Spirit Airlines Just Named A New CEO, And Wall Street Cheered

January 5, 2016, 5:58 PM UTC
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NEW YORK, NY - APRIL 28, 2015: A Spirit Airlines passenger aircraft (Airbus A320) taxis at LaGuardia Airport in New York City, New York. (Photo by Robert Alexander/Getty Images)
Photograph by Robert Alexander—Getty Images

Spirit Airlines Inc (SAVE) on Tuesday named board member Robert Fornaro as chief executive officer, sending its shares up nearly 7 percent.

Investors welcomed the appointment of the former AirTran Holdings Inc CEO as a new start for Spirit, a U.S. carrier that has grown rapidly in the past five years by marketing ultra-low fares with heavy restrictions.

However, recent moves by larger rivals Delta Air Lines Inc (DAL) and American Airlines Group Inc (AAL) to match those low prices have hurt unit revenue and pushed Spirit’s stock down 46 percent last year.

Fornaro replaces Spirit’s decade-long leader, Ben Baldanza, who will assist with the leadership transition, the company said in a news release.

Fornaro headed AirTran for nearly four years until the airline’s 2011 merger with Southwest Airlines Co (LUV). He previously was AirTran’s chief operating officer and chief financial officer.

In a research note, Sterne Agee CRT analyst Michael Derchin said: “Bob’s extensive background in market planning is a perfect fit for (Spirit) at this stage in its growth cycle, in our view. We would use recent sell-offs to add to or initiate new positions.”

Fornaro joined Spirit’s board in May 2014. He said in the news release that the company would continue to provide “the lowest total price to the places we fly.”

Spirit has said its flight capacity, which grew around 30 percent in 2015, has stimulated new demand from customers interested in low fares rather than luring passengers from bigger airlines.

But carriers such as American, the world’s largest, have taken note. While they have higher costs than Spirit because they target business travelers and must maintain multiple types of planes, lower fuel prices in the past year have let them profitably chop their fares.

For many U.S. airlines, this has resulted in price battlegrounds from Chicago to Dallas and lower unit revenue, which measures ticket sales against flight capacity.