Eleven Sent: Spirit Files for Bankruptcy

Pushing Back: Inside the Issue

It’s the question everyone’s been asking for more than a year now: Will Spirit Airlines, a profit superstar before the pandemic, file for bankruptcy? Now we have the answer: Yes. 

But it’s a unique flavor of bankruptcy, focused specifically on restructuring obligations to bondholders. No tearing up labor contracts. No renegotiating aircraft leases or airport rental agreements. So, it should be a quick court visit, ending sometime next quarter. Spirit is of course making big strategic changes at the same time, adapting to new post-pandemic demand patterns, competitive realities, cost conditions, and so on. It will not, however, address its misfortunes by merging—at least not for now. Read on for a deeper dive into why Spirit fell so far so fast, and whether it can regain ascent.

Delta’s ascent to glory began many years ago—nearly two decades ago, in fact, with its own bankruptcy filing. An airline that outperformed in the pre-deregulation era lost its glory in the difficult 1980s, 1990s, and 2000s, only to regain it by globalizing its route network, merging with Northwest, and delivering service for which travelers readily paid premiums. Today, it’s one of the most profitable intercontinental airlines in the world. Last week, it explained how it intends to remain so for years to come.

What lies ahead for TAP Air Portugal in the years to come? Will it be part of the Lufthansa Group, or Air France/KLM, or IAG? For now, it’s faring quite well on its own. So is Britain’s Jet2. So is Avianca in Colombia. And so—some things never change—is Panama’s Copa. 

Back in the U.S., Allegiant announced a slew of new routes. And in Dubai, at the Skift Global Forum East event last week, AirAsia founder Tony Fernandes shared his latest thoughts with Skift’s Peden Bhutia, including his grand plans to turn Kuala Lumpur into a Dubai-like hub for low-cost aviation.

The Airline Weekly Lounge Podcast

Weekly Winners and Losers

— Jay Shabat and Gordon Smith

Weekly Skies

Glory Forever: Delta’s Message to Wall Street 

• As it often does this time of year, Delta held an investor day event to review its future plans in detail. The occasion also served as a victory parade of sorts, with executives showcasing the airline’s long record of industry-leading profitability, underpinned by an arsenal of strategic advantages—its reputation for reliability, its lucrative relationship with American Express, its mighty hub in Atlanta, its overseas joint ventures, its strong balance sheet, and so on. 
• Next year, Delta will celebrate its 100th birthday, having lived through more industry shocks and catastrophes than anyone cares to remember. It needed a bankruptcy restructuring to survive the aftermath of 9/11, not to mention an onslaught of low-cost competition. It merged with Northwest amid the storms of the global financial crisis. Like all U.S. airlines, it needed government help to survive the Covid pandemic, though it was alone—as it likes to point out—in not issuing more shares during the crisis. Coming out of the crisis, Delta has resumed its commanding presence, joining United in accounting for an outsized share of total industry profits. The billions it continues to earn annually from Amex have certainly helped. So has its relatively limited exposure to aircraft disruptions—just 15 GTF-powered NEOs out of service this year, on average. Perhaps most importantly though, Delta was perfectly positioned to capitalize on the post-pandemic boom in premium and intercontinental travel. Heavy investment in airport facilities, lie-flat seats, free and fast Wi-Fi, loyalty benefits, and other amenities have paid big dividends in the past three years. 
• Long gone are the days when premium seats were a loss-leader, doled out for free to frequent fliers. Today they’re the highest-margin products Delta sells. Executives have little doubt that the preference for premium is more than just a passing fad—changing demographics, economics, and consumer preferences will make sure of that, they say. 

