Spirit Airlines Is Crashing: Is It Still a Buy for Long-Term Investors? | The Motley Fool

After a strong run in its first several years as a public company, Spirit Airlines (NASDAQ:SAVE) has disappointed investors again and again since 2015. Yet while profitability has been receding, the carrier continued to exceed its long-term goal of generating “mid-teens or higher operating margins” — until now.

Unfortunately, a damaging dispute with its pilots and an industry price war sparked by United Continental (NYSE:UAL) have undermined Spirit Airlines’ margin performance recently. Let’s take a look at what this means for the company’s long-term prospects.

Spirit Airlines’ profit margin comes back to earth
For most of the past three years, Spirit Airlines has faced severe unit revenue pressure, as rivals have become more aggressive about matching its low fares. Nevertheless, its adjusted operating margin peaked in 2015 at 23.7%, thanks to the benefit of lower fuel prices.

Fuel prices fell again in 2016, but this time it wasn’t enough to offset the impact of declining unit revenue. As a result, Spirit’s adjusted operating margin slipped to 20.9%. However, this was still well above the company’s long-term target.

During the first half of 2017, margin performance deteriorated at an even faster rate. For the 12 months ending in June, Spirit Airlines’ operating margin fell to 17.5%. This included a roughly $45 million headwind from flight cancellations caused by the pilot dispute during May and June.

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Spirit Airlines Is Crashing: Is It Still a Buy for Long-Term Investors? — The Motley Fool.