In November 2024, Spirit Airlines filed for Chapter 11 bankruptcy protection. The airline has lost billions of dollars since the start of the pandemic. The thing that was supposed to save Spirit was a lucrative takeover by JetBlue, but that was ultimately blocked by the Department of Justice.
What’s interesting is that at least on the surface, Spirit’s reorganization is supposed to be quick. It’s a prearranged transaction supported by a supermajority of bondholders, and the plan is for the airline to emerge from bankruptcy during the first quarter of 2025, which is in the coming weeks. In other words, the company is shedding some debt, and then hoping to move on.
However, what actually happens after that? I want to talk about that in more detail in this post.
Spirit Airlines is continuing to hemorrhage money
Spirit Airlines has had huge debt issues, but let’s forget about that for a moment, and assume that the Chapter 11 bankruptcy filing solves those legacy debt issues. What the bankruptcy filing doesn’t help with is that the airline continues to run absolutely massive operating losses (Spirit isn’t renegotiating any of its labor contracts in bankruptcy).
How bad is the situation at Spirit? Well, in the first three quarters of 2024, the airline had revenue of $3.7 billion, and operating costs of $4.4 billion. Not only that, but nothing about the airline actually seems to be heading in the right direction. That performance is significantly worse than the same period the year prior, where there was revenue of $4 billion and operating costs of $4.3 billion.
For that matter, for the third quarter of 2024 (year-over-year), Spirit’s yields have dropped from 11.23 cents to 10.66 cents, and Spirit’s average revenue per passenger per segment has dropped from $116 to $105.
Yes, Spirit is receiving new equity, in the amount of hundreds of millions of dollars. But that’s also what the airline burns through in a matter of months.
The company’s management has presented its restructuring plan, and honestly, there’s just not much to it. If anything, it involves all kinds of things that increase costs, while only questionably increasing revenue. We’re talking things like adding power ports to jets, offering free Wi-Fi to loyalty program members, providing all passengers with free water and snacks, etc.
I also love the vague concept of how the airline will update its route network to become profitable, like redeploying dozens of aircraft from the cities with the lowest revenue performance. Like, isn’t that what the airline has historically done?
Which airline will acquire Spirit (or its assets)?
I really want Spirit Airlines to succeed. But I’m also not an idiot, and I can do basic math, like figuring out that $4.4 billion in costs is more than $3.7 billion in revenue, and that the gap continuing to widen is no bueno.
Spirit isn’t just losing a little bit of money, it’s losing a lot of money. And nothing the airline has outlined so far suggests to me that this will change, even after the carrier emerges from bankruptcy.
Realistically speaking, I have to imagine that the plan with this reorganization is simply to package Spirit into something that’s a semi-enticing acquisition target. If the carrier hadn’t gone through Chapter 11 bankruptcy protection, it would’ve just been liquidated.
But by turning some debt into equity, maybe the goal is to instead sell off the airline and get something for it. You know the phrase “the whole is greater than the sum of its parts?” I think in the case of Spirit, the inverse is true at this point — “the sum of its parts is greater than the whole.”
Spirit has around 200 Airbus A320-family aircraft, most of which are “neos,” and on top of that, has a significant presence in Fort Lauderdale (FLL). But what more is there to the airline, really? Could we see Frontier try to acquire Spirit once again? Could JetBlue be interested, and essentially try the takeover again, but with much better terms? Could one of the “big three” carriers somehow get involved?
With Trump now being president, there would likely be less scrutiny of airline consolidation. Now, I still think that there might be an issue if it’s a deal involving the “big three” US carriers, but I don’t think there would be much objection to a Frontier or JetBlue deal.
I’d say that this is a great chance for Frontier to finally become a huge, national low cost carrier. But much like Spirit, Frontier has pivoted, and at this point is just trying to replicate the legacy airlines.
That gets at a bigger issue in the US airline industry, which is that credit cards basically subsidize flying. Even profitable carriers like Delta and United have very low margins with carrying passengers (if any), with their cost per air seat mile often exceeding their passenger revenue per air seat mile.
I still think the best play here could be a deal with JetBlue. With proper management, I think JetBlue could accomplish on the East Coast what Alaska has accomplished on the West Coast.
Bottom line
Spirit Airlines is currently going through a quick Chapter 11 bankruptcy reorganization. While this might help with the carrier’s debt, it does nothing to address the massive ongoing operating losses, because Spirit’s business model just isn’t working.
Spirit is burning through close to a billion dollars per year, and there are no signs of that changing. I just don’t see any way that this airline has an independent future. I guess we’ll find out more in the coming months.
How do you see the situation playing out with Spirit once it emerges from Chapter 11?
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