Tag Archives: UAL

Spirit’s November Traffic Fueled By Busy Thanksgiving Holiday Travel

Spirit Airlines’ (SAVE) growth continues to outpace competing airlines and with a 7% PE ratio discount compared to the industry average, the company has room to grow from a revenue and stock appreciation standpoint. This was evident again when the company, along with the other major airlines, recently reported November 2017 traffic results. While most major airlines experienced respectable growth due to busy Thanksgiving holiday travel, its very important to see Spirit continuing to post consistent growth with previous months. Spirit surpassed November 2016 growth of 15.5% and 16.4% for revenue passenger miles (RPMs) and available seat miles (ASMs) year over year.

Holiday traffic is more important as travelers value reliability when it comes to the holidays and this is an area Spirit has struggled in the past. I will discuss this is more detail, but November 2017 traffic data come in as follows:

Revenue passenger miles (RPMs) measures the traffic for an airline and is calculated by multiplying the number of revenue-paying passengers for the month by the total distance of flights for the month. Spirit Airlines RPMs increased 17.3% year over year to over 2.08 billion. Spirit wasnt the only airline to see increased traffic during November. In comparison to other airlines, United (NYSE:UAL) by far led the way with a 5.1% increase. Behind Uniteds stellar month was Delta Air Lines (NYSE:DAL) at 3.5% increase, Southwest (NYSE:LUV) with increases of 3.4%, and JetBlue (NASDAQ:JBLU) right behind with an increase of 3%.

Average seat miles (ASMs) measures the airlines’ flight carrying capacity and is calculated by multiplying the number of seats available for passengers during the month by the total distance of flights for the month. Spirit Airlines’ ASMs increased 17.1% year over year to over 2.55 billion. This was a much greater increase compared to other airlines with Uniteds 5.1% increase being the next largest jump at over 3 times less. JetBlue and Delta followed behind with increases of 4.3% and 2.9%, respectively. Lastly, Southwest fell well behind competitors with an increase of only 2.5%.

Based on these results for the month of November 2017, Spirit Airlines continues to show impressive growth in comparison to the other airlines. It shows that their unique and market disrupting business model is still effective with RPMs and ADMs metrics both in the high teens and well above competitors. The 17.3% gain in RPMs was more than 3 times the next largest growth posted in the industry by United. With RPMs and ASMs of only 2.08 billion and 2.55 billion, both of which are significantly below the other major airlines, there is a lot of growth to be achieved by the low-cost airline.

While Spirit has seen extraordinary growth throughout much of the year, its encouraging to see such strong traffic in November. AAA was projecting a 3.3% year-over-year increase of Americans traveling 50 or more miles over Thanksgiving to a total of nearly 51 million individuals. These projections ranked as the busiest Thanksgiving travel since 2005. Within that, there are certain economic trends that skew that travel toward airlines. Airlines received the largest growth of Thanksgiving travelers with a 5% increase largely due to the highest Thanksgiving gas prices since 2014. Given Spirits issue with reliability, I was encouraged to see them get such a large percentage of this volume growth. Generally, I would expect travelers to be willing to pay a higher ticket for a higher probability of reaching their destination, but Spirit has put a large effort into fixing this negative image. In early December, the company announced a second straight month of record-breaking on-time success rate with 90.4% of all network flights arriving on-time in the month of November. This has culminated into a 4% system-wide on-time performance improvement through the first 11 months of 2017.

Improving this metric and ultimately the companys public image is a key initiative for Spirit and it becomes all the more important around the holidays. Spirit must keep this going in December and the Christmas holiday when AAA expects a record-breaking 107 million Americans to travel for the holiday. 6.4 million of them will travel by air, which is a 4.1% increase from the prior year. Im encouraged that Spirit will see a large portion of this increase largely due to their ability to increase their on-time success rate and their success in taking advantage of Thanksgiving holiday travel. A strong December will get the company off to a positive start for 2018 where I expect this positive momentum to continue.

