Spirit Airlines, Inc. reported its second quarter 2023 financial results.
“Unit revenue for the second quarter 2023 was strong and well above pre-Covid historical averages,” said Ted Christie, Spirit’s President and Chief Executive Officer. “However, demand for the peak summer travel period has been softer than expected, resulting in lower fare levels on the routes we serve. This summer we are comparing to a period of exceptionally strong domestic and near-field international demand in 2022, while at the same time seeing demand shift away from these regions towards long-haul international. Difficult weather and challenging Air Traffic Control initiatives are also creating a significant headwind to unit revenue.
“These trends continued throughout July and we are assuming they will continue into the fall. However, once the international summer travel season ends and kids go back to school, we anticipate that demand will shift back towards domestic. This should mean a more normal pricing and demand environment for the peak holiday travel periods in the fourth quarter.”
Second Quarter 2023 Financial Results
For the second quarter 2023, Spirit reported a net loss of $2.3 million, or a net loss of $0.02 per diluted share. Excluding special items, adjusted net income for the second quarter 2023 was $32.3 million1, or an adjusted net income of $0.29 per diluted share1.
For the second quarter 2023, Spirit reported a pre-tax income of $15.0 million and a pre-tax margin of 1.0 percent. Adjusted pre-tax income for the second quarter was $41.7 million1 and adjusted pre-tax margin was 2.9 percent1.
Operations
For the second quarter 2023, the Company’s load factor was 82.9 percent. The Company experienced numerous adverse weather events across its network during the second quarter leading to a DOT on-time performance2 of 64.4 percent and a DOT Completion Factor2 of 97.5 percent. Excluding these weather- related and other uncontrollable events, the Company’s controllable completion factor for the second quarter 2023 was 99.7 percent5.
Revenue
Total operating revenues for the second quarter 2023 were $1.4 billion, an increase of 4.8 percent compared to the second quarter 2022. Total revenue per ASM (“TRASM”) was 10.30 cents, a decrease of 10.7 percent compared to second quarter 2022 on 17.4 percent more capacity.
On a per passenger flight segment basis, compared to the same period in 2022, total revenue per passenger flight segment (“segment”) for the second quarter 2023 decreased 8.9 percent to $128.03. Compared to the second quarter 2022, fare revenue per segment decreased 20.1 percent to $57.86 and non-ticket revenue per segment increased 2.9 percent to $70.173.
Cost Performance
Total GAAP operating expenses for the second quarter 2023 were about flat compared to the second quarter 2022, increasing 0.02 percent to $1,412.3 million. Adjusted operating expenses for the second quarter 2023 were also about flat compared to the second quarter 2022, increasing 0.2 percent to $1,385.5 million4. Lower fuel expense year over year, primarily driven by lower average fuel prices, offset increases driven by increased flight volume, additional aircraft, inflationary wage pressures and other items.
Aircraft utilization in the second quarter 2023 was 11.3 hours, up 5.6 percent compared to the 10.7 hours in the same period of 2022.
“Despite achieving record quarterly revenue in the second quarter 2023, productivity headwinds, primarily related to pilot constraints and NEO engine availability issues, resulted in a disappointing operating margin. With these issues as well as an acute reduction in the domestic and Latin America demand outlook, we estimate our third quarter operating margin will range between negative 5.5 percent and negative 7.5 percent,” said Scott Haralson, Spirit’s Chief Financial Officer.
“On a positive note, pilot attrition levels have been improving such that, assuming they stay where they are, or improve further, our growth is no longer constrained by pilots. If we weren’t burdened with the NEO engine availability issues, we could achieve full fleet utilization and more normalized margin and CASM ex-fuel production by year-end.”
“Additionally, last week we reached an amendment with Airbus on our fleet order that reduces 2024 deliveries and spreads the remaining deliveries over 2025 to 2029, giving us a consistent level of deliveries for the remainder of the decade. We also upgauged all of our A319neo orders to A321neos. I’ll share more details on our earnings call today but we are very pleased with the changes and appreciate Airbus partnering with us to provide a stable and predictable order book through the end of the decade with an aircraft mix we view as beneficial to driving efficiencies throughout our business.”
Fleet
Spirit took delivery of five new A320neo aircraft and one A321neo aircraft during the second quarter 2023 and retired three A319ceo aircraft. The Company ended the quarter with 198 aircraft in its fleet, an increase of 10.0 percent since the end of second quarter 2022.
Liquidity and Capital Deployment
Spirit ended second quarter 2023 with unrestricted cash and cash equivalents, short-term investment securities and liquidity available under the Company’s revolving credit facility of $1.5 billion.
Total capital expenditures for the six months ended June 30, 2023, were $146.1 million, primarily related to net outflows of aircraft pre-delivery deposits, expenditures related to the building of Spirit’s new headquarters campus in Dania Beach, Florida and spare parts, including spare engines.
Interest expense in the second quarter 2023 included a favorable mark to market adjustment of $14.2 million related to the change in fair value of the derivative liability associated the Company’s Convertible Notes Due 2026.
Second Quarter 2023 Highlights
- Recognized for safety with the FAA’s “Aviation Maintenance Technician Diamond Award of Excellence” for the fifth consecutive year
- Named Most Affordable Airline and No. 2 of 11 overall by WalletHub in its 2023 Best Airline Awards
- Ratified an amended collective bargaining agreement with its flight attendants represented by theAssociation of Flight Attendants
- Inaugurated the first Airbus A321neo into Spirit’s young, fuel-efficient fleet with plans to accept sevenmore in 2023
- Announced that four new partners joined the Spirit Wings Pilot Pathway program: Lewis University inRomeoville, Illinois; International Aero Academy in Lakeland, Florida; US Aviation Academy in Denton, Texas; and Thrust Flight in Addison, Texas. The Spirit Wings Pilot Pathway program provides graduates with a fast track to a rewarding career as a Spirit First Officer
- Initiated service to Charleston, South Carolina and San Jose, California, in addition to nearly 20 new routes connecting our existing stations
Merger Agreement with JetBlue
On October 19, 2022, Spirit stockholders voted to approve the Agreement and Plan of Merger (the “MergerAgreement”), among Spirit, JetBlue Airways Corporation (“JetBlue”) and Sundown Acquisition Corp., a direct,wholly owned subsidiary of JetBlue, which was entered into on July 28, 2022. The completion of thetransaction is subject to customary closing conditions, including receipt of required regulatory approvals.Spirit and JetBlue expect to conclude the regulatory process and close the transaction no later than the firsthalf of 2024. On March 7, 2023, the U.S. Justice Department filed suit to block the merger. The trial date forthe lawsuit has been set for October 16, 2023.
End Notes
(1) See “Reconciliation of Adjusted Net Income (Loss), Adjusted Pre-Tax Income (Loss) and Adjusted Operating Income (Loss) to GAAP Net Income (Loss)” table below for more details.(2) Results are based on preliminary data compared to major and regional U.S. airlines.
(3) See “Calculation of Total Non-Ticket Revenue per Passenger Flight Segment” table below for moredetails.
(4) See “Reconciliation of Adjusted Operating Expenses to GAAP Operating Expenses” table below formore details.
(5) Controllable completion factor excludes the following events, which are outside of the Company’s control,from the calculation of completion factor: weather, air traffic and uncontrolled airport/runway closures, which may include acts of nature, disabled aircraft incidents on the runway, political/civil unrest and disturbances preventing normal operations within airline control, among others, and any city/state closures as declared by local authorities and asserted by our Security department.
Top Copyright Photo: Spirit Airlines Airbus A320-271N WL N967NK (msn 11128) SEA (Michael B. Ing). Image: 961108.
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