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Spirit Airlines, Inc. (SAVE)·Q1 2024 Earnings Summary

Executive Summary

  • Q1 was loss-making but “in line with expectations,” with sequential unit revenue improvement offset by accounting treatment of Pratt & Whitney AOG credits that reduced reported margins by ~230 bps; GAAP revenue $1,265.5M, GAAP operating margin -16.4%, adjusted operating margin -13.9% (or -11.6% when adjusted for AOG credit timing) .
  • Liquidity actions and cost plan advanced: $1.2B quarter-end liquidity; $99M SLB proceeds; $69M termination fee from JetBlue; 2024 cost savings targeted at >$75M (run-rate >$100M) and Airbus delivery deferrals to 2030–31 expected to enhance 2024 liquidity by ~$230M .
  • Q2 guide: revenue $1.32–$1.34B; adjusted operating margin -11% to -9% (or -8.5% to -6.5% when adjusted for AOG credit timing); fuel $2.80/gal; mgmt pursuing product/merchandising changes from June to bolster unit revenue, with an Analyst Day planned in early August .
  • Catalysts into 2H: planned creditor resolutions on 2025 loyalty bonds and 2026 converts “this summer,” rollout of standalone strategy (pricing/merchandising/network), and potential AOG mitigation progress; mgmt targets positive operating results in Q3 and Q4 and near breakeven net in Q4 .

What Went Well and What Went Wrong

  • What Went Well

    • Sequential revenue quality: TRASM rose 4.9% q/q from Q4’23 to Q1’24; domestic TRASM improved sequentially as network/pricing changes took hold .
    • Operational control despite headwinds: controllable completion factor 99.9% (system completion 98.7%) amid weather/ATC and Haiti disruptions; aircraft utilization managed at 10.4 hours despite AOGs .
    • Liquidity and structural actions: $1.2B liquidity; SLBs ($99M proceeds), $69M JetBlue termination payment; Airbus deferrals (2025–26 to 2030–31) to strengthen 2024 liquidity by ~$230M; AOG compensation expected at $150–$200M in 2024 .

  • What Went Wrong

    • Revenue pressure continued y/y: Revenue -6.2% y/y; TRASM 9.38¢ down 8.2% y/y on +2.1% capacity; fare per segment -16.3% y/y, with particular weakness in Caribbean/LatAm and elevated domestic capacity .
    • AOG credit accounting dragged reported margins: earned $30.6M AOG credits, but only $1.6M recognized in Q1 P&L (rest largely against asset cost), which mgmt estimates reduced reported operating margin by ~2 points for the year and ~230 bps in Q1 .
    • External constraints: Eastern seaboard weather/ATC and Haiti civil unrest impacted operations; ATC staffing (JAX Center) continues to constrain Florida growth, prompting self-imposed limits in that region .

Financial Results

MetricQ3 2023Q4 2023Q1 2024
Total Operating Revenues ($M)$1,258.5 $1,321.8 $1,265.5
Operating Income (Loss) ($M, GAAP)$(188.8) $(214.8) $(207.3)
Operating Margin (GAAP)-15.0% -16.3% -16.4%
Adjusted Operating Income (Loss) ($M)$(178.6) $(163.3) $(175.6)
Adjusted Operating Margin-14.2% -12.4% -13.9%
Adj. Operating Margin (AOG-credit timing adj.)N/AN/A-11.6%
Net Income (Loss) ($M, GAAP)$(157.6) $(183.7) $(142.6)
Diluted EPS (GAAP)$(1.44) $(1.68) $(1.30)
Adjusted Diluted EPS$(1.37) $(1.36) $(1.46)
TRASM (¢)9.14 8.94 9.38
Adjusted CASM ex-fuel (¢)7.13 6.75 7.67
Load Factor (%)81.4 80.1 80.7

