Spirit Airlines Cutting Fleet In Half: Can It Shrink Its Way Into Profitability?

It’s a tough time for Spirit Airlines. Several weeks ago, the airline filed for Chapter 11 bankruptcy for the second time in a matter of months, in a move that should’ve surprised no one (well, except the company’s management, seemingly).

While Spirit kind of squandered its first Chapter 11 bankruptcy (by not actually making any structural changes), the airline is making serious changes this time around. Recently, we learned how the airline plans to cut capacity by around 25%, and furlough a large number of pilots and flight attendants. However, that’s only the start of the shrinking, as the airline has now revealed the extent to which it intends to cut its fleet.

Spirit Airlines will cut 114 planes from planned fleet

Spirit executives seem to still think the airline has an independent future, and their strategy seems to be to shrink into profitability, by cutting unprofitable flying. Now, of course that seems logical enough, the question just comes down to how many profitable markets exist for an airline like Spirit. I mean, even profitable US airlines aren’t exactly raking in money solely transporting people, but instead, the airlines almost operate as loss leaders for their loyalty programs.

We’re starting to get a sense of just how deep Spirit’s cuts will get. Currently, the airline has a fleet of 214 planes, so here’s the plan that was shared in bankruptcy court:

• Spirit plans to reject 87 aircraft leases, representing around 40% of the carrier’s fleet
• Spirit rejected leases on 27 aircraft from lessor AerCap, whereby AerCap will pay Spirit $150 million as part of a deal that resolves a dispute over 36 planes due for delivery in 2027 and 2028

This plan is expected to save Spirit “hundreds of millions of dollars,” and will “support a much smaller and stronger Spirit Airlines.”

Will Spirit Airlines’ plan to shrink be successful?

It’s important to understand that Spirit has the worst margins in the industry. During its first bankruptcy, the airline only addressed its debt issues, and did nothing to address its horrific operating margins. That’s why so many of us were confused when the airline exited bankruptcy, and just acted as if it was business as usual.

So at least this time around, the company is making major changes. Shrinking this much is obviously a major change, and on top of that, we know the airline is looking for some concessions from labor groups, to get its costs under control.

It always sounds great when airline executives say that their turnaround plan is to cut unprofitable flying. However, it’s a lot easier said than done, when even the best performing routes likely aren’t that profitable.

So we’ll see how this all plays out. If Spirit has any independent future, I imagine it would have to be with a business model like Sun Country, where the airline is very focused on a small number of markets, where it can build up a big presence. That’s really tricky, especially when they’re essentially relying on the mercy of the “big four” carriers, to not come in and squash them.

The airline faces quite the uphill battle, though:

• Other airlines are smelling blood, and are moving into many Spirit markets, in hopes of eliminating this competitor
• Consumers have concerns about booking Spirit, given the potential for the airline to go out of business, plus the extent to which it’s modifying its route network
• Spirit has a bad reputation, and consumers avoid it; I’d argue that the airline largely unfairly has a bad reputation (Spirit employees are mostly delightful), but there’s no denying that it exists
• There’s still the big question as to which markets could actually be profitable for Spirit, especially without significant loyalty program revenue
• The ultra low cost and value carrier business model is reliant on continued growth, in order to keep the cost per air seat mile as low as possible; when you’re shrinking, your costs go up, particularly for labor

So I don’t want to say there’s no chance for Spirit to survive. However, I think the airline is worse positioned for success than a startup airline with a clean slate and no name recognition. And I surely wouldn’t want to start yet just another “value” airline in the United States right now…

Bottom line

As part of its second Chapter 11 bankruptcy proceedings, Spirit Airlines is planning on massively reducing its fleet. The airline is rejecting leases on 87 existing aircraft, and is also rejecting 27 upcoming leases. So in total, the carrier’s fleet will be 114 planes smaller than planned.

Historically, airlines shrinking their way into profitability hasn’t exactly proven to be a winning move. At the same time, what else is the airline supposed to do, exactly?

What do you make of Spirit’s plans to shrink?