What Has Caused The Volume Surge In Spirit Airlines Stock (SAVE)?

Spirit Airlines' stock (NYSE: SAVE) ended the past week of volatility with a gain of 36.08%, after what has been a year of turbulence. A huge increase in volume was noted on Friday, with the price increasing 15.29% on more than 41 million shares changing hands, against the average daily volume of 9 million. What is more indicative of the surge in interest is that Friday was in fact only the third highest volume day on the week; with Monday's 85 million, and Wednesday's 79.3 million setting the lead.

For a company that has endured a difficult 2024, and with shares continuing to be down 82.94% on a YTD basis, let's take a quick look over the events that shifted sentiment on the week and caused such a spike in volume.

An 8-k Filing on Friday 18th set the wheels in motion, with the firm announcing an extension to 2025 notes (2025 Notes Extension Deadline from October 21, 2024 to December 23, 2024 and (ii) the Early Maturity Date from December 31, 2024 to March 3, 2025). The stock price made significant gains in the post-market session, and continued to hold these through the start to the week, with the $1.47 level from Friday giving way to a close of $2.25.

A slight retracement on Tuesday was followed on Weds 23rd by a piece in the WSJ that indicated talks between Spirit Airlines and Frontier Airlines over a potential bid for the former had restarted. SAVE saw more than 35% in gains on the day, before another retracement on Thursday. Then came Friday's 8-k filing, with an announcement that may alter the company's liquidity profile and operational strategies. Looking at the 5 day chart below on the 15 minute time-frame gives an indication of the volatility, with various gaps on the week with the stock making extended hours moves.

The latest 8-k confirmed that Spirit entered into a binding term sheet with GA Telesis for the sale of 23 A320ceo/A321ceo aircraft for an approximate total of $519 million. This sale is scheduled to begin in October 2024 with the final delivery expected by February 2025, assuming all goes according to plan with the definitive documentation and standard conditions.

Spirit Airlines anticipates that this sale, alongside the discharge of related debt, will bolster its liquidity position by roughly $225 million by the end of 2025. This increase in liquidity comes at a time when the airline industry faces various pressures and challenging operational conditions.

Of particular note is Spirit's upgraded forecast for adjusted operating margins in the third quarter of 2024. They project a 300 basis points improvement over previous estimates, thanks to revenue figures surpassing expectations. However, this optimistic margin projection sits alongside a plan for a reduced capacity. The full-year outlook for 2025 points to a mid-teens percentage reduction in capacity. This contraction reflects the recently announced aircraft sale, the removal of neo aircraft from operation, and the retirement of A319ceo aircraft. Simultaneously, the plan incorporates the introduction of six new A321neo aircraft into their fleet.

In an effort to streamline operations and enhance profitability, Spirit has identified roughly $80 million in potential annualized cost savings. These cuts will likely include workforce reductions aligning with anticipated lower flight volumes.

On the financial front, Spirit is in active discussions with senior secured notes holders due in 2025 and convertible senior notes due in 2026, in a bid to manage their maturities responsibly. The airline has also moved its debt refinancing deadline in this context.

However, it is also worth noting that despite these proactive steps, Spirit Airlines has been subject to speculations of financial distress. The company might be considering various options, due to it's significant financial challenges and a substantial $3.3 billion debt load.

With a volatile, high volume week behind them, holders may be warily awaiting further news. Whether these latest steps taken by the company will allow Spirit to move forward longer term is still open very much a battle ground for the bull and bear cases. What can be said for certain is that taking measures to improve it's financial position has certainly been well received by the bulls as we move into a new week.