Spirit Airlines will cut its April capacity by 20% and its May capacity by 25% and reduce executive salaries as the ultra-low-cost carrier seeks to reduce costs in response to the coronavirus pandemic.
Load factors are expected to continue declining through March as governments limit air travel in attempt to halt the spread of the virus, Spirit chief executive Ted Christie says in a 17 March US Securities and Exchange Commission filing.
“So far, 10 countries we serve have required airlines to limit or completely stop operations,” Christie says. “As leisure events are cancelled across [the USA], our flown load factor has dropped dramatically over the last week and currently sits about 25% lower than last year.”
The Miramar-based carrier has reduced fares “but it isn’t enough” to maintain volume, he says. Liquidity is key for airlines during this downturn, and at the end of December, Spirit had $1.1 billion in unrestricted cash. Spirit, like other airlines, says its original full year 2020 guidance should not be relied upon.
“Our liquidity and low-cost business model can help us weather this storm, but there are still many unknowns ahead for which we need to prepare,” Christie says.
The carrier plans to change some flights from nonstop to a connecting service to adjust for lack of demand, and its executives are also matching the steps taken by other airlines and reducing their salaries. Christie’s base salary in 2018 was around $544,000, according to SEC filings, which he says he will reduce by 30% during 2020 as Spirit’s other executives also reduce their pay during the downturn.
The capacity cuts deepen the 5% reduction Spirit announced in a separate SEC filing on 10 March, a day before the World Health Organization officially declared coronavirus a pandemic. That filing last week projects that the cost per available seat mile excluding fuel is expected to rise 3% during the first quarter, lower than the original expectation of 3.5%-4.5%.
Spirit also expects that declining fuel prices will help offset some financial pressure. American Airlines and some other carriers are taking the lack of demand as an opportunity to ground some of their older aircraft, and airlines are in conversations with manufacturers to postpone aircraft deliveries to reduce maintenance and storage expenses. As of 10 March, however, Spirit expects to take delivery of 15 Airbus A320neos during 2020.