Tuesday, Susquehanna expressed a cautious outlook for Spirit Airlines (NYSE:SAVE) shares, adjusting the price target to $2.50 from the previous $3.00, while maintaining a Negative rating on the stock. The firm identified a difficult operating environment for the airline and its ultra-low-cost counterparts heading into the second half of 2024 and the 2025 fiscal year.
The forecast for Spirit Airlines is impacted by several factors, including an excess of U.S. domestic capacity, with Available Seat Miles (ASMs) anticipated to increase by 4% year-over-year in the second half of 2024. Additionally, there is an expected plateau in leisure demand, influenced by a weakening macroeconomic backdrop.
Travelers (NYSE:TRV) are also showing an increased preference for premium products, with premium economy seats on U.S. domestic flights seeing a significant rise compared to figures from 2019.
Despite finalizing a new agreement extension with the Air Line Pilots Association (ALPA) in January 2023, Spirit Airlines is predicted to face substantial pressure on its 2024 capacity due to the Pratt & Whitney GTF engine recall. This issue is likely to contribute to increased costs excluding fuel (CASM-ex).
The broader ultra-low-cost business model is anticipated to encounter growth challenges. These include aircraft delivery delays, various supply chain disruptions like the Pratt & Whitney GTF engine recall, and labor shortages, including Air Traffic Control (ATC), particularly at leisure-oriented locations in Florida. These factors are expected to hinder the ability of ultra-low-cost carriers like Spirit Airlines to close the margin gap with network and low-cost carrier (LCC) peers.
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