Spirit Airlines (SAVE -1.30%), the ultra-low-cost carrier known for its competitive fare options, disclosed its first-quarter results on Monday, May 6. Against analysts' estimates, the company's financials reveal slight misses in both EPS and revenue, presenting a challenging quarter.
Despite the misses, Spirit remains focused on strategic adjustments and cost-saving measures aimed at overcoming these hurdles.
| Metric | Q1 2024 | Analyst Estimates | Q1 2023 | Change (YOY) |
|---|---|---|---|---|
| Operating revenue | $1.27 billion | $1.27 billion | $1.35 billion | (6.2%) |
| Adjusted EPS | ($1.46) | ($1.45) | ($0.95) | N/A |
| Load factor | 80.7% | -- | 80.8% | (0.1 pps) |
| Aircraft utilization hours | 10.4 | -- | 11.2 | (7.1%) |
| Operating margin | (16.4%) | -- | (8.3%) | N/A |
Data sources: Company results from Spirit. Analyst estimates from FactSet. YOY = Year over year. pps = percentage points.
Understanding Spirit Airlines
Spirit Airlines operates under an ultra-low-cost carrier (ULCC) model, enabling it to offer competitive fares by charging for various optional services. With one of the youngest and most fuel-efficient fleets in the U.S., primarily composed of Airbus A320-family aircraft, Spirit prioritizes operational efficiency and sustainability. The airline's strategic focus lies in targeting underserved and/or overpriced markets, optimizing its network to maintain high passenger volumes, and operating with high load factors.
Quarter highlights
Spirit Airlines faced a challenging quarter, marked by a 6.2% year-over-year decline in total operating revenue and a slight miss on EPS and revenue estimates. Operational disruptions, such as adverse weather and air traffic control delays, played a role. In response to these challenges, Spirit aggressively pursued cost-saving initiatives projected to result in more than $100 million in annualized savings. Despite these strategic efforts, the slight misses on key financial metrics signal ongoing hurdles.
Spirit also was hit during the quarter by recall issues involving RTX's Pratt & Whitney engines on 40 of its planes, which helped push aircraft utilization down by 7.1% year over year. The recall issue is expected to continue into 2025, although Spirit will eventually be compensated by RTX for some of its lost revenue.
The airline did note some operational achievements, including an improvement in operating results during the peak holiday period and strategic fleet management. These are crucial for sustaining its low-cost business model. Spirit's total revenue per available seat mile (TRASM) improved 4.9% sequentially. The sequential improvement in domestic TRASM was partially offset by continued pressures in international markets Spirit operates in (especially Latin America). However, Spirit's TRASM of 9.38 cents decreased 8.2% year over year despite 2.1% more capacity. Total revenue per passenger flight segment was $117.03, a decrease of 8.1% year over year.
Financial strain and regulatory challenges, particularly with the blocked merger with JetBlue Airways, have added layers of complexity to Spirit's strategic execution. Yet, management remains focused on strategic adjustments to successfully navigate the tough industry landscape.
Forward look
Spirit Airlines management said it is optimistic about its strategic direction and cost control measures. Spirit ended Q1 with $1.2 billion in liquidity (which includes unrestricted cash, short-term investments, and available credit). The airline expects its cost-saving initiatives to reflect improved financial health, despite acknowledging the challenging environment. Spirit forecasted Q2 2024 revenue between $1.32 billion to $1.34 billion. That suggests a 7% drop from Q2 2023 totals (at the midpoint of guidance).
Investors are advised to keep an eye on the airline's execution of its strategic plans, especially in operational performance and cost management, as well as regulatory developments that might revive a merger agreement with JetBlue. Any notable deviations in forward guidance could significantly impact Spirit's financial and operational trajectory.
