Florida-based ultra-LCC Spirit Airlines has resumed its growth track and expects to be one of the first US carriers to return to profitability if trendlines continue. The airline was one of just seven passenger carriers worldwide to be named to the Fortune 2021 World’s Most Admired Companies list, placing it among signature brands like Singapore Airlines. Ted Christie, a former executive at US regional Pinnacle Airlines and ultra-LCC Frontier Airlines, took the helm at Spirit in January 2019. He spoke with ATW in late April as the company released its 2021 first-quarter results, which outperformed expectations with a $112 million net loss on a $461 million operating revenue.
– Interview by KAREN WALKER
Your first-quarter results indicate good trendlines in a still difficult environment. Is that a fair summary? The numbers themselves are still somewhat frustrating but we are extremely encouraged by what we’re beginning to see as it relates to the pace of the recovery. We are very encouraged by the trends we are seeing from a demand perspective in the lower 48 [states] here in the US as well as in the Latin America markets we serve, giving us some confidence that we think we will hit close to EBITA breakeven in the third quarter. With those trends continuing, that leads us to being able to produce, perhaps, neutral or positive results for the full year.
So Spirit will be one of the first US airlines to return to profitability? Yes. We have been thinking that since the crisis struck, largely because of the market we serve and our business construct. We are the lowest-cost operator here. We mostly serve the leisure market and, given that the recovery is led by that component of the sector, being positioned in places like Florida, Las Vegas, Latin America and New Orleans set us up to be in a leadership position and it appears we are taking advantage of that.
With business travel return lagging leisure, Spirit’s core market, the US leisure sector is even more competitive. How do you stay ahead? We’ve always been a competitive airline and we fly in places that are mostly already served by another airline. But one of the benefits of having one of the lowest costs in the space is that we are an active stimulator of activity. We do so with low fares, but low costs are the driver. Staying strong in the markets we serve is based on two things. It’s about maintaining or expanding our position. For example, at our home airport in Fort Lauderdale, we’re bigger today than we were before the pandemic. We have more departures today. We are now the number two airline in Orlando and in Las Vegas. Being able to move the network that way is the first thing. The second thing is to keep focused on your cost structure and maintain your advantage against the competitors so you can price your product the way we need to in order to stimulate activity. While it is a different marketplace today, elasticity still matters, and people are being stimulated based on fare activity. The model still works.
Spirit’s CASM was around six cents before the crisis, one of the world’s lowest. When do expect to be able to return to that base? Taking capacity out of the space and not removing fixed expense is the hallmark of how to inflate your cost structure and that’s a very challenging thing for levered businesses like airlines. In the past year, we have operated dramatically less capacity than we would have done in an optimized environment. In April 2020, we were operating around 50 departures a day; we normally operate 750 a day. That’s a recipe for disaster. Where we had some ability to either defer or slim down, we did so. Quite frankly, I was encouraged to be told there weren’t a lot of opportunities there, which told me that we were already very lean. We expect to get to full utilization probably by the mid-point of next year and once we’ve reached that point, we expect CASM ex-fuel will trend down below six cents. How deep we go into the fives will depend on where the network deploys over the next 12 to 24 months and what assets fly where. We will also do what we always do, which is use our scale to find advantages. That could be through technology, purchasing power or pure operational leverage because we will be bigger.
You’ve recently added new US city destinations, including Louisville, Kentucky; Milwaukee, Wisconsin; Pensacola, Florida; and St. Louis, Missouri. How do you prioritize and select new routes? It’s a lot of analysis and some gut, to be honest. We have a very experienced and skilled network planning team and they do a host of different cuts as to how we should look at markets numerically and analytically and then we talk about the strategy of the business and where we want to be. Those two things can push together in the same direction, but sometimes they are at odds. That’s where the active debate comes in, and intuition and management experience matters. A lot of the newest route announcements have been on the list for years. Some of them got paused because of COVID. In 2020, we added fewer markets than any airline in the US. When you think about network stability and the way we’ve approached things strategically, I think that’s an indicator of the fact that we were in strong positions and felt good about where we were. The focus, therefore, was on building back into those strengths. We’ve done that and now we can start resuming some of the additions that we felt were relevant to our network, such as St. Louis, which is a top 25 metropolitan area in the US that we didn’t serve.
Where are you in terms of reinstating your all-Airbus A320 family fleet? There’s 160 in the fleet and we have about 140 back in service, We’re still getting some of the older A319s back on line and that will be completed in about nine months.
Do you expect to make any changes to your new aircraft orders? We have an outstanding order with Airbus. We upped that order in the very late fall of 2019, for an incremental 100 aircraft, to take us through 2027. We anticipated that we would be supplementing that order with incremental aircraft from the marketplace. Broadly speaking, that could mean from lessors or other places and I think you could see movement in the next two years or so as we optimize our existing order by moving a few delivery positions around—and we can be opportunistic here because we are a growth airline and we are seeing recovery so we are a good customer—and also secure additional aircraft from the lessors marketplace. I think you’ll see us do that also.
You are taking delivery of the A320neos. How will that change what you can do? Every aircraft we take from here on out will be a neo. Of the total fleet, about 35 are neos today, which puts us in a higher percentage compared with most airlines in the world and that percentage will continue to grow. That gives us a massive fuel advantage, which gives us a cost advantage. But the neo has a range advantage also and it allows us to optimize seat deployment in ways we couldn’t do. The long-range aircraft in our fleet prior to the introduction of the neo was the A319, which is the smallest of the three airplanes. Now the neo can be the long-range airplane with 182 seats and it will allow us to more effectively deploy in some of our long-haul markets.
Will you go deeper into Latin America? It’s already happening. One of our longest routes today is from Fort Lauderdale to Lima, Peru, and prior to the neo, that was an A319. Now that’s an A320 and it can be done more efficiently with more seats and at better costs. The range opens up more markets and new things to us in Latin America that we can explore.
The full webinar interview can be viewed at bit.ly/3eyaaFC.
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