Spirit Airlines is in talks with bondholders about a pre-packaged bankruptcy that would allow the airline to reduce debt in exchange for equity. This move would potentially allow the carrier to reject leases on aircraft grounded due to engine problems. Twenty one Airbus narrowbodies are currently in storage (or heavy maintenance) out of 94 with Pratt & Whitney Geared Turbo Fan engines, according to Cirium fleet tracking data.
Out of $3.3 billion in debt, one third of that comes due in under a year, and it must refinance or extend the debt by October 21 under covenants with its credit card processor agreement.
Once among the most successful airlines in the industry, Spirit hasn’t turned a profit in five years. They’ve recently announced a move to sell bundled fares, a drastic shift away from its fee-based a la carte merchandising model.
And this past weekend they pulled more than 30 routes from their schedule. In total, Spirit Airlines capacity is contracting 20%.
The latest Diio update had the following adds (Green), and removals (Red) of domestic routes by major carriers this week. pic.twitter.com/Tl6QBukKRf
— AdrianWaltz (@AdrianWaltz) September 28, 2024
Spirit is one of many victims of misguided Department of Justice and DOT competition policy.
- JetBlue is struggling, cutting costs, and shrinking – and finds itself under the thumb of Carl Icahn – because the federal government blocked its partnership with American Airlines – increasing the market power of United and Delta in New York and Delta in Boston.
- The low-fare, fee-based segment is being dealt a blow by Spirit Airlines weakness after JetBlue’s acquisition of Spirit was blocked by DOJ.
- And now flying between the Hawaiian islands could see less competition because DOT imposed conditions on the Alaska Airlines acquisition, requiring maintenance of that airline’s inter-island flying, and making it harder for Southwest Airlines to maintain its service.
According to aviation analytics company Cirium, Spirit has been operationally reliable cancelling just 0.71% of flights so far in 2024 which is second in the industry behind only Southwest and has operated approximately three quarters of its flights on-time. This represented a huge turnaround from the era that ended about 8 years ago when their ultra-low cost model meant giving short-shrift to operations.
The carrier represents about 5% of U.S. airline capacity and is the only airline serving Latrobe, Pennsylvania, and Atlantic City, New Jersey. Spirit’s average fare in June and July was $68 one-way, excluding taxes and fees, compared to an average of over $200 for American, Delta, United and Southwest.
Yikes! Shareholders will probably be wiped out. Too bad I didn’t buy any stock option puts on SAVE..would’ve made a fortune.
I still believe there is too much overcapacity right now. We’ll see.
Another ideological victory for the Biden/Harris Administration which is a loss for the American people and the US economy. Central economic planning by technocrats ends in disaster almost every time, and the result will be no different here.
Spirit has been running as a charity for the last five years. The engine problem really hurt them. I’m not sure if there will really be a big ULCC market when the Big-3 invented and use Basic Economy as a competitive weapon in whatever volume they want. The end of the Spirit story will be government intervention harming consumers.
@ Gary — Good to see them joining the handout line with Delta, et al.
At this point surely it’s better to just fold and rebrand, they have a better chance of attracting “better” customers.
Spirit would need to creditors to take a haircut and swap debt for equity. They would also need pilots and flight attendants to take wage concessions which would put them well below other airlines. The Chapter 11 would be messy.
Seems as though the ULCC business model can’t withstand the test of time.
The bleeding always stops. One way or another.
JetBlue’s stock is up 16% today on the news. American’s is up 6%. United up 5%. Delta up 3%.
This is great news for the borderline-LCC competition, who may see bonafide LCCs go the way of the dodo.
@ Tim — Yeah, just stick out your hand for some more free money, like Delta!
Once the ULCCs fail or have to have their businesses restructured so that they are no longer ULCCs, the lowest fares of all of the other carriers will increase, maybe significantly. If Spirit was to go bankrupt, would the government allow JetBlue to buy it’s assets or would the government let a much larger company buy them for more while creating even greater monopolization in the market?
Another great DOJ success story! Jobs saved! Money saved! More competition!
Oh, wait….
Bankruptcy created by government blocking merger. This will benefit the same airline that tried to buy them without having to spend any money. Government did another great job.
@ Bob — Yeah, governement incompetency at its finest. I never undertood what they were thinking on this one. Hopefully at least one of these smaler players (B6??) comes out stronger on the other end.
The whole DOJ/Judge Young saga smelled extremely fishy. Now even more so after Alaska has been allowed a second acquisition with far more problematic market concentration without any divestitures or concessions. The DOJ’s idea of antitrust enforcement sure seems to benefit some airlines more than others. Consumers, JetBlue and especially Spirit employees got mugged for what appears to be very corrupt and political reasons. Absolutely outrageous that DOJ antitrust is being used to assassinate small airlines trying to survive in an oligopoly market while falsely claiming to be acting in the interest of the consumer.
Don’t blame their issues on the failed jetBlue acquisition. That would have NEVER worked and 100% guaranteed bankruptcy from the ‘new’ jetBlue after eliminating Spirit. No way could taking on all of that debt plus all of that expense of gutting all planes. The ONLY way that combination could ever work would have been for them to file bankruptcy. At that point, all of the promises made would be gone (like CEO promises pre-merger actually EVER hold true anyway…).