Revenue mix and unit revenue

MetricQ3 2023Q4 2023Q1 2024
Passenger Revenue ($M)$1,233.9 $1,296.7 $1,239.3
Other Revenue ($M)$24.6 $25.0 $26.2
Average Yield (¢)11.23 11.17 11.63
Fare per Passenger Flight Segment ($)$48.73 $48.24 $48.08
Non-ticket Revenue per Segment ($)$67.70 $66.60 $68.95
Total Revenue per Segment ($)$116.43 $114.84 $117.03

Operating KPIs and costs

MetricQ3 2023Q4 2023Q1 2024
ASMs (000s)13,769,941 14,778,370 13,489,019
RPMs (000s)11,205,742 11,830,716 10,882,616
Passenger Flight Segments (000s)10,809 11,509 10,814
Departures72,728 77,636 71,921
Avg Fuel Cost ($/gal)3.10 3.18 2.90
Fuel Gallons (000s)146,818 153,123 140,139
CASM (¢)10.51 10.40 10.92
Adjusted CASM (¢)10.44 10.05 10.68
Adjusted CASM ex-fuel (¢)7.13 6.75 7.67
Aircraft at Period End202 205 207
Avg Daily Utilization (hours)10.8 11.2 10.4

Notes:

  • No formal operating segments are disclosed; revenue mix and unit economics are presented instead .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Total Revenue ($M)Q2 2024N/A$1,320–$1,340 New
Adj. Operating Margin (%)Q2 2024N/A-11.0% to -9.0% New
Adj. Operating Margin (AOG timing adj.)Q2 2024N/A-8.5% to -6.5% New
Fuel Cost ($/gal)Q2 2024N/A$2.80 New
Fuel Gallons (MM)Q2 2024N/A147 New
Total Other (Income) Expense ($M)Q2 2024N/A$35 New
Tax Rate (adj.)Q2 2024N/A22.6% New
Diluted Share Count (MM)Q2 2024N/A109.5 New
Available Seat Miles vs 2023FY 2024Flat to up mid-single digits Flat to up low-single digits Lowered
Capital Expenditures ($M) TotalFY 2024PDP $60; Aircraft/Engine $35; Other $140 (components) Total capex $(30) (PDP refunds -$175; PPE $145) Mix/total reduced
AOG Credits to be Issued ($M)FY 2024N/A$150–$200 New
Avg AOG AircraftFY 2024N/A~25; exiting 2024 at ~40 New

Additional guidance color:

  • Q2 AOG credits: earn ~$42M, recognize ~$7M in P&L; +$35M timing add-back shown for adjusted view .

Earnings Call Themes & Trends

TopicQ3 2023 (Oct-23)Q4 2023 (Feb-24)Q1 2024 (May-24)Trend
Competitive capacity & pricingDiscounted fares; revisiting growth profile TRASM pressure; expecting sequential TRASM rebound into Q1’24 Domestic improving slower than hoped; off-peak still weak; LatAm/Caribbean pressure persists Gradual improvement off lows, still pressured
Pratt & Whitney AOG impactExpect avg 26 grounded in 2024; negotiating compensation Avg 13 grounded in Jan rising to ~40 by Dec; compensation a significant liquidity source AOG compensation agreed; $150–$200M 2024; accounting recognition limited; margin drag ~2 pts Liquidity relief secured; P&L timing still adverse
Liquidity & balance sheet$1.2B liquidity; capex $209M YTD $1.3B liquidity YE; SLBs $419M proceeds; targeting positive op cash from Q2’24 $1.2B liquidity; Airbus deferrals add ~$230M 2024 liquidity; creditor talks underway, resolution targeted by summer Strengthened via SLB, deferrals, credits
Network/product strategyEvaluating routes; ULCC positioning Tactical/strategic changes, operational reliability benefits Material product/merch changes starting June; rebalancing network; fewer new cities near term Pivot to broaden appeal/merchandising
Operations/ATC constraintsWeather/ATC hurt; controllable CF 99.8% Reliability improved; #2 in Jan’24 reliability ATC (JAX) drives self-limits in Florida; controllable CF 99.9% Stable ops; external constraints linger
Regulatory/legalMerger process ongoing Post-injunction appeal planned (as of Feb) Merger terminated; standalone plan; not in favor of new DOT rules Shift to standalone

