Bare Fare Despair?: Spirit Airlines hasn’t quite been the same since rivals began matching its fares
Should Spirit Airlines be worried? In 2017, America’s largest ultra-low-cost carrier saw its operating costs balloon by 22%, running far ahead of its 16% ASM capacity growth. Revenues, meanwhile, rose just 14%. Versus two years ago, Spirit’s costs last year were up 38%, with revenues up just 22%. That’s not a good trajectory.
Spirit, of course, isn’t the only U.S. airline whose cost growth is outpacing revenue growth. In fact, this was the case for every U.S. carrier last year (surely including Frontier, whose Q4 results haven’t yet been disclosed). And anyway, 2015 was an unusually profitable year because of crashing fuel prices and elevated fares that hadn’t yet adjusted to those lower fuel prices. So a return to lower-but-still strong profitability was perhaps to be expected. There’s no shame in a bronze medal at Pyeongchang, even if you won a gold at Vancouver and a silver at Sochi. U.S. airlines, indeed, are still winning.
But for Spirit, the profit declines have been especially steep. Operating margin last year was 15%, down from 21% in 2016 and 24% in 2015. Only one other U.S. carrier suffered a steeper drop in the past two years, and that was Allegiant, raising more questions about the health of the once-unstoppable ultra-low-cost business model. It was more of the same in just the fourth quarter, when Spirit’s operating margin fell to 13%, almost eight points lower than in the same quarter two years earlier. Far from having the highest or second highest profits among U.S. airlines, as was the case every year from 2011 through 2015, Spirit is now just middle of the pack, bested last year by Southwest, Alaska, Hawaiian and Allegiant. It’s declining, in other words, not just absolutely but relatively.
What’s the problem? Maybe nothing too serious. Spirit, after all, disappointed last year in part due to factors beyond its control, factors likely one-time in nature. It was one of the most exposed carriers to last fall’s devastating hurricane season, wiping out $40m in revenues just during the third quarter—about a tenth of its network touches Harvey ravaged Houston, let alone its much larger footprint in Irma and Maria-ravaged Florida and the Caribbean.
The spring, too, had its share of disruption. Spirit had to cancel 850 flights due to pilot unrest, erasing about $45m from its bottom line. Nor was the first quarter free of strife: A massacre in a Fort Lauderdale airport bag…
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