Spirit Airlines’ 2024 capacity hit hard by GTF issues

Spirit Airlines expects full-year capacity growth for 2024 to be flat to up to mid-single digits compared to 2023. It blames a “dramatic decrease in the company’s near-term growth projections” fully on repairs of the Pratt & Whitney Geared Turbofan-powered Airbus A320neo family fleet. In the Q3 earnings release (no call was scheduled), Spirit says that the powder metal contamination issue of the P&W engines has deeper consequences than previously thought. “Pratt & Whitney recently notified the Company that all the geared turbofan (GTF) neo engines in Spirit’s fleet, including the engines slotted for future aircraft deliveries, for a yet undetermined period, are in the potential pool of engines subject to the inspection and possible replacement, of the powdered metal high-pressure turbine and compressor discs. In August, Spirit CEO Ted Christie said that thirteen engines had been affected by the powder metal issue. Those were all engines produced between Q4 2015 and Q3 2021. P&W said this week that new, full-life High-Pressure Turbine and High-Pressure Compressor disks will be available on factory-built GTFs in Q1 2024 and for replacement in MRO shops from Q2. Spirit’s remarks indicate that the airline expects to take delivery of aircraft that still have life-limited disks. Spirit expects to ground on average ten A320neo’s this Q4, rising to thirteen in January and to 41 by December next year. On average 26 aircraft (A320neo’s/A321neo’s) will be out of service for engine repairs, which could take 250-300 days, although P&W said this week it hopes to reduce turnaround times wherever possible. Spirit repeated today that it expects P&W to fully compensate the airline for financial damages related to the GTF neo engine availability issues. Discussions are ongoing. “However, the amount, timing, and structure of the compensation that will be agreed upon is not yet known.” Deeper net loss in Q3 Spirit reported somber results for Q3, with a net loss of $-157.2 million compared to $-36.4 million last year. Softer-than-expected demand and price dumping resulted in lower total revenues, down 6.3 percent to $1.259 billion from $1.343 billion. Passenger revenues were down 6.7 percent to $1.234 billion from $1.322 billion. Other revenues increased 16.7 percent to $24.6 million, but passenger yields were down by 15.5 percent to $11.23 cents. The carrier was also confronted with higher operating expenses. Fuel was down by 10.5 percent to $455.2 million, but salaries increased by 29.6 percent to 404.2 million. The operating income was $-188.8 million versus $-36.4 million in Q3 2022. Spirit’s nine-month result was also negative at $-263.8 million versus $-283.5 million. Total revenues grew by 9.9 percent to $4.041 billion from $3.677 billion. Passenger revenues were up 9.7 percent to $3.971 billion from $3.620 billion, with other revenues up by 20.7 percent to $69.3 million. Expenses increased by 8.9 percent to $4.322 billion, resulting in an operational loss of $-280.9 million versus $293.2 million. No return to normal in Q4 Back in August, Christie was already concerned that Q3 would be a weak quarter for the ultra-low-cost airline, but that travel behavior would return to normal this autumn. But that’s not the case. “We continue to see discounted fares for travel booked through the pre-Thanksgiving period. And, unfortunately, we have not seen the anticipated return to a normal demand and pricing environment for the peak holiday periods. Given these continued trends, we are evaluating our growth profile and our competitive position. We have already taken the first steps by modifying the cadence of our aircraft deliveries through the end of the decade and slowing our capacity growth in the near term.” As reported in August, Spirit Airlines has pushed eleven aircraft deliveries out from 2024 to 2025-2029 and shifted options also by one year to 2029. The carrier also converted orders for A319neo's to A321neo's. Spirit has 101 neo's on order through 2029. In today's 10-Q filing, Spirit says it expects delivery of three more aircraft this quarter and seven in Q1 2024. The airline also has agreements for the lease of 24 A321neo's for delivery between this year and 2025. For Q4, Spirit expects a fourteen percent capacity growth year on year, revenues at $1.280 to $1.320 billion, and the adjusted operating margin at -15 to -19 percent. Fuel is guided at $3.15 per gallon. Q1 2024 capacity will be seven percent. Coming Monday, the trial for the lawsuit of the Department of Justice against the proposed acquisition of Spirit by JetBlue will start. The trial is expected to take some six weeks. Christie said that Spirit is still fully behind the acquisition, which was approved by its stockholders in October last year. "We continue to believe merging with JetBlue and creating a viable competitor to the Big Four US airlines is in the best interest of consumers, Team Members, and shareholders. We are prepared to make the necessary strategic shifts to enable Spirit to compete effectively in this new demand backdrop.”

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