While there are certain factors that could impact this trend, a lot of uncertainties are more likely to impact international travel versus domestic travel where Spirit Airlines concentrates. Additionally, the ongoing open contract negotiations with their pilots must be closely monitored. The pilots are represented by the Air Line Pilots Association and the two parties have been in an over 2-year bitter contract negotiation. Data shows that Spirit pays their pilots about half of what the other large airlines are paying their pilots due to their low-cost business model. As was seen earlier in the year, the pilots have the ability to impact flights and cause pain to shareholders–this situation should be closely monitored, but given the federal court order win in May, Im hopeful that the worst is behind Spirit.

In order to take full advantage of this increase in passengers, Spirit must continue to offer cheaper fares while managing customer service issues and the associated bad publicity. With their unique business model, Spirit Airlines is able to offer fares, on average, 40% cheaper than other airlines, according to the Department of Transportation (DOT) in a recent study. Even after adding additional items, such as seat assignments, bags, and refreshments, the total fare is 35% lower according to the same DOT study. Because of the company’s unique business model, the company tends to not spend on investments such as large dollar advertising campaigns, multiple-class cabins, and other technologies such as satellites and wireless internet equipment. Concentrating on operational efficiency allows the company to offer the lowest possible fares while still achieving higher profit margins than any other U.S. airline.

From a financial statement perspective, the company last reported third-quarter 2017 results. The company translated increased traffic into more revenue at a growth rate of 10.6% to $687 million. Despite the revenue growth, costs continued to climb at a slightly higher rate of 20% to $583 million. The increase in costs was attributed to flight volume, passenger re-accommodation expense, and higher fuel rates. The higher re-accommodation expenses were largely due to hurricane season. Again, this is something all airlines are dealing with and it isnt changing customer sentiment. From a valuation standpoint, Spirit Airlines stock looks cheap at a PE ratio of 14.3 compared to an industry average of 15.3 meaning the stock has nearly 7% to grow until it reaches the industry average.

With any rapid growth plan, there are some risks investing in Spirit Airlines; however, I believe the potential reward outweighs the risk. The above-industry average November 2017 and Q3 results compared to the other major airlines shows that their unique business model is continuing to be successful with airline customers even during the busy and time-sensitive holiday travel season. Given this success and low valuation, I believe the company is in a great position to take advantage of the expected increase in airline passengers as a result of the improving US economy and lower fuel prices. I fully expect the rapid growth story to continue through the remainder of 2017 and into 2018.

Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in SAVE over the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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Najarian Brothers See Unusual Options Activity In United Continental And UPS

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On CNBC's "Fast Money Halftime Report", Pete Najarian spoke about unusually high options activity in United Parcel Service, Inc. (NYSE: UPS). He said that options traders are buying the January 2020, 140 strike calls. Around 20,000 call options were traded in the first half of the session and traders were paying $3.20 for them. The trade breaks even at $143.20 or 21.12 percent above the current market price. Pete Najarian owns shares of UPS and he thinks the stock is going much higher.

Jon Najarian said that options traders were buying the November 62.50 calls in United Continental Holdings Inc (NYSE: UAL) and they were selling the out of the money puts to finance the purchase of calls. Jon Najarian followed the trade and he is planning to hold the position for two weeks to a month.

3 Stock Ideas from the World’s Top Hedge Fund Managers”

Crowds of investors and media professionals gathered in New York earlier this monthfor the 22nd annual Sohn Investment Conference. The event, dedicated to the memory of Ira Sohn, brings together some of the world’s most renowned hedge fund managers who share their top investment ideas while raising money for pediatric cancer research.

I was privileged to grab a seat at the exclusive conference and listen to the likes of Bill Ackman, David Einhorn, Keith Meister, Jeff Gundlach, and Debra Fine make their best pitches.

Here are three compelling ideas I heard — along with my on take on whether I think they can make you money.

