Warren Buffett, in his 1989 letter, said that the cost of thumb sucking had been huge for his shareholders. In the middle of December 2012, I wrote about Spirit Airlines Incorporated (NASDAQ:SAVE) and suggested that the market significantly undervalued the business at that time. Even after writing an article, I sat still and did not buy into this airline. Since then, Spirit Airlines Incorporated (NASDAQ:SAVE) has jumped by nearly 52%, from $17.14 per share to nearly $26 per share, in a period of just more than three months.
The best performer and the most profitable airline
While Spirit Airlines Incorporated (NASDAQ:SAVE) have gained nearly 44.4% since the beginning of the year, Alaska Air and Southwest Airlines Co. (NYSE:LUV) advanced by around 38.6% and 20.7%, respectively. I personally think Spirit Airlines deserves that, due to its superior performance over the other two airlines.
|Operating margin (%)||D/E||ROIC (%)||EV/EBITDA|
|Alaska Air Group, Inc. (NYSE:ALK)||12.63||0.6||11.2||4.77|
|Southwest Airlines Co (NYSE:LUV)||4.72||0.5||3.25||5.57|
|Spirit Airlines Incorporated (NASDAQ:SAVE)||13.15||N/A||20.7||7.42|
Among the three, we can clearly see that Spirit Airlines is the most profitable airline with the highest operating margin of 13.15% and also the highest return on invested capital of more than 20%. Alaska Air ranks second with a 12.63% operating margin and more than 11% return on invested capital. From the table above, investors would not be impressed with the Southwest Airlines’ operating performance. Southwest Airlines Co. (NYSE:LUV) generates the lowest operating margin at 4.72% and also the lowest return on invested capital of only 3.25%. Interestingly, while Alaska Air and Southwest Airlines Co. (NYSE:LUV) employed some debt in their operations, Spirit Airlines has a debt-free operation. As of December 2012, it had $583 million in total stockholders’ equity, $417 million in cash and no debt.