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Spirit Airlines: An Industry and Company Overview

Spirit Airlines: An Industry and Company Overview. Carl Brinker January 15, 2014. The Industry. The Industry. Consistent mergers & acquisitions AMR bankruptcy & US Airways – December 2013 4 firms hold over 60% market share Spirit market share: insignificant

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Spirit Airlines: An Industry and Company Overview

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  1. Spirit Airlines: An Industry and Company Overview Carl Brinker January 15, 2014

  2. The Industry

  3. The Industry • Consistent mergers & acquisitions • AMR bankruptcy & US Airways – December 2013 • 4 firms hold over 60% market share • Spirit market share: insignificant • Sensitive to commodity prices • Volatile oil prices; high jet fuel prices • Current and future tax concerns • 20% of current ticket prices • Obama budget request – 2014

  4. The Industry (continued) • Saturated market • Low growth, esp. 2011-2013 • Intense pricing competition • Cash as a buffer for downturns • 2009 demand slump • High leverage • High susceptibility to economic shock

  5. The Company

  6. Company History • 1964: Clipper Trucking Company founded • 1980: Charter One founded (shipping company) • 1990: Passenger service begins • 2007: Transition to “ultra low-cost” model • Low fares, high fees • Similar to Ryanair business model

  7. Recent News & Issues • Controversial advertising campaigns • Columbian prostitution scandal

  8. Recent News & Issues • 2000: Fined for FAA emergency signage & equipment violations • 2008: Bureau of Transportation complaint study • 2010: Pilot strike • 2013: Two flights make emergency landings within 10 days of each other

  9. Financial Position (2012) • Revenue: $1.3 billion (up 23% from 1.1b) • Net Income: $108 million (up 42% from 76m) • EPS: $1.49 (up from $1.44) • Total Assets: $920 million • $417m in cash • Total Liabilities: $431 million • $277m current

  10. Analysis: Porter’s Five Forces • Primary Activities: • Inbound Logistics: quality control & equipment management • Operations: quality control, contract maintenance • Outbound Logistics: resource allocation & planning • Marketing & Sales: low-price focus • Servicing: low-cost maintenance

  11. Porter Analysis (cont) • Force Analysis: • Industry competition: high • Bargaining power of buyers: low • Bargaining power of suppliers: moderate • Threat of substitution: very high • Threat of entry: high

  12. SWOT Analysis • Strengths: • Efficient, knowledgeable of customer base • Weaknesses: • Poor service • Opportunities: • More resilient in recessionary periods (an inferior good) • Growth into vacated markets • Threats: • Relatively low barriers to entry • Subject to regulatory changes • Faces behemoth competitors

  13. First Impression • Highly competitive and volatile industry • Spirit’s strong financial performance: sustainable? • Small size: target for acquisition? • Reputation: sizeable liabilities?

  14. Thank You

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