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Spirit Airlines, Inc. (SAVE)·Q4 2023 Earnings Summary

Executive Summary

  • Q4 2023 revenue was $1.3218B, down 5.0% YoY; adjusted operating margin improved to -12.4%, and management said strong holiday operations contributed ~$10M incremental revenue, allowing Spirit to exceed mid-December revenue guidance .
  • Management expects an “unprecedented” sequential TRASM improvement from Q4 to Q1 2024 and guided Q1 total revenue to $1.25–$1.28B, with capacity up ~1.5% YoY after aggressive off-peak reductions .
  • Liquidity ended 2023 at $1.3B; sale-leasebacks generated ~$419M net cash, and management expects to be operating cash flow positive starting Q2 2024 while pursuing options for 2025–2026 maturities .
  • Pratt & Whitney GTF issues are a major headwind: average grounded NEOs rose from 13 in January 2024 to an expected ~40 in December (avg ~25 for 2024); compensation is being negotiated and embedded in guidance, partially offsetting margin impact .
  • Potential stock catalysts: resolution/timing of GTF compensation; evidence of domestic demand recovery (spring break/TRASM sequential improvement); continued operating reliability; merger appeal developments (arguments in June 2024) .

What Went Well and What Went Wrong

What Went Well

  • Operational reliability: DOT on-time 76.8% and completion 99.2% in Q4; management estimated ~$10M incremental revenue from strong holiday operations and noted Spirit finished January 2024 as No. 2 in reliability .
  • Ancillary momentum: Non-ticket revenue per segment showed strong exit-rate trends into Q1 with new merchandising initiatives slated to push non-ticket higher through spring break .
  • Liquidity actions: ~$419M net cash from 25 aircraft sale-leasebacks and revolver maturity extended to Sept 30, 2025; year-end total liquidity $1.3B .

What Went Wrong

  • Unit revenue pressure: Total RASM fell 17.3% YoY on +14.8% capacity; load factor declined to 80.1% and non-ticket per segment decreased 6.6% YoY in Q4 .
  • GTF engine AOGs: Average 13 grounded NEOs in January 2024, expected to average ~25 for FY2024 and ~40 by December, driving capacity constraints and higher unit costs despite partial compensation assumptions .
  • Geographic softness: Caribbean leisure routes (e.g., Cancun, Montego Bay, Punta Cana) remained weak, weighing on margins despite domestic sequential improvement .

Financial Results

MetricQ2 2023Q3 2023Q4 2023
Revenue ($USD Millions)$1,432.5 $1,258.5 $1,321.8
Net Income (Loss) ($USD Millions)$(2.3) $(157.6) $(183.7)
Diluted EPS ($USD)$(0.02) $(1.44) $(1.68)
Adjusted EPS ($USD)$0.29 $(1.37) $(1.36)
Operating Margin (%)1.4% (15.0)% (16.3)%
Adjusted Operating Margin (%)3.3% (14.2)% (12.4)%
Pre-tax Margin (%)1.0% (16.2)% (17.3)%
Adjusted Pre-tax Margin (%)2.9% (15.4)% (14.5)%
Revenue Breakdown ($USD Millions)Q2 2023Q3 2023Q4 2023
Passenger$1,410.061 $1,233.912 $1,296.715
Other$22.411 $24.631 $25.045
Total Operating Revenues$1,432.472 $1,258.543 $1,321.760
KPIsQ2 2023Q3 2023Q4 2023
TRASM (cents)10.30 9.14 8.94
Load Factor (%)82.9 81.4 80.1
Fare Revenue per Segment ($)57.86 48.73 48.24
Non-ticket Revenue per Segment ($)70.17 67.70 66.60
Total Revenue per Segment ($)128.03 116.43 114.84
Avg Fuel Cost per Gallon ($)2.62 3.10 3.18
Avg Daily Aircraft Utilization (hours)11.3 10.8 11.2
Adjusted CASM ex-fuel (cents)7.15 7.13 6.75

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Adjusted Operating Margin (%)Q4 2023(15)% – (19)% (12)% – (13)% Raised (improved)
Total Revenues ($M)Q4 2023$1,280 – $1,320 ~$1,320 (high end) Tightened to high end
Available Seat Miles (% vs PY)Q1 2024~7% ~1%–2% Lowered
Total Revenues ($M)Q1 2024—$1,250 – $1,280 New
Adjusted Operating Margin (%)Q1 2024—(15)% – (12)% New
Total Other (Income) Expense ($M)Q1 2024—$31 New
Fuel Cost per Gallon ($)Q1 2024—$2.90 New
Fuel Gallons (Millions)Q1 2024—140 New
Tax Rate (Adjusted)Q1 2024—22.6% New
Wtd Avg Diluted Shares (M)Q1 2024—109.4 New
Capex: PDPs (net), Aircraft/Engines, Other ($M)FY 2024—$60 / $35 / $140 New

