Spirit Airlines (SAVE 6.21%) has updated its first-quarter guidance just weeks before it intends to announce finalized results. The move appears to have excited speculation among Spirit investors, sending the shares soaring 13% at the open Monday before retreating back to up 3% as of 1:30 p.m.
A routine announcement causes a big spike
Spirit shareholders have endured a lot of turbulence in recent years. The company came into 2024 hoping to complete a sale to JetBlue Airways, but in March the two sides called off the deal because of regulatory opposition.
The termination left Spirit with the unenviable task of flying alone into some significant headwinds, including schedule disruptions caused by issues with RTX engines.
On Monday, Spirit said it expects to recoup between $150 million and $200 million from RTX in damages over the engine issues, cash that will help improve the airline's liquidity. However, the accounting of those payments will temporarily depress margins and slightly affect quarterly results.
Spirit said it now expects to post a first-quarter negative adjusted operating margin of between 14.5% and 13.5%, compared with previous guidance for a negative-15% to negative-12% margin. Revenue should come in at around $1.265 billion, in line with the previous forecast for sales of between $1.25 billion and $1.28 billion. The airline is scheduled to release final first-quarter numbers in early May.
The update seemingly should not have caused an oversized reaction to the share price, and in premarket trading after the update was released, Spirit shares were actually down. But the update caused significant speculation on social media that the update was a precursor to announcing a new merger agreement, causing the shares to spike higher.
Is Spirit Airlines a buy heading into earnings?
A new deal is certainly possible. Frontier Group Holdings had tried to buy Spirit before JetBlue stepped in and would still be a logical partner. But there is no indication Frontier is focused on dealmaking, and the airline industry operating environment has gotten more treacherous in the quarters since that initial interest.
More likely than not, Spirit will have to navigate through these engine disruptions and questions about the economy while managing a significant debt load on its own.
Investors interested in buying in on merger speculation need to be aware that absent a buyout, it will be hard for Spirit shares to get airborne anytime soon.
