Spirit Airlines was once the envy of the airline industry. It had the best margins and generated a strong return, making air travel available to more people and stimulating demand by passengers who weren’t flying otherwise. They had lower costs than competitors, lower fares, and customers adapted themselves to Spirit’s business model to save money.
However, consumer preferences changed and the pandemic exacerbated this. Passengers increasingly wanted a premium product that Spirit wasn’t positioned to sell. It had one of the most toxic brands in any industry.
And they began losing their cost advantage. They paid as much for planes and fuel as everyone else, and labor costs were rising. They tried to sell themselves to JetBlue, but the Biden administration successfully blocked this. That was a fatal error – as it could leave Spirit out of business, meaning reduced competition.
Spirit Airlines just issued a warning in its latest SEC filing that they may not last 12 months as a going concern. Their second quarter 10Q filing contains this disclosure:
Because of the uncertainty of successfully completing the initiatives to comply with the minimum liquidity covenants and of the outcome of discussions with our stakeholders, management has concluded there is substantial doubt as to our ability to continue as a going concern within 12 months from the date these financial statements are issued.
The airline indicates that their turnaround plan is not enough. They are concerned about:
- breaching minimum liquidity covenants in their debt obligations
- credit card processing agreement requirements not being met
- the need for a new credit card processing agreement for 2026 – and the expectation that will mean “additional collateral” required (because the processor doesn’t want to be on the hook for chargebacks if Spirit goes under)
And so they’re looking at the sale of additional assets like planes, real estate and gates and “elimination of certain fixed costs.”
Of course, they’ve warned of their ability to continue as a going concern consistently during and after bankruptcy.
That shouldn’t diminish concern over this new disclosure. On the contrary, (1) they haven’t gotten themselves out of this mess – their turnaround plan hasn’t worked! – despite warnings this was coming, and (2) things continue to get worse as they risk breaching covenants.
They probably shouldn’t have rejected the lifeline that Frontier Airlines threw them earlier this year.
Almost sent her with the luggage pic.twitter.com/K1JlcTtzOe
— DJ Kam Bennett (@KameronBennett) November 13, 2024
Of course, they could make it! They could pull a rabbit out of a hat. And for now they continue business as usual, albeit making greater changes to their route network. But since they’re telling us they might not be around in a year, I say we should believe them. And that means not buying travel far out into the future.
Indeed, I probably wouldn’t buy Spirit Airlines tickets for travel more than a couple of months out – within a period I’d be confident I could dispute the charges if travel weren’t honored. I also wouldn’t be accuulating their miles – but I wasn’t doing that to begin with.
(HT: Enilria)
If you’d like elite access to a premium travel experience, please consider Delta.
Delta ? Are they still in business ? The Ponzi scheme of airline programs
I’ve never flown Spirit before – maybe I should try the Big Front Seat at least once before its too late, as a bucket list item.
@Matt strikes again!
And if people stop buying travel for further out, that’ll hasten the demise – without the cash upfront to operate current flights, they’ll just go down faster.
I’ve got no skin in this game – I do fly but never, ever would I fly an airline like Spirit. I understand it works for some, but definitely not for me.
@Dwondermeant Delta – the most profitable airline in US history!
The Delta Difference
Two words come to mind.
People Express.
It doesn’t take someone that is dyslexic and can’t spell airline to tell you that Spirit is in deep doo-doo.
Spirit is publicly traded again and they filed their quarterly report to stockholders with the SEC today which says
“If these initiatives are unsuccessful, management believes it is probable that the Company will be unable to comply with the minimum liquidity covenants under
the Company’s debt obligations and credit card processing agreement at some point in the next 12 months, which would result in an event of default (in the case of the
Exit Revolving Credit Facility, if there are amounts drawn and outstanding under the Exit Revolving Credit Facility at that time), which could cause the maturity of the
Company’s debt obligations to be accelerated. Because of the uncertainty of successfully completing the initiatives to comply with the minimum liquidity covenants
and of the outcome of discussions with Company stakeholders, management has concluded there is substantial doubt as to the Company’s ability to continue as a going
concern within 12 months from the date these financial statements are issued”
Frontier isn’t making money but has slightly better liquidity.
and let’s not forget that AA has been skimming just about the surface with minimal profitability for well over a decade.
It’s time for the shakeout that didn’t happen post covid because of taxpayer bailouts that, if they had not happened, would have taken down most of the industry except for DL and WN who had access to billions of dollars in lines of credit.
and let’s be clear that United, despite the fact that their CEO loves to trash talk the rest of the industry except for DL, did nothing to push NK closer to the cliff .
@L737 — @Matt’s still got it! Keep climbing! 100 more years! Doo doo!
$50 per flight clientele breed results like this. Let them go under, and let their trash clientele take a greyhound.
Feds should have left the Jet Blue merger alone.
If it goes belly up, who will pick up the scraps?
@IsaacM — Yes! I enjoyed actually getting access to Admirals Clubs when flying jetBlue; this new United partnership doesn’t include UnitedClubs when flying B6, which is lame.
@Tim Dunn — That’s super pessimistic, pal. Like, did I make a mistake opening the Quest card? Are my bonus United MileagePlus pointies gonna be worth-less or worthless? And all these Citi transfers to AA, was that a mistake, too?! How long do I have doc??
What was “the turnaround plan” that failed?
Time to burn, baby burn. How many BFS trips for 2 will it take to burn through 150,000 miles? Maybe 7?
Well honestly, Sprit was never a TW, PA, or TZ for that matter. I think it was predicted early on the turn around plan was insufficient from the get go.
Time for a lot of reflection regarding the best decisions for all to make going forward at this time i should imagine but as all know things can limp along for quite some time.
Spirit airlines never made much money on investor’s capital. Its.margins may have been “high” but they never returned much on assets (think of this measure as the interest rate you earn on your money, which is the only relevant one) because for every dollar invested in the business they had dismal revenues.
You should know better than post irrelevant information.
At the end, people tired of their dismal product – YOLO, and the worst way to spend your only life is on a Spirit plane when for a few bucks more you can get better service and a screen on United or American.
*Delta, obviously not American! Sorry.
I expect Southwest- er – Southworst to soon follow suit.