Spirit Tells Us To Wait
It has some good ideas, executives say. But you'll have to wait to hear them until August.
Dear readers,
If you were looking for Spirit Airlines to outline a new, coherent strategy to get its mojo back (I won't say “return to profitability,” because that’s long way off), you didn't get it on this week's first quarter earnings call.
Instead, we heard the usual stuff from executives, including complaints about fierce competition, limp demand during off-peak periods, and Pratt & Whitney engine woes, as well as a new gripe — CEO Ted Christie’s not-so-oblique shot at the U.S. Department of Justice for its "the waste of taxpayer funds" in its (successful) lawsuit that blocked Spirit's merger with JetBlue.
Like most of you, I don't know where Spirit goes next. It does not have the right model for the moment, and while this business is inherently cyclical, the premium-heavy cycle shows no signs of abating. Even if it does, the Big 3 have shown they know how to attract cost-conscious customers with basic economy, which, if you believe Scott Kirby, they can deliver on up-gauged airplanes at competitive marginal cost. Yes, Spirit has far lower costs overall, which could help in the long run, but if you've listened to Kirby (or CFO Mike Leskinen, his mini-me) you know the industry may be headed to more cost-convergence, as prices for pilots and airplanes rise for all carriers.
Cost was among many problems in the first quarter, with Spirit's CASM-ex fuel up 6.2 percent year-over-year. Overall, the quarter was ugly, with Spirit losing $142.6 million on revenues of $1.27 billion. Its operating margin was -16.4 percent.
I think I specialize in telling you things you do not know, and by now, you must know Spirit is in dire shape. I see no need to punch down, considering Spirit executives know how much work they have ahead. I find it much more annoying when other CEOs and chief commercial officers pretend everything is fine when it is clearly not.
So today, I’ll play it (mostly) straight and share some nuggets from Spirit's May 6 call.