5 Reasons Spirit Airlines’ IPO Is No LinkedIn

Investors expecting the market to go gaga over Spirit Airlines� (Nasdaq:SAVE) IPO in the wake of last week�s LinkedIn (NYSE:LNKD) frenzy have been soredly.� After the IPO pricing was first delayed from Tuesday, Spirit scaled back the offering to 15.6 million shares at between $12-13.

The shares ended up pricing at only $12, and promptly opened for trading on Thursday at $11.35.

When the Florida-based airline filed with regulators last fall, it had planned to raise as much as $300 million by selling 20 million shares in the $14-$16 range.�

That�s a clear reversal of the thunderous debut of professional social networking company LinkedIn last Thursday, which emerged at $45 and nearly doubled on its first day of trading.�

But is LinkedIn’s well-received debut alone enough to make Spirit’s new shareholders worry? �Hardly.� Here are five reasons that, comparatively speaking, Spirit Airlines� IPO will generate barely a ripple:�

The Airline Business Is Tough. All airlines face enormous fixed costs and margins so meager that one industry executive recently compared them to a charity. Last year, this capital-intensive and competitive business churned out only $16 billion profit on $565 billion in total revenue � a razor-thin 2.7% net profit margin.� Forecasts for this year predict margins of only 1.4%.

Being An Ultra-Low-Cost Carrier Is Even Tougher. The economy may be recovering and there has been a corresponding boost in air travel, but carriers are looking at capacity cuts later this year to offset rising costs. As an ultra-low cost carrier, Spirit sells low base fares that basically give passengers a seat and nothing more.� Other services � baggage and other �frills� are unbundled and if they are available, they cost extra.� The company caters to leisure travelers who want to save money flying on their vacations.� But the real money is in business travelers, not super-economy vacation flyers.

Fuel Price Volatility Is The Bane Of Everyone�s Existence. The Air Transport Association says if jet fuel prices hold over $3 a gallon throughout the rest of the year, it would add $15 billion to U.S. airlines� fuel bill� — 38% higher than the $39 billion they paid in 2010.

Spirit Now Has A Lot Less Capital Than It Planned. Instead of the planned $300 million, Spirit now raised less than $200 million � more than 35% lower than expected.� Coincidentally, that�s about the share of its operating costs most airlines spend on fuel.

Is Spirit�s Value Proposition Bankable?� Offering cheap seats is smart if you can control operating expenses.� Low-cost leader Southwest (NYSE:LUV) cut its teeth on using cheap fares and few frills to nip at major carriers� heels. It�s a business model that Spirit, JetBlue (Nasdaq:JBLU), Allegiant and Vision have embraced.� And perhaps Southwest�s evolution toward a more traditional business model with the acquisition of AirTran (NYSE:AAI) and more complex routes and multiple aircraft types will leave a crack of opportunity large enough for Spirit to slip into. Still, the challenge will not be an easy one. �

�As of this writing, Susan J. Aluise did not hold a position in any of the stocks mentioned here.