While I don’t think this will surprise anyone, it’s a pretty unfortunate situation…
In this post:
Spirit Airlines exploring bankruptcy filing
The Wall Street Journal is reporting that Spirit Airlines is in talks with bondholders over the terms of a potential Chapter 11 bankruptcy filing, following its failed merger attempt with JetBlue. The airline has also been exploring restructuring its balance sheet through out-of-court transactions, but it seems like a Chapter 11 filing is preferred at this point.
According to the report, the timing of such a filing wouldn’t be imminent, but rather discussions are still in an early stage. Spirit’s only comment about this situation pointed to the company’s Q2 2024 earnings call, where CEO Ted Christie said the company was in talks to address the upcoming debt maturities, due in 2025 and 2026. As he said at the time, “because those conversations are ongoing, we are not going to go into detail or take any questions on this topic or speculate on potential outcomes.”
At least publicly, Spirit’s CEO has insisted that the airline wasn’t considering a Chapter 11 bankruptcy filing.
It’s worth emphasizing that even if Spirit were to reorganize in bankruptcy protection, that wouldn’t mean that the airline would cease operations. Quite to the contrary, the idea would be to maintain operations while restructuring debt, and figuring out a viable path forward.
You can’t help but feel bad for Spirit Airlines…
This entire situation is just unfortunate. As a reminder, in mid-2022, plans were announced for JetBlue to acquire Spirit, in a $3.8 billion deal. The idea was that this would make JetBlue a stronger competitor to the “big four” US carriers, and personally, I think it would’ve been good for consumers, assuming the combined airline could find a viable path forward.
The Department of Justice (DOJ) ended up suing to block the merger, and after a lengthy court battle, a judge ruled in favor of the DOJ. The problem was, Spirit’s business model was no longer working, due to how demand has evolved in the United States post-pandemic.
The airlines that are actually profitable are making most of their profits from their loyalty programs, from premium demand, and from long haul demand, and that’s not something an ultra low cost carrier can tap into in the same way. Even the profitable airlines are complaining of overcapacity in the domestic market, though I think the logic there is questionable.
Some ultra low cost carriers have now completely evolved their business models, as we’ve seen Spirit introduce fare classes in line with the legacy airlines, while even scrapping change fees.
I continue to believe the merger being blocked was a huge failure on the DOJ’s part, at least in terms of looking out for the best interest of consumers. Now Spirit has changed its initial business model anyway, and the carrier’s future is in limbo.
Bottom line
It’s being reported that Spirit Airlines is exploring a possible Chapter 11 bankruptcy filing, as the company is in discussions with bondholders over a possible reorganization. Spirit has struggled to make money post-pandemic, due to how trends have shifted, plus management obviously losing focus on the core business for the 18-month period where the merger was moving forward.
It would be great if Spirit could find a way forward without Chapter 11 bankruptcy, but perhaps this is the best option at this point…
What do you make of Spirit’s financial situation?
Good riddance to Greyhound in the sky.
Aviation tours in the future wont be complete without a stop by the local Greyhound bus terminal - “And this a replica of a Spirit Airlines gate ladies and gentlemen…”
Less competition is always bad for consumers in the absence of regulation. Look no further than devaluation of FF points, meaningless status, few upgrades, etc. When Continental, Northwest, US Airways, etc were alive and well, competition made status worthwhile even with AA, United and Delta. Now it is close to worthless. Spirit+B6 would have made it worse, as AS and Hawaiian customers will find out.
Airfares since the early 2000s are down on an inflation adjusted basis, especially domestic F. While your FF points are worth less, you save alot on the ticket price.
Some of the comments about Spirit paxs are elitist and vile...reflecting an equally negative mindset/stereotype as your are saying about Spirit paxs.
As for Spirit, I don't know their balance sheet (including the creditors), so we'll see. Their network will need to evaluated, perhaps like WN turn towards a more hub/ focus city than pt-pt, and the fleet is going to be rationalized...and who knows what else.
Americans hate each other. It's no wonder we can't elevate the nation when we all think our neighbors are scum.
I've flown Spirit in the Big Front Seat with my wife and we had great flights. The Buzzballs were fun. No one back in the normal seats attacked each other. Everyone seemed happy and relaxed as Americans usually are. We all survived. If there are IRROPS, you're really screwed but we knew that going...
Americans hate each other. It's no wonder we can't elevate the nation when we all think our neighbors are scum.
I've flown Spirit in the Big Front Seat with my wife and we had great flights. The Buzzballs were fun. No one back in the normal seats attacked each other. Everyone seemed happy and relaxed as Americans usually are. We all survived. If there are IRROPS, you're really screwed but we knew that going in.
Now, I wish I could tell you things were so calm once on AA DFW-ORD when an F pax started calling a woman a racial slur because she needed to deplane first to make a connection. Was almost a riot.
So called experts (including AA executives) told us for years that people only care about price. Curious how silent they've all been
Queue UA buying their A321s.
Truly shocking that a company whose business model was to provide the absolute worst experience possible isn't doing well
We need to get off this theory that every merger is a good merger. On the one hand, you have NK with a business model that for the time being, is not sustainable for two carriers. On the other hand, you have B6 with an identity crisis - they don't know what they want to be when they grow up. Merging two weak carriers and hoping for a stronger carrier with these optimistic hopes is...
