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Pricing pressure now on Spirit's non-ticket revenues. Falling oil prices test the ULCC model

3-May-2016

Spirit Airlines continues to make adjustments in the face of lingering pricing softness in the US domestic market and selected international regions. In addition to pricing pressure on baseline fares, Spirit is also starting to experience trickle-down effects on its non-ticket revenue, from lower average fares in its markets.

The airline's position is that pricing levels are in line with softness that became more pronounced in Oct-2015, and it is predicting that its 2Q2016 total unit revenue should fall in line with the 13.8% drop recorded in 1Q2016. However, for a couple of quarters Spirit’s performance in that metric, although still negative, has been better than the company’s initial predictions.

Assessing the overall pricing environment in the US market, Spirit believes that the pressure is not entirely attributed to ULCCs. Legacy airlines are initiating deeper discounts on connecting fares in particular, and there is also what Spirit deems as excess capacity in some of the larger legacy US hubs.

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