Spirit Airlines is facing challenges on the financial front as it anticipates second-quarter results to be worse than initially projected. The carrier now expects an adjusted operating loss between $160 million and $173 million, significantly higher than the earlier forecast of $121 million to $145 million. Additionally, the operating margin is expected to be between minus-12.5% and minus-13.5%, compared to the previous guidance of between minus-9% and minus-11%.
One of the primary reasons for the worsened expectations is the decline in ancillary revenue per passenger. Spirit Airlines decided to eliminate change and cancellation fees in response to a similar move by Frontier Airlines. Moreover, the airline extended the validity of travel vouchers and increased the weight allowance for checked bags. These changes have led to a decrease in the ancillary revenue per passenger, with the second quarter expected to see a per passenger revenue of approximately $64, lower than the initial estimates.
In its regulatory filing, Spirit Airlines acknowledged the downward pressure on ticket prices in the second quarter and into the third quarter due to excess capacity in the marketplace. While the anticipated ticket revenue remains in line with the early May expectations, the ancillary revenue per passenger is expected to be lower than anticipated. Analysts, such as Michael Linenberg of Deutsche Bank Research, have noted a year-over-year decrease in per passenger revenue, in line with Spirit’s revised guidance for total revenue in the second quarter.
Spirit Airlines had $1.2 billion in liquidity as of March 31, but the carrier is facing the challenge of refinancing $1.1 billion in loyalty program-backed debt due in September 2025, as well as $500 million in convertible bonds maturing next May. The airline is under pressure to turn things around while negotiating these refinancing deals to ensure its financial stability in the long run.
Despite the current financial challenges, Spirit Airlines has initiated a transformation plan to align with the changing market dynamics. The airline aims to better serve higher-end flyers by implementing strategic changes, with announcements expected in August. Moving forward, Spirit Airlines is focused on executing its plan to overcome financial hurdles and enhance its position in the industry.