Spirit Posts ‘Disappointing’ Revenues as CEO Promises Change

Skift Take

With ‘transformational’ changes to its business model announced earlier this week, Spirit will be hoping that these numbers are the start of a long-term shift for the troubled airline.

Gordon Smith

Spirit Airlines cited overcapacity and strong competition among the factors weighing down a sluggish set of second quarter earnings.

Just two weeks ago, the ultra-low-cost carrier lowered its revenue outlook for the quarter, blaming softer ancillary sales. On Thursday, Spirit confirmed that net losses widened to $192.9 million, a sharp deterioration on the $2.3 million loss at the same time last year. 

In a market filing, Ted Christie, the airline’s President and CEO said: “Significant industry capacity increases together with ancillary pricing changes in the competitive environment have made it difficult to increase yields, resulting in disappointing revenue results for the second quarter of 2024.”

In the airline industry, ancillary items are usually optional extras that passengers can add to a booking. These typically include checked luggage, allocated seating, and onboard refreshments. For budget carriers, they are critical to ensuring that low headline fares still deliver a profitable business model. 

Spirit recently followed low-cost rival Frontier Airlines in dropping most change and cancellation fees. It comes amid a wider crackdown on so-called ‘junk fees’.

To help shore up finances, Spirit is continuing a series of cost-saving initiatives. These include a temporary freeze on pilot and flight attendant recruitment, voluntary unpaid leave options for cabin crew, and the furloughing of approximately 240 pilots. A further 100 captains are being temporarily downgraded.

The company is aiming for $100 million of annual savings, with around $75 million expected to be achieved by the end of the 2024 calendar year.

A Domestic Overcapacity Problem

Spirit is also making big changes to realign its network. By the third quarter of 2024, the airline will exit 42 markets compared to the same period in 2023. There will however be a net increase overall, with 77 new markets served.

Spirit says it will be “aggressively managing capacity” to better match variations in seasonal and daily demand. 

In what it describes as an “liquidity-enhancing initiative,” the airline is also deferring all incoming orders with Airbus for deliveries that were due to arrive between Q2 of 2025 and the end of 2026. These planes are now due to come in 2030 and 2031.

Airline Weekly senior analyst Jay Shabat put the scale of the difficulties in context: “Spirit’s severe losses reflect both revenue and cost problems. Domestic overcapacity and its own aggressive growth are depressing fare revenue. A rollback of fees in response to market changes is depressing ancillary revenue. At the same time, its non-fuel unit costs are up a whopping 36% since 2019. Over that same period, total unit revenues have declined 4%.”

Engine Headaches Persist

Spirit has been rocked by the grounding of some of its planes due to problems with some Pratt & Whitney engines. The issues primarily affect Airbus A320neo planes, which form a core part of its fleet. JetBlue and Europe’s Wizz Air are among the other airlines impacted.

In Thursday’s update, Spirit said it expects an average of 20 planes to be grounded during the full 2024 year. The company added that it “intends to discuss appropriate arrangements” with Pratt & Whitney relating to any aircraft problems that extend into 2025. 

Reflecting on the developments, Fred Cromer, Spirit’s CFO said: “We will continue to aggressively manage our costs to maintain our position as a low-cost leader in the industry and to make every effort to maintain adequate liquidity.”

A ‘New Era’ for Spirit

Earlier this week, Spirit Airlines announced major changes to its passenger proposition in what Christie described as a “new era” for the company. The ultra low-cost carrier is moving upmarket with a series of new travel options, claiming these will “empower travelers to choose an elevated guest experience at an affordable price.”

Branded as ‘Go Big’, Spirit’s new top-tier option includes a ‘Big Front Seat’, snacks, and alcoholic beverages. Other perks include a checked bag, carry-on, priority check-in and boarding, and complimentary onboard Wi-Fi.

A further all-new option is ‘Go Comfy’. The main selling point here is a guaranteed blocked middle seat. It also comes with checked baggage, priority boarding, snacks, and a non-alcoholic drink.

“The continued intense competitive battle for the price-sensitive leisure traveler further reinforces our belief that we are on the right path with our transformation plan to redefine low-fare travel with new, high-value travel options that will allow guests to choose an elevated experience at an affordable price,” Christie added.

Airline Industry Under Pressure

Spirit is not alone in facing financial headwinds in the second quarter. Last week, Southwest reported a major decline in its profits as it announced that it would roll out premium seating in a bid to boost its declining revenues. CEO Bob Jordan said “urgent and deliberate steps to mitigate near-term revenue challenges,” were being implemented. 

Even legacy players have also posted a drop in profitability. American Airlines reported a 46% fall in earnings last week as it seeks to recover from a controversial distribution strategy that led to the departure of its chief commercial officer.