We need to get off this theory that every merger is a good merger. On the one hand, you have NK with a business model that for the time being, is not sustainable for two carriers. On the other hand, you have B6 with an identity crisis - they don't know what they want to be when they grow up. Merging two weak carriers and hoping for a stronger carrier with these optimistic hopes is pie in the sky.
I'm not against mergers, but they need to make sense. Look at the AA-US merger: IMO that was a merger of "who was left" vs. any real benefits and I think that's why AA has continued to struggle today.
Merging F9-NK would have made sense. It would provide one ULCC in the US, which IMO the US market can support.
I think some of this talk could be to soften bondholders into taking a huge haircut and swapping some of their debt for equity. Also, to get pilots and flight attendants to take wage concessions.
Personally I will be glad to see the ULCC business model fail. A dumb idea run by dumb people.
As far as Spirit being able to continue operations.....idk how many more years that may last.
Shareholders are certainly upset. Stock is down 35% this morning. Stock will be delisted from the Nasdaq shortly.
Everything is down Friday mornings in October NEWB lol :D
Spirit disappearing would be wonderful. Less dangerous people at the airports.
My thoughts exactly.
The problem with Spirit shutting down is... where would their "legendary" well-behaved passengers go? Are we going to get stuck with them when flying other airlines?
They might start to take the bus. Or stop taking trips that they really cannot afford to take.
It is going to be very difficult for Spirit to restructure its debt. They are not going to come out and say they are going to liquidate just like they denied they were going to file for bankruptcy. Every airline that liquidates let’s people know the minute the stop flying. Buyer of Spirit tickets beware at this point.
NK, like most airlines, has a credit card holdback agreement that currently does not require the airline to maintain a deposit with the credit card processor. That agreement is undoubtedly part of the debt being negotiated or the credit card processor is closely watching the negotiations.
If the credit card processor requires a deposit, then that will ensure that NK has to file chapter 11.
Solely as a matter of business, airlines do not invalidate...
NK, like most airlines, has a credit card holdback agreement that currently does not require the airline to maintain a deposit with the credit card processor. That agreement is undoubtedly part of the debt being negotiated or the credit card processor is closely watching the negotiations.
If the credit card processor requires a deposit, then that will ensure that NK has to file chapter 11.
Solely as a matter of business, airlines do not invalidate customer tickets as part of chapter 11 filings because doing so would ensure they lose their future revenue stream.
Thus, customers are less at risk of being left out to dry than creditors.
The point is NK only has a handful of planes that are unencumbered and thus have few available options. They may have to go straight to chapter 7 as the lessors would surely be able to get more money by seizing their planes and leasing them out to other airlines.
Good luck getting to your destination on schedule with a ticket on a grounded airline.
Spirit Airlines wanted first to merge with Frontier that came up w/ an original merger proposal. JetBlue stepped in and outbid Frontier at the same time that the DOJ was challenging the Northeast Alliance that B6 had with AA. The DOJ prevailed in court on the NEA and then the DOJ also won on the B6/NK merger just 7 years after B6 got into a bidding contest for Virgin America which Alaska ultimately won -...
Spirit Airlines wanted first to merge with Frontier that came up w/ an original merger proposal. JetBlue stepped in and outbid Frontier at the same time that the DOJ was challenging the Northeast Alliance that B6 had with AA. The DOJ prevailed in court on the NEA and then the DOJ also won on the B6/NK merger just 7 years after B6 got into a bidding contest for Virgin America which Alaska ultimately won - and then proceeded to dismantle large portions of Virgin America's route system. Spirit can thank JetBlue for costing it time that could have been used to restructure or merge with Frontier which itself isn't in great shape but has enough wiggle room they should be able to redesign their business model.
The bottom line is that smaller companies in the US airline industry has been defined by failed attempts to merge and acquire which have backfired as many times as they have worked with devastating results for the winners and the losers.
The Pratt and Whitney issue, just like Boeing's production and certification issues has real impacts on the carriers that were heavily dependent on those products but success or failure ultimately comes down to how solid a company's business plan is.
Like it or not, the common theme on disruption in the airline industry over the past decade has been B6 and every carrier they have touched including AA and B6 themselves have been troubled.
Part of the cycle of business is that weaker carriers are culled via mergers and acquisitions; in the still highly regulated US airline industry, failed merger attempts are part of the process of thinning the herd.
NK will be a smaller carrier no matter how they proceed. Given that there have been repeated statements about excess capacity in the domestic coach airline market, NK's troubles will make other carriers stronger.
Thank goodness this albatross wasn't allowed to merge with JetBlue, as it would have taken down JetBlue with it as well.
@Jake, I would bet money that the jetBlue brand does not exist a decade from now, regardless.
That's the reason I approved of the merger: the excellent chance that it would take down both of these abominations. I've got a sparkling wine chilling for the day NK declares Chapter 7. For the disgusting, abominable B6, it's real champagne on ice.
They should just merge with Delta, the world's most premium airline.
lot of customer service synergies!
Chapter 11 would give NK a competitive advantage for a chuck of the debt would be converted into stock freeing up the balance sheet. Once the Pratt & Whitney engine issue is resolved, NK would have the resources to compete with Frontier, JetBlue, and Southwest to a certain extent.
Chapter 11 is the best friend of airlines. All the majors (except Southwest) have visited the courthouse at one time or another. Even TWA went three times (Chapter 33).