MIAMI – Spirit Airlines (NK) has released today its Q2 2020 report. The results show a decrease of 86,3% in total revenue in comparison with Q2 2019 due to COVID-19.
The airline reduced its operational performance in April. However, it increased its Completion Factor for May and June, according to the Department of Transportation (DOT) measures.
In Q2, the company ended up with US$1,2bn in cash. NK expects to return to profitability with the rebound and stabilization of travel demand in the next quarter.
Spirit Revenue Results
The total revenue of the company was US$138.5m, which means a down of 86.3% compared to Q2 2019. NK attributed negative impact to the decline in air travel demand because of the COVID-19.
Other revenues suffered the same trend. In comparison to Q2 2019, in 2020 these numbers decreased by 43.6% from last year’s 8,5%.
Passenger flight segments by year, breakage, brand-related and further revenues increased NK’s ticket and non-ticket revenue per passenger flight segment.
Then, respectively, fare revenues reached 23.0% and 49.5% during the reported Q2.
Following the downward trend, the carrier’s total GAAP operating expenses decreased by 61,3% year after year to US$328.9m.
For adjusted operating expenses during the quarter, these went down about 43,3% year over year to $480.8m.
The report also shows that the drop by 92,5% in fuel expense and related flight operation volume costs helped.
In addition, payroll expense related with salaries, wages and benefits was “about flat” in comparison with Q2 2019.
However, it did achieve a payroll increase of 11,6% year over year. In March, it suspended its hiring program due to pandemic.
As the pandemic rapidly spread across the US, the carrier adjusted its network. As result, its capacity increased from 17.9% in April to 79.1% in June.
Previously, NK capacity during Q2 2020 went down about 83,2% compared to Q2 2019.
Regarding its operational performance, the airline reported a DOT Completion Factor of 80.2% in April. This left it in second place among reporting companies.
Spirit had reached first place during May and June, achieving a DOT Completion Factor of 100%.
For its on-time performance ranking, the carrier was third in April with 74.6%. For May and April, it was first with 96.8% and 94.2%, respectively.
Spirit Fleet Update
During Q2, NK took the delivery of three A320neo aircraft. Two of them were debt-financed while the third was secured under a direct operating lease.
The company expected 16 more planes in 2020 and 25 in 2021, but it agreed on a deferral with Airbus. Now, NK will receive 12 aircraft in the current year and 16 in the next one.
For 2021 deliveries, the airline announced that it secured ten aircraft under direct lease arrangements. The remaining six have not been financially secured.
The 2018 pre-delivery deposit financing facility with Airbus was also extended from December 30, 2020, to March 31, 2021.
In consequence, the carrier paid US$50m to Airbus, but it ended the quarter with a fleet of 154 aircraft.
Spirit Liquidity as of June 30
Spirit ended the quarter with US$1.2 bn in liquidity. This amounts to unrestricted cash, cash equivalents, and short-term investments. In the process, it reduced its daily average of cash burn.
In April, the airline’s cash burn rate was about US$9.5m. By June, NK slowed it down to US$1,5m, according to NK CFO, Scott Haralson.
Haralson states that the company continued making tactical changes to preserve cash. The tactic was to maintain flexibility when responding to the recovery of travel demand.
Thus, NK estimates it will incur a daily average cash burn between US$3m and US$4m during Q3.
PSP and Cares Act support
In April, the airline entered into the Payroll Support Program (PSP). This will let it receive US$334.7m in grants and a low-interest 10-year note.
By June 30, the company had received US$301.3m in PSP support. As a result, it had issued to the US DOT US$60.4m in notes and warrants to purchase 428,829 shares at US$2.5m.
It will deliver the remaining US$33.4m in July. Thus, the Treasury will receive an additional US$10.0m in notes and warrants to purchase NK’s 71,321 additional shares.
The airline had also applied for additional funds under the CARES Act, which are expected to be US$741m. However, NK has until September 30 to decide whether or not to participate in the Loan Program.
Spirit Estimations for Q3
The carrier estimates a capital expenditure of US$560m for 2020. It also expects to spend US$112m during Q3 and Q4.
The company estimates capacity for Q3 will be down by about 32% in comparison with the same period in 2019. The decrease will be 8% in July, 35% in August and 45% in September.
As the COVID-19 crisis continues, NK will implement further mitigation strategies to preserve cash and protect its long-term sustainability.