Spirit Airlines, Inc. (NYSE: SAVE) today reported its third quarter 2023 financial results.
Overall, softer demand has presented a challenge, resulting in the airline moving to reevaluate its growth profile and competitive position.
Challenging Times for Spirit Airlines
The third quarter of 2023 has been a rather challenging period for Spirit Airlines. The airline reported a net loss of $157.6 million, translating to a net loss of $1.44 per diluted share.
When special items are excluded, the adjusted net loss for the quarter stands at $149.8 million, or $1.37 per diluted share.
These numbers are far from ideal for any business, and it’s essential to understand the factors contributing to this outcome.
Demand and Pricing Woes
One of the key factors affecting Spirit Airlines’ performance in Q3 2023 was softer demand for their product and discounted fares in their markets.
The airline had hoped for a return to normal demand and pricing as the peak holiday season approached, but these expectations did not materialize.
As a result, they are evaluating their growth profile and competitive position.
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Revenue and Cost Analysis
In Q3 2023, Spirit Airlines reported total operating revenues of $1.3 billion, marking a 6.3 percent decrease compared to the same period in 2022.
The total revenue per available seat mile (TRASM) was 9.14 cents, down by 17.4 percent compared to Q3 2022, despite a 13.5 percent increase in capacity.
On a per passenger flight segment basis, the total revenue per segment for the third quarter of 2023 decreased by 13.5 percent to $116.43.
Fare revenue per segment dropped by 27.8 percent to $48.73, while non-ticket revenue per segment increased by approximately 1 percent to $67.70.
Cost Performance
Total operating expenses for Q3 2023 increased by 4.9 percent compared to the same period in 2022, amounting to $1,447.3 million.
Adjusted operating expenses also saw a 7.9 percent increase compared to Q3 2022, totaling $1,437.2 million.
These cost increases were primarily driven by higher flight volume, additional aircraft, and inflationary pressures. However, it’s worth noting that lower fuel expenses partially offset these cost hikes.
Aircraft utilization in Q3 2023 increased by 1.9 percent compared to the same period in 2022, reaching 10.8 hours.
Merger with JetBlue
Spirit Airlines’ President and Chief Executive Officer, Ted Christie, has expressed the company’s commitment to merging with JetBlue.
This strategic move aims to create a strong competitor against the dominant Big Four US airlines, which could ultimately benefit consumers, team members, and shareholders.
Fleet and Engine Updates
In Q3 2023, Spirit Airlines took delivery of new A320neo and A321neo aircraft, demonstrating the airline’s commitment to modernizing its fleet.
However, there are concerns regarding NEO engine availability. Pratt & Whitney has identified potential engine issues in Spirit’s fleet, which could lead to grounding several aircraft.
Spirit Airlines estimates that, in 2024, the average number of grounded NEO aircraft could range from 13 in January to 41 in December, impacting its near-term growth projections.
The company is currently in discussions with Pratt & Whitney to seek compensation for the financial damages caused by these engine availability issues.
Highlights from Q3 2023
Despite the challenges, Spirit Airlines achieved some noteworthy accomplishments in the third quarter of 2023:
The airline received recognition as a Four-Star Low-Cost Carrier by the Airline Passenger Experience Association and the International Flights Services Association for consistently providing passengers with exceptional experiences.
Spirit Airlines introduced an award-winning self-bag drop system with biometric-photo matching at Detroit Metropolitan Wayne County Airport (DTW), leading the industry by implementing innovative technology.
A new “round-up” feature on spirit.com allows guests to round up their booking costs to the nearest dollar, with the excess donated to the Spirit Charitable Foundation.
The Foundation has committed $1.5 million to various nonprofits across the U.S., Latin America, and the Caribbean in 2023.
Future Prospects
Looking ahead, Spirit Airlines faces some challenges that could impact its growth and profitability. Higher fuel prices and issues related to NEO engine availability are expected to affect margins in the fourth quarter of 2023.
To address these challenges, Spirit Airlines has identified $100 million in structural cost reductions and is actively exploring ways to implement these savings in 2024.
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