Spirit Airlines just reported its latest financial performance and the picture is very bleak, with the carrier racking up a substantial loss during the busy summer months.
Spirit Airlines CEO Ted Christie Explains Massive Loss During Historically Profitable Period
Despite record revenue of $1.2 billion, Spirit Airlines reported a massive loss in the 3Q23 of $157.6 million net loss ($1.44 per share).
Here’s how CEO Ted Christie explained it:
“Softer demand for our product and discounted fares in our markets led to a disappointing outcome for the third quarter 2023. We continue to see discounted fares for travel booked through the pre-Thanksgiving period. And, unfortunately, we have not seen the anticipated return to a normal demand and pricing environment for the peak holiday periods.
“We continue to believe merging with JetBlue and creating a viable competitor to the Big Four US airlines is in the best interest of consumers, Team Members, and shareholders. We are prepared to make the necessary strategic shifts to enable Spirit to compete effectively in this new demand backdrop.
“Our Team Members are among the best and most innovative in the industry. I am confident that whether the Spirit of tomorrow is different from today or whether the aircraft tail says JetBlue or Spirit, their dedication to take care of our Guests and each other will not change.”
TLDR? Christie said that holiday fares are particularly weak, overall demand is weak, and now a JetBlue merger is more important than ever.
The loss comes despite better aircraft utilization and lower than expected interest expenses on debt, but with higher fuel costs.
To address this, Spirit Airlines will scale back growth and defer new aircraft deliveries:
Given these continued trends, we are evaluating our growth profile and our competitive position. We have already taken the first steps by modifying the cadence of our aircraft deliveries through the end of the decade and slowing our capacity growth in the near term.
As Frontier Airlines also reported a massive loss, the question is can the so-called “ultra-low-cost” business model survive? Have passengers had enough of “unbounded” fares?
I always wonder if JetBlue and Spirit are strategically racking up “losses” in order to make a merger more likely when their financial picture actually is not that bad. That is not allegation I am making nor a field I am competent enough to really dive deeply into it, but I do know the way companies and boards think and I wonder if these losses are engineered in the narrow sense that they will make the merger easier?
CONCLUSION
Spirit Airlines has reported a sizable loss while other carriers like Delta and United have reported a health profit. As Spirit and JetBlue move closer to merger, both carriers are losing money, which they hope will make the case for why a merger should be allowed by US regulators.
image: @SpiritAirlines / Twitter (X)
Seems like common sense that you can’t make money long term with $59 fares. I feel the same about Allegiant but the loyalty their customers have toward them is surprising to me. While they aren’t the type to read these sites, I have yet to see anyone as loyal to a major airline as these people are to these low cost airlines.
The same is true with Southwest. I finally convinced my parents and aunt/uncle that WN was by no means the cheapest carrier out there. They were fiercely loyal but mentally stuck in 1988 or so when WN *was* the cheapest, but only in the Western US, namely TX to CA. They wouldn’t even both searching for other carriers…it was right to iflyswa-dot-com and that was that. WN is pretty on-par with the US3 as far as cost, and they have been for the better part of a couple decades. But without the “hassle” of assigned seating, I guess. They do have some point-to-point routes that nobody else flies, but I’ll take a layover and more points on, say, AA, over the cattle call bullshit of Southwest, any day.
Allegiant is an outlier. They identified a unique niche in targeting unused airports in more rural regions with direct flights to popular leisure destinations like Las Vegas. You are actually seeing Breeze and Avelo start to do the same on many routes. The ULCC’s biggest weakness is when they try and go head to head with Legacy airlines. You better find a niche like Allegiant or you are going to get eaten alive eventually.
What Spirit really needs is some executives with ULCC airline DNA to run things. People who just don’t truly understand a huge airline but intrinsically go for things the ULCC stands for: cost cutting, treating valuable employees badly and paying them poorly, not understanding the value of customer loyalty, etc. In other words: Kirby and Isom. The beauty of this is it would open up spots for people who display leadership rather than just management in their legacy airlines. In short, everyone wins.
The JetBlue board and all investors must be banging their heads against the wall wondering, ‘What the hell have we done.”
The ULCC airline model is broken. I have been looking at flights to Florida and Spirit is about ~$20 less than American and Delta for direct flights.
In reality, with bringing bags, that means that it is very advantageous to not book spirit because bag fees will really make Spirit so much more expensive.
I think this is the key point and was the heart of a story I wrote last week about why United is mocking the budget carriers. By matching or competing on price, the legacies offer so much more. For most passengers, they become cheaper. And Spirt/Frontier cannot survive in that environment. Reminds me of Independence Air and how it too flopped…could not keep up with United.
Independence Air also thought they could survive flying CRJ-200’s.
And the overall economy/inflation is driving the typical ULCC customer to re-assess leisure air travel altogether. C19 government giveaway money has been consumed, credit card balances are at historic highs, interest rate pressures driving up financing costs for homes, cars, etc., general inflation on daily living expenses, savings rate drifting south, etc. Bottom-line, most middle income households are tapped-out.
Don’t forget student loans have come due. That suck up a lot of spare cash.
$19 Frontier fare from Chicago to Raleigh! No need for carry on; book bag does the job. Don’t choose seat so get a middle seat but once the count is done, we’re allowed to switch and I get an empty row. Hard to beat. I’ve always been super impressed every time I’ve flown Spirit or Frontier.
There’s a bit more to the story:
1) the engine on its NEO jets has defects. Many airframes need to be taken out of service for inspection and repair of the new engines. This is eating into revenue via cancelled flights and reduced coverage and frequency
2) Fuel is up for all the airlines, Spirit is no exception. Spirit was to save fuel with the NEOs mention in #1. Must rely on older, less fuel efficient engines for now. Fuel is a significant cost of any airline.
3) Student loans are coming due now. Also, all the stimulus money has been spent. This shift in cash flow has a significant impact on the typical Spirit customer.
4) Spirit (like the other airlines) went on a hiring spreed. Now, with the plateau in demand, it’s come around to bit them on the arse.
For many PAX, its the only option for them to get around the nation.