Management Commentary

  • “While we reported a loss in the first quarter 2024, we are making progress towards our financial goals... we are on track and we are excited to unveil the milestones to you over the coming months.” — CEO Ted Christie .
  • “We are confident that the strategic changes we are implementing, together with our cost saving initiatives, will allow Spirit to compete effectively… and drive continuous improvement in the years ahead.” — CEO Ted Christie .
  • “This agreement [with Pratt & Whitney] should add approximately $150 million to $200 million of liquidity benefit to the business in 2024... [and] the deferral [with Airbus] will improve 2024 liquidity by about $230 million.” — CFO Scott Haralson .
  • “Some of these changes to our merchandising and pricing strategy are already being tested… results appear to be in excess of our expectations from a volume and yield perspective.” — CEO Ted Christie .

Q&A Highlights

  • Liquidity and creditors: Company cited minimums tied to loyalty bond ($400M) and revolver ($450M); discussions with loyalty bondholders and converts “constructive,” aiming for resolution this summer; additional financing options (EETC) considered; overall liquidity “well above” minimums .
  • Unit revenue trajectory: Q2 TRASM guided down 8%–9.5% y/y on ~+2% capacity, with ~3 pts of drag from Caribbean/LatAm; off-peak needs to improve; product/merchandising changes expected to help shoulders/off-peak .
  • AOG credits accounting: Earned ~$42M Q2 credits but expect only ~$7M P&L recognition; accounting treatment creates ~2-pt margin headwind for 2024 despite cash benefit; Q1 earned $30.6M, recognized $1.6M .
  • Financing approach: SLBs primarily as financing; may use EETCs; do not rely on SLB gains as operating income .
  • Profitability timing: Targeting positive operating profitability in Q3 and Q4; near breakeven net in Q4; back-half margin aided by cost actions, fleet mix (NEO fuel burn), utilization, and network pivots .

Estimates Context

  • S&P Global consensus estimates were unavailable via the tool for SAVE at this time; therefore, we cannot provide definitive beat/miss vs Wall Street for Q1’24 or Q2’24 guidance. Where comparisons to expectations are referenced above, they reflect company commentary (“in line with expectations”) rather than Street consensus .
  • If you want, we can re-run S&P Global pulls once the mapping issue is resolved and update beat/miss metrics accordingly (EPS, revenue, EBITDA).

Key Takeaways for Investors

  • Reported Q1 margins were distorted by AOG credit accounting; underlying economics benefit cash in 2024, but P&L recognition is deferred, creating ~2-pt margin headwind—watch for the company’s “AOG-adjusted” margin disclosures to gauge trend .
  • Revenue trajectory is improving sequentially (TRASM +4.9% q/q), but off-peak softness and LatAm/Caribbean oversupply remain headwinds; the June merchandising/product changes and network rebalancing are the near-term lever to close the gap .
  • Liquidity looks adequate into the summer catalysts ($1.2B Q1-end; Airbus deferrals + ~$230M; AOG compensation $150–$200M); creditor resolutions on 2025/2026 maturities are a critical summer event path .
  • Q2 guide implies continued losses on reported basis but better margins after AOG timing adjustment; monitor unit revenue in off-peak weeks and execution of merchandising changes for confirmation .
  • Cost program (>$75M in 2024; $100M+ run-rate) plus retirements of A319s and rising NEO mix should support unit cost repair and fuel efficiency into 2H, providing operating leverage if unit revenue stabilizes .
  • Management targets positive operating profitability in Q3/Q4 and near breakeven net in Q4; Analyst Day in early August is a likely narrative catalyst to detail the standalone plan and product roadmap .