Spirit Airlines Shares Drop 5% Following Raymond James Downgrade

Spirit Airlines (NYSE:SAVE) shares fell more than 5% intra-day today after Raymond James analysts downgraded the company to Underperform from Market Perform. The analysts cited a revised industry revenue outlook as the reason for the downgrade and lowered earnings forecasts accordingly. Despite good compensation from GTF, it does not fully offset the earnings impacts from grounded aircraft, a significant issue for Spirit. Cost control execution remains uncertain, and the analysts anticipate more pressure than initially expected.

Post-summer capacity adjustments are viewed as insufficient, likely resulting in normal seasonal fare trends in the second half of 2024 rather than an improvement. A successful renegotiation of the approximately $1.2 billion debt due in 2025 could provide near-term upside to shares. The analysts believe that the best outcome for Spirit, its creditors, and passengers would be a restructuring of obligations along with a merger with Frontier, though the current administration's support for such a merger is unclear.

Notably, neither Frontier nor Spirit have recently indicated interest in a merger. Additionally, Spirit announced the postponement of its Analyst Day from August to later in the year, initially tied to a media blitz on product changes. One such change, the elimination of change/cancellation fees, was likely announced earlier in response to Frontier’s product announcement.