Spirit Airlines, like just about every other carrier, is facing a tough 2020. However, in the third quarter of 2020, ancillary revenue has made up over 50% of the airline’s revenue stream as the carrier reduces fares amid depressed travel demand.
Spirit’s third-quarter results
Spirit Airlines recorded a net loss of $99 million for the third quarter of 2020. This brought the airline’s overall net loss for 2020, thus far to $271 million.
Operating revenue for the third quarter was at $401.9 million, which was down 59.5% year-over-year. The airline, looking ahead to the fourth quarter, expects total operating revenue to be down 43-45% year-over-year.
The airline’s average daily cash burn for the third quarter was $2.3 million, which was below the previously expected $3 million per day. The airline expects average daily cash burn to be about $2 million per day in the fourth quarter.
Ancillary revenue played a big part
In the third quarter, total revenue per passenger flight segment was down 21.1% year-over-year to $86.94. While both fare and ancillary spend per passenger declined year-over-year, the former decreased more than the latter. Fare revenue per segment decreased by 35.1% to $35.57. However, non-ticket ancillary revenue per segment only decreased by 7.2% to $51.37.
Total passenger revenues clocked in at $392 million for the quarter. Of this, $164 million came from tickets, but $228 million came from non-fare sources. Of Spirit’s third-quarter revenue, 58% of it came from ancillary sources.
In the nine months of financial results for 2020, Spirit Airlines made a total of $1.28 billion from passenger revenues, of which $727.5 million came from non-fare sources. So, thus far, 57% of Spirit’s passenger revenue came from non-fare, ancillary sources.
For reference, in the third quarter of 2019, Spirit made $973 million in passenger revenue. Of this, $493.4 million came from passenger fares, while $479.9 million came from ancillary products.
Spirit’s model makes this less surprising
Take, for example, a passenger booking a flight from New York-LaGuardia (LGA) to Orlando (MCO). Passengers will have a plethora to choose from including, Delta, American, JetBlue, United, and Frontier.
Most people that Spirit Airlines is targeting will likely shop around on price, and Spirit can offer a lower fare than other airlines. On this route, Spirit can sometimes charge as low as $35 for a roundtrip.
While Spirit has a low-fare structure and a model that enables it to offer lower fares than its competitors, the ultra-low-cost-carrier still cannot turn a big profit while making only $35 on a roundtrip flight. However, the airline turns to other ways to make money.
On a flight between LaGuardia and Orlando, Spirit will sell ancillary options ranging from seat selection fees, checked and carry-on baggage fees, priority boarding, and more. On the low-end, it can start from about $20, while bundles (or individual purchases) can hit $70 or more. So, say a person chooses a bundle that costs $65, then Spirit has essentially made at least twice the ticket cost.
The airline’s new frequent flier program will also help passengers earn recognition through spend on the airline on tickets and ancillary products.
Are you surprised to see that Spirit made almost 60% of its revenue from passengers from ancillary products? Let us know in the comments!