Spirit Airlines and Virgin America treated diametrically in 2015, plan 10%+ growth in 2016

Just a couple of years ago, Spirit Airlines was a Wall Street star. Its ultra low cost business model seemed built to withstand any cyclical disruption to the industry. But markedly lower fuel prices in 2015 have given larger airlines an ability - and the willingness - to price some of their inventory to match Spirit's low baseline fares. As a result, Spirit's unit revenues have fallen sharply and its stock price has compressed more than any other US airline during 2015. Despite the changing dynamics, Spirit delivered a 43% profit increase in the 9M to Sep-2015 and projects delivering operating margins above 20% for the year.

Spirit's fall from grace among investors has coincided with Virgin America gaining some traction in 2015. Virgin's stock price has remained relatively stable, and it has outperformed most US airlines in the passenger unit revenue (PRASM) metric even though it has faced outsized pricing and capacity pressure in two of its largest markets - New York and Dallas.

Both Spirit and Virgin America remain growth companies compared to the larger, consolidated US airlines, arguing their lower costs do allow expansion. The changing currents of their market perception show that no one business model is completely shielded from investor trepidation.