Spirit Airlines’ third quarter 2023 financial results show the impact on softer demand with a net loss of $157.6 million, or a net loss of $1.44 per diluted share, on total operating revenues of $1.3bn, a decrease of 6.3% compared to the prior-year period.
Ted Christie, Spirit's President and Chief Executive Officer said that “softer demand for our product and discounted fares in our markets” led the disappointing performance, adding that discounted fares were likely to continue for through the pre-Thanksgiving period, added that the airline had not seen the anticipated return to a normal demand and pricing environment for the peak holiday periods.
“Given these continued trends, we are evaluating our growth profile and our competitive position,” said Christie. “We have already taken the first steps by modifying the cadence of our aircraft deliveries through the end of the decade and slowing our capacity growth in the near term. We continue to believe merging with JetBlue and creating a viable competitor to the Big Four US airlines is in the best interest of consumers, Team Members, and shareholders. We are prepared to make the necessary strategic shifts to enable Spirit to compete effectively in this new demand backdrop.
For the third quarter 2023, Spirit’s load factor was 81.4%. Adverse weather and air traffic control related delays during the quarter, particularly along the eastern seaboard and in Florida, negatively impacted the airline’s operational performance for the quarter with an ontime performance of 67% and a DOT Completion Factor of 98.4%.
Spirit’s costs rose for the period, with total expenses up by 4.9% to $1,447.3 million, driven by increased flight volume, additional aircraft and inflationary pressures.
Scott Haralson, Spirit's Chief Financial Officer, said that high fuel prices continue to be a challenge as are the Neo engine availability issues, which means margins in the fourth quarter will be lower than the third quarter. He said: “We recognise this financial performance is not acceptable, and we are taking action. In addition to evaluating different strategies to drive higher revenue per departure, we have identified $100 million of structural cost reductions and are evaluating how best to capture those savings in 2024.”
During the third quarter 2023, Spirit took delivery of three new A320neo aircraft and five new A321neo aircraft, retired four A319ceo aircraft and ended the quarter with 202 aircraft in its fleet.
Spirit disclosed that Pratt & Whitney had provided an initial analysis on an inspection and removal schedule for the airline’s affected GTF PW1100 engines that anticipates an average of 10 neo aircraft will be grounded in the fourth quarter of 2023. In 2024, Spirit said that it assumes the average number of grounded neo aircraft will climb steadily from 13 in January to 41 in December, averaging 26 grounded for the full year 2024. Spirit said that this expectation “drives a dramatic decrease in the company's near-term growth projections” and for the full year 2024, Spirit estimates capacity will “range between about flat to up mid-single digits compared to the full year 2023”.
Spirit confirmed that it is in discussions with Pratt & Whitney regarding fair compensation for financial damages related to the GTF neo engine availability issues but stated that the amount, timing and structure of the compensation that will be agreed upon “is not yet known”.
Spirit ended third quarter 2023 with unrestricted cash and cash equivalents, short-term investment securities and liquidity available under its revolving credit facility of $1.2bn.
Total capital expenditures for the nine months ended September 30, 2023, were $209.1 million, primarily related to expenditures related to the building of Spirit's new headquarters campus in Dania Beach, Florida and purchases of spare parts, including four spare engines.
On October 19, 2022, Spirit stockholders voted to approve the Agreement and Plan of Merger among Spirit, JetBlue Airways Corporation (JetBlue) and Sundown Acquisition, a direct, wholly owned subsidiary of JetBlue, which was entered into on July 28, 2022. The completion of the transaction is subject to customary closing conditions, including receipt of required regulatory approvals.
Spirit and JetBlue say that they expect to conclude the regulatory process and close the transaction no later than the first half of 2024. On March 7, 2023, the US Justice Department filed suit to block the merger. The trial for the lawsuit is scheduled to begin on October 31, 2023, confirmed Spirit.