Ever since a federal judge blocked JetBlue (JBLU) 's plan to acquire Spirit Airlines (SAVE) for $3.6 billion back in January, speculation around whether the low-cost carrier would be able to turn around its finances without filing for bankruptcy has swirled.
The $142.6 million loss for the second quarter of 2024 that Spirit reported back in May marks the airline's tenth consecutive unprofitable quarter. It has also taken a major hit by the ongoing recall of the Pratt & Whitney engines used in the Airbus A321neo (EADSF) planes that make up a large part of Spirit's fleet.
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On July 16, Spirit Airlines announced that it would further cut its revenue outlook to $1.28 billion from the $1.32 to $1.34 billion announced back in May.
Spirit lowers outlook, expresses hopes to 'drive improvement' over time
In the latest Securities Exchange Commission filing, the carrier said that it also expects an adjusted net loss of between $160 million and $173 million amid lower non-ticket revenue on which it relies to make up for the low base fare it needs to offer to maintain customer expectations as a low-cost airline.
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While the filing does not go into specifics around how food and baggage spending has gone down, Spirit recently followed competitor Frontier Airways (FRON) in eliminating change and cancelation fees and raising the checked bag limit from 40 to 50 pounds back in June. The change was necessary to remain competitive but will now also eat away at the profit that Spirit derived from ancillary services like baggage.
"As the company progresses on its transformation strategy, it anticipates that over time it will be able to drive improvement in total revenue per passenger segment,” Spirit said of the filing.
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Spirit is struggling but main problems also affect other airlines
Spirit stock immediately reacted to the filing and have been down by more than 10% at $2.82 by the end of Wednesday. The numbers also point toward a wider industry problem in which airlines need to discount everything from fares to baggage as consumers have a large choice of competitors and will go with the best perceived value.
Earlier in July, Delta Air Lines (DAL) reported near-record revenue but still fell below analyst expectations with projected adjusted profit of between $1.70 and $2.00 per share and no more than 4% growth.
Delta CEO Ed Bastian said that this was largely due to the "fare discounting that's been going on this quarter" at the lowest fare classes — something that a mainstream airline that also sells business and premium economy seats is much better positioned to withstand compared to a low-cost one which has only fare bundles instead of classes and much less room to lower fares in general.
Frontier and JetBlue face similar problems but the combination of debt and lower flying numbers have started to catch up with Spirit in particular.
"What we've seen over time is that less people are actually flying on Spirit," Spirit Airlines Chief Commercial Officer Matt Klein said in a CBS interview when the airline announced change fee updates. "So we believe the changes we're making are about attracting new customers."
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