Spirit Airlines believes it will be one of the first airlines to return to profitability. Its CEO made the comments in the airline’s second quarter earnings call this last week and said it would be a result of the airline’s low-cost structure.
The airline believes it will be one of the first to return to profitability
CEO of Spirit Airlines, Ted Christie, stated the following on the airline’s second quarter earnings call:
“When demand for leisure travel rebounds and stabilizes, as evidenced by our June results, our leading low-cost structure positions us well to be among the first to return to profitability.”
In the second quarter, Spirit Airlines recorded a $144 million net loss. The carrier witnessed some tough times early in the quarter amid the global crisis. However, things began to turn around pretty quickly. And, by June, the airline was in a good spot.
The airline’s June results
June was an excellent month for Spirit Airlines amid the crisis. The airline noticed a slight rebound in demand and built up its schedules. In fact, according to CEO Ted Christie, excluding $50 million in payments for the aircraft deferral agreement with Airbus and pre-delivery deposit facility extensions, Spirit reached break-even. That is a daily cash burn of $0.
This is an incredible result compared to the big three US airlines. The reason is that the airline was able to bring its expenditures down and build up revenue amid a crisis.
Capacity-wise, in June, Spirit Airlines recorded a 79.7% load factor. This was amid a 79% reduction in available capacity in June 2020 compared to the same month last year. While demand was way down, the team was aggressively able to manage the carrier’s route network to ride towards a lower net loss.
The airline’s structure does allow it to succeed
As a low-cost carrier, Spirit Airlines can command a different sort of market than full-service airlines. Over 50% of the airline’s revenue in the second quarter came from ancillary fees– that is, things like seat selection fees, baggage fees, and more.
Inherently, when passengers purchase a ticket on Spirit Airlines, they have the option to add frills to their tickets. Based on Spirit’s results, this has proven to be a particularly successful program. And, more or less shows that, when passengers buy a Spirit Airlines ticket, they are not deterred by additional fees and are willing to pay.
Going back to the market Spirit captures, the airline is targeted towards leisure travelers, which will be the first market to make a rebound. Much of the summer passenger growth through June was due to leisure travelers looking to go to vacation hotspots like the Sun Belt.
Spirit Airlines expects demand recovery to remain volatile. In the last few weeks, passenger growth has stalled, and Spirit is monitoring the situation. As needed, the carrier will adjust its capacity.
Turning a profit in a volatile market is no easy feat– and one that few airlines have been able to accomplish. It may take a while for Spirit to start to turn a profit again. However, given its success in reaching a $0 daily cash burn in June and leisure demand appearing to be the first to rebound, Spirit is well-positioned to be one of the first, if not the first, airline to hit profitability again– assuming there are no other big shocks.
Once the airline starts turning a profit again, it can go back to its previous strategies and continue its impressive growth.
Do you think Spirit Airlines will be one of the first airlines to return to profitability? Let us know in the comments!
