5 Reasons Why Spirit Airlines Is Forecasting Lower Than Expected Earnings

Ultra-low-cost carrier Spirit Airlines has revised its earnings outlook and said that its expected second-quarter revenue could be around $1.28 billion, less than the previously estimated $1.32 billion to $1.34 billion.

The airline is reportedly planning to implement changes to its operational model to boost revenues, but several challenges have affected its expected earnings.

1

Weak fares

The airline has attributed weak fares as one of the main reasons for the current revenue forecast. It also said that non-ticket revenue, which results in different fees, came in “several dollars lower than anticipated” per passenger.

Spirit will likely post an adjusted loss of between $160 million and $173 million for the quarter ended June, as the revenue generated failed to meet its expectations. It had previously expected a loss of $145 million.

Spirit Airlines Airbus A320

Photo: Spirit Airlines

The airline recently introduced a new policy eliminating change and cancelation fees to align itself with other major carriers. Previously, Spirit charged anywhere from $69 to $119 for ticket changes.

2

Crowded market

Spirit has been struggling to turn a profit since the pandemic. While COVID-19 took the entire aviation industry by surprise, some airlines, including Spirit, have been hit harder than others.

Spirit Airlines and United Airlines aircraft on runway preparing for departure from the Orlando International Airport.

Photo: VIAVAL TOURS | Shutterstock

Demand for its product continues to be soft in a market that seems oversupplied with carriers ranging from American Airlines, Delta, and United to low-cost options, such as Southwest and Frontier, as well as several regional players. Even as passengers take to the skies in huge numbers, Spirit seems to be struggling in an environment where other airlines are aggressively expanding services. In a regulatory filing, Spirit said,

“The Company attributes this underperformance to incremental pressure on ancillary pricing due to changes in the competitive marketplace.”

3

Engine recall

In 2023, RTX, the parent company of P&W, revealed a rare condition in powder metal used to manufacture certain engine parts, affecting airlines across the world. The list also included Spirit Airlines, which saw several of its Airbus A320s grounded. These planes had their engines removed for inspections, affecting Spirit’s operations and growth plans.

Related

Pratt & Whitney Engine Issues See Spirit Airlines Up $200m In Compensation

Spirit Airlines is to receive up to $200m in compensation as part of Pratt & Whitney’s ongoing engine woes and legal settlements.

The problem continued to affect the airline in 2024, although it was revealed earlier this year that Spirit would receive $150-200m credit from IAE for engine problems.

4

Failed acquisition

Perhaps one of the biggest blows to Spirit was its failed merger with JetBlue, which eliminated the chances of any benefit the airline expected from the deal. Had it been successful, the resulting carrier would have been the fifth largest in the country and would have helped Spirit tremendously with its survival.

Spirt Airlines Airbus A321neo and JetBlue Airways A320 at Fort Lauderdale-Hollywood International Airport.

Photo: Leonard Zhukovsky | Shutterstock

JetBlue officially killed the merger in May, and both airlines went their separate ways, with Spirit maintaining that it has no plans to file for bankruptcy. In fact, the carrier continues to stress that it will eventually overcome its current challenges. It said in its latest filing,

“As the Company progresses on its transformation strategy, it anticipates that over time it will be able to drive improvement in total revenue per passenger segment.”

5

Debt maturity

Spirit is also facing a $1.1 billion debt that will mature in September 2025. Although this debt has likely not played a direct role in the airline’s current earnings forecast, Spirit is certainly cautious while strategizing growth plans. The airline’s credit rating has also been affected, with S&P saying that Spirit would “remain pressured throughout the year.”

Spirit Airlines aircraft at LAS shutterstock_2439227217

Photo: GingChen | Shutterstock

Spirit’s $3.8 billion deal to merge with JetBlue would have helped the carrier financially, but in the absence of any such agreement, it is now left to sort out its debt independently.

Leave a Reply

Your email address will not be published. Required fields are marked *