The Spirit Airlines Model Is 'Growing Stronger,' Barclays Says

On Wednesday, David Fintzen of Barclays commented that Spirit Airlines Incorporated (NASDAQ: SAVE) continues to be a Top Pick within the US airline sector. The stock trades at a premium to US airlines, he said, but not to the degree it's justified at, given the company's combination of best-in-class returns and growth potential.

Spirit Airlines continues to see competitive pricing on off-peak days due to lower oil costs. However, the company's Total Revenue Per Available Seat Mile (TRASM) guide of a 9 percent to 11 percent decline is steeper than expected, Fintzen noted.

Changes in catering and distribution "optically" drag on TRASM, and investors should focus instead on the company's pre-tax margin that is "more telling," he added.

Fintzen also explained that Spirit is on pace for around a 970 basis point-improvement in first quarter margins, 60 basis points better than expected.

Related Link: Spirit Airlines Remains One Of The Few Growth Stories In U.S. Airline Industry

Looking forward to the full year, the company will be one of only two airlines within the analyst's coverage that will see its non-fuel Cost Per Available Seat Mile (CASM) decline. As such, the analyst is now raising his 2015 earnings per share estimate to $5.55 from $5.15.

"Big picture, model only growing strong," Fintzen wrote. "Success as a LCC hinges on both relative and absolute costs, and both look to be improving for Spirit Airlines."

Bottom line, he concluded, Spirit's focus on price sensitive travelers means that it can reach deeper down the demand curve at industry-leading returns. That allows it to further develop a customer base that remains unappealing to higher-cost competitors.

Barclays remains Overweight on Spirit Airlines with a $110 price target.