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.
According to some on travel blogs posters claimed that Spirit just had to lower fares, pay people more and provide compensation if flights were delayed or cancelled.
@George Romey — Always a strawman with you.
Of course doing all that at once wouldn’t save Spirit, specifically. However, you know the ULCC model still holds merit (maybe not for you, Mr. Concierge Key).
Look at Ryanair in Europe: They manage EU/UK 261 regulations, deal with labor unions, keep fares dirt cheap, and still pull in billions in net profit. In the US, Allegiant remains highly efficient and consistently profitable.
The model works. Spirit didn’t fail because it was a ULCC; it failed because it let its operating costs balloon to legacy airline levels without the premium network or loyalty ecosystem to back it up. It can be done, and others are still doing it.
What @1990 says – That’s the truth. Ryanair in the EU (with all of the extra “crap” they have to deal with) along with Allegiant are prime examples of how it can work.
Spirit just didn’t make it work so no more Spirit.
@1990: Ryanair pulls the profits and makes it work, because it pays it’s (unionized!) employees far less than LLCs pay (or paid) here in the U.S.
Pilots? First officers at Ryanair start at about $52k/yr, and cap out at $105K/yr (in dollars). Spirit had a base rate starting $80k/yr and capped out at $167k.yr. Captains at Ryanair make between $166k – $192k per year (still in dollars). Spirit 1st year Captain minimum guarantee paid $217k/yr and approached $300k per year at the top of the pay scale. Similar differences exist with flight attendant pay, mechanic pay, etc.
Ryanair can work because the labor costs are so low. They are making “billions” on the backs of their employees. If they paid workers the same as Spirit did, and Allegiant/Frontier/JetBlue do, they’d have similar financial issues.
It’s a shame because Spirit reduced its cash burn to an unheard of $4M a day during the early days of COVID when the big three airlines were essentially gifted $36B (billion) or $1B per day to run an idle operation.
Spirit was well-positioned to compete in the aftermath but totally blew it by continuing the failed business model. And the brand became had become a liability (fights, etc.) with zero pricing power.
@Mike — Thank you.
@Sarah M. — Somewhat. Comparing EU/UK and US labor costs directly is apples-to-oranges. European low-cost carrier pay reflects different regional labor structures and comprehensive national healthcare/pension baselines. That said, you are totally right that the European consumer protections are amazing. An EU/UK 261 equivalent is sorely needed in the US. However, even with those protections, airlines find loopholes. Carriers frequently classify mechanical or operational delays as ‘extraordinary weather events’ purely to dodge mandatory EU261 cash payouts.
@1990 Sure the ULCC model would work here if they paid low wages. So I guess you’re for getting rid of unions and paying pilots less than $100K now? It again proves you’re level of understanding of much of anything.
@George Romey — More strawmen? I never suggested busting unions or cutting pilot pay. In fact, Allegiant proves you can have unionized labor, pay solid market rates, and remain highly profitable as a US ULCC. They succeed because they don’t fly brand-new, under-utilized jets into legacy hubs the way Spirit did. My entire point is that Ryanair and Allegiant prove the budget model works when managed right. Spirit’s demise was a failure of corporate strategy, not the fault of its workforce.
Great article! And there are some outstanding comments here. On a somewhat related note, this demonstrates why AA is suffering right now. The ULCC model will never work in the USA the way it has in Europe for several key reasons. DWI Dougie and his cronies clearly bet the wrong way in their botched attempt to turn American into some sort of Frankenstein Ryanair. Yet they all walked away much richer for having failed. The fact that Doug Steenland is the Chair of the Compensation Committee is a sick joke for all who know his history. It’s like spitting directly in the face of every single AAL shareholder. Why the investors continue to tolerate it I will never quite understand.
@Mike Hunt — “The ULCC model will never work in the USA…” *Allegiant*
@1990 – Ok Felicia, I’ll respond to this one, but only to demonstrate (yet again) what a moron you are. Allegiant holds a domestic market share of approximately 1% to 2%. Also, “the way it has in Europe” was a fairly critical part of that statement. ULCCs comprise approximately 15% to 20% of total regional seat capacity in Europe, while LCCs collectively account for over 40% to 47% of intra-European airline passenger traffic and capacity. That will clearly never be the case in the United States. I stand by my statement.
@Mike Hunt — You’re misrepresenting airline market share to manufacture a false conclusion.
You attempt to downplay Allegiant’s total domestic market share to make them look small, completely missing how their model works. Allegiant does not try to cover the whole country. They dominate specific, unserved leisure markets where they often hold a near-monopoly share.
For example, say you wanna fly between Sioux Falls, South Dakota, and Orlando… Forget MCO. Try Orlando’s secondary airport at Sanford, because Allegiant’s got a nonstop, and it’s dirt cheap. Great way to get to Disney or Universal with a large group, affordably. No need to connect through Dallas, Houston, or Atlanta, either.
Your claim that the low-cost model ‘will clearly never happen here’ completely ignores reality. LCCs and ULCCs collectively control over 30% of total domestic passenger traffic in the United States. Southwest alone holds nearly an 18% market share. (I haven’t forgotten that you’d prefer WN to become a premium airline, but that’s waaaay off, bud.)
Europe’s numbers are structurally different because of geographic density and the lack of a massive, long-haul domestic hub system, but a budget model controlling nearly a third of the US market is a massive, proven success. The model works here. Spirit just managed their part of it poorly.
@1990 – You don’t know what you’re talking about as usual. I am not going to debate you. It’s a waste of time and energy.
@Mike Hunt — You know you like it… wouldn’t be as fun if everyone just agreed on here all time time…