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Spirit Airlines Reports Q1 Losses, Plans to Cut Costs

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Spirit Airlines (NASDAQ:SAVE) reported its results for the first quarter of fiscal 2020 on Thursday. The company’s first-quarter revenue missed the estimates. The losses were also higher than expected. Management said that the first-quarter results included the negative impact of COVID-19 on its domestic and international operations. Spirit Airlines stock closed with a loss of 8.2% on Thursday. Today, the stock has fallen by 1.8% in pre-market trading.

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Spirit Airlines’ losses were higher than expected

Spirit Airlines reported revenue of $771.08 million in the first quarter, which was lower than $855.8 in the first quarter of fiscal 2019. The revenue was lower than analysts’ estimate of $810.2 million. Meanwhile, the losses for the quarter were around $58.9 million or $0.86 per share compared to a profit of $57.5 million or $0.84 per share.

Airlines’ load factor has declined since March when travel restrictions were imposed. Passenger demand and bookings declined drastically. The load factor measures the capacity utilization for an airline. The airline mentioned that it has taken steps to reduce costs. Spirit Airlines has reduced its capacity by around 75% in April and 95% for May and June. The company also reduced its discretionary capital spending by $50 million.

Management said that the airline is in discussion with Airbus to defer some of its 2020 and 2021 aircraft deliveries and related pre-delivery payments. The company plans to save $185 million through deferred payments. Spirit Airlines also plans to reduce non-essential hiring. Spirit Airlines ended the first quarter with unrestricted cash, cash equivalents, and short-term investments of $894.4 million. The company also expects to receive approximately $335 million under the PSP program of the CARES Act.

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Regarding the cash burn rate, Spirit Airlines CFO Scott Haralson said, “We estimate our current average daily cash burn rate3 is about $4 million and we are evaluating initiatives to further reduce that amount should demand not begin to rebound in the coming months. While we still have a lot of work ahead of us, I am confident that together we will leverage our resources and tools to reinforce our balance sheet and put us in the best position to navigate the economic downturn and prepare for the recovery period.”

Analysts’ recommendations

The number of analysts covering Spirit Airlines stock and their recommendations remained unchanged after the earnings results. Spirit Airlines has a majority “hold” rating. The average target price on the stock is slightly lower at $20.50 from $20.58. The target price represents an upside potential of 95% from the last closing price. The stock closed 8.2% lower at $10.6 on May 7.

JetBlue Airways (NASDAQ:JBLU) also reported its first-quarter results yesterday. Southwest Airlines (NYSE:LUV) and Delta Air Lines’ (NYSE:DAL) first-quarter losses were higher than expected. The second quarter could be worse for most airline stocks.

JetBlue stock rose 2.0% on Thursday. Meanwhile, Southwest Airlines, Delta Air Lines, and American Airlines (NASDAQ:AAL) rose 2.0%, 3.2%, and 3.1%, while United Airlines lost 0.70%.

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