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.
— 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.
— 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.
— 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
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