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Spirit Airlines Incorporated (SAVE), Southwest Airlines Co. (LUV): Should You Stay While Chairman Leaves This Airline

Everything comes to an end. William Franke, the chairman of Spirit Airlines Incorporated (NASDAQ:SAVE) has revealed his plans to sell his stake in the firm and resign from the board. The announcement was released just after the company has reported its quarterly earnings.

The Wall Street Journal has reported that William Franke is apparently trying to buy Frontier Airlines, which is owned by Republic Airways Holdings Inc. (NASDAQ:RJET). Republic, which is heavy-loaded with debt, has been long searching for a buyer for this unit. Frontier generated $327.6 million of revenue in the second quarter.The airline held $902 million of assets. In June, Frontier served 1 million passengers, down 17% from a year ago. Republic was careful enough not to disclose neither the potential buyer nor the estimated value of the deal.

Does the chairman’s move put questions about the prospects of the company, which stock has already doubled this year?

Report reveals growth

Spirit Airlines Incorporated (NASDAQ:SAVE)Spirit Airlines Incorporated (NASDAQ:SAVE) has beaten estimates and reported that net profit rose 29.6% year-over-year. Revenue was up 17.6% The company has operated at a distinctive 17.8% margin. June’s load factor was an astonishing 88%. Spirit Airlines continued to flourish on its business model, which is based on low base fares. Customers enjoyed low ticket prices while paying for additional options.

Spirit Airlines Incorporated (NASDAQ:SAVE) expects to increase its capacity by 21.9% year-over year. The company has ordered 20 Airbus A312 aircraft, which is scheduled to arrive in 2017. All in all, it was another strong quarter for Spirit Airlines. This fact only adds to the intrigue of why the chairman decided to sell his stake.

Momentum seen across industry

Not every airline has been as successful as Spirit Airlines Incorporated (NASDAQ:SAVE) in beating earnings estimates. Southwest Airlines Co. (NYSE:LUV) and Alaska Air Group, Inc. (NYSE:ALK) have missed analysts’ estimates. Southwest Airlines has blamed sluggish domestic economy and the impact of government sequestration. In Alaska’s case the expectations were just too high. However, the report showed growth as well.

Southwest Airlines Co. (NYSE:LUV)’ earnings were up 6% from last year’s record results. Revenues at the quarter were an all-time high. Alaska Air Group, Inc. (NYSE:ALK) scored a 17th consecutive quarterly profit. The company celebrated this achievement with the announcement of a quarterly dividend of $0.20 per share. Currently, Alaska Air yields 1.27%.

Is it going to continue?

Airlines stocks continue their momentum. Spirit Airlines Incorporated (NASDAQ:SAVE) is up 92% this year, Southwest Airlines Co. (NYSE:LUV) is up 39%, Alaska Air Group, Inc. (NYSE:ALK) is up 47%. Nevertheless, the mean analysts’ target prices suggest even more upside. They suggest a 12% upside for Spirit Airlines, 8% upside for Southwest Airlines and 16% upside for Alaska Air.

Is it possible? Yes. Spirit Airlines Incorporated (NASDAQ:SAVE) trades at 13 forward earnings. This is higher than its peers, but the company has a great business model with low base fares and add-ons. Spirit Airlines has no debt, which is a rare achievement in the airlines’ world.

Southwest Airlines Co. (NYSE:LUV) increased its share repurchase authorization to $1.5 billion. the company has ended the quarter with $3.4 billion in cash and short-term investments. The company has yet to pay $100 million in debt and capital lease this year, so the amount of liquidity is very significant. The company trades at 11.89 forward P/E – cheaper than Spirit Airlines Incorporated (NASDAQ:SAVE), but pricier than most of its peers.

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