Coins in jars

Source: Getty Images

Will Tesla be a 7-bagger?

Chamath Palihapitiya of Social Capital sent murmurs (and several loud chuckles) through the crowd when he named Tesla (NASDAQ:TSLA) his top pick at this year’s conference. Palihapitiya, a former Facebook (NASDAQ: FB) executive and part owner of the NBA’s Golden State Warriors, made waves at last year’s conference when he called Amazon (NASDAQ: AMZN) a “10x opportunity in 10 years.”

This time, Palihapitiya lauded the amazing success that Tesla has had with its Model S and Model X vehicles, which in just a few years have captured meaningful market share. He thinks Tesla’s forthcoming vehicle the more mainstream Model 3 could create a paradigm shift for Tesla. He thinks it could be a breakthrough like the iPhone was for Apple (NASDAQ:AAPL) in consolidating a fragmented market and becoming the go-to brand. “People who buy the Model 3 are never going back to an internal combustion engine,” he said.

According to Palihapitiya, if the Model 3 puts Tesla on the same S-curve that Apple has experienced over the past decade, then its auto business alone could be worth as much as $337 billion in 10 years. Based off of Tesla’s share price at the time of his presentation, that would make Palihapatiya’s bet a 7-bagger in a decade.

I should mention, however, that Palihapitiya’s fund isn’t actually investing directly in Tesla’s shares. Instead, he’s opted to invest in Tesla’s 2022 convertible bonds, which, based on their $327 conversion price, give investors the vast majority of the upside of his bet, but with significantly less downside and some interest income to boot.

My take: As a Tesla shareholder myself, and having recommended it in the past for our Supernova service here at the Fool, I’m of course thrilled by Palihapitiya’s view. And his convertible bond approach appears to be a superior choice to holding Tesla’s common shares. That said, one thing he didn’t address adequately is enormous amount of capital Tesla will need over the next several years in order to establish the production capacity to fulfill CEO Elon Musk’s ambitious goals (and Palihapitiya’s expectations). It’s entirely possible Tesla could be worth $337 billion (or a lot more) someday, but if Tesla is forced to issue more shares to raise capital (as its done several times in recent years) you could end up with something far less than a 7-bagger on your investment.

Soaring high with (gulp!) United Airlines?

One of the most compelling pitches I heard at the Sohn conference came courtesy of Brad Gerstner of Altimeter Capital. The activist investor made a strong case for the airline industry. According to Gerstner, the massive consolidation in the industry has restored pricing power, boosted load factors, and shored up once-beleaguered balance sheets. There has been a $50 billion positive profit swing for the airlines over the past 10 years, and the top four domestic carriers now control a vast majority of the industry’s revenue.

One of the top four is United Continental (NYSE:UAL), which has been in the news lately, though not for the right reasons. Gerstner said United has the best fleet and best network among the top four, but also has the worst margins, something he hopes will change thanks to new leadership at the executive and board levels, installed in part due to Altimeter’s activism. Gerstner said he thinks United can generate $5 billion in incremental profit over the next five years. If that comes to pass, he thinks United shares can trade in a range of $135 to $168. Even better, if United management’s targets for profitability, and if airlines are awarded profit multiples similar to companies in other transportation sectors, then United could reach as high as $235 per share, compared with today’s $77 price.

My take: With none other than Warren Buffett of Berkshire Hathaway (NYSE: BRK-B) also investing in airlines and singing their praises as of late, Gerstner stuck the landing with his United pitch. There’s a definite case to be made that industry conditions have changed for the better, much like they did for the railroads starting more than a decade ago. United may not be the best of the bunch, but you’d do well to take a very close look at the industry. If Gerstner is right, there are multi-bagger opportunities looking down at you from up above.

A certain 100% return?

