Southwest Airlines (NYSE: LUV) and Spirit Airlines (NASDAQ: SAVE) are both doing very well in an economic environment that featues strong growth and falling oil prices.
Strong economic growth just took the Dow Jones Industrial Average (NYSE: DIA) over 18,000.
When the economy is expanding, the number of passengers for airlines is increasing. That increases revenues for air carriers. From this, the stock price should rise.
It certainly has with Spirit Airlines, which is up more than 60 percent for 2014 (chart below).
For an airlines, it does not get much better than higher economic growth and lower fuel prices.. Long story short, revenues jump and costs fall. Fuel is around half of the cost of operating an air carrier. When the major expense of any business falls, it prospers.
Spirit Airlines has a unique business model in that it prospers under virtually all conditions.
It is a deep discount airlines. It charges for everything. When economic times are bad, more will fly Spirit Airlines. When economic times are good, more will fly overall, so Spirit Airlines benefits from bull markets, too.
What also helps Spirit Airlines out no matter what the market conditions are its strong income statement and clean balance sheet.
Spirit Airlines is unusual for its sector in that it has no debt. Many airlines are encumbered by massive amounts of debt. That is a tribute to how well-managed Spirit Airlines is as a business entity. Even Southwest Airlines, another well-managed air carrier, has some debt.
The global economy is still recovering from The Great Recession.
As it improves, so will earnings for Spirit Airlines. The deep discount model is one that is proven. Southwest Airlines prospered from its start as a discount airlines, as reported in a recent article on this site. Spirit Airlines should continue to do the same.