Spirit lowers second quarter guidance

Spirit Airlines has lowered its second quarter 2024 guidance on July 16, 2024. Revenues for the financial period has been adjusted to $1.28bn. It had originally estimated revenues to be just over $1.3bn. The airline said in its guidance the drop in revenues was largely driven by lower-than-expected non-ticket revenue. Spirit said this was driven by ""incremental pressure on ancillary pricing due to changes in the competitive marketplace"". It estimates non-ticket revenue per passenger segment to be about $64 in the second quarter, which is ""several dollars lower"" than it had previously anticipated. ""In early May, the company anticipated there would be significant pressure on leisure ticket yields throughout the second quarter and continuing into the third quarter due to large industry capacity increases,"" Spirit read in a statement. However, ticket revenue is in-line with its previous expectations. Analysts Thomas Fitzgerald and Helane Becker at TD Cowen downgraded Spirit's shares from hold to sell, stating there is ""still much downside risk to estimates given oversupply in leisure markets, weakness among lower income cohorts, and myriad constraints on utilisation"". Adjusted operating loss was risen to be around $160 million to $173 million, a greater loss than its previous estimate of around $121 million and $145 million. Spirit estimates its second quarter 2024 adjusted operating margin will be negative 13.5 percent to negative 12.5 percent. Spirit's $3.8bn merger agreement with JetBlue was terminated in the first quarter of the year after it was blocked by the US Department of Justice over competition concerns. The previous year, the struggling airline posted an annual net loss of $450 million. Spirit added in its guidance: ""Spirit has begun to execute on its transformation plan to better align with the current market dynamics. 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."" The company had entered into an agreement with Pratt & Whitney affiliate International Aero Engines (IAE) where it will provide compensation for each of the company's AOG due to geared turbofan engine issues. IAE will provide the company with a monthly credit from October 2023 through to the end of 2024. Credits issued in the fourth quarter of last year amounted to around $26 million. For the second quarter of the year, it estimates to receive around $37 million in compensation. Year-to-date through June 30, 2024, it estimates AOG credits have benefited its liquidity by $94 million. For the full year, Spirit expects the AOG credits to enhance its liquidity by approximately $150-200 million. Its adjusted operating losses, taking the AOG credits into account, is forecast to be around $130-143 million, greater than it originally estimated at between $86 million and $110 million. Fitzgerald and Becker added: ""The company ended the March quarter with $1.2 billion. However, that number has almost certainly declined since then and the airline will have $1.1 billion of its loyalty program debt come current in September."" Spirit had amended its credit card processing agreement so that it will terminate by the end of the year if it is unable to extend or refinance its loyalty programme bonds by mid-September of this year. The analysts foresee the negotiations resolving either through creditors agreeing to lower rates, as well as or alternatively lessors potentially agreeing to lower lease rates and repayment dates are pushed back; Spirit returns aircraft to lessors, cancels or defers orders from its backlog, and restructures its network using the freed-up capital; or the airline files for a pre-packaged bankruptcy. Following the guidance, its shares were down over 6% after market close. Spirit will release its full second quarter earnings in early August 2024.