My award for most entertaining pitch at this year’s Sohn conference definitely goes to Josh Resnick, the founder and managing partner of Jericho Capital. Resnick pinpointed Frontier Communications (NASDAQ:FTR) as a walking dead “carcass” of a company that’s destined to go to $0. Yes, Resnick and Jericho are short the company betting it will go down.

According to Resnick, Frontier is a foundering wireline and DSL business that’s close to drowning as wireless and broadband competitors continue to turn the home telephone into an antique tool from a bygone era. He cited the company’s dreadful capital allocation — management paid billions of dollars to acquire wireline assets from Verizon (NYSE:VZ) and others that are now almost worthless — its massive debt of $18 billion, and nonexistent profit that will almost certainly force the company into bankruptcy in the near future.

My take: Shorting can be risky, but I’m siding with Resnick on this one. I see no way out for Frontier. It’s a dying business with a debt load that is almost 10 times the company’s market capitalization. And Frontier’s share price is about to undergo a 1-15 reverse split never a good sign for investors, but something managers will often do when faced with a sub-$2 share price and the threat of delisting. Like your grandma’s rotary phone, Frontier’s days are numbered.

A Peek Into The Markets: U.S. Stock Futures Mostly Up Ahead Of The Labor Department's JOLTS Rep

A Peek Into The Markets: U.S. Stock Futures Mostly Up Ahead Of The Labor Department's JOLTS Report Related AMZN Amazon Gaining On Netflix In Original Content Investment Jeff Bezos And Masayoshi Son Both Want To Win India's E-Commerce Market Union Bankshares Corp Buys BB&T, Qualcomm, TE Connectivity, Sells BCE, Colgate-Palmolive … (GuruFocus) Related UAL United Air Facing A Twitter Tailspin As Responses To Overbooking Fiasco Flood In Unfriendly Skies: Passenger Ejection From Overbooked Flight Raises Questions About Bumping United Airlines Flunks Economics 101 (Investor’s Business Daily) Pre-open movers

U.S. stock futures traded mostly up in early pre-market trade. The NFIB small business optimism index for March is scheduled for release at 6:00 a.m. ET. The Johnson Redbook Retail Sales Index for the latest week will be released at 8:55 a.m. ET. The Labor Department's JOLTS report for February is scheduled for release at 10:00 a.m. ET. The Treasury is set to auction 4-week bills at 11:30 a.m. ET. The Treasury will auction 3-year notes at 1:00 p.m. ET.

Futures for the Dow Jones Industrial Average rose 1.92 points to 20,665.02, while the Standard & Poor's 500 index futures was up 1.62 points to 2,357.16. Futures for the Nasdaq 100 index rose 13.11 points to 5,880.93.

Oil prices traded down as Brent crude futures lost 0.13 percent to trade at $55.91 per barrel, while US WTI crude futures also fell 0.13 percent to trade at $3.01 a barrel.

A Peek Into Global Markets

European markets were mostly up today, with the Spanish Ibex Index rising 0.05 percent, STOXX Europe 600 Index up 0.13 percent and German DAX 30 index down 0.10 percent. The UK's FTSE index also traded lower by 0.23 percent, while French CAC 40 Index gained 0.09 percent.

In the Asian markets, Japan's Nikkei Stock Average declined 0.27 percent, Hong Kong's Hang Seng Index was down 0.72 percent, China's Shanghai Composite Index rose 0.60 percent and India's BSE Sensex was up 0.72 percent.

Broker Recommendation

Analysts at Goldman Sachs upgraded Amazon.com, Inc. (NASDAQ: AMZN) from Hold to Buy, with a price target of $1,000.

Amazon shares rose 1.36 percent to close at $907.04 on Monday.

