Spirit also introduced its “Unbundlers” campaign to better educate travelers about its pricing strategy and how it differs from other airlines. The analysts were expecting revenue of around $571.12 million.
Advertisement
But the airline isn’t cutting prices everywhere, just where there’s competition.
For the third quarter 2015, Spirit’s total operating revenue was $574.8 million, an increase of 10.6 percent compared to the third quarter 2014, driven by an increase in flight volume, partially offset by a decrease in operating yields. The company recorded adjusted earnings per share of $2.77, beating the Zacks Consensus Estimate by 5 cents.
However, the worries expressed by American Airlines in the face of the growth of low-priced carriers have taken much of the sheen away from the carrier’s eighth successive earnings beat.
Reflecting the view of many American loyalists, one poster commented on a related FlyerTalk thread, “AA has to be very careful that in going after half of their revenue represented by once a year fliers they don’t risk losing the other half represented by their loyal frequent flier base, which they’ve tried so hard to protect and expand, and which they view as one of their strongest competitive advantages…”
How many less frills fliers will have to do without remains to be seen, as Kirby did not elaborate.
Although I believe Spirit Airlines is a long-term buy, American Airlines Group stands to benefit from Spirit’s pain. However, recent reports from Spirit show that not everything is ideal at the airline and this has resulted in a significant drop in its share price. In Chicago, where American has a hub, Spirit has 60 daily flights to 24 cities. In the early 2000s, after the vaunted “Southwest effect” had begun lowering fares in major markets, legacy carriers turned to an “airline-within-an-airline” model, with a goal of flying a lower-cost airline alongside their mainline operations. More than a quarter of American’s domestic capacity overlaps with Spirit’s, he said.
He said that also extends to global flights against low-budget carriers like Volaris in Mexico and Ryanair in Europe.
Advertisement
So far American will benefit from Spirit’s lower capacity growth forecast which will mean less ultra-cheap capacity being put on the market which could pressure American’s PRASM numbers. Does the world’s largest airline need to join a race to the bottom to lure the most price-sensitive customers? Analysts have cited ultra low cost carriers, or ULCCs, such as Spirit Airlines (NASDAQ:SAVE) as core drivers of lower PRASM numbers since they undercut full service carriers on price. “You can compete at very, very low prices and make money”.
