Spirit Airlines (NYSE:SAVE) entered last year with a ton of momentum. The budget airline generated incredible unit revenue growth in the second half of 2018, powering a return to margin expansion. Falling fuel prices represented an additional tailwind during 2019. Unfortunately, this momentum didn't last, as operational snafus and choppy demand undermined Spirit's profitability beginning in the spring.

Back in October, Spirit Airlines reported that adjusted earnings per share fell to $1.32 in Q3 2019 from $1.47 a year earlier. Its adjusted pre-tax margin sank to 11.9% from 14.5% in the prior-year period, despite a sharp drop in fuel prices. Still, this result was better than management (and, by extension, investors) had feared.

Spirit's initial guidance for the fourth quarter was also downbeat. But based on an investor update released on Thursday, it appears that the airline's results will come in better than feared for a second consecutive quarter.

Not-so-great expectations

Spirit Airlines' revenue per available seat mile (RASM) fell 1.7% in the third quarter, and the carrier's October forecast called for a 4.5% to 6.5% decline in Q4. Normally, a decline of this magnitude would be shocking, but it wasn't too surprising in this case. After all, management had already reported weak off-peak demand and the carrier faced an extremely tough year-over-year comparison after posting an 11.4% surge in RASM in Q4 2018.

A yellow Spirit Airlines jet parked at an airport gate

Image source: Spirit Airlines.

Management also projected that nonfuel unit costs would rise 3.5% to 4.5%, offsetting the airline's fuel savings. All in all, the midpoint of Spirit's original Q4 forecast implied adjusted EPS around $0.99, down from $1.38 a year ago.

Spirit lifts its guidance

In its recent guidance update, Spirit Airlines said that RASM fell 3.6% last quarter (or 4.3% excluding a one-time revenue adjustment). This was a solid result considering the tough comparison. Additionally, the carrier grew its capacity 16.6% year over year -- slightly more than planned -- so total revenue grew more than 12%, reaching approximately $970 million.

In other good news, adjusted nonfuel unit costs increased 3.3%, slightly below the low end of the initial forecast. There were also some other minor tweaks to Spirit's outlook, but they weren't material.

Taking all aspects of the new guidance into account, Spirit Airlines seems likely to report Q4 adjusted EPS in the vicinity of $1.24. While that would still represent a 10% year-over-year decline, it's a far cry from the 28% EPS plunge implied by the company's initial quarterly forecast.

The stock is still cheap

Spirit Airlines stock jumped more than 7% on Thursday after the investor update. However, shares of the budget airline still seem wildly undervalued considering its ample long-term growth prospects.

2019 was a rough year for Spirit Airlines, mainly because the carrier's plan to boost aircraft utilization backfired due to a combination of runway closures at key airports and frequent bouts of severe weather. Yet dialing back aircraft utilization is a simple fix, and the problems that hurt Spirit's performance in the spring and summer shouldn't recur in 2020.

To be fair, Spirit's management has signaled that the airline will face a significant headwind from rising airport costs this year. Nevertheless, it expects nonfuel unit costs to rise just 1% to 2% on a full-year basis. With year-over-year unit revenue comparisons set to become a lot easier as the year progresses, Spirit has a good chance to grow unit revenue at least as fast as unit costs, leading to stable or improving margins.

Spirit Airlines expects to continue growing capacity at a double-digit rate for many years to come. Indeed, there's no sign that it's close to saturating the market for cheap flights. It will likely grow earnings at a similar rate over the long term. That makes Spirit Airlines stock look like an incredible bargain at its current valuation of less than nine times earnings.