A reliable operation is key for airlines to keep passengers satisfied and coming back. Spirit Airlines is facing all sorts of problems on that front, to the tune of $45mm-ish in Q2 17 and expectations of a hit in Q3 as well.
*Cough* Mean Pilots *Cough*
Within the company’s control arguably is the contract situation with its pilot union.
During the second quarter 2017, the Company had over 850 pilot-related flight cancellations. The Company estimates these pilot-related cancellations adversely impacted its second quarter 2017 results by approximately $45 million (approximately $25 million of revenue loss and $20 million of additional operating costs, primarily related to higher passenger re-accommodation expense).
In addition to the hit already realized in the Q2 numbers Spirit executives pointed out in the earnings call that much of the service interruption came about during the prime buying period for summer vacation flights. And given the general mess that Spirit was delivering it now believes the July/August period will be hit by 1.5-2% because of travelers booking away from the the carrier.
On the plus side, management is not yet legitimately considering suing the pilots to make investors whole, despite one analyst on the call suggesting that and citing precedence.
Operational reliability also comes from having a fleet that can fly without unscheduled ground time. The five A320neo family aircraft with the Pratt & Whitney GTF engines are seriously hampering that goal. Only three of the five neo aircraft in the fleet are currently operating, which is better than having them all grounded but still not a fully operational fleet. Spirit is not the only company adversely affected by the GTF issues. JetBlue deferred some A321neo orders and Hawaiian’s deliveries are late. Indian operators are also facing troubles with the engines. It is a significant issue industry-wide and Airbus is feeling the pains, too.
Spirit is not shy about picking fights with legacy carriers, operating under the belief that there’s no reason it shouldn’t be able to fly from anywhere it wants. United Airlines seems to feel otherwise. President Scott Kirby watched as Spirit eroded American Airlines’ base at DFW and is keen to not repeat that experience at Newark where Spirit now operates a handful of flights from a single gate. United has been aggressive in pushing back against Spirit’s fares to the point that JetBlue, which also competes on many of the Newark-Florida routes with the other two, called attention to the depressed yields there in its Q2 earnings call earlier this week.
No one on today's $SAVE call is saying the words Scott Kirby but they are all screaming silently: "Scott Kirby did this!" #airlines
— justinbachman (@justinbachman) July 27, 2017
One analyst suggested to Spirit that bailing on Newark could help stabilize the market across the board. Spirit rejected the idea of walking away from Newark, at least for now. It also points out that the other airlines competing on price (i.e. United) have way more capacity priced at the fire sale levels so more exposed to pain than Spirit is.
"One gate can change the dynamics of an entire city." – $SAVE talking about @EWRairport. $JBLU sees weakness there as well. #AvGeek #PaxEx
— Seth Miller (@WandrMe) July 27, 2017
A little good news
While most of the story is crap for Spirit in Q2 and likely for the near future there are a couple bright spots from today’s report. First up, the company has a mobile app in development and it will be released at some point this quarter. It is unclear what the “mobile app booking fee” rate will be, but I fully expect there will be one, just like with the website.
Also in this morning's $SAVE release: Pax paid an average of $53.14 in fees, nearly half total travel cost. HUGE. #AvGeek #PaxEx pic.twitter.com/O1Ni72UT5l
— Seth Miller (@WandrMe) July 27, 2017
Second, the ancillary revenue numbers continue to increase. In Q2 ’17 Spirit took in just over $53 per ticketed passenger in ancillaries, more than 40% of the per-ticket revenue. And the company believes that will increase as it gets better at data analytics and building targeted customer offers. It is already experimenting with dynamic pricing of assigned seats with results that leave the company “pleased” so far. More bundles are likely coming, also dynamically priced. This is the sort of thing that NDC loves and GDS platforms hate.
This is marginally above @wizzair's ration (auxiliary revenues are over 42% of total, 46% for Spirit). Just 26% for Ryanair
— Dominik Sipinski (@dominiksipinski) July 27, 2017
Never miss another post: Sign up for email alerts and get only the content you want direct to your inbox.
I just don’t see how UAL can compete against a below 6 CASM(xJetA).
Prices can stay this low for long period of time, especially you get more pressure internationally.
The problem is the labor contact with the pilot.
Nice post on Spirit issues.
It seems like if they could solve the pilot and engine problems that would help, duh. I don’t know about Newark and NYC issues around Spirit as I don’t fly there much but until they improve their model it will hold them back. What I mean is that Southwest has made great gains on odd semi-hub airports that maybe have lost or need more lift. Like STL for example. Once AA de-hubbed that airport it opened a door for Southwest to grow there with routes that don’t involve going to ORD or DFW everytime. At the time it helped that Southwest had cheaper fares (see today’s Spirit fares) but it worked.
I really like flying Spirit but I feel like I’m rolling the dice every time I get to a remote airport with them. It’s a gamble that that aircraft doesn’t go mechanical. Like the Allegiant issue at LAS this week.
I think Spirit will eventually succeed long term if they can turn a profit and solve their PR issues. I also think airlines like Allegiant will turn into Valujet or maybe Air Tran eventually.
Being even more long winded if I ran Spirit I would build an secondary hub network at some second tier airports and try and use the stop and go route method that Southwest uses. In fact I’d try to copy Southwest on a bunch of stuff, except high prices. My thinking is that some second tier regional airports that have capacity would be glad to throw cheap gates, lounges, tax breaks, etc. at them. Places like DFW or NYC just want to cash in from the airlines that need them. They still need the big cities for O&D traffic but putting hubs in second tier cities could help them cut cost and provide a more stable platform. Heck even larger cities like PHX might be a good fit as AA moves more to LAX. FLL is a good fit for them, STL would be good, CLT (maybe long term). Milwaukee maybe. New Orleans?, PDX, Little Rock, Sanford FL, etc.
This could be an interesting topic for Dots Lines and Destinations if you could get a guest that knows a lot about Spirit or flies them a lot.
I recall flying Spirit when they were a reputable option to NWA out of DTW. Until their spiral to the worst LCC…
The “mobile device booking fee” will be a paywall in the app. Sure, it’s a free download…but then you have to use the app, and only people who use the app will get charged. I hate Spirit…the airline industry equivalent of an anal fissure.
TANKED did that stock today!
I used to fly them every so often from NYC to FLL them when i was going solo and it was always an awful experience…with my family…NEVER…
Spirit used to be the best choice out there for me: ACY-FLL on MD-80s when ACY didn’t have jet bridges. It all went to shit when they hired BBB.
Seth: Can they afford to give their pilots pay parity with the big guys and still make money?
Hard to say for sure. The average total revenue per passenger isn’t all that low and they save enough on some costs that I’m guessing it can be at least competitive. Probably not industry leading, though.
Industry leading is only industry leading until the next contract beats it…and then it isn’t industry leading anymore 🙂
Comments are closed.