• Certainly in the short-term, as Delta looks at the next few years, optimism reigns. In the coming three to five years, said CEO Ed Bastian, there’s “a backdrop that’s as healthy as anything I’ve seen in my 26 years in this industry.” According to Bastian, 40% of American fliers—and 75% of all American spending on air travel—come from households earning at least $100k per year. “And since Delta is a premium [airline], obviously, our numbers are much higher than 75%. I’d say that number is probably closer to 90% of our travel is coming from households in this cohort.” In the past 15 months, this group “generated an incremental $10 trillion of wealth.” The millennial generation, furthermore, has 36% more wealth (inflation-adjusted) than “Gen X had back when they were in that same age range.” The very large Baby Boomer generation, meanwhile, is currently spending heavily on travel. But Delta recognizes that “over the next 15 or 20 years, our boomer sales will be declining at a very rapid rate.” So, the airline is intent on winning the lifelong loyalty of younger travelers. 
• President Glen Hauenstein spoke at length about Delta’s efforts to de-commoditize air travel, and its efforts to further refine personalized marketing. This includes pricing experiments that make use of the latest artificial intelligence models. “I think AI is going to be incredible in terms of this impact on our business,” said Bastian. “But it’s only going to be incredible if we’re prepared to actually use the power and harness the power.” For now, the airline is trialing AI to help in three key areas: 1) helping with crew scheduling, 2) helping to provide better and more personalized customer service, and 3) optimizing revenue management. Hauenstein also addressed ongoing efforts to improve the way Delta retails its many products and services. “I think our process is really clean versus some of the other ones, where I feel like I’m going to a Turkish bazaar on the way out the door.”
• Thanksgiving bookings for this week, by the way, are strong. Interestingly, Delta sees a return to some old holiday travel patterns, including people again prioritizing that Sunday return to be back in the office on Monday (the Thanksgiving return period was a bit more spread out the past few years). No less interestingly, flights to Europe are holding strong through even the offpeak winter. Corporate demand is seeing an uptick following the election earlier this month. ASM capacity is growing faster than headcount. Delta’s regional fleet is finally getting back to its optimal level, which helps with overall fleet utilization. “We’re looking at a very, very encouraging first quarter… Advanced bookings are really, really solid. Yields are strong both domestically and internationally.” Industry capacity, furthermore, is dropping, especially within the U.S. 

• Over the coming three to five years, Delta aims for annual operating margins in the mid-teens, which hardly seems a stretch based on its past performance. By 2027, according to management’s forecast, Delta’s premium revenues will exceed its mainline revenues. Widebody and narrowbody jets alike will see premium cabins expand. Today, it segments its fare products into six types: Basic Economy, Main Cabin, Comfort Plus, Premium Select, Domestic First, and Delta One. Expect even further segmentation in the future. 
• Don’t forget too that Delta’s workforce is far less unionized than those of its rivals, entailing more work rule flexibility. This also makes it easier for Delta to operate an in-house maintenance unit—one that generates additional profits by performing work for others. If you had to boil down Delta’s investor day message to just two words, well, here are the two words that executives themselves used to begin their presentation: “Differentiated” and “Durable.”

TAP Gun

• TAP Air Portugal had another good summer. But it wasn’t quite as good as last summer. The carrier, re-nationalized during the Covid crisis, scored a 17% Q3 operating margin, down from 22% a year earlier. Portugal continues to enjoy a post-pandemic boom in inbound tourism, notably from the U.S. United, Delta, and American all fly to Portugal these days, as do Air Canada and Air Transat. TAP itself now serves New York, Newark, Boston, Miami, Chicago, Washington, and San Francisco, along with Toronto and Montreal. 
• Its most potent weapons, though, are its routes to South America, especially Portuguese-speaking Brazil where it flies to more than ten cities, including Manaus in the Amazon—flights there just re-launched this month. TAP serves several of these Brazilian routes, including Manaus, with long-range A321s that are easier to fill than its widebody A330s. To this add a sizable network to Africa, including former Portuguese colonial markets where it holds a commanding presence. 

• Lisbon, furthermore, is perfectly positioned to handle connecting traffic from much of the Americas to both Europe and Africa. Many of its Sao Paulo to Lisbon passengers, for example, are connecting onward to places like Paris, London, and Rome. Morocco is another top destination for its North and South American customers. 
• You can see now why TAP—despite past struggles with debt, labor strife, and political interference—remains a coveted takeover target for all of Europe’s Big Three airline groups—IAG, Air France/KLM, and Lufthansa. 
• Back on the topic of struggles, TAP cited two in particular last quarter. One was the devaluation of some currencies in which it earns revenue. The other was something every European airline has been moaning about: “The difficult situation of air traffic management.” 
• Overall, Q3 revenues increased 2% y/y on 1% more ASK capacity. But operating costs ex items increased 6%, in part driven by newly-signed labor contracts. TAP did flag some “pressure on yields.” But broadly speaking, the favorable demand situation appears to be holding. Forward bookings for this quarter are a bit ahead of last year, in volume terms anyway. TAP also has a maintenance arm which unsurprisingly is capturing strong pricing gains given the worldwide shortage of available MRO capacity.

