For Spirit Airlines (NASDAQ: SAVE) investors, cheap tickets have produced rich returns. The stock is crushing the market so far this year:

SAVE Chart

SAVE data by YCharts.

Can we expect further gains, or is a long, bumpy descent in store? My guess is the former, especially after having considered Spirit's cost structure, coming fleet upgrades, and valuation.

Spirit Airlines Incorporated Takeoff Source The Motley Fool

Spirit Airlines' stock is on the rise in 2014. Credit: The Motley Fool.

What a low-cost airline really looks like

For legacy carriers, "cheap fares" are a marketing tool to fill empty seats after making profits on sales to first-class and business-class passengers. Discounters tend to work differently. Instead of banking on deep-pocketed premium fliers, cheapskates such as Spirit obsess over cost per available seat mile, or CASM, which divides operating expenses by the number of flights and the available seats on each flight.

Just as restaurants strive to boost sales per square foot and hotels emphasize revenue per available room per day, airlines aim for a large and widening delta between the revenue and cost for flying a single passenger 1 mile. The lower the CASM, the greater the potential profit. As you might expect, Spirit is really good at keeping costs low:

Company
CASM 
(ex-fuel and special items)
Load factor
Operating margin

JetBlue (NASDAQ: JBLU)

7.51 cents

84.6%

15.4%

Southwest (NYSE: LUV)

8.14 cents

83.9%

9.3%

Spirit Airlines

5.95 cents

87.5%

13%

United Continental (NYSE: UAL)

8.71 cents

85.3%

7.6%

Sources: Company press releases, S&P Capital IQ.

Spirit doesn't just pack its planes tighter than its rivals, it also limits perks to keep CASM well below those of direct competitors. Mix in high fees, in-your-face advertising, and gimmicky fare sales and it's easy to see why Spirit generates such great operating margins.

A bigger, better fleet

Spirit isn't just cutting costs and and sneaking in backdoor profits. The carrier is also expanding. According to data from its investor relations website, the airline is slowly winding down its fleet of Airbus A319 aircraft in favor of higher capacity and more efficient A320 and A321 models.

In 2014 alone, Spirit aims to take delivery of 11 new A320 aircraft. Next year, the carrier should get nine new A320s, with one featuring Airbus' fuel-efficient "new engine option," plus six new A321s. Putting that in perspective, Spirit ended last year with 54 aircraft carrying a daily maximum of 8,735 passengers. By the end of 2015, that total should be 13,609. Capacity is on track to expand at least 55.8% in just two years. Analysts project revenue to grow by 51.2% over the same period, according to S&P Capital IQ.

Rising stock, reasonable price

What does all this potential growth cost? Not as much as you might think. Spirit trades for 18.4 times next year's consensus earnings target and 23.3 times its long-term profit mark. Both figures might look expensive if analysts weren't calling for Spirit to boost earnings by 28% annually over the next five years, resulting in a 0.83 PEG ratio. (Anything less than 1 represents a potential bargain.) 

Yet to look at the numbers is to wonder if those invested in JetBlue and Southwest might do better. Thanks to huge growth expectations, the two leading discount carriers enjoy astoundingly low PEG ratios -- 0.58 and 0.78, respectively. So keep an eye on Spirit stock. Just don't lose sight of JetBlue and Southwest in the process.

Tim Beyers is a member of the Motley Fool Rule Breakers stock-picking team and the Motley Fool Supernova Odyssey I mission. He didn't own shares in any of the companies mentioned in this article at the time of publication. Check out Tim's web home and portfolio holdings or connect with him on Google+Tumblr, or Twitter, where he goes by @milehighfool. You can also get his insights delivered directly to your RSS reader.

The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.