Earnings Call Themes & Trends

TopicPrevious Mentions (Q2 & Q3)Current Period (Q4)Trend
Demand/Unit RevenueQ2: Strong unit revenue but softer domestic demand expected; ATC/weather headwinds . Q3: Softer demand, discounted fares; TRASM -17.4% YoY .Sequential TRASM improvement Q4→Q1; domestic recovery signs (spring break) .Improving sequentially
Non-ticket RevenueQ2: +2.9% YoY per segment . Q3: +0.9% YoY per segment .-6.6% YoY in Q4, but exit-rate strength; new merchandising to lift Q1/Q2 .Improving into Q1
GTF Engine AvailabilityQ2: NEO availability issues disclosed . Q3: Avg 10 grounded in Q4’23; avg 26 in 2024 .Avg 13 grounded in Jan; avg ~40 by Dec 2024; avg ~25 for FY2024; compensation built into guidance .Ongoing headwind; partial offset
Network OptimizationQ2: Route additions/new stations . Q3: Continued expansion .Shift toward FLL and NY Metro; smaller Orlando/Vegas; off-peak reductions; suspensions/exits .Active reconfiguration
Liquidity/CapitalQ2: $1.5B liquidity . Q3: $1.2B .$1.3B YE liquidity; $419M sale-leasebacks; revolver extended; operating cash positive from Q2 .Stabilizing/improving
Regulatory/LegalQ3: Expect close in 1H24 .Injunction granted Jan 16, 2024; appeal hearing in June 2024 .Uncertain; event-driven
OperationsQ3: On-time 67%, completion 98.4% .On-time 76.8%, completion 99.2%; top-3 holiday performance; January No. 2 reliability .Improved reliability

Management Commentary

  • “We estimate this will result in an unprecedented sequential improvement in TRASM from fourth quarter 2023 to first quarter 2024, which supports our view of a domestic recovery in 2024.” — CEO Ted Christie .
  • “We believe our $1.3 billion in total liquidity at year end 2023 should be more than adequate… We believe we will be operating cash flow positive in the second quarter 2024 and beyond.” — CFO Scott Haralson .
  • “We have continued this operational excellence and finished January 2024 as the No. 2 airline in reliability.” — CEO Ted Christie .
  • “We will have an AOG number in the first quarter in the high teens… ending Q4 averaging about 40 AOGs… averaging about 25 AOGs for the full year 2024.” — CFO Scott Haralson .
  • “We have added 55 new routes and suspended or exited 37 routes… shift to Fort Lauderdale and New York Metro; Orlando and Vegas smaller for us.” — CCO Matt Klein .

Q&A Highlights

  • Pratt & Whitney compensation: Management confirmed compensation assumptions are embedded in guidance and will be recognized as a credit to non-operating expenses, spread over the year per AOG cadence .
  • Liquidity and financeable assets: Unencumbered hard assets ~$350M (HQ ~$250–$300M component), ~$425M PDPs, and $500M equity in aircraft ($1.2B financeable base); 27 new Airbus in 2024 fully financed via sale-leasebacks/operating leases .
  • Margin trajectory: Expect positive margins in Q2, Q3, “probably” Q4 2024; compensation only partially offsets AOG impact .
  • Capacity/AOG cadence: Q1 AOGs high-teens, rising to ~40 by December; 2025 cadence uncertain due to long wing-to-wing turn times (>300 days) .
  • Credit card holdback: Minimums tied to ATL balance (just under $400M at YE2023); holdbacks are a factor of ATL balance and confidential .

Estimates Context

  • We attempted to retrieve S&P Global consensus for EPS, revenue, and EBITDA for Q2–Q4 2023, but consensus data were unavailable due to a mapping error for SAVE at the time of analysis. As a result, we cannot provide “vs. Street” comparisons for this quarter.
  • Implications: Near-term estimate revisions likely focus on sequential TRASM improvement, Q1 revenue guidance ($1.25–$1.28B), and partial offsets from Pratt compensation within non-operating items .

Key Takeaways for Investors

  • Sequential unit revenue momentum: Management expects unprecedented TRASM improvement Q4→Q1, underpinned by domestic recovery signals and off-peak capacity cuts; Q1 revenue guided to $1.25–$1.28B .
  • Reliability driving revenue/cost: Exceptional holiday operations added ~$10M revenue and supported better-than-expected costs; January reliability was No. 2 across airlines .
  • Liquidity bridge to cash generation: YE2023 liquidity of $1.3B plus ~$419M sale-leasebacks positions Spirit to reach operating cash positive from Q2 2024 while evaluating 2025–2026 maturities .
  • Engine headwinds priced into outlook: Average AOGs rising to ~40 by December 2024; compensation embedded in guidance provides partial offset but remains a multi-quarter constraint .
  • Network reconfiguration: Seats shifting to FLL and NY Metro, with reduced exposure to weaker leisure geographies; non-ticket revenue exit-rate trends improving with new merchandising .
  • Guidance improvements: Q4 2023 adjusted operating margin raised to -12% to -13% from -15% to -19% and revenue landed at the high end; Q1 ASMs growth lowered to ~1%–2% to support unit revenue repair .
  • Event risk: Merger appeal arguments scheduled for June 2024; any resolution or updated timetable could be a stock-moving event alongside clarity on the Pratt compensation agreement .