Spirit Airlines faces questions about its strategy as unit revenue remains under pressure

Premium Analysis

Spirit Airlines' unit revenue turnaround in 2Q2017 has been short lived, as the familiar foes of capacity creep and pricing pressure have returned to squeeze the ULCC's performance in that metric for 3Q2017. The airline's projected unit revenue decline of 2% to 4% is the bleakest forecast offered by US operators for 3Q2017, and Spirit is warning its outlook for 2H2017 has dimmed.

Some of Spirit's unit revenue weakness is driven by pilot related cancellations that spooked customers away from booking travel with the airline in the US summer high season. Those cancellations are also driving up Spirit's unit costs in 2017, which has obviously created market anxiety and affected the ULCC's stock value.

Spirit holds the view that new basic economy fares offered by US majors are not responsible for the latest episode of pricing pressure, and instead core fares are undergoing major discounting.

After many quarters of the airline's weak unit revenue results, and its return to a negative performance in 3Q2017, scrutiny of the viability of the ULCC model in the US is growing. Spirit finds itself fielding questions over its future plans for positioning itself in the market.

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