Avianca and Copa 

• Colombia’s Avianca reported a 14% Q3 operating margin, down from 17% a year earlier. It’s one of several Latin American airlines forced to file for bankruptcy during the Covid crisis, only to emerge leaner and more profitable than ever. Its parent company Abra intends to maintain control of Brazil’s Gol as it exits bankruptcy. Already, Avianca and Gol are increasing cooperation in areas like procurement and loyalty (expect more announcements soon). In addition, Abra purchased the profitable Spanish charter airline Wamos Air as a potential prelude to more European-Latin America flying. 
• Avianca, meanwhile, is expanding its codeshare agreement with the Colombian domestic carrier Clic Air. The Colombian domestic market, make no mistake, has been difficult even with Viva and Ultra Air now gone. A government decision to allocate 15% more slots at Bogota airport (without any improvement in infrastructure) led to overcapacity, though the situation is improving as Avianca allocates more Bogota flying to international routes. 
• Speaking of international routes, Avianca has many new ones like Bogota-Chicago, Buenos Aires-Guayaquil, Guayaquil-San Jose, Medellin-San Salvador, and Panama City-San Jose. It decided to re-install a business class product on some narrowbody routes while launching a new business class product to Europe this month. 

• The airline’s LifeMiles loyalty program is a critical asset, and “the only large loyalty program [in South America] that’s aligned with a major alliance—it’s part of Star Alliance.” [Note that Latam never did join SkyTeam despite its close ties to Delta; it’s no longer part of oneworld]. 
• As for demand, North America is doing better this year than last, offsetting weakness in domestic Colombia, intra-South America, and South America-Central America. Other routes like Mexico, the Caribbean, and Ecuador have been faring well. Argentina and Brazil are currently “very, very strong.” Keep in mind that Avianca competes with U.S. LCCs on many routes, and retreats by carriers like Spirit and JetBlue have boosted yields. 
• Surely, you’re waiting for the day when you read that Copa had a bad quarter? Well, the wait continues. The Panamanian airline had yet another fantastic quarter, hitting the 20% mark for Q3 operating margin. That’s despite Venezuela-related disruptions, currency devaluations in Latin America, a “softer yield environment,” and “additional industry capacity in the region.” Copa expects to end this year with 112 planes, including 11 older B737s flown by its low-cost Colombian unit Wingo. Next year, according to current schedules, Boeing will deliver another eight 737 Max 8s. ASM growth for 2025 will be between 7% and 9%, partly influenced by seating densification–Copa is adding an extra row to its B737-800s, moving from 160 to 166 seats. 

Jet Who? Jet2 

• Britain’s Jet2 delivered another strong set of financial results this spring and summer. For its fiscal half year covering the months between April and September, Jet2’s operating margin was 14%, pretty much in line with what it earned in the same six months last year. It’s more proof that even during Britain’s economic difficulties, residents are prioritizing travel spend. 
• This winter half (October to March), Jet2 will increase seat capacity by 14%, with prices higher (if not by much) for both holiday packages and flight-only purchases. Summer bookings beyond next March are “in line with management expectations,” though it’s still too early to get a good read for next year’s peak season. 
• Jet2 is quietly thriving as a European low-cost carrier specializing in packaging flights with hotels and other travel products—some 70% of its passengers are package buyers. It’s a segment that earns higher margins for Jet2, and one that’s caught the attention of easyJet, now itself aggressively growing its package offerings. But to Jet2’s relief, Ryanair has thus far kept its focus on seat-only sales. 
• As usual, Jet2 expects losses during the offpeak winter. But it’s bullish about next summer, when it will open two new bases, one at London Luton and the other in Bournemouth. All of its B757-200s will soon be gone as it introduces 232-seat A321-Neos—it has nearly 150 on order, and it uses CFM engines, not the troubled P&W GTFs.  

