Challenges Faced by Spirit Airlines During the Pandemic

Spirit Airlines is facing challenges in turning around their financial results during the ongoing pandemic. The airline recently announced that their second-quarter results are expected to be worse than previously anticipated. This includes an adjusted operating loss of between $160 million and $173 million, a significant increase from their initial guidance back in May.

One of the main reasons for the worsening expectations is the reduced ancillary revenue per passenger. Spirit Airlines decided to eliminate change and cancellation fees, which was in response to a similar move made by Frontier Airlines. Additionally, the airline extended the life of travel vouchers and increased the weight allowance for checked bags. However, these changes have resulted in a decrease in revenue per passenger, which is now projected to be approximately $64 for the second quarter.

Spirit Airlines had anticipated downward pressure on ticket prices during the second quarter and into the third quarter due to excess capacity in the marketplace. While ticket revenue remains in line with their initial expectations, ancillary revenue per passenger has taken a hit. This has led to a downward revision of the anticipated second-quarter total revenue.

As of March 31, Spirit Airlines had $1.2 billion in liquidity. The airline is currently in a race to turn things around while negotiating the refinancing of $1.1 billion in loyalty program-backed debt that is due in September 2025. Additionally, they have $500 million in convertible bonds that are set to mature in May of next year. This has put pressure on the airline to come up with strategies to improve their financial standing.

In response to these challenges, Spirit Airlines has initiated a transformation plan to better align with the current market dynamics. The airline has announced that they will be making additional changes geared towards better serving higher-end flyers, with these announcements expected to be made in August. Spirit aims to execute on this plan to improve their overall performance and financial outlook moving forward.