Spirit Airlines (SAVE, Financial) is facing significant hurdles despite the robust demand for air travel. The airline reported a net loss of $1.46 per share in the first quarter of 2024, marking its fourth loss in the past five quarters. Revenue dropped by 6.2% year-over-year to $1.26 billion. Additionally, Spirit's revenue guidance for the second quarter, ranging between $1.32 billion and $1.34 billion, fell short of expectations and indicated a nearly 7% decline.
Contrasting with major carriers like Delta Air Lines (DAL, Financial), United Airlines (UAL, Financial), and American Airlines (AAL, Financial), which are expanding capacity thanks to strong corporate and international travel demand, Spirit struggles with increased fuel and labor costs. The competitive environment has forced Spirit to lower its prices, with total revenue per available seat mile (TRASM) falling by 8.2% and revenue per passenger flight decreasing to $117.03.
Operational challenges further complicate Spirit's situation. Manufacturing issues with Pratt & Whitney's Geared Turbofan engines have grounded many of Spirit's aircraft, limiting its capacity increase to just 2.1%. However, Spirit has secured a monthly credit agreement with International Aero Engines (IAE), an affiliate of Pratt & Whitney, which is expected to enhance its liquidity by $150-$200 million.
Following the failed merger with JetBlue Airways (JBLU, Financial), Spirit is focused on strengthening its financial position. The airline has about $1.1 billion in senior secured notes due in the next year and $500 million in convertible bonds maturing in 2026. To manage this, Spirit has delayed the delivery of 99 new Airbus (EADSY, Financial) aircraft, originally scheduled for 2025-2026, to 2030-2031, and plans to furlough 260 pilots to cut costs. These measures, along with the IAE credit, are projected to boost Spirit’s cash reserves by $450-$550 million in 2024.
Despite these efforts, Spirit and other low-cost carriers like Frontier Group (ULCC, Financial) are being squeezed by larger airlines, making it difficult to maintain profitable margins.
