The spirit enabled the shares of the airlines could benefit from the southwest effect

The included spirit airlines (NYSE:save) continues to make waves in the aviation industry. Although employee issues and complaints of poor service plague the airline’s image, the spirit of the stock continues to amaze investors.

As profits grow and the service expands, the spirit continues to receive the highest earnings growth rates in the industry. However, one move at the present time, the company thought can lead to an even higher level of profit growth in the spirit of the promotion.

Helped passengers to save on tickets

From the investor’s point of view, the spirit of the event was the darling of airlines. Its ultra-low-cost strategy has been a boon to passengers who want cheap rates, and investors who enjoy higher profits from lower costs.

This ultra-low-cost segment have changed the industry. Along with airlines such as Ryanair also holdings PLC (ADR) (OTCMKTS:RYAAY), passengers travel company (Nasdaq:ALGT), and Milwaukee, it offers “ultra-low” airlines fares and makes its margins with paying for checked baggage, carry-on baggage and other services.

It separates the save from carriers such as southwest airlines co (USA:LUV) or jetblue airlines Airways Corporation (Nasdaq:JBLU). Although still considered “low cost” South-West and jetblue offer a higher level of services.

However, in respect of income and profits, no airline has more success with this strategy than spirit. Over the past five years, revenue growth averaged about 15% per year. Net profit also increased on average by 30%.

As I mentioned in a recent article, the growth must continue for a long time. The company will release quarterly earnings on 26 April, and the spirit has issued new guidance for Q1 11 APR. Save expects revenue per mile place will decrease by 2.4%.

However, if the cost per mile of the place, a decrease of 5%, profit is expected to increase amid falling revenues. The spirit also expects a capacity increase of 22.3% year-over-year.

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The spirit shares and the pilot to pay

After all, not every fight is to keep the costs low, successfully. In February, the spirit and its pilots have ratified an agreement to increase pilot salaries by an average of 43%. This will lead to a reduction of profits in the near future, profit growth will resume in the future.

Against the background of these high costs, Spirit airlines, included plans to temporarily slow down its expansion. However, “slow” means at least 10%. The airline takes this step to evaluate the growth and slow the rate of fare wars that have squeezed the field for the entire industry.

Still, analysts continue to expect brisk level of capacity expansion in the future. Adding aircraft remains part of the plan. Like southwest, retains only uses one type of aircraft to keep costs low. Its entire fleet consists of Airbus A320 jets. Save plans to add a further 49 Airbus aircraft by the end of 2021, increasing the fleet Size to 161.

The strategy of “South-West”

However, a new type of extension may be the cause of the spirit of the airline. Before the saturation point in the United States, the spirit is considering adding a smaller aircraft to its fleet. Using smaller jets would make a medium-sized portions of more cost-effective markets.

Many secondary markets are served only on legacy carriers such as American airlines Group Inc (Nasdaq:Neo), Delta air lines, Inc. (Europe:dal), and United European company (Ticker NYSE:ual can). Legacy carriers dominate many of these markets and charge high rates. Ultra-low-cost carrier to enter the market can change.

The Department of transportation (DOT), released in 1993, found that when southwest airlines entered the market, the average rates decreased by 50% and air travel by more than three times. Point called this result “the southwest effect”.

However, the spirit may become the ultimate beneficiary if he can displace legacy carriers in most or all secondary markets. Such a game-changing step may take the spirit of the promotion to new levels.

Final thoughts on the spirit of stock

Amid aggressive growth, spirit considers a new strategy that took the spirit of the campaign to new levels. The spirit has already achieved the fastest rates of growth in the industry. After the New pilot contract, the airline is slowing expanding to consider new options. One of his most important steps may be to bring ultra-low-cost strategy for secondary markets.

Southwest after changed the industry, bringing more low fares in large cities. If you move by saving in smaller markets has the same effect, they could start to call tariff reduction and empowerment of the “spirit of power”.

At the time of this writing, will Healy not to take a position in any of the above actions.

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