Spirit Airlines performing well but not immune from the cost creep virus spreading among US carriers

Ultra low-cost carrier Spirit Airlines is following suit with its full-service and hybrid peers in the US by predicting rising cost and capacity for 2014. But the ULCC assures that its business model remains sound, reflected in estimates of a 16% to 18% operating margin for FY2014.

Spirit has previously warned it could face some cost headwinds in 2014; but the carrier is continuing double-digit capacity expansion of nearly 17% (down from 22% in FY2013) driven by its belief that the cost inflation it is experiencing this year will be short lived, and over a 24-month cycle its cost advantage should remain intact.

At the same time Spirit is finding itself in the unusual position of defending its business model as executives field questions about the airline's ability to balance out the peaks and troughs in demand that are a natural byproduct of its price-sensitive passenger segment. There are more than a few believers though, as a 160% increase in share price over the past 12 months can testify.