Spirit Airlines has made strides towards profitability by narrowing its losses and improving revenue and cash flow, and improving operations.
But the company still faces near-term profit headwinds from Pratt & Whitney engine availability and overcapacity in some leisure markets, while it also needs to refinance its debt.
Costs are down
Airline well known for its basic yellow planes and a la carte pricing scheme; charging additional for everything from bags to inflight snacks. YouTube often shows scenes of chaos at its gates featuring disgruntled customers who become quite visibly frustrated as soon as their flight has taken off.
Fitch predicts that Spirit’s profit improvement could be further delayed due to pilot availability issues and aircraft outages due to Pratt & Whitney engines, domestic leisure demand shifting towards international travel, as well as Spirit’s exposure in markets with air traffic control challenges.
Spirit stated it will take prudent steps to strengthen its balance sheet, such as exploring options to refinance debt that matures in 2025. A regulatory filing two weeks ago revealed Spirit had raised $419 million through sales-and-leaseback agreements for 25 planes; adding to its $1.3 billion cash and equivalents balance. Furthermore, Pratt & Whitney is in active discussions over compensation related to engine outages.
Revenues are up
Spirit Airlines stands out among its rivals by charging lower fares than many of them and maintaining one of the youngest fleets available – helping keep maintenance costs at a minimum and maximize revenue per flight while taking advantage of lower fuel costs.
Spirit Airlines has made excellent use of ancillary revenue streams. With an outstanding record in community engagement and workplace culture, Spirit is also adept at managing its capital deployment strategy; through sale-leaseback transactions on aircraft it has conducted several times that provide substantial net cash proceeds and cushion any financial pressures.
Spirit continues to prove its business model can withstand time. Furthermore, they face an impending debt maturity with $1.1 billion 8% bonds expiring on September 2025 reducing refinancing options available to them. At present, they are working on creating an appropriate strategic plan which maximizes profitability while creating adequate cash flows.
Cash flow is positive
Spirit Airlines holds significant levels of liquidity in the form of cash and short-term investments as well as unutilized capacity under its revolving credit facility. Furthermore, Spirit has amassed an order book totalling more than $1 billion with over 500 purchase commitments for aircraft and engines over 2024.
But Southwest faces several hurdles on its journey towards profitability, such as post-pandemic domestic travel declines and higher operating costs. Furthermore, $1.1 billion of loyalty program debt due next year presents potential refinancing challenges.
Spirit also struggles with competing in highly-competitive leisure markets. Travelers may be willing to spend more for premium seating or long-haul flights; however, Spirit does not possess enough pricing power to match these requests.
Still, American has potential to rebound once a judge approves its merger with Frontier Airlines; with shares trading under $8 per share it may be an ideal time for investors and traders to get in on what could become profitable operations again.
The Spirit is on a path to profitability
Spirit shares have plummeted nearly 57% this year as investors fret over its financial future following falling domestic fares, a Pratt engine issue grounding some Airbus jets, and a judge blocking JetBlue Airways?s acquisition bid.
Christie says despite these challenges, he sees his company on an upward path toward profitability. While Pratt engine issues could pose long-term obstacles to network optimisation, new routes continue to open and one of the youngest fleets among US airlines significantly reduces maintenance and fuel costs.
Fitch Ratings has assigned Spirit Airlines with a B- rating, two notches below network airlines with higher near-term leverage and weaker margins. This rating reflects their adequate liquidity balance but diminished financial flexibility due to a limited set of refinancing options and their September 2025 maturity date for their $1.1 billion in 8% bonds; as well as significant headwinds from domestic leisure travel market recovery issues.
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