Barclays analysts are sounding the alarm about Spirit Airlines’ big problem

Although beloved by many, Spirit Airlines (SAVE) struggled to turn their finances around this year.

The first bankruptcy rumors started swirling when a federal judge blocked JetBlue (JBLU) His plan to acquire it for $3.6 billion in January, but the trend of weak financial quarters dates back several months. On July 16, the airline announced it was cutting its revenue outlook for the third quarter of 2024 to $1.28 billion, from $1.32 billion to $1.34 billion previously estimated.

Related: Spirit Airlines Sounding the Alarm About a Big Problem

In a note sent to its investors on September 17, Barclays (BCLYF) Analysts said the airline would need a “25-30% discount” to “help support improved unit revenue results that support sustainable profitability”.

“We suspect Spirit will have an operating cash burn of nearly $700 million”

“Based on previous third-quarter guidance, we suspect Spirit will have an operating cash burn of nearly $700 million in 2024, with a modest improvement forecast for 2025,” the note added.

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The memo suggests investors watch for whether Spirit will reduce network capacity by drastically cutting unprofitable flights to focus on the ones that bring in the most traffic; Reducing network capacity in this way will be critical to getting Spirit on the path to profitability, according to analysts.

Another issue that plagued Spirit throughout the year was the recall of the Pratt & Whitney engines used in the Airbus A321neo. (EADSF) planes. The airline was forced to cancel a long-awaited flight to the popular Mexican resort of Tulum because the plane it had planned to use to make the flight was now out of service.

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Many have opinions about Spirit’s future, but the airline continues

“As the company moves forward with its transformation strategy, it anticipates that over time it will be able to drive improvements in total revenue by passenger segment,” Spirit said in a Securities and Exchange Commission (SEC) filing ) regarding the adjusted forecasts.

Also in July, Spirit reworked its fare classes to a four-tier system. It starts from a basic ‘Go’ fare that doesn’t even have room for a single carry-on and ends with a ‘Go Big’ fare that looks more and more like the business class of a major airline – with an allotted place, a hand article. and checked baggage, extra legroom and priority boarding at the accompanying higher price.

The Barclays note also draws attention to the more than $7.5 billion in debt that Spirit has accumulated, which it will need to wind down if its investment outlook and confidence among analysts are to improve.

At $2.56, Spirit shares are down more than 84% both year-to-date and year-to-date. The debt, according to Barclays, is a significant setback that prevents Spirit from investing in new planes and routes or making other changes that would help fuel needed growth.

“What we’ve seen over time is that fewer people are actually flying Spirit,” Spirit Airlines Chief Commercial Officer Matt Klein said in a CBS interview about the fare class changes last summer. “So we think the changes we’re making are about attracting new customers.”

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