Spirit Airlines reported less profit in the fourth quarter and for 2016 overall, compared to a year ago as it faced pricing competition across its network, and some higher operating expenses, the Miramar-based carrier reported Tuesday.
During the quarter ending in December, Spirit’s net income fell 34.8 percent to $48.4 million, or 70 cents per share, compared with $74.4 million, or $1.04 a share, in the same period in 2015.
Spirit’s adjusted quarterly profit, which excludes certain charges, was $53.9 million or 77 cents a share. The 77 cents earnings per share beat analysts’ forecasts of 74 cents from the Zacks Consensus Estimate, according to Zacks Equity Research.
Operating revenue in the quarter rose 11.3 percent to $578 million from $519 million in the 2015 period, buoyed in part by an increase in flight volume, Spirit said. Quarterly revenue however fell slightly short of the Zacks Consensus Estimate of $578.5 million.
During the quarter, Spirit added new twice-daily nonstop service between Fort Lauderdale-Hollywood International Airport and Havana’s Jose Marti International Airport in Cuba, among other new routes across its network.
For all of 2016, Spirit posted net income of $264.8 million or $3.76 a share, versus $291 million or $4.13 a share in 2015.
Of note, 2016 was a year of marked customer service and on-time flight improvements for the low-cost carrier, which in the past has racked up high number of consumer complaints.
"Throughout 2016, we made solid progress towards our goal of achieving consistent reliability. We improved our Department of Transportation on-time performance by over 5 percentage points versus 2015, with nearly all that coming in the last seven months of the year,” Spirit’s President Bob Fornaro said during an earnings call with analysts. “We also made great progress in lowering our number of complaints reported to the DOT.”
Spirit began 2016 with a high complaint ratio of more than 11 per 100,000 customers and by year-end it reduced that metric by more than 60 percent to less than 4 per 100,000 customers, Fornaro said.
“We expect the progress to continue in 2017,” he noted. “Our goal is to run a quality airline while expanding our industry-leading cost structure.”
Over the three-month period ended Dec. 31, the budget carrier still faced some pricing pressure from competitors, which led to a 2.3 percent dip in average ticket revenue per passenger, to $56.19.
Average non-ticket revenue, which reflects travelers’ spending on optional fees for checked luggage, large carry-on bags and advance seat assignments, among other paid services, fell 4.3 percent to $51.92.
“The competitive environment has changed dramatically since mid-2015,” said Fornaro, noting Spirit’s competitors didn’t tend to match its pricing. “Today, we’re seeing competition across our entire network.”
Although more carriers such as American and United are planning to offer basic economy fares in 2017, as a way to compete with low-cost carriers such as Spirit, so far it’s too soon to say what impact those fares will have on Spirit’s performance, Fornaro said.
Delta Air Lines was the first of the legacy carriers to quietly roll out bare-bones airfares in select markets about four years ago.
“We compete well with Delta in the markets that we see [basic economy fares] in,” Fornaro said.
Looking to 2017, Matt Klein, senior vice president and chief commercial officer told analysts the first quarter will see some negative impact from the fatal shooting incident at Fort Lauderdale-Hollywood International Airport in early January.
The incident “caused a number of cancellations and subsequent refunds during the strongest part of January, and that same weekend, winter storm Helena, also drove an unusual number of cancellations across our network,” he said.
Together, both events are expected to negatively impact January revenue by approximately $7 million to $8 million and result in a slight drag on the month’s load factor.
Spirit remains bullish about expansion, and is projecting growth rate of 18 percent, management said.
Some 17 new routes already have been announced to launch this year and the carrier expects to announce 10 to 15 more before the end of the year, Klein said.
In 2016, Spirit added 16 new Airbus aircraft to its fleet, ending the year with 95 planes.
More pilots will be needed to fly the extra flights, but relations between the airline and its unionized pilots have been strained during supervised contract negotiations over the past year.
On Monday, the pilots represented by the Air Line Pilots Association International (ALPA) voiced concerns over lengthy two-year contract negotiations, and dissatisfaction with pay rates and retirement benefits.
In a statement, Capt. Stuart Morrison, chairman of the Spirit unit of ALPA, asserted that Spirit’s pay and retirement benefits were significantly lower than the industry standard. The company does not offer profit sharing.
“Spirit will be unable to attract pilots in an increasingly competitive marketplace and potentially will lose current pilots to airlines offering superior total compensation,” Morrison said. “It’s time for the company to share its financial success with its pilots and provide industry-standard pay rates, an industry-standard retirement plan, and a share of the profits.”
Of the negotiations Fornaro said: “We’re at it pretty hard.”
“When we are done, we expect the pilots to get a substantial increase and we expect to get improvements in work rules that are necessary and are typical across the industry,” he added.
Fornaro didn’t see any obstacles to attracting and recruiting qualified pilots.
“We feel pretty good about it, he said. “The outlook here is positive in that respect.”
Spirit shares slipped 2.17 percent to $54.42 in early afternoon trading on the Nasdaq.
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