Spirit Airlines shares fall in Nasdaq debut

A Spirit Airlines ticketing agent stands at the ticket counter at Detroit Metropolitan Airport in Romulus, Michigan June 12, 2010.

BANGALORE/ATLANTA (Reuters) - Shares of discount carrier Spirit Airlines (SAVE.O) fell as much as 7.4 percent in their stock market debut on Thursday after pricing at the bottom of the expected range.

The shares closed at $11.55, or about 3.8 percent below the $12 initial public offering price. Earlier in the session, they had fallen to $11.11.

Scott Sweet, senior managing partner at IPO Boutique, said the cost of oil helped to chill demand for the IPO. The price of a barrel of oil fell on Thursday, but is still more than $100. Airlines have raised fares, curbed capacity and are trying to cut overhead costs as oil prices have risen.

"The increase in the cost of oil, especially for a low-cost carrier, will increasingly cut into their margins," Sweet said.

Shares of some U.S. airlines fell, with industry leader United Continental Holdings (UAL.N) closing down 1.8 percent and Delta Air Lines (DAL.N) off 3 percent.

Sweet also cited an increasingly competitive airline environment, as Spirit will face rivals that have similar routes such as JetBlue (JBLU.O) and AMR's AMR.N American Airlines.

Miramar, Florida-based Spirit, which calls itself an "ultra low-cost" carrier, operates more than 150 flights a day, but carries less than 1 percent of U.S. air passenger traffic.

"It's hard to feel comfortable about a company that has minimal hedging contracts in place to protect itself" as fuel costs rise, said David Menlow, president of IPOfinancial.com.

PRIVATE EQUITY HOLD

Menlow also cited concern about the fact that private equity will still have a sizable hold on Spirit Airlines. The offering reduces the stake of private equity firms Indigo Partners and Oaktree Capital Management to 72 percent.

Private equity firms buy companies with the aim of exiting their investments a few years later with a large profit.

Spirit had priced its offering of 15.6 million shares at $12, compared with an earlier target of as much as $16. The company raised $187.2 million from its IPO, nearly 42 percent less than it had first expected.

Spirit said in a statement on Thursday that it expected proceeds of about $171 million after deducting underwriting discounts and other items.

Josef Schuster, founder of Chicago-based IPO investment firm IPOX Schuster LLC, said there was "a lack of quality perception" of the Spirit deal.

"Technology and social networking and interesting consumer brands are doing really well, but for the average IPO it's definitely a tougher environment," Schuster added.

The airline began operations in 1980 as Charter One, a Detroit-based charter tour operator that provided travel packages to entertainment destinations. In 1992, it changed its name to Spirit Airlines and began offering flights from Detroit to Atlantic City.

The carrier added new cities and Latin American destinations in subsequent years, and now serves more than 40 destinations.

Spirit Airlines pilots, represented by the Air Line Pilots Association, staged a six-day strike in June 2010 after mediated talks failed to bridge differences with management over pay, scheduling and benefits.

That strike was the first notable job action at a U.S. passenger airline since Northwest Airlines mechanics walked off the job in 2005. Northwest is now a part of Delta.

Citigroup Global Markets (C.N) and Morgan Stanley (MS.N) were lead underwriters for the offering.

(Reporting by Jochelle Mendonca and Karen Jacobs; Editing by Lisa Von Ahn, Maureen Bavdek, Gary Hill)