Spirit Airlines (SAVE): A host of challenges put a damper on future plans

Shares of Spirit Airlines Inc. (NYSE: SAVE) stayed in red territory on Tuesday after taking a fall over its updated guidance which was issued a day ago. The stock was down over 1% in midday trade. The company has been facing a number of headwinds since the end of July and these are expected to take a toll on its revenue for the third quarter of 2021.

Challenges

Spirit has been facing irregularity in its operations due to bad weather and staffing shortages which have led to crew dislocations. During the period from July 30 through August 9, the company canceled 2,826 flights. These disruptions are expected to negatively impact revenues by approx. $50 million.

Spirit has also been seeing a rise in guest cancellations and softness in bookings mainly due to the resurgence of the pandemic as well as the effect of the disruptions on its brand. Due to the shortage in airport staff, the company has decided to make tactical reductions in its schedule for the rest of the third quarter. These factors are expected to lead to an additional negative impact of $80-100 million on revenue in the third quarter.

Guidance

Total operating revenues are expected to range between $885-955 million in the third quarter of 2021. Adjusted operating expenses are estimated to be $1.03-$1.04 billion. This is up from the prior range of $1.00-1.01 billion provided in the Q2 earnings report due to additional costs incurred from arranging tickets on other airlines and covering hotel and other expenses for guests whose travel plans were hindered.

Spirit revised its guidance for adjusted EBITDA margin from positive 10-15% to negative 8-1%. Fuel cost per gallon is estimated to be $2.19. Available seat miles are expected to be up 4.2% in Q3 2021 compared to the same period in 2019. Previously in its Q2 report, the company had guided for ASM to be up 10.6% from the 2019 level.

Q2 performance

In the second quarter of 2021, Spirit’s operating revenue decreased 15% to $859.3 million versus the same period in 2019. The company reported an adjusted loss of $0.34 per share compared to a profit of $1.69 per share in Q2 2019. Capacity was down 5.1% from Q2 2019 while load factor was 84.4%.

Competition

Last week, Southwest Airlines (NYSE: LUV) announced that the COVID-19 delta variant was impacting its bookings and that this would take a toll on its revenues for the third quarter of 2021. The airline expects Q3 revenue to drop 15-20% from the comparable period in 2019.

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