do They Do It?
3. A Final Review (Quiz & Conclusion)
Breakout Financial
Performance
December Q operating margin of 13.8%/3.9+
YOY (Highest among U.S. coverage)
Deutsche Bank. (2012). Spirit. 2012 Detailed stock valuation report [Financial data Available from Thomson Investext Online
database.
Breakout Financial Performance (cont.)
After tax ROIC was 17.7% in 2011 (top 10
globally)
Deutsche Bank. (2012). Spirit. 2012 Detailed stock valuation report [Financial data Available from Thomson Investext Online
database.
Strong liquidity position – no debt
Capacity grew 15% - ability to grow profitably
Ultra low cost/distinctive revenue model
Deutsche Bank. (2012). Spirit. 2012 Detailed stock valuation report [Financial data Available from Thomson Investext Online
database.
Breakout Financial Performance (cont.)
Comparisons
Southwest Delta
Spirit
Quote media: Dynamic market data solutions. (2012, April 5). Retrieved from http://www.quotemedia.com/results.php?qm_page=47226&qm_symbol=LUV
Quote media: Dynamic market data solutions. (2012, April 5). Retrieved from http://www.quotemedia.com/results.php?qm_page=42974&qm_symbol=DAL
Quote media: Dynamic market data solutions. (2012, April 5). Retrieved from http://www.quotemedia.com/results.php?qm_page=15601&qm_symbol=SAVE
How Do They Do It?
Ultra Low-Cost Business Model
Fleet Operations
• Dedication to Airbus A320
• Addition of 106 new planes between 2012 and 2021
• Maintenance, inventory, and repair efficiency
Employee Efficiency
• Versatile flight crew
• Around 20% of operating costs
Strategic Distribution and Marketing
• Mainly utilizes Spirit.com for their ticket sales
• Only used 0.2% of total revenue on advertising in 2011
Lean Flight Plans
• Seat configuration with 178 passengers
• Short ground times
Low-Cost Model
United States Securities and Exchange Commission, (2011). Spirit Airlines, Inc. Annual Report (001-35186). Retrieved from website: http://ir.spirit.com/annuals.cfm
Innovative Revenue Generation
Operating revenue from ancillary fees
Southwest – 6.2%
Frontier – 7%
Spirit – 30%
$5
$45
$0
$10
$20
$30
$40
$50
2006 2011
Non-ticket revenue per passenger
“The people who fly us get it! OK, I don’t get as much leg room, but I
saved $40 vs. my other options. You don’t get the same thing at Wal-Mart that you do at Nordstrom’s, right?”
- CEO of Spirit, Ben Baldanza
Schrader, A. (2012, February 25). Fees Fatten Spirit Revenue. Denver Post. Retrieved from
http://www.lexisnexis.com.proxy1.cl.msu.edu/hottopics/lnacademic/
Gilbertson, D. (2012, February 13). Spirit Fees 'a badge of honor' . USA Today. Retrieved from
http://www.lexisnexis.com.proxy1.cl.msu.edu/hottopics/lnacademic/
United States Securities and Exchange Commission, (2011). Spirit Airlines, Inc. Annual Report
(001-35186). Retrieved from website: http://ir.spirit.com/annuals.cfm
Growth
DFW service
increases
Detroit
Toluca (Mexico City)
San Diego
“…liberating
Customers from
high fares…”
Leverage Brand to
Grow Revenue in
underserved and
overpriced markets
Flexibility
Maxon, Terry. Dallas Morning News. “Spirit to expand D/FW Service with flights to Detroit, San Diego, Toluca.” 4 April, 2012. Spirit Airlines Annual Report
Pop Quiz – Question 1
Compared to the rest of the airline
industry, Spirit‟s ROIC is:
A. Less than industry ROIC
B. Consistent with industry ROIC
C. Greater than industry ROIC
Considerably greater than the industry average
*17.7% in 2011 vs. 4.9% global industry average
Return on invested capital (ROIC) and weighted average cost of capital (WACC) from IATA (1993-2004) and Deutsche Bank (for 2010-2012 estimates)
How much revenue per passenger did Spirit
generate last year (2011) through their non-
ticket fees/ancillary fees?
A. $5.00
B. $10.00
C. $45.00
*Answer: C, $45.00/passenger
Pop Quiz – Question 2
United States Securities and Exchange Commission, (2011). Spirit Airlines, Inc. Annual Report (001-35186). Retrieved from website:
http://ir.spirit.com/annuals.cfm
Pop Quiz – Question 3
While Spirit debuted at Dallas/Fort Worth with
2 routes, how many will be in place by
May, 2012?
A. 4
B. 8
C. 10
*Answer: C, 10 routes
Maxon, Terry. Dallas Morning News. “Spirit to expand D/FW Service with flights to Detroit, San Diego, Toluca.” 4 April, 2012. Spirit Airlines Annual Report
A Final Review
Based on industry returns, a low-cost
business model, innovative revenue
generation and significant growth
opportunities, we recommend that you invest
in Spirit Airlines.
Don‟t FLY it, BUY it!
Thank you!
Airlines Defy Conventional
Wisdom
http://www.barelkarsan.com/2011/04/industry-roic.html
Spirit is the Exception
“The lesson here is that you don't have to be
afraid of terrible industries. Just think of moves
of these types as six-to-12-month trades - as
opposed to longer-term investments. It takes a
lot of confidence, experience and
nimbleness, but a bad industry can still deliver
good (and sometimes great) returns.”-Lucas Kent Lucas, Taipan Daily
http://moneymorning.com/2010/05/07/airline-industry/