Spirit Airlines (NYSE: SAVE) trimmed its outlook for the second quarter, just hours after an analyst warned the company could have trouble remaining airborne.
Investors are headed for the exits, sending Spirit shares down 11% in late afternoon trading.
A rough journey from here
Spirit is flying into a lot of headwinds right now. The entire airline industry is adjusting to softening demand trends.
Spirit has some company-specific issues including rebounding after its proposed sale to JetBlue Airways was scuttled by regulators and the fallout from an RTX engine issue that has grounded part of Spirit's fleet.
On Tuesday evening after markets closed, Spirit said that it expects to report $1.28 billion in revenue in the recently completed second quarter, down from previous guidance for $1.32 billion to $1.34 billion in sales. Spirit expects to report an adjusted loss of $173 million to $160 million, down significantly from a previous loss estimate of $145 million to $120 million.
The disclosure came just hours after TD Cowen analyst Thomas Fitzgerald downgraded Spirit to a sell from a hold, writing, "We do not believe the company has a realistic path toward profitability through 2026 and think there is substantial risk of a restructuring or bankruptcy."
Is Spirit stock a buy?
Spirit ended the first quarter with $1.2 billion in the bank, but the projections for the second quarter show that number will likely be lower when results are made official. Spirit also has about $1 billion in debt to deal with later in the year.
The airline has a lot of options, including renegotiations with creditors or returning planes to lessors to free up capital. But none are long-term answers, and all create future problems. At best, Spirit will find it hard to generate growth. At worst, as Fitzgerald notes, Spirit could be flying toward bankruptcy.
The near-term outlook for the stock could be volatile, especially since there is a heavy short interest in the stock. But given the uncertainty, long-term focused investors should stay away from Spirit.
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Lou Whiteman has no position in any of the stocks mentioned. The Motley Fool recommends RTX. The Motley Fool has a disclosure policy.
