Spirit Airlines (SAVE +0.00%) warned that sluggish demand and issues with its fleet would suppress second-quarter revenue. Investors were disappointed, sending Spirit shares down 9% as of 10:15 a.m. ET.
Tough competition, fewer airplanes
Spirit Airlines faces one of the most challenging sets of circumstances in the airline industry. It spent the last year prepping for a merger with JetBlue Airways but was forced to go it alone after competition regulators forced the merger partners to walk away earlier this year.
The airline is trying to chart a course as an independent at a time when a significant portion of its fleet is grounded. Spirit is a major user of planes powered by RTX turbofan engines that are subject to a recall.
On Monday, Spirit reported a first-quarter loss of $1.46 per share on revenue of $1.27 billion. The results were in line with estimates, but investors were caught off guard by the airline's forecast for what's to come. Spirit said it will average about 25 grounded aircraft through the rest of 2024, eating into growth plans and depriving the company of opportunities to compete as rivals expand in core Spirit markets like Florida.
"The competitive environment remains challenging due to elevated capacity in many of the markets we serve," CEO Ted Christie said in a statement. "Nevertheless, we are confident that the strategic changes we are implementing, together with our cost-saving initiatives, will allow Spirit to compete effectively in today's marketplace and drive continuous improvement in the years ahead." https://s24.q4cdn.com/507316502/files/doc_financials/2024/q1/Earnings-Release-1Q24.pdf
Spirit said it expects second-quarter revenue of between $1.32 billion and $1.34 billion, well short of Wall Street's $1.46 billion consensus estimate.
OTC: SAVE
Key Data Points
Is Spirit stock a buy?
Spirit is caught in a tough spot. The company is doing its best to control costs, striking a deal to defer aircraft deliveries and furloughing about 260 pilots. The airline is receiving some compensation from RTX for the groundings and said it expects to improve its cash levels by $450 million to $550 million in 2024. It's also in discussions with bondholders.
When Spirit and JetBlue first announced their split, there were serious questions about whether Spirit would end up in bankruptcy. That risk seems more remote now, but given the challenges the company faces and the uncertain timeline for a recovery, there's no reason for investors to climb aboard right now.
