Spirit Airlines, Inc. (SAVE) Q1 2024 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call highlights several challenges: declining revenue per segment, negative operating margin, and operational inefficiencies. Although liquidity is bolstered by agreements, the AOG compensation and deferral agreements indicate ongoing operational disruptions. The Q&A reveals concerns about profitability, cost reductions, and market impacts, with unclear management responses exacerbating uncertainty. Despite some optimistic guidance for H2 2024, the overall sentiment is negative, particularly with the unresolved issues around engine problems and competitive pressures. The stock is likely to react negatively over the next two weeks.
Key Financial Performance
Adjusted Net Loss $160 million, no year-over-year change mentioned.
Total Revenue $1.3 billion, a decrease of 6.2% year-over-year due to significant industry capacity growth and challenges in gaining traction in non-peak periods.
Total RASM $0.0938, a decrease of 8.2% year-over-year attributed to competitive fare activity and demand fluctuations.
Fair Revenue per Segment $48.8, a decline of 16.3% year-over-year.
Non-Ticket Revenue per Segment $68.95, a slight decline of 1.4% year-over-year.
Operating Margin Negative 13.9%, with an estimated negative impact of 2 to 3 points from AOG engine issues.
Liquidity $1.2 billion, including unrestricted cash and cash equivalents, short-term investments, and available capacity under the revolving credit facility.
Operating Costs Flat year-over-year, with operational efficiencies contributing to better-than-expected labor and passenger disruption expenses.
AOG Credits Earned $30.6 million, with only $1.6 million recognized in the income statement, negatively affecting margins.
Operating Margin (Adjusted for AOG Credits) Would have been negative 11.6% if all AOG credits were recognized.
New Aircraft Deliveries Seven A320neo aircraft delivered, five A319ceo retired, ending with 207 aircraft in the fleet.
Sale-Leaseback Transactions Completed transactions for five aircraft resulting in net cash proceeds of $99 million.
Estimated Fuel Cost per Gallon $2.80 for the second quarter.
Total Operating Expenses Estimate Ranging between $1.460 billion and $1.465 billion for the second quarter.
Operating Highlights
New Headquarters: Spirit Airlines celebrated the grand opening of its new Spirit Central Campus in Dania Beach, consolidating corporate offices and training facilities.
Merchandising Strategy Changes: Spirit is testing new merchandising strategies to enhance revenue generation, shifting some revenue from ancillary to ticket yield.
Market Positioning: The termination of the JetBlue merger allows Spirit to develop a stand-alone plan to improve financial performance and market positioning.
Network Expansion: Spirit is broadening its network in cities where it has been relatively small and has added new routes with less than daily flight schedules.
Operational Efficiency: Spirit achieved a system-wide controllable completion factor of 99.9% despite operational challenges.
Cost Management: The company managed costs effectively, resulting in operating expenses being in line with initial guidance.
Stand-Alone Plan: Spirit is executing a stand-alone plan post-merger termination, focusing on financial and operational infrastructure updates.
Capacity Management: Spirit is limiting growth into and out of Florida to improve operational performance amid ATC issues.
Risk or Challenges
Regulatory Risks: The termination of the merger with JetBlue due to regulatory challenges, specifically the DOJ's intervention, poses a significant risk to Spirit Airlines' growth and market positioning.
Operational Risks: Operationally, Spirit Airlines faced challenges due to adverse weather, air traffic control delays, and civil unrest in Haiti, which negatively impacted their performance.
Capacity and Demand Risks: There is an elevated amount of capacity chasing leisure demand, leading to competitive pressures and difficulties in achieving full loads during non-peak periods.
Supply Chain Risks: Issues with GTF engines on NEO aircraft have resulted in a significant number of aircraft being out of service (AOG), impacting capacity and operational efficiency.
Financial Risks: The company anticipates a negative impact on margins due to AOG issues and the accounting treatment of AOG credits, which complicates financial forecasting.
Market Competition Risks: The competitive landscape is challenging, with major airlines dominating profits, making it difficult for smaller carriers like Spirit to restore profitability.
Future Capacity Risks: Limited visibility on aircraft availability and the potential for increased AOG aircraft in the future complicate capacity planning and operational forecasts.
Cost Management Risks: The need to furlough pilots and implement cost reduction initiatives indicates ongoing financial strain and the necessity for effective cost management.
Guidance & Outlook
Stand-Alone Plan Execution: Spirit Airlines is executing a stand-alone plan to de-risk the business and improve financial performance after the termination of the JetBlue merger. This includes updates to financial and operational infrastructure.
