Spirt Airlines is the latest U.S. carrier to warn that the resurgent Covid-19 pandemic will tip it into the red in the third quarter, reversing previous optimistic guidance that the worst of the pandemic was behind the industry.
Of course, aside from the pandemic, it was a rough couple of weeks for the Florida-based budget carrier, which cancelled almost 3,000 flights in August, due to a confluence of weather-related delays and a shortage of airport staff that led to crews being out of position to operate flights. Re-booking costs and hotel accommodations are also eating into Spirit’s guidance. In its second-quarter earnings call last month, Spirit said it expected third-quarter earnings before income and taxes (EBIT) margins of between 10-15 percent, now revised down to between negative 8 and negative 1 percent.
But the weather and operational woes are largely over. Now, Spirit is facing softening bookings as travelers put off trips for fear of the Delta variant of the coronavirus, the carrier said in a filing to the U.S. Securities and Exchange Commission (SEC) Monday. The carrier expects this trend to cost it between $80-100 million in revenue in the quarter. Spirit still forecasts an increase in capacity for the rest of the year, but MKM Partners analyst Conor Cunningham thinks the airline will lower its capacity growth by 2.5 percentage points to about 20 percent.
Spirit joins Southwest Airlines and Frontier Airlines in warning about the effects of the Delta variant on bookings. Last week, Southwest said its July traffic and revenues were in line with expectations, but August is showing unanticipated softening. It had forecast August revenues to be 12-17 percent off August 2019, but now said revenues will be 15-20 percent below 2019, a range it expects to hold through the balance of the quarter.
“The company was profitable again in July 2021; however, the company believes the recent negative effects of
the pandemic on August and September revenue trends will make it difficult for the company to be profitable in
third quarter 2021, without taking into account the benefit of temporary salaries and wages cost relief provided by
payroll support program proceeds,” Southwest said in a filing to the SEC.
Frontier was the first to sound the klaxon, because it reported its second-quarter earnings late in the cycle, just as the Delta variant began to spread in the U.S. Executives at airlines that reported their earnings earlier expressed almost untrammeled optimism for the third quarter, saying business travel would rebound after the Labor Day holiday and fourth-quarter traffic would be on par with 2019.
Instead, Frontier CEO Barry Biffle said the carrier saw bookings soften in early August and expected the slump to last through about October. He cited data from Delta-variant outbreaks in the UK and Israel to posit the U.S. surge would last between six to eight weeks, although he noted the vaccination rates in those countries were higher than in the U.S. and argued for stronger mandates. “Everybody is concerned about protecting the unvaccinated’s feelings,” he said. “Let’s talk about the vaccinated.”