DALLAS — Spirit Airlines (NK) continues to face significant challenges but is taking steps to improve its financial performance through network changes, cost savings, and new revenue initiatives.

After Southwest Airlines (WN) and Frontier Airlines' (F9) respective seating and baggage policy redos, NK's new revenue plans means we're in the throes of LCCs departing from their conventional business models, what I call the great low-cost-carrier reboot.

The no-frills experience at rock-bottom prices while charging excessively for ancillary products and services is no more, at least in the U.S. market.

While we wait for NK's Q2 earnings call today at 10 a.m. EST, here's a summary of the airline's second quarter 2024 earnings report:

• Total operating revenues: US$1.28 billion, down 10.6% year-over-year
• Operating loss: US$152.5 million
• Net loss: US$192.9 million
• Diluted loss per share: US$1.76
• Ended quarter with US$1.14 billion in liquidity
• Capacity increased 1.7% year-over-year
• Load factor of 83.2%, up 0.3 points year-over-year
• System completion factor of 98.5%

Key Takeaways

1. Revenue performance was disappointing due to significant industry capacity increases and competitive pricing pressures.
2. Spirit is implementing a transformation plan to improve revenue production and profitability, including new premium fare options.
3. The company is on track to achieve US$100 million in annual cost savings, with US$75 million expected by end of 2024.
4. Spirit is realigning its network, exiting 42 markets and adding 77 new ones compared to Q3 2023.
5. Aircraft deliveries scheduled for Q2 2025 through end of 2026 have been deferred to 2030-2031.
6. The company expects to end 2024 with over US$1 billion in liquidity.
7. Spirit is facing challenges with Pratt & Whitney engine availability, averaging about 20 AOG (aircraft on ground) for full year 2024.
8. Management is focused on returning to profitability through the transformation plan and cost management.

Earnings Conference Call

As per today's earnings call, there's no denying that there is a "supply/demand imbalance" affecting the U.S. aviation market, which puts NK and other LCCs is in a "tough position," as everyone is looking to pivot to meet capacity increases in a very competitive landscape.

So, it makes sense that the carrier was adamant in saying that its transformation plan to improve its bottom line with a varied product offering was all about "delivering value" on top of its low-cost, no-frills model. This means securing loyalty for the premium fare options, not just for the basic fare ones.

To that effect, NK says it has sought outside help, one being a top tier ad agency, as it is serious about pushing its new products in a different way than before, where the low fares were enough to bring new customers in. As for the competition's announced future product revamps, NK says its "reimagined" product offering will launch "in two weeks."

It is a "reinvention" of their business model, one that is happening now. However, the carrier was clear to note that the new product offering will yield positive returns in a year's time. The conversation took a calculated turn, with NK stating that revenue would increase by 15%, "just below US$1 billion," within the specified timeframe, as a result of the new product offering.

Regarding the network realignment, NK stated that out of the 77 new routes, 15% are to be destined for Latin America and the Caribbean, markets that have fluctuated to up to 20% of the airline's network in the past, thus signaling NK's nimbleness to pivot and rejig its network.

Finally, regarding the aircraft deliveries and Pratt & Whitney engine availability challenges, NK spoke of new aircraft bleeding in the engine delivery pipeline, but that supply snags on behalf of P&W meant the MRO process would be slow at best, taking more than 400 days to replace current engines with defects.

Simply put, P&W does not have enough parts to meet the demand for engine replacements in a timely manner.