In recent months, progress in mass vaccination and growing passenger numbers at TSA checkpoints have been a boon for the airline industry. However, new coronavirus variants are triggering fears of more infection waves limiting international travel and tourism demand. The shares of Spirit Airlines (NYSE: SAVE) reached pre-Covid levels in March and have been trending downward in recent weeks. The company’s lower debt outstanding, coupled with the U.S. government’s third phase of payroll support, are key triggers of the stock’s recovery in the near-term. Moreover, passenger numbers at TSA checkpoints are just 20% below 2019 levels. As PSP-3 requires airlines to suspend dividends and share repurchases until September 2022, Trefis believes that SAVE stock is a good value investment. We highlight the historical trends in the company’s revenues, margins, and valuation multiple in an interactive dashboard analysis, Why Spirit Airlines (SAVE) Stock Has Lost 43% Since 2018?
Government aid supported Spirit Airlines’ balance sheet in 2020
In 2020, Spirit Airlines reported $1.8 billion of total revenues and just $225 million of operating cash outflow assisted by $300 million of relief funds under the CARES Act. In Q1 2021, the company received $185 million of relief funds under PSP-2 and therefore reported $187 million of operating cash. Thus, government aid has been a key factor offsetting salary-related expenses (salary and wages account for 26% of operating expenses). The company’s long-term debt increased by $1.1 billion almost comparable to $800 million rise in cash and cash equivalents – highlighting efficient capital and operations management during the pandemic. Given the company’s superior margins in comparison with larger carriers, we believe that the stock will recoup short-term dips driven by market momentum.
Lull in air travel business is waning
Growth in passenger figures led to a guidance revision by all airline companies with an expectation of positive cash generation during the latter half of the year. Despite the resurgence in coronavirus cases affecting international and business travel demand, the third round of payroll support is likely to limit losses. The company will receive an aggregate of $200 million to support salaries and wages in the second and third quarters.
Is there a better investment over Spirit Airlines? Spirit Airlines Stock Comparison With Peers summarizes how SAVE compares against peers on metrics that matter. You can find more such useful comparisons on Peer Comparisons.