An Update on Travel Trends in China

• China’s Trip.com said  the “China travel market demonstrated remarkable resilience [this summer] with strong performance in both domestic and cross-border travel. This surge in demand reflects a recovery in consumer confidence and a growing enthusiasm for travel.” Japan, it added, “remains the top destination for Chinese outbound travelers closely followed by other APAC regions. Additionally, there is a growing interest in longhaul destinations, such as Europe, the Americas, Oceania, and the Middle East.” And a final observation: “Citizens from higher-tier cities are eager to expand their travel radius and explore more distant destinations, while those from lower-tier cities are beginning to venture beyond national borders and emerging as a new growth driver in outbound travel.”
• The online travel retailer separately said its engineers are “working very hard to make sure AI supports our operations.” It cited four main areas where it’s using AI: 1) to “promote the right product that is suitable for our customers based on their travel habit,” 2) to cut the coding time for its software developers between 15% to 30%, 3) to improve customer service, and 4) to generate new content like video and photos. 

— Jay Shabat and Gordon Smith

Routes and Networks

Allegiant Adds 44 New Routes

• Allegiant is launching one of its largest route expansions in its history, adding 44 nonstop routes to its network. The ULCC is also adding three more destinations to its map: Gulf Shores, Alabama, Colorado Springs, and Columbia, South Carolina. Drew Wells, Allegiant’s chief commercial officer, said the 44 routes had “both the best opportunity as well as the operational capacity.” 
• Unlike some of its larger rivals such as Spirit and Frontier, Allegiant’s business model relies on connecting underserved areas to popular leisure destinations. “For us, it’s trying to find the areas of opportunity that are unserved or underserved that have service matching the level of demand that we believe exists, particularly at our fair price point,” Wells told Airline Weekly.
• Allegiant is also increasing its capacity in Florida, adding new routes in Sarasota, Fort Myers, Fort Lauderdale and Orlando. The Sunshine State has been one of the more oversaturated markets since the pandemic, prompting many low-cost carriers to cut capacity. Wells said Allegiant has been bullish on Florida because it is connecting underserved cities. “Florida… certainly has a ton of seats and capacity going into it… But we think about the other end of the city pairs that we’re linking. We’re creating or flying into a new set of demand that has not been served well, even if Florida as a whole has been.” 
• The carrier recently reported a net loss of $36.2 million for Q3 as its revenue took a hit from Hurricanes Helene and Milton. Allegiant also appointed a new CEO in July, who has been vocal about renewing Allegiant’s core focus as an airline.

Flyadeal Eyes India

• India is firmly in the sights of a rapidly expanding Saudi LCC flyadeal. Speaking at the Skift Global Forum East in Dubai on November 20, CEO Steven Greenway confirmed that India is likely to play a key role in the carrier’s cross-border expansion. “The [Saudi] market is very immature at the moment – that isn’t a criticism, it’s just a fact. We aren’t Western Europe, we’re not North America – there’s a lot of catching up to do.”
• Flyadeal is currently growing at around 10-15% per year – a trajectory that is due to continue until the end of the decade. When Greenway joined the airline in January, around 80% of flyadeal’s network capacity was domestic. That figure is due to shift closer to 50-50 over the coming years. The airline will continue to grow domestically – likely rising from 19 to 25 Saudi destinations – but “the bulk of the growth” will be international. 

• Asked if China and India formed part of the expansion plan, the CEO suggested India would play a bigger role. “Less so China, more so India, because you have more of a prevalence of worker and religious traffic. The [Indian] subcontinent is certainly something that is on our radar for the next 12 months, particularly India for the sheer market size,” said Greenway. If realized, flyadeal will follow in the footsteps of rival Saudi budget airline flynas. The privately owned company already serves many of India’s largest cities, including Delhi and Mumbai.
• To accommodate the expansion, the flyadeal chief suggested that a widebody plane order may be in the cards. “We want to go further. There is a massive mandate from the [Saudi] government in terms of bringing pilgrims, worker traffic, and high-volume and low-yield traffic, into the Kingdom. We want to stretch our wings. The real strategy behind it is that we have to go for widebodies to cater to that market.” Flyadeal’s current fleet is composed of Airbus A320s that can carry up to 186 passengers. A321s with 240 seats are due for delivery from 2026.

