Spirit Airlines(NYSE: SAVE) is an ultra-low-cost airline operating in the US. In 2019, the carrier become the seventh-largest airline of the country with a market share of 4.2%. The company was one of the most growing operators in the aviation industry as the low-cost carrier segment has vastly outperformed the legacy airlines. In 2020 however, the spread of the coronavirus brought the commercial aviation sector to an unprecedented standstill. As traveler volumes fell 95%, airline operators scrambled for liquidity and government aid.
The Spirit airlines stock was down 67.6% at the end of last week and tanked another 7% as Berkshire Hathaway, one of the US’ largest companies, announced it’s exit from the aviation sector. As an investor of great standing, Warren Buffett’s harsh comments on the prospects of the sector were bad news for aviation stocks.
Although the general outlook of the aviation sector is bad, analysts expect Spirit’s ultra-cost model to outperform larger airlines as it is less prone to bargain hunting and has a much lower cost of revenue. The airline also has a great liquidity position and a very low rate of cash burn.
On Thursday, the company released its Q1 earnings that underperformed market expectations. The company declared a loss per share of $0.86 against projections of $0.6 and revenues of $771 million against estimates of $848 million. The company reported that operating revenue per available seat mile dropped 18.7% while operating costs increased 8.2% to $829 million. Management reported an expected cash burn of roughly $4 million per day, not including $330 million of payroll support from the government. (Yahoo Finance)
The company announced a reduction of capital expenditure for the year of $50 million and savings of $20-$30 million from non-fuel operating costs due to under-capacity. The airline also deferred some of it’s Airbus deliveries that were due in 2020 and 2021 for further CapEx savings of $185 million. (Market Watch)
The company ended Q1 with $894.4 million of liquid assets and $110 million of undrawn credit lines. In order to maintain sufficient liquidity, the airline has announced plans to issue 17.5 million shares of fresh equity at $10 per share, a very narrow discount to current market value, and $175 million of senior secured notes carrying an interest charge of 4.75%. (NewsWire) In addition, the company has secured a debt allocation of $741 million from the Treasury under the CARES Act Loan program. (Motley Fool)
The stock opened 2.71% down after the earnings report and SAVE stock price stays $10.35 before Friday closure.