August 20, 2018 / 8:23 PM / 2 months ago

U.S. budget carrier Spirit expects to raise fares on higher oil prices

DENVER (Reuters) - Spirit Airlines expects it will raise passenger fares after years of lower ticket prices as the U.S. budget carrier works to improve margins at a time of rising oil prices, Chief Executive Bob Fornaro said on Monday.

The ultra-low-cost-carrier’s average fare is lower today than in 2016 because of fierce competition, a drop that’s “eating into margins,” Fornaro said in an interview.

Fornaro, who is leaving Florida-based Spirit at the end of the year, did not say how much fares could rise but suggested any increase would be modest.

“Fare increase for us could come in the ancillary bucket or even the average price,” he said on the sidelines of the Boyd Group International Aviation Forecast Summit in Denver.

“We don’t need big increases. But small numbers can make big differences for us.”

North American carriers are still growing their networks but adding less capacity this year than expected, as higher oil prices pressure margins.

In July, American Airlines cut its 2018 earnings forecast for the second time, hurt by higher fuel costs. Rival Delta Air Lines has also warned that fuel would squeeze its profit for the full year, but United Airlines [UALCO.UL] raised its 2018 profit forecast thanks to a rise in average fares and traffic.

Ultra-low-cost-carrier Allegiant Air is also adding less capacity than expected this year, which “naturally has a lift in terms of fares,” said Drew Wells, the company’s vice president revenue, in an interview.

Allegiant expects lower costs per available seat mile (CASM) after it retires its 25 MD-80s by year end and transitions to a more fuel-efficient Airbus narrowbody fleet, added Trent Porter, senior vice president finance, Allegiant Travel Co.

Earlier in the day, Fornaro said Spirit is talking to manufacturers about a future fleet order.

Florida-based Spirit, which operates an all-Airbus fleet, expects to have 175 planes by 2021 but will need new aircraft for fleet growth and to replace aging jets, said Spirit Chief Financial Officer Ted Christie who will succeed Fornaro as CEO.

Reporting By Allison Lampert; Editing by Cynthia Osterman

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