Spirit Airlines Surges After Cutting Costs and Cancellations

(Bloomberg) -- Spirit Airlines Inc. jumped the most in eight months after reporting that its effort to cut costs, increase fuel efficiency and reduce cancellations is starting to pay off.

Improved operations are “a good story” that the ultradiscount carrier has been able to market to customers, Duane Pfennigwerth, an analyst at Evercore ISI, wrote to shareholders after Spirit released an investor update late Wednesday. The firm raised its price target to $58 from $52.

A recent agreement with pilots that allows them to be reassigned when a trip is dropped has driven down cancellations and costs, Pfennigwerth said. That is key for a discount carrier that had been among the worst in the industry for customer complaints.

The shares climbed 9.3 percent to $39.48 at 12:42 p.m. in New York after surging as much as 10 percent, the biggest intraday gain since October.

Spirit’s gains come as rising jet-fuel costs pressure earnings throughout the industry. Delta Air Lines Inc. on Thursday cut its 2018 profit outlook. A day earlier, American Airlines Group Inc. signaled that lower-than-expected domestic fares will constrain its ability to offset higher costs.

“Spirit is executing their cost strategy, which should benefit the company through the remainder of the year and into 2019,” Cowen & Co. analyst Helane Becker, wrote in a note to investors. The firm increased its estimate for Spirit’s 2018 profit to $3 a share from $2.95.

©2018 Bloomberg L.P.

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