At first glance, budget carrier Spirit Airlines' (SAVE -0.46%) first-quarter earnings report may look like another flop. After all, adjusted net income and earnings per share both fell by roughly 50% year over year.

However, Spirit Airlines still posted a solid profit in what is the worst quarter of the year from a demand perspective. (Leisure travel demand is highly seasonal.) Furthermore, it appears to be on the cusp of a sustainable unit revenue recovery.

Spirit Airlines results: The raw numbers


Q1 2017

Q1 2016

Year-Over-Year Change


$591.8 million

$538.1 million


Total unit revenue

8.61 cents

8.99 cents


Adjusted cost per available seat mile excluding fuel

5.62 cents

5.59 cents


Adjusted net income

$35.6 million

$73.3 million


Adjusted pre-tax margin




Adjusted EPS




Data source: Spirit Airlines Q1 earnings release.

What happened with Spirit Airlines this quarter?

The recently ended quarter was the first full quarter since Spirit Airlines started to retool its route network in the fall of 2016. Spirit has pulled out of some ultra-competitive markets where there wasn't enough leisure demand to support its business model. Instead, it has added a lot of capacity in Florida and in underserved markets in the Northeast and Midwest.

Notwithstanding these changes, Spirit Airlines' unit revenue fell 4.2% year over year last quarter. However, the company estimates that a shift in the timing of Easter moved a substantial amount of revenue from the first quarter to the second quarter. An airport shooting in Fort Lauderdale and a severe winter storm that hit simultaneously in early January also hurt unit revenue.

A Spirit Airlines plane.

Several unusual factors reduced Spirit Airlines' unit revenue last quarter. Image source: Spirit Airlines.

Excluding the impact of these two headwinds, Spirit claims that total revenue per available seat mile (TRASM) would have been flat. That would have marked a substantial improvement from the 3.6% TRASM decline it logged in the fourth quarter of 2016.

What management had to say

Since taking the top job at Spirit Airlines in early 2016, CEO Bob Fornaro has made it a priority to improve customer service and operational reliability. The company has already started to make tangible progress. Fornaro stated:

During the first quarter, our team did an excellent job serving our customers while overcoming challenges caused by the tragic Fort Lauderdale airport event in early January, as well as dealing with various winter storms. Despite these and other challenges, we continue to make progress in improving our operational reliability.

Indeed, Spirit's on-time performance improved by about 10 percentage points during the first quarter. Fornaro still isn't satisfied, though. He is determined to make Spirit Airlines even more reliable in the future, in order to attract a broader customer base.

Looking forward

Earlier this month, Spirit Airlines told investors that TRASM was on track to rise in the second quarter, even without the benefit of a later Easter. CFO Ted Christie confirmed that projection in the first-quarter earnings release.

Considering that the Easter shift reduced unit revenue by about 3.5% last quarter (according to the company's estimates), this guidance implies a mid-single digit TRASM increase for the second quarter. Meanwhile, the year-over-year headwind from rising fuel costs is set to decline. (Spirit paid $1.47/gallon for fuel in Q2 2016, compared to just $1.22/gallon in Q1 2016.)

As a result, Spirit Airlines is on track to produce a much stronger profit in the current quarter than it did in the first three months of 2017. Indeed, it has a legitimate shot at returning to year-over-year earnings growth this quarter. That's just what investors have been hoping for.