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Over the past few years, Spirit Airlines (NYSE: SAVE) has dramatically changed its route network strategy. Five years ago, the budget carrier's approach was as simple as entering big hubs with lots of traffic and undercutting the incumbents on price to fill its planes. However, once the legacy carriers began to match Spirit's fares, this strategy became untenable.
Spirit Airlines hasn't completely abandoned the top hubs. But it has focused more of its recent growth on large leisure markets like Florida and Las Vegas -- where low-fare giant Southwest Airlines (NYSE: LUV) tends to be its main competitor.
This strategy shift has already started to pay dividends. As a result, Spirit appears to be doubling down, based on several new routes that it announced last week.
Spirit finally gets back on track
In the first half of 2018, Spirit faced severe margin pressure due to a jump in fuel prices combined with continued unit revenue declines. However, the carrier culled underperforming routes after the summer peak season while ramping up its growth in Florida, a market that benefits from strong demand during the fall and winter (unlike most other U.S. airline routes).
The result was a huge improvement in its performance in the second half of the year, driven by a return to strong unit revenue growth. That enabled Spirit to post impressive earnings growth in the third and fourth quarters, including an 89% surge in adjusted earnings per share in Q4.
The airline's momentum is on pace to continue in 2019. Indeed, analysts expect adjusted EPS to roughly double in the first half of the year. The return to consistent unit revenue growth indicates that Spirit's new route strategy is succeeding. Not surprisingly, management plans to stick with what's working.
Spirit Airlines' earnings are set to soar this year. Image source: Spirit Airlines.
New routes coming
Last week, Spirit Airlines made three separate new route announcements. On Tuesday, it revealed plans to add Burbank Airport in Southern California to its route network. The carrier will fly three times a day between Burbank and Las Vegas beginning on June 20.
One day later, Spirit made Sacramento, California, its next new city. As with Burbank, the carrier will offer three daily round-trips to Las Vegas starting on June 20. Spirit Airlines noted that customers traveling to and from Burbank and Sacramento will be able to connect to dozens of other cities across its route network via Las Vegas.
On Thursday, Spirit Airlines began service in Indianapolis, with daily flights to Orlando, Florida, and Las Vegas. In conjunction with starting flights there, the carrier announced two new routes to Florida that will take off on Nov. 14: daily service to Tampa and Fort Myers.