Spirit Airlines Files for $300 million IPO

The Fort Lauderdale-based carrier has a nice niche, but carriers like AirTran and JetBlue also like the Caribbean.
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FORT LAUDERDALE, Fla. (

TheStreet

) -- Low-cost

Spirit Airlines

, sporting remarkably low unit costs as well as three consecutive years of profitability, says it wants to go public.

The carrier said it wants to raise up to $300 million in an initial public offering, according to a registration statement filed late Friday with the Securities and Exchange Commission. Neither the offering date nor the share price was provided.

In the filing, Sprit said its adjusted cost per available seat mile excluding fuel is 5.93 cents, which compares favorably to adjusted CASM excluding fuel of 6.45 cents reported by

AirTran

(AAI)

, the lowest-cost major airline, during the second quarter.

Meanwhile, Spirit reported net income of $84 million on revenue of $700 million in 2009. In the first half of 2010, revenue totaled $335 million as the carrier lost $2.8 million, apparently as the result of a five-day pilot strike in June. Spirit reported net income of $1.4 million in 2007 and $33 million in 2008.

"We have reduced our unit operating costs significantly since redefining Spirit as an

ultra low cost carrier in 2006," Spirit said in its filing. "As a result, our operating cost structure is among the lowest in the Americas, enabling us to offer very low fares in the markets we serve while delivering strong operating profitability." It cited efficient aircraft utilization of 13 hours a day, high-density seating, a low-cost base of operations in Fort Lauderdale, productive employees, a young fleet with a single aircraft type, the A320 and "rigorous cost control" as key assets.

The carrier said it regularly offers promotional base fares of $9 or less, then enhances revenues by charging for services such as baggage and advanced seek selection. Non-ticket revenue per passenger has increased from $5 in 2006 to over $25 in 2009 and to over $31 in the six months ending June 30.

In 2009, Spirit said, its operating margin of 15.9% was among the industry's highest. For the six month ending June 30, 2010, the margin shrank to 6.1%, largely reflecting the pilot strike.

Spirit said it should benefit because its "principal target growth markets, the Caribbean and Latin America, are large and fast growing with strong leisure and

visiting friends and relatives demand and minimal low-cost carrier participation in the $12.3 billion

annual market. In 2009, Sprit said its revenue per available seat mile fell by 1.8%, while the industry average in the U.S. fell by 9%, apparently because its service model "appeals to the price-sensitive passengers who travel regardless of the economic environment."

A potential risk is that low-fare competitors such as AirTran and

JetBlue

(JBLU) - Get Report

continue to expand in the Caribbean and Latin America. One sign of their growth occurred last week, when

both carriers announced nearly simultaneously that they would begin Tampa-San Juan, Puerto Rico service next year.

As the largest international operator at Fort Lauderdale International Airport, Spirit said it is "well positioned for strong growth." It plans to augment its current fleet of 31 A320 family aircraft by adding 37 more planes through 2015. It squeezes 178 seats into an A320, compared with 150 seats at

US Airways

(LCC)

, the largest U.S. A320 operator and also at JetBlue. (US Airways A320s include 12 first class seats.)

The largest shareholder with 59% of Sprit is

Indigo

, a private equity fund headed by Bill Franke, who was chairman and CEO of

America West Airlines

between 1993 and 2001. Indigo has invested in half a dozen ultra-low cost carriers worldwide, include

Volaris

in Mexico and

Mandala

in Indonesia. Another private equity fund, Oaktree Capital Management, owns 34% of Spirit. Spirit's top officer, CEO Ben Baldanza, was paid $820,990 in 2009 including $46,750 in stock.

-- Written by Ted Reed in Charlotte, N.C.

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Ted Reed