Spirit Posts ‘Disappointing’ Q2 Results as CEO Promises Change
01.08.2024 - 16:18
/ skift.com
/ Spirit Airlines
/ Ted Christie
/ Jay Shabat
/ Frontier Airlines
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.
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.
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%.”
Spirit has been rocked by the grounding of some of its planes due to