AOG Compensation Agreement: Finalized an AOG compensation agreement with Pratt & Whitney for 2024, expected to add approximately $150 million to $200 million of liquidity.
Airbus Delivery Deferral: Completed a deferral agreement with Airbus to move aircraft deliveries from 2025 to 2030 and 2031, improving 2024 liquidity by about $230 million.
Cost Reduction Initiatives: Initiatives to rightsize the business include potential furloughs of up to 260 pilots and achieving a $100 million cost reduction goal.
Merchandising and Pricing Strategy Changes: Testing changes to merchandising and pricing strategies in some markets, with early results exceeding expectations.
Q2 2024 Revenue Estimate: Estimated total revenue for Q2 2024 to range between $1.32 billion to $1.34 billion.
Q2 2024 TRASM Forecast: Expecting TRASM to decline by 8% to 9.5% compared to Q2 2023.
Operating Margin Guidance: For Q2 2024, operating margin is estimated to range between negative 11.0% to negative 9%.
Full Year 2024 Capacity Estimate: Capacity for full year 2024 is estimated to range between flat to up low single digits versus full year 2023.
2025 Capacity Outlook: Capacity for 2025 is expected to be down high single digits versus full year 2024.
Shareholder Return Plan
Liquidity Benefit from AOG Compensation Agreement: Approximately $150 million to $200 million of liquidity benefit to the business in 2024.
Deferral Agreement with Airbus: Improves 2024 liquidity by about $230 million.
Sale-Leaseback Transactions: Resulted in net cash proceeds of $99 million, bringing the total for all ‘25 aircraft to $419 million.
Cost Reduction Goal: Targeting $100 million cost reduction.
Key Q&A
Earnings Word Cloud
SAVE Transcript
The earnings call summary reveals several negative factors: a significant adjusted net loss, declining revenue and TRASM, and a negative operating margin. Despite cost-saving initiatives and liquidity improvements, the Q&A session highlights ongoing challenges, such as supply chain issues and unclear profitability timelines. The lack of guidance on breakeven network percentages and uncertain capacity outlook further dampens sentiment. Although there are potential long-term benefits from new strategies, the immediate outlook remains challenging, justifying a negative sentiment rating.
The earnings call highlights several challenges: declining revenue per segment, negative operating margin, and operational inefficiencies. Although liquidity is bolstered by agreements, the AOG compensation and deferral agreements indicate ongoing operational disruptions. The Q&A reveals concerns about profitability, cost reductions, and market impacts, with unclear management responses exacerbating uncertainty. Despite some optimistic guidance for H2 2024, the overall sentiment is negative, particularly with the unresolved issues around engine problems and competitive pressures. The stock is likely to react negatively over the next two weeks.
The earnings call shows mixed signals. While operating margins improved and liquidity is stable, operating costs increased due to inflation, and the company faces aircraft grounding issues. Positive cash flow and margin improvements are expected later in 2024, but current overstaffing and unclear guidance on compensation and network reconfiguration are concerns. The Q&A reveals management's optimism about future profitability, but lack of clarity in certain areas limits positive sentiment. Overall, the stock reaction is likely to be neutral as the market waits for clearer results and guidance.
SAVE Report
Frequently Asked Questions
Where does this earnings call transcript come from?
All transcripts are sourced directly from the official live webcast or the company’s official investor relations website. We use the exact words spoken during the call with no paraphrasing of the core discussion.
How soon is the transcript available after the earnings call ends?
Full verbatim transcripts are typically published within 4–12 hours after the call ends. Same-day availability is guaranteed for all S&P 500 and most mid-cap companies.
Is the transcript edited or altered in any way?
No material content is ever changed or summarized in the “Full Transcript” section. We only correct obvious spoken typos (e.g., “um”, “ah”, repeated 10 times”, or clear misspoken ticker symbols) and add speaker names/titles for readability. Every substantive sentence remains 100% as spoken.
Why do some answers appear as “Unclear” or “Inaudible”?
When audio quality is poor or multiple speakers talk over each other, we mark the section instead of guessing. This ensures complete accuracy rather than introducing potential errors.
Who creates the AI Summary and Key Q&A highlights shown above the transcript?
They are generated by a specialized financial-language model trained exclusively on 15+ years of earnings transcripts. The model extracts financial figures, guidance, and tone with 97%+ accuracy and is regularly validated against human analysts. The full raw transcript always remains available for verification.
