Budget airline shares jump on sunnier outlook for travel despite pandemic

Key Points
  • Spirit and Allegiant each beat revenue estimates for the third quarter.
  • Domestically focused airlines are trading higher than big network carriers.
  • Business and international travel have plunged in the pandemic, a wound that hits large carriers more.
A photo of a Spirit Airlines jet coming in for a landing in Las Vegas on 25 May 2020. JetBlue Airways Corp said on Thursday it was extending the expiration date of its cash tender offer for Spirit Airlines Inc to July 29 from June 30, after sweetening its bid for the ultra-low-cost carrier earlier this week.
Ethan Miller | Getty Images

As losses mount for the aviation industry, executives at budget airlines are growing more upbeat, despite recent increases in coronavirus cases, touting their leisure-focused networks and fares that appeal to the most price-sensitive consumers.

Spirit Airlines shares gained 9.5% to close at $17.04 Thursday after the company beat revenue estimates, reporting a smaller-than-expected loss for the quarter and less cash burn than was expected. The rally outpaced the NYSE Arca Airline index's 3.5% gain. The S&P 500 ended 1.2% higher.

Spirit's third-quarter revenue of $401.9 million was down nearly 60% from the year-ago period. The Miramar, Florida-based airline expects revenue to be down between 43% and 45% in the fourth quarter from a year ago, when its sales totaled close to $970 million.

"Obviously, if we see heightened travel restrictions or other disruptions, it could change this outlook," Matt Klein, Spirit's chief commercial officer, said in an earnings call Thursday. "We are not seeing anything in our bookings to suggest this is going to happen, but we are mindful that the recovery may still be a little bit bumpy, and there will be some noise while demand recovers to pre-COVID levels."

Shares of Allegiant Travel Company, the parent of Allegiant Air, surged 11% to end the day at $137.57 after the company gave a sunny outlook on a milestone that has eluded most of the industry.

Singapore Airlines has turned one of its grounded A380 aircrafts into a restaurant
Singapore Airlines turned a grounded aircraft into a restaurant

"We are flirting with cash-flow break-even," Allegiant CFO Gregory Anderson said on a Wednesday afternoon earnings call, citing bookings in September and October of more than $3 million a day. "While the environment remains fluid and bookings will certainly ebb and flow, our data suggests these average booking levels are sustainable moving forward." Allegiant's cash burn averaged $1.3 million a day in the third quarter.

Allegiant's "point-to-point domestic leisure focus should enable them to recover faster than others in the market," wrote Cowen & Co. airline analyst Helane Becker, raising her price target for Allegiant to $140 from $130 a share. Shares rose as high as $139.92 on Thursday.

While the economy has recovered ground from a record decline early in the coronavirus pandemic, airlines are still reeling. U.S. carriers lost more than $11 billion combined in the third quarter, usually the peak summer travel season.

Discount airlines are not as reliant on international and business travel as large network carriers. Those two segments have been the most hurt by the pandemic and are expected to recover last. In response, U.S. airlines large and small have been adding service in areas that cater to vacationers in hopes of capturing desperately needed revenue.

United CEO Scott Kirby on expansion of rapid testing for some passengers
United CEO Scott Kirby on expansion of rapid testing for some passengers