What happened
Spirit Airlines (SAVE 1.36%) is struggling to keep its planes flying on schedule. That, coupled with continued concerns about the delta variant, have Spirit shares down as much as 5% in Thursday trading.
So what
Spirit is facing a lot of headwinds right now. Earlier this week the airline cut third-quarter revenue expectations due to a combination of severe weather and staffing shortages, which caused Spirit to cancel a large number of flights.
Airlines try to stay lean in part via precision scheduling, and when things go wrong one small delay can cascade through the system, leaving crews out of position or hitting regulatory caps on how many hours they can be on duty.
Image source: Spirit Airlines.
As a result of these issues, Spirit reduced its estimates for third-quarter revenue by up to $100 million, and said expenses would come in $30 million above previous forecasts. And just weeks after the airline said it expects its earnings before interest, taxes, depreciation, and amortization, or EBITDA, margin would hit double digits this quarter, Spirit has now reversed course and said it expects negative adjusted EBITDA for the period.
Add in the concerns over a spike in pandemic cases as the delta variant takes its toll, and airline investors are finding plenty of reasons to head for the sidelines.
Now what
The lowered guidance was no surprise, as Spirit is clearly dealing with a major meltdown. The issues will take time to fix, and could linger into the beginning of the fourth quarter, but it is unlikely there will be a long-term impact for Spirit or its shareholders.
Assuming it can fly its planes, the airline is well positioned to thrive in this current market thanks to its focus on leisure travel and its industry-low costs. Spirit is still well positioned to win a fare war, and lower fares might be necessary for travelers to overcome lingering COVID-19 fears.
All signs still point to a busy holiday season, and Spirit should capture its fair share of that business. And for long-term holders, Spirit remains one of the most intriguing growth stories in the industry. Investors would be well advised to ride through this turbulence.
