Spirit has a plan for profitability; it just needs a little time

Spirit Airlines has a plan to reinvent itself, changing its service offerings and marketing strategy to drive improved yields and a return to profit. But, like any large organization, it takes time to change. And in the interim the company expects headwinds to continue.

Speaking to investors – and asking for their patience as the company seeks profitability – CEO Ted Christie described a transition of positioning for the carrier in the market. He now wants Spirit to be seen as “a high value low cost carrier, offering a broader array of products including a more premium leisure travel experience at an affordable price.”

That’s not quite as concise as Breeze‘s self-proclaimed “Nice Low Cost Carrier” moniker, but neither particularly rolls off the tongue.

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The new products will, according to Christie, allow Spirit to “provide guests the opportunity to choose a premium leisure experience with more space, flexibility, and amenities at an affordable price.”

It may come as a surprise to many guests that the option for that more premium experience was not previously available. After all, the Big Front Seat has been in the market for years. That it is not currently available as an add-on purchase – passengers now must purchase a Go Big fare from the outset to get the big seat (and other amenities), though a spokesperson says Spirit is working on fixing that – will likely depress some volume on the premium shift in the short term as consumers learn the new program.

Facing headwinds

Christie shared that the carrier has modeled a unit revenue boost of 15% with new approach to seating and bundling of fares. That’s a big win, assuming it comes to fruition. But in the earnings call announcing its $169 million loss in the second quarter executives also shared that getting to that point is likely a year or more away.

Standing in its way are several factors that will impact profits for the next few quarters. Among them, according to Christie:

• One-time costs for employee training, IT systems updates to support the new offerings, and airport-related expenses to deliver the new services. These expenses add up to “a couple points of headwind” in the near term quarters.
• Removing cancel fees, increasing checked bags to 50 pounds, and other customer-friendly moves represent an additional 3-4% hit on revenues for the carrier

Non-ticket (i.e. ancillary) revenue was down 9.6% YoY, significantly more than the 3-4% Christie described. While those fees are not the only ones Spirit charges, they have been significant for the company in recent years. The airline will have to work hard to cut the ancillary shortfall to the targeted level.

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While the training costs will end soon, the revenue hits are likely to last longer, especially as those benefits are separate from the amenities being rolled out with the new product bundles.

Read more: Big Front Seat is dead; Long live Go Big!

The company is also pivoting away from its prior push into more business-focused markets. Less-than-daily routes are up 140% YoY while off-peak day schedules are lower. Indeed, while Spirit expects the new offerings “provide us the ability to more effectively compete for some of [legacy carriers’] higher yielding traffic, while maintaining a low cost structure,” he does not expect to become “the travel choice for the corporate traveler.”

Moreover, Christie recognizes “It is definitely a year plus” before the company is likely to be back in the black on its balance sheet.

So, how will the company bridge the timeline gap while awaiting that inflection?

In April Spirit announced it would defer pending new aircraft for the second half of 2025 and 2026 to 2030. JetBlue followed with a similar move announced earlier this week. This week the carrier also announced that it shifted its 2027-2028 order book to lessor AerCap. The airline plans to lease the 26 planes from AerCap when they are built, but in the short term Spirit gets a refund on previously paid pre-delivery payments, boosting its cash position by $186 million.

Read more: Spirit Airlines pitches premium passenger push in product revamp

The deferral also helps Spirit maintain capacity discipline. While some other airlines expect to simply slow their growth over the next couple years, Spirit will actually shrink capacity, thanks to fewer new planes and the grounding of existing ones from Pratt & Whitney GTF engine issues.

Load factors are finally edging higher again YoY, and the new products are rolling out quickly. Christie is optimistic that the aggressive timing in the pivot, rolling out just weeks after being announced, will allow the company to capture the share – and revenue boost – faster than not. Even if overcoming the headwinds is likely a year or more away.

A loyalty boost

The revised product offerings will also, Spirit hopes, give the company’s loyalty program a boost.

Back in 2020 the new FreeSpirit program launched, with some significant changes that made it more appealing to some business travelers. At the same time, Chief Commercial Officer Matthew Klein acknowledged that a lot of customer loyalty “historically is because we had very low fares and that was something that is what people are looking for.” He also noted that the unbundled model – now disappearing – was “exactly what [passengers] wanted.”

Klein is also keen on the changed program, however. “Over time, in order to really build up a loyalty program, it has to be more relationship driven,” he explained. “We have to have loyalty that is coming back Spirit, not just for low fares.”

Klein believes the new business model will deliver a scenario where travelers will “[W]ant to come back to Spirit for the experience and they want to come back to Spirit for a program that is also more reflective of who we are going to be in the future.”

The company declined to speak in more detail on any specific program changes, but they’re clearly in the works.