A week ago I wrote to expect Spirit Airlines to file bankruptcy mere months after emerging from bankruptcy. This move should surprise no one.
- I wrote 9 months ago, when they filed for bankruptcy last time, that their turnaround plan made no sense. They weren’t really cutting costs, outside of restructuring debt. And their plan was to spend money to become a different, more premium, airline – under the same Spirit brand. In other words, to become more like American Airlines and JetBlue but not as good.
- When they emerged from bankruptcy I wrote that a return to the courthouse could be just around the corner. The airline hadn’t solved the problems that led it into bankruptcy in the first place.
- Indeed, the carrier was forced several times to warn that it might not survive as a going concern. They’d burned up all of their available credit lines, and their credit card processor was holding back up to $3 million a day from ticket sales as a hedge against their ceasing operations.
Spirit was almost saved by JetBlue, but the Biden administration blocked that. They shouldn’t have rejected the lifeline that Frontier Airlines threw them earlier this year.
Fundamentally, though, the airline has seen its costs rise – and not just post-pandemic labor cost increases. They inauguarated a new four-building, 11-acre corporate campus last year. Spirit!
They can sell their aircraft order book. They don’t need as many planes anyway. They have coveted gates and slots in some congested airports. Their Fort Lauderdale operation has value (surely United would love it). So there’s still fire wood to burn here.
Some observers blame Pratt & Whitney engine issues that have grounded much of their fleet for long periods of time, but the truth is that the airline has tried to shrink even further, quickly, because so much of its flying was money-losing. They didn’t have profitable places to send those planes. So they’re probably better off with the fleet grounded, and monetary compensation from the engine manufacturer, than with airworthy planes.
Second quarter revenue of $1.02 billion was down more than 20% year-or-year. Their net loss was $246 million for the quarter, with an operating margin of -18.1% (a substantial deterioration from the prior year’s second quarter -11.9%).
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.
What would we do without Spirit Airlines, though? They’ve much improved their operation. They really aren’t a bad airline! And they help drive down prices across the industry. Plus they’re an endless source of entertainment. So hopefully there’s an opportunity again for a Frontier deal – I’d much prefer to see a strong ultra-low cost carrier than to see United pick up Fort Lauderdale and Delta trawl for more assets at congested airports.
I do wonder if part of any turnaround plan, though, really ought to be a new brand?
@ Gary — They should change names to ValuJet. No on remembers anymore. Or maybe go woke with AirTranny. Or may go MAGA with DiaperAir?
GAWD…can you imagine a combined Frontier and Spirit airline? Look at the passengers and employees they have now! Can you imagine what those gate and flight conflicts might act like? YIKES! That would put the combination so low in customer service and morale that anyone connected to the “merger” would have to look UP to see whale crap on the bottom of the ocean. I find it somewhat comical and ironic that the above picture shows two police cars outside of the Spirit jet. I guess they are there “just in case”?
So when will Spirit give up the ghost?
Chapter 22: yes, there’s no end to this endless source of entertainment!
We need to get people who belong on the bus off of airlines. Simple as that
Thank you Biden administration.and Merrick Garland. You saved the country from the disaster that a Spirit Jet Blue merger would have caused but for 3 years didn’t lift a finger to go after Donald Trump when you had the chance to.
Hopefully the lesson learned by other airlines, is if you put the cheapest most uncomfortable seats in a plane, and nickle and dime people to death, while creating a toxic passenger environment by encouraging ongoing hooliganism…. NOBODY will really care about what happens to this brand as another air carrier will quickly step in to backfill their cuts.
I hate to say good riddance, but air carriers, charter carriers, and even the cheapest of the inexperience ULCC’s can do a far better job than what Spirits leadership team has done to air travel over the course of their years they were somewhat of a fleeting success.
The DOJ saved B6 from ending up in chapter 11 as well by this point; far more negative impacts would be occurring if NK and B6 – even if under one company – were in chapter 11 or heading there.
and Airbus very likely does not allow airlines to sell their delivery positions or reassign orders; Airbus and Pratt and Whitney would both love to have a couple hundred orders back off of its order book.
American Airlines should watch closely because they may follow. Most USA airlines do not make very much money on actual air operations, if any at all. They make it on other things, such as credit cards and mileage plans. Spirit is not strong in those other revenue streams. If Spirit is going to get delivery of new airplanes, I wonder if they can resell them for more than they buy them for. After all, a lot of companies would like new airplanes earlier than they are scheduled to get them.
Bah! I honestly had never heard of it referred to as that way, repetitive chapter 11 filings become a 22… so wager on there being a 33, soon?
@1990:
Maybe Spirit can add their new 11 acre campus to make it to magic 33.
Seriously, only about 15% of Chapter 11 cases have to be refiled and thus achieve 22.status because their initial plan doesn’t work. There are typically three reasons for a Chapter 22 following a Chapter 11:
1) At the end of Chapter 11 they remain undercapitalized without the $$ needed to sustain operations. or,
2) They haven’t fixed the underlying problems that led them to Chapter 11 in the first place. or,
3) Market conditions changed for the worse since the Chapter 11 was filed.
Reportedly, Spirit has all three problems.
Under a Chapter 22 case, the court applies even more scrutiny and oversight than with the Chapter 11 because the debtor has lost credibility. So Spirit can look forward to less freedom and more oversight in management decisions. The wants of the customers rank below the rights of the creditors (first) and then the shareholders (second). It’s going to be a very difficult time for Spirit because they will have to come up with a realistic plan that solves all three of the above listed problems. I wish them the best of luck with that.