Spirit Airlines has gone out of business. The Trump administration tried to do a $500 million bailout. Congress hadn’t agreed, but they were going to argue that Spirit was crucial to the nation’s national defense. In fact, so important that they would have even waived the required 30-day notice to Congress specified by the Defense Production Act.
The reason the bailout didn’t happen is because it would have made creditors of the airline worse off. The deal:
- Put the federal government first in line to get paid back, ahead of creditors
- Gave taxpayers 90% of the airline
Creditors knew that this meant they would never get paid back, because Spirit Airlines would have spent and lost all the money, and would have been back in bankruptcy again for a third time.
The airline’s March Operating Report has been filed with the banruptcy court. And we now have a better window into just how bad things were before the airline shut down.
- Operating revenue: $256,105,876
- Operating expenses: $412,744,891
- Operating loss: $(156,639,016)
- Net loss: $(427,257,358)
Spirit’s March operating margin was -61.2%. Every dollar of operating revenue came with about 61 cents of operating loss.
And they certainly weren’t losing money because of elevated fuel prices alone. They would still have lost money even if fuel was free, since total fuel expense was $99,662,449.
There was a $257,137,506 reorganization item below operating income, which hit net income, not operating loss. They did lose nearly half a billion dollars for the month, but the lower operating loss figure for the month – which would annualize to a $1.87 billion loss – is the more useful figure for understanding their business.
On March 31 they were down to $117,842,274 in unrestricted cash. Frankly it’s surprising they made it to May 2nd.
Bailing out Spirit wouldn’t have just been a bad investment – it would have put JetBlue and Frontier Airlines (the two next-most vulnerable airlines) in a worse position. JetBlue was Spirit’s largest competitor at Fort Lauderdale, and has since expanded flights there. Frontier was Spirit’s largest ultra-low cost carrier competitor. Neither has made money in six years, except for Frontier’s 2024 quirk of accounting from the sale and leaseback of aircraft.
Hopefully allowing Spirit, which had become badly-run, no longer offered passengers the product they most wanted, and lost its cost discipline, to fail will allow other carriers to survive. Regardless, had a bailout happened, the administration would have lost the $500 million,and possibly found itself considering whether to bail out JetBlue and Frontier.
(HT: Enilria)
This is what happens when you offer a product at less than the cost of producing it, whether it is travel or toasters. You will eventually go out of business. Currently in the USA only a very disciplined ULCC such as Allegiant with its particular route network and consistent service can make money. Americans actually don’t want to be nickeled and dimed for every service, and squeezed into the smallest space possible. It might work in Europe, where the ULCC are very disciplined and their average flight is under 2 hours.