Spirit Airlines is preparing shifts to its merchandising strategy that will be geared toward higher-end flyers.
During the budget carrier's Q1 earnings call Monday, CEO Ted Christie declined to get specific, saying that details won't be unveiled until August. But he emphasized that Spirit must appeal to travelers that fall outside of its core discount base to adapt to evolving customer preferences and to reverse losses.
"It is clear that we need to introduce some changes to reflect the new dynamics of the industry and to make Spirit a more compelling option for the traveling public," Christie said.
He noted that the airline has already begun testing changes to its merchandising and pricing strategies in some markets.
"The results appear to be in excess of our expectations from a volume and yield perspective," Christie said. "It is early, but very encouraging."
Success will be crucial. The $3.8 billion JetBlue-Spirit merger is off the table following its defeat early this year in a federal antitrust court. Meanwhile, Spirit reported a $496 million operating loss in 2023 and a $207 million operating loss in the first quarter of 2024. The result included a dismal operating margin of minus-16.4%. For the current quarter, Spirit is providing guidance for an operating loss of between 9% and 11%.
Spirit had $1.2 billion in liquidity as of March 31 and is in a race to turn things around while negotiating the refinancing of $1.1 billion in loyalty program-backed debt that will come due in September 2025 and another $500 million in convertible bonds that mature next May.
Spirit plans to reduce losses through increased efficiencies, including staffing cuts, which it says will save $75 million this year and $100 million annualized. The carrier also recently reached an aircraft deferral agreement with Airbus that it says will boost liquidity by $340 million over the next two years.
Payments from engine manufacturer Pratt & Whitney as compensation for the Airbus A320neo planes that Spirit expects to ground over the course of this year while they are inspected for potential metal contamination will amount to another $150 million to $200 million.
Christie said that new merchandising initiatives will give flyers a chance to buy products and services that Spirit doesn't currently have available and that align with the more premium-focused consumer preferences that have taken shape since the Covid-19 pandemic.
"We feel confident that we can attack the market well with low cost and deliver products that people want more affordably than they're currently getting on some other airlines," he said.