Among some of the most easily anticipated stories of the year were Elliott’s multiple wins at Southwest, Delta’s feelings getting hurt when CrowdStrike told it to F-off, and (unfortunately) Spirit’s bankruptcy. You’re on Guard! has been covering the makings of how the Spirit got to this point since before this blog officially launched, but to recap:
- Everybody and their brother is now competing in the market for ultra-low cost fares
- Loyalty programs with far-reaching rewards are actually worth something (despite their faults)
- On-time reliability—and the public’s perception of it—really matters (who wouldda thunk it!)
For the past three years, Spirit consistently doubled-down on its product. Its thought process was that despite a global pandemic, people would get sick of Covid lockdowns and just be dying to travel. Spirit honestly believed travel would rebound quicker than most people assumed, but that the first markets to take off would be the ultra-low cost markets that it served.
Spirit executives weren’t wrong. Cheap airfare was truly in high demand in 2020, 2021, and again at the start of 2022. But poor pilot attrition, combined with delays in anticipated Airbus A320neo deliveries triggered major losses on the Airline’s books. To make matters worse, the Airline would later get hit with engine issues on those new aircraft in 2023 and be forced to ground them.
All of this was happening while Legacy carriers started noticing that the traveling public was actually itching to travel, but not at 2019 prices. To tap into that market, American, Delta, and United expanded their inventory of Basic Economy tickets. This worked out well for them. After all, the Legacies have a much further reaching route network. And their customers took note.
To combat the increased competition, Spirit saw an opportunity to up-gauge its fleet. It knew it could offer more seats on the superior Airbus A321neo as opposed to its existing order for thirty-one smaller Airbus A319neo aircraft, so it converted them to the larger variant.
This is what you expect from sound management. The biggest players in the game have a bigger fleet, and a bigger network. Spirit can’t compete with that. What it can do, however, is up-gauge in some of the hottest ultra-low cost markets, which is exactly what Spirit tried to do.
Where Spirit miscalculated was with its demand forecast for ultra-low cost fares and the traveling public’s shifting desires. When sales started to drop off at the end of 2022, it really believed it was nothing more than a momentary hiccup. Unfortunately, as sales continued to slump throughout 2023 and early-2024, Spirit saw its bank account reach alarmingly low levels and thus began its first round of furloughs.
Where can Spirit go from here
If you ask David Neeleman, the founder of multiple airlines dating back to the late-1990s, Spirit’s only shot at survival is by merging with Frontier. And he may be right. ULCCs are struggling right now because everybody is now competing in their market. Merging with Frontier could afford both carriers the resources they need to re-brand their cabins and offer a legitimate premium product in the low-cost market.
But what if Frontier opts to go it alone? What if Spirit can’t find a buyer? And what if Spirit struggles to secure additional funding throughout its restructuring process? This would be the absolute worst-case scenario for Spirit and may force the Airline to completely shut down in what is otherwise known as Chapter 7—liquidation.
There is good news on the horizon, however. First, Spirit’s bondholders keep coming back to the table to deliver more cash to the struggling carrier in exchange for equity. Investors would only take-up equity in a struggling company if they believed there could be (some) light at the end of the tunnel. Second, Spirit has airplanes, and other airlines are going to want them.
Over the summer, United leased a forty Airbus A321neo aircraft from an “undisclosed carrier.” The aircraft were converted from Airbus A319neo orders, and are currently grounded due to a Pratt & Whitney engine issue. Spoiler: the “undisclosed carrier” is Spirit.
While we can’t be certain about what Spirit may look like when it exits bankruptcy in 2025 or 2026, we know the most desirable path for the Airline is a merger with Frontier. Of course, that assumes Frontier will stop playing hard-to-get and begin the acquisition process, but that’s up to them to decide. If Spirit is forced to fend for itself, it may only be able to shrink.
Leave a Reply