UPDATE – Spirit Airlines announced a $-270.7 million reported net loss for Q4 2022, which after excluding special items turns into a small $12.6 million profit. Full-year, the ultra-low-cost US airline wrote deep red numbers with a $-554.2 million reported net loss or $-189.4 million adjusted. Most special items were for legal and advisory fees related to the intended merger plan with Frontier Airlines, which was rejected by Spirit stockholders in favor of the acquisition plan from JetBlue. Spirit Airlines sees red after legal and advisory fees.
These legal, advisory, and other fees totaled $348.2 million in Q4 or $420.2 million for FY22. This also includes retention bonus programs under the Frontier and JetBlue merger agreements plus impairment charges related to the recently announced sale of 29 Airbus A319ceo’s. Spirit also lost $15 million in Q4 and $46.4 million in FY22 on the sale and leaseback transactions for sixteen aircraft and one engine.
Without these special items, Spirit is actually well on track to return to sustained profitability, CEO Ted Christie says. The airline benefitted from strong demand and higher yields to grow revenues in Q4 to $1.391 billion from $988 million in the same period last year. Operating expenses were $1.697 billion (2021: $1.049 billion), but this includes special items. Excluding them, expenses are $1.334 billion ($1.048 billion). The operating loss was $-305.7 million versus $-61.6 million in Q4 2021.
The fourth quarter results were also affected by weather-related costs, including Storm Elliott and a hurricane. They were partially offset by lower airport rents and landing fees. Christie is happy with the unit revenue performance, which corrected for the lower capacity and was even 22.5 percent better than in 2019 at $135.62. The completion factor for the quarter was 97 percent and the load factor was 91 percent.
For FY22, total revenues grew to $5.068 billion from $3.231 billion, with operating expenses up to $5.667 from $3.288 billion including special items or $3.271 billion versus $2.747 billion without. The operating loss for the full year was $-599 million versus $-56.9 million. Spirit ended the year with $1.8 billion in unrestricted cash and revolving credit facilities after raising $600 million in Q4 through a private offering.
Setbacks with P&W GTF
Spirit says that aircraft utilization at 10.8 hours per day was 7.7 percent lower compared to 2019, although 1.9 percent better than in Q3. It blames ATC problems at its Florida hubs and staffing challenges to optimize the network, but the airline also suffered “unexpected setbacks” with the reliability of its Pratt & Whitney PW1100G-JM-powered Airbus A320neo fleet.
“Over the last six months, the GTF has experienced diminished service availability, an issue that has been steadily increasing over this period. This is not just a Spirit issue, Pratt & Whitney continues to struggle to support its worldwide fleet of neo-aircraft as MRO capacity remains constraint”, Christie said on Tuesday during the earnings call. “Turnaround times in the shop have been almost three times longer than the historical averages for ceo-engines. Within a two-week period, we went from having two A320neo’s parked without operable engines with having seven sidelined due to these issues. When operating, the neo performance and fuel efficiency are great, but the engine’s time-on-wing performance has once again declined. We are working with P&W on finding a solution that will increase time-on-wing performance, but it is frustrating that this has become an issue again.”
Christie added that instead of engine removals every six or seven years, “we are seeing a considerably higher uptick in frequencies. Just last year we removed 30+ engines and we have been operating this aircraft for about six years, of which the vast majority was delivered over the last two. Obviously, there is warranty on the engines and we are satisfied with the cover there. We are in constant discussions with Pratt on how to mitigate these problems and come up with a better solution. They are a willing partner, it is frustrating for both of us.”
Delayed deliveries
The airline hopes to build back fleet utilization to 2019 levels by the end of this year. Capacity should be up nineteen to 22 percent over 2022, but this depends on how the engine issues are solved and if Airbus is able to deliver the aircraft that Spirit has on order. This Q1, six A320neo’s are expected, four in Q2, and three each in Q3 and Q4. The first A321neo should join Spirit in Q2, with five due in Q3 and four in Q4. In 2024, the carrier counts on the delivery of thirteen A320neo’s and 23 A321neo’s while retiring nineteen A319s over this year and the next.
But Christie said that Airbus has already notified him that deliveries will slip. “A number of 2023 deliveries will be delayed until 2024. This may cascade some deliveries into 2025, all reducing the number of aircraft delivered from Airbus and our lessor partners by seven in 2023.”
For Q1 2023, Spirit expects to increase total revenues per available seat mile by 23 to 25 percent. The adjusted operating margin excluding special items should be between minus two to minus four percent. Full-year capital expenditures are guided at $255 million. Christie said that Spirit is expecting more news from the Department of Justice about the JetBlue agreement in some thirty days.
