Spirit is facing substantial competitive pressures over the short term as legacy carriers try to take away its price advantages. A lot of the outcome depends on who blinks first.
Lots of the buzz in the airline industry over the past week has revolved around whether American Airlines can afford to get even more aggressive in matching the fares of Spirit Airlines and other so-called ultra low-cost carriers, as American Airlines officials pledged to do.
Whether or not further commoditizing flights for infrequent flyers, who make up 87 percent of American’s unique customers, is a prudent strategy, one thing is abundantly clear: Spirit Airlines is feeling the heat from the competition and that’s dampening some of its growth plans.
During Spirit’s third quarter earnings call today, CEO Ben Baldanza and CFO Ted Christie repeatedly talked about the pricing pressures in cities such as Dallas, where lots of capacity has been added by competitors over the last year, and their frustration about Spirit’s stock price, which has lost about half its value.
Baldanza said the current pricing environment is highly dilutive, and although he said Spirit plans to grow around 15-20 percent over the next few years, he said “the crystal ball is really cloudy” for 2016. Baldanza said the airline doesn’t intend to provide overly optimistic guidance but will structure Spirit to be profitable in the current environment.
Growing in the mid-teens to 20 percent generally outperforms the airline industry as a whole, Baldanza said, and that is the growth pace that Spirit envisioned when it went public in 2011.
If the airline grows at a 20 percent clip in 2016 off a larger base then that is “still pretty heavy growth,” Baldanza said. “That is a lot.”
In the third quarter, Spirit’s total revenue per passenger flight segment fell 13.1 percent year over year to $120.35. The airline attributed the drop to a 20.8 percent decrease in ticket revenue per passenger flight segment.
Spirit’s non-ticket revenue, including all of the fees it charges, fell 1.2 percent to $53.39 per flight segment.
“Our team did a great job managing costs during the quarter and we remain on target to deliver a full year 2015 Adjusted CASM (cost per available seat mile) ex-fuel decrease of approximately 6 percent year over year,” said Christie, Spirit’s CFO, in the airline’s prepared earnings statement. “We have several CASM pressures facing us in 2016, including headwinds from accelerated depreciation of heavy maintenance events and additional supplemental rent related to leased aircraft scheduled to return to lessors beginning next year; however, given our team’s diligence in controlling costs, I remain confident that the trajectory of our Adjusted CASM ex-fuel will continue to be stable to declining throughout our growth cycle.”
Expressing frustration at the drastic plummeting of Spirit’s stock price over the last year, Baldanza said many companies have experienced short-term challenges, but Spirit is focused on building “the franchise” over the long term and he expressed confidence that Spirit will get there.
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Photo credit: A Spirit Airlines A319. Spirit Airlines