Spirit Airlines reported earnings. More of the same, unfortunately.

Here is the short version: Costs exceed revenues, and the airline has a big bill coming up in 2025. There. You’re all caught up.

Since airlines are built for scale, we examine Spirit from the Cost per Available Seat-Mile (CASM) perspective. More specifically, we compare it to the Revenue per Available Seat-Mile (RASM).

Ideally, the RASM should be greater than the CASM. Unfortunately for Spirit, the airline currently has a RASM/CASM chasm.

But let us consider the two in context. Since Q1 2019, Spirit's unit costs have increased by 40%—nearly double inflation. Unit revenues, on the other hand, have only increased by 8%—less than half of inflation.

Since 2019, the industry has endured a global pandemic and a pilot shortage. The former is well documented, but the latter, the pilot shortage, requires a second look.

Our subscribers will know how easily confused the acute pilot shortage was with the chronic. Simply put, the airlines did not have a sufficient bench from which to pull after the mass exodus of pilots during COVID. More pilots left the industry through early buyouts at legacy airlines than existed at Spirit, Frontier, and Allegiant combined… times two.

You know the rest of the story: travel came back, and there weren’t enough pilots, so the airlines all tripped over themselves to pay more to compete for available pilots.

During the same period, Spirit increased its unit costs by 40%; labor costs increased by 52%.

But what about Frontier, you ask? They posted a measly 3.6% operating loss and live in the same ULCC space. How can Frontier do it but not Spirit?

Applying Frontier’s labor costs to Spirit would have cut the operating loss in half. Why does this matter? Because Frontier has yet to negotiate a new contract with its pilots.

Put another way, with Spirit’s labor costs, Frontier would have posted an operating loss of 11.6%.

However, costs are up at all airlines, particularly labor costs. This isn’t unique to Spirit (although Frontier’s delay in pay increases is unique). What is unique to the ULCC space is the increase in unit costs without the increase in unit revenues.

CASM is not at Spirit's all-time highs. But while it has dropped following the 2022 spike, so too has RASM.

This is a big problem for the ULCCs. Costs have risen to accommodate the higher revenues, which only disappeared in Q3 2023.

Our research detailed this and warned of rapidly falling RASM levels last summer. By fall, our subscribers read a detailed look at the revenue challenge in the domestic U.S. system.

So, which is it? RASM or CASM? What is the problem at Spirit Airlines?

Our take is it is a revenue problem. It has to be because you can’t put the cost genie back in the bottle. Besides, all other airlines have seen cost increases, but have found the revenue to offset. Frontier remains the exception - for now.

A challenge:

Spirit Airlines is largely a spill carrier, going after routes served by more expensive airlines to take the demand unserved. Once a competitive weapon, route overlap has turned into a threat for Spirit.

With which airlines does Spirit see the most competitive seat overlap?

The answer → Answer.

Research published this week

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