Breaking news United Continental Holdings Inc (NYSE: UAL) shares threatened to fall 5 percent in early premarket trading, with the airline continuing to face criticism regarding the passenger who was forcibly de-boarded from an aircraft on Sunday. Advanced Micro Devices, Inc. (NASDAQ: AMD) shares declined sharply by 3.11 percent to the bottom of the S&P 500 on Monday, as compared to the 0.07 percent rise in the S&P 500. The shares closed at $13.10 on Monday. Sunoco LP (NYSE: SUN) has entered into an agreement to sell more than 1,00 gas stations and convenience stores to the parent company of 7-Eleven. PICO Holdings Inc (NASDAQ: PICO) announced that UCP Inc (NYSE: UCP), its majority owned subsidiary, has entered into an agreement to merge with Century Communities, Inc (NYSE: CCS) in a stock and cash transaction. AMC Entertainment Holdings Inc (NYSE: AMC) announced the launch of AMC Feature Fare, a menu innovation by the company. This innovation will be launched across both AMC and AMC Classic theaters. AMC Entertainment said that it would revamp 400 theaters into Feature Fare venues with the full menu.

Are America’s Airlines Under Cyber Attack?”

A Delta Air Lines plane parked on the tarmac.

Image source: Delta Air Lines.

For the second time in a week, a major U.S. airline grounded its fleet after its computer systems stopped working.The latest incident involved Delta Air Lines (NYSE:DAL), which canceled 170 flights on Sunday and another 110 on Monday because its “essential IT systems went down” over the weekend.

What’s going on here?

The issue at Delta Air Lines alone doesn’t seem suspicious — computers fail all the time. Butthere are two things that could lead one to wonder if there’s more to this than meets the eye.

The first is that Delta isn’t just some guy like me sitting at home who doesn’t know a thing about computers.It has 83,000 employees. It generates over $40 billion worth of revenue each year. The point is, Delta has plenty of resources to ensure that its systems don’t just “stop working.”

The second piece of the puzzle is that Delta’s issues come one week after a similarly ambiguous glitch brought down the computer system at United Airlines, a subsidiary of United Continental Holdings (NYSE:UAL). Like Delta, United Airlines has tens of thousands of employees and earns tens of billions of dollars in annual revenue.

While it’s impossible to say for sure if there’s a connection between these two incidents, as neither company has explained why their computers crashed, there’s reason to be suspicious that they weren’t simply innocent failures of technology.

The cyber-threat landscape

In the course of researching cyber-threats to banks, I spoke last week withJohn Carlin, the former assistant attorney general for national security at the Department of Justice and one-time chief of staff at the FBI. There are few people who know as much about cyber-threats today as Carlin, as is clear if you watch his appearance on The Charlie Rose Show here.

Carlin pointed out both to me and to Rose that cyber attacks are waged against the American government and companies all the time. At the FBI, they even have a room with an enormous monitor mounted on the wall that tracks attacks in real time.

One of the stories Carlin shared was about the time that the People’s Liberation Army of China was caught routinely hacking into American corporations’ computers to steal trade secrets. “One time they stole the pricing information from a solar company so they could price-dump,” the former law-enforcement officer explained. “To add insult to injury, when they were sued for doing so, they then stole the litigation strategy from [the solar company] as well.”

The purpose of the attack wasn’t to bring down the solar companies’ systems, but those types of intrusions are just as common.Hackers regularly break into systems and then bring them to a halt until the victims make ransom payments. Or, in the case of a sustained cyber attack on four dozen U.S. banks from 2011 through 2013, which was traced back to the Iranian Revolutionary Guard, systems can be disrupted in retaliation for cyber attacks conducted by our own intelligence agencies, as news reports speculated at the time.

But what about Delta and United?

To get back to Delta Air Lines and United Airlines, then, it doesn’t seem like an unreasonable stretch of the imagination to assume that the unexplained computer outages at the two companies weren’t a coincidence at all, but instead the result of cyber attacks. Because airlines, like banks, are part of the United States’ critical infrastructure, they’re of particular interest to adversarial nations.

If this is the case, and it seems to fit what happened at Delta and United over the past two weeks, then it obviously adds another element of risk to buying and owning airline stocks that investors should keep in mind.