Ultra-discount carrier Spirit Airlines reported second-quarter earnings on Tuesday that beat expectations, helped by strong leisure travel demand. Airline stocks largely fell.
The airline reports following its high-drama merger agreement with JetBlue, and as investors try to make sense of the state of leisure travel and where it might be headed after Labor Day, as concerns over high prices and a recession persist. Still, the economy continues to crank out strong job figures.
Spirit Airlines Earnings, Airline Stocks
Spirit reported a 30-cent-per-share loss, much better than expectations for a loss of 46 cents per share. Revenue rose 60% to a better-than expected $1.37 billion. Wall Street expected sales of $1.345 billion.
CEO Ted Christie, in a statement, said "robust demand for leisure travel during the peak summer period resulted in busy airports and high load factors," a measure of seats filled.
Fuel costs during the period averaged $4.30 a gallon, compared to $1.95 in the year ago period.
"The demand environment appears strong, and we expect there will be some trade down to (ultra-low-cost carriers) from customers feeling the pressure of a tightening budget," Cowen analyst Helane Becker said in a research note about Spirit's earnings on Tuesday.
Spirit Airlines stock dipped 0.2% in the stock market today. The stock has a 71 Composite Rating and a 50 EPS Rating.
JetBlue has agreed to buy Spirit for $33.50 per share in cash. The deal includes a cash prepayment of $2.50 per share when Spirit shareholders approve the deal. The agreement also includes a monthly prepayment of 10 cents starting in January through the deal's closing, expected by the first half of 2024.
Even so, SAVE stock is trading at a significant discount to the offer price. Regulators under the Biden administration could have reservations, analysts have said.
Other Airline Stocks
Among other airline stocks, Delta Air Lines fell 2.9%, and was testing support at its 50-day line. American Airlines fell 4%. United Airlines fell 3.5%.
JetBlue stock fell 2.5%.
Even as rising prices force some consumers to divert more of their budgets to cover basics, airline executives have remained upbeat on travel. Delta, when it reported earnings last month, said it hadn't seen "any meaningful pullback in demand."
Airlines have raised fare prices, partly to offset rising fuel costs and partly because customers have been willing to pay more after two years of not traveling due to Covid.
Spirit has made a name for itself drawing in price-conscious travelers with cheap fares — and for charging for almost any other amenity. Its agreement with JetBlue follows a months-long bidding war between JetBlue and Frontier Airlines for Spirit.
Fare Prices
As those bids escalated, JetBlue argued that it had more leverage to bring down fares overall in an industry where Delta, American, United and Southwest control roughly 80% of the U.S. market. However, some analysts expect fares to rise from the deal regardless.
The combination would also give JetBlue more planes and pilots. And it would open up new lanes of expansion after limited organic growth prospects.
Meanwhile, airline stocks remain under pressure as the industry struggles to staff up, following pilot shortages and Covid-related buyouts in 2020, leading to thousands of flight delays and cancellations. Issues related to weather and air-traffic control have also disrupted service. Some union members have complained that the airlines are scheduling flights they can't staff.
Fuel costs are still elevated, following Russia's invasion of Ukraine this year. But some airlines expect those prices to ease.
