Why Spirit Airlines Stock Fell Today

This article was originally published on this site

© Provided by The Motley Fool Why Spirit Airlines Stock Fell Today

What happened

On Wednesday, Delta Air Lines (NYSE: DAL) sounded the alarm about rising fuel costs. Investors reacted by sending shares of the entire airline industry down, with Spirit Airlines (NYSE: SAVE) shares falling as much as 5% during the day’s trading.

So what

The airline industry was hit hard by the pandemic, but has slowly made its way back in 2021 as vaccination rates climbed and more people started traveling again. On Wednesday, Delta said that it generated a profit for the third quarter. But the airline also provided a warning that the recovery will not be without turbulence.

© Spirit Airlines A Spirit Airlines jet on the tarmac.

Delta said it expects to pay an average of $2.40 per gallon for fuel in the current quarter, up from $1.94 per gallon in the recently completed third quarter. Fuel is the biggest non-labor cost for airlines, so the added few pennies will make a real difference. The additional cost is likely to push Delta into the red in the fourth quarter, even if COVID-19 infection rates continue to decline and demand continues to grow.

Load Error

Delta is the first airline to report quarterly results, and investors are anticipating that other airlines will face the same issues it sees. Delta is still seeing reduced demand, especially for international travel. Compared to the third quarter of 2019, domestic revenue was down 28% and international was down 58%.

Now what

The good news is the airlines are seeing a recovery from the pandemic. The bad news is this is still a difficult industry. Delta’s warning caused share declines at a number of carriers including American Airlines Group and United Airlines Holdings, but Spirit fell more than any of them.

Spirit is an attractive investment in part because its costs are among the lowest in the industry, meaning it can win price wars against other airlines. But fuel can be a great equalizer: Spirit’s cost advantages are mostly due to labor and operational efficiencies. In an environment where fuel costs are driving fares, and not non-fuel costs, it is harder for Spirit to stand out.

For long-term minded investors, there is still a lot to like about Spirit’s competitive position and growth potential. But if the last year and a half has shown anything, it is that nothing ever comes easy in the airline industry. Spirit shares reflected that reality on Wednesday.


10 stocks we like better than Spirit Airlines

When our award-winning analyst team has a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*

They just revealed what they believe are the ten best stocks for investors to buy right now… and Spirit Airlines wasn’t one of them! That’s right — they think these 10 stocks are even better buys.

See the 10 stocks


*Stock Advisor returns as of September 17, 2021


Lou Whiteman owns shares of Delta Air Lines and Spirit Airlines. The Motley Fool owns shares of and recommends Spirit Airlines. The Motley Fool recommends Delta Air Lines. The Motley Fool has a disclosure policy.

Continue Reading