Spirit Airlines (NYSE: SAVE) shareholders have been through a rough few years. The stock peaked at around $85 in late 2014 -- when it seemed the budget airline could do no wrong -- but has since lost half of its value. This share-price plunge was driven by a deep unit revenue slump that eroded all of Spirit Airlines' fuel price savings relative to 2014, and then some.
Back in April, Spirit Airlines stock declined again, after the company announced disappointing guidance for the second quarter. However, Spirit outperformed management's expectations last quarter, allowing it to hold adjusted earnings per share roughly flat year over year. Additionally, the outlook for the rest of 2018 (and beyond) is getting brighter.
Spirit Airlines results: The raw numbers
| Metric | Q2 2018 | Q2 2017 | Year-Over-Year Change |
|---|---|---|---|
| Revenue | $851.8 million | $700.2 million | 21.6% |
| Total unit revenue | 8.95 cents | 9.60 cents | (6.8%) |
| Adjusted cost per available seat mile excluding fuel | 5.17 cents | 5.83 cents | (11.3%) |
| Adjusted net income | $75.7 million | $78.2 million | (3.1%) |
| Adjusted pre-tax margin | 11.7% | 17.7% | N/A |
| Adjusted EPS | $1.11 | $1.12 | (0.9%) |
Data source: Spirit Airlines Q2 earnings release. Chart by author.
What happened with Spirit Airlines this quarter?
Early in the second quarter, Spirit Airlines decided to buy 14 A319 aircraft that it had been leasing. The purchases were completed during the quarter and drove a 20.6% plunge in Spirit's aircraft rent expense last quarter.
This decision contributed to an incredible 11.3% year over year improvement in adjusted nonfuel unit costs. (To be fair, Spirit Airlines faced an incredibly easy comparison. Adjusted nonfuel unit costs soared 10% in the second quarter of 2017 due to costs related to a pilot dispute.) The addition of more fuel-efficient aircraft also drove a 5% improvement in fuel efficiency last quarter. As a result, Spirit's total unit costs declined modestly year over year, even though its average fuel price surged 40% from $1.66 per gallon to $2.32 per gallon.
On the flip side, Spirit's unit revenue performance remained weak last quarter, with total revenue per available seat mile (TRASM) down 6.8% year over year. Still, that was in the upper half of management's initial forecast range. The net result was that Spirit's adjusted pre-tax margin declined by 6 percentage points. However, EPS slipped by just $0.01, thanks to strong revenue growth and the benefit of a lower tax rate.
Spirit Airlines also announced the latest updates to its route strategy during the second quarter. It plans to continue adding small and midsize markets this fall, while also embarking on an aggressive international expansion in Orlando.