Florida-based Spirit Airlines has raised its margin and capacity guidance for the rest of the year, ahead of the airline's plan to grow capacity by as much as 30% in 2015.
The carrier is forecasting an operating margin of 17.5-18.5% for the second quarter, in guidance released today with its first quarter financial results. Spirit's full-year operating margin is now expected to be in the 16.5-18% range, up from the 16-18% range it last provided earlier this month.
Spirit's chief executive Ben Baldanza says in an earnings call on 29 April that the airline's improved margin guidance assumes that the travel demand environment remains the same, and that fuel prices remain around $3.13 per gallon.
Spirit grew capacity by 21% in the first quarter. It expects to raise available seat miles (ASMs) by 17.3% in the second quarter, 14.6% in the third and 18.8% in the fourth. The airline is guiding a full-year capacity increase of 17.8%, up from the 17% it last provided.
On the cost side, Spirit expects adjusted cost per ASM (CASM) for the second quarter to come in at 9.98-10.04 cents, and 9.82-9.88 cents for the full year. Adjusted CASM excluding fuel is forecast to be 6.12-6.18 cents for the second quarter and 5.97-6.03 cents for the full year.
Higher pilot costs due to new pilot fatigue rules that were rolled out this year, as well as depreciation and amortisation, will result in a two percentage points hike in Spirit's adjusted CASM excluding fuel, says chief financial officer Ted Christie in the earnings call.
The carrier will also see some cost pressures towards the end of the second quarter as Spirit ramps for growth in 2015, he adds.
Spirit plans to grow capacity as much as 30% in 2015, Baldanza says today. Asked by an analyst if this could erode Spirit's operating margin, Baldanza says the airline is still "very early in the growth phase". "There are a lot of markets that can benefit from our service... High growth rate doesn't suggest margin pressure," he adds.
The airline will take delivery of 15 aircraft in 2015, one more than what it had expected earlier this year, after the airline accelerated delivery of one current generation Airbus A321 to 2015 from 2016. The acceleration is part of a series of changes that Spirit made to its aircraft purchase agreement in the first quarter, mostly in favour of the larger Airbus A321 variant.
Spirit has converted five current generation A320s to A321s, and five A320neos to A321neos. It has also deferred deliveries of two current generation A320s to 2018 from 2017.