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Spirit Airlines touts its business model fundamentals as it faces continued margin compression

Analysis

US ULCC Spirit Airlines has not escaped the effects of pricing pressure in the US domestic market during 2015, and recently cited soft pricing as a main driver in its second downward revision to forecasted operating margins for the year.

As its guides to lower operating margins - still in the healthy 21.5% to 23% range - Spirit is working to reiterate the strength of its business model that entails stimulating price sensitive travellers. The airline maintains that it transports passengers that would not otherwise travel by air, but Spirit's competitors have recently cited progress in gaining some market share lost to ULCCs.

Spirit remains confident that its strategy of bottom feeding in large markets with high fares will continue to reap rewards in the form of solid profitability. But as the current domestic environment shows, even the lowest fare producers are not immune from pressure when fuel costs reach certain levels.

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