Star Alliance Boosts Asian Footprint

• Star Alliance opened its first branded airport lounge in Asia on November 21. The new facility is in Terminal One at Guangzhou Baiyun International Airport in southern China. A second lounge will operate from the new Terminal Three when it opens next year. The site spans 8,000 square feet (around 750 square meters) and can accommodate up to 100 guests.
• Ten Star Alliance member carriers currently fly to and from Guangzhou. These range from domestic players Air China and Shenzhen Airlines to international long-haul operators such as Ethiopian Airlines, ANA, and Thai. In an average week, Star members offer 774 departures to 50 destinations in ten countries, which should keep the new lounge busy.
• The Guangzhou launch follows the recent opening of a flagship facility at Paris Charles de Gaulle by Star Alliance. Other airports with Star-branded lounges include Amsterdam, Buenos Aires, Los Angeles, and Rio de Janeiro. The branded concept is not unique to Star Alliance. Earlier this year, oneworld opened new lounges at Seoul Incheon Airport and Amsterdam. SkyTeam also operates branded lounges in Sydney, Vancouver, Dubai, and Santiago.

Routes in Brief

• EasyJet is launching its first sub-Saharan route. The British LCC will fly from London Gatwick to Sal in Cape Verde. Thrice-weekly frequencies start on March 31. It is the most notable of 26 new routes for summer 2025, of which 21 are from UK airports. EasyJet now offers more than 1,000 routes to 160+ airports across 37 countries.
• Fiji Airways is enhancing its Australian network. From April 10, it will fly nonstop from Nadi to Cairns in northern Queensland. Flights will operate three-times weekly and be served by Boeing 737 Max aircraft. As well as point-to-point traffic, bosses at the airline highlighted easy onward connections with Fiji’s new Dallas-Fort Worth route which will operate on the same days.
• ITA Airways has touched down in Bangkok for the first time. The Italian flag carrier – the successor to Alitalia – inaugurated the new route from its Rome Fiumicino hub on November 19. Services are flown by A330neo and operate five-times weekly during the winter season. 

— Gordon Smith

The Stock Take

Talking Tech

Our regular round-up of the latest airline technology news and trends

Apple Announces Airline Partnership

• As bag-tracking devices such as Air Tags become more popular, Apple is rolling out a feature that allows passengers to share the location of their items with airlines directly. When unable to find their item, travelers can send details to the customer support staff, who can attempt to locate lost items more accurately. Until now, passengers had to watch on their phones as airlines struggled to find lost bags. 
• According to the tech giant, the feature will be available from late 2024, with 15 airlines already integrating support for ‘Find My’ sharing. Early adopters include some of the world’s biggest carriers including United, Delta, Singapore Airlines, Qantas, and all Lufthansa and IAG carriers. Additionally, SITA will integrate Apple’s new feature into WorldTracer, the global tracking system used by 500 airlines and 2,800 airports. 
• The post-pandemic recovery period saw major baggage crises at airports globally, owing to technology challenges and/or labor shortages. Data from individual AirTags, which have sold tens of millions of units, could allow airlines to build more accurate tracking tools, clearing backlogs more quickly in the event of significant disruptions. 
• To mitigate privacy concerns, Apple has added several safeguards. Owners can revoke sharing once they retrieve their item or any time before, and access will automatically expire within seven days. 

An AI Future for ATC?

• As artificial intelligence applications become more common, the FAA is keen to bolster its own capabilities. The U.S. regulator is looking for providers to use machine learning to develop advanced analytics software. These will be applied to safety and non-safety factors to generate actionable insights for the National Airspace System.
• The FAA is calling for aviation data experts to identify and reduce safety incidents across the network and improve rapid response capabilities. While no details about the contract are available during the market analysis phase, expect to see several contenders emerge for the huge undertaking.
• To date, airlines have been leading the way with AI analytics tools, applying them to everything from crew training to gate allocation to passenger support. The FAA, however, will likely take longer to get up to speed.

Fraport’s AI Security Scanners

• The parent company of Frankfurt Airport has selected Rohde & Schwarz to install 100 new security scanners. These will use industry-standard millimeter-wave technology to scan travelers, with AI stepping in to analyze the scans and flag any prohibited items. The whole process takes seconds to read the two billion data points and provide results. 
• The rollout of AI-powered scanners is likely to grow in the coming years as airports attempt to remove bottlenecks at checkpoints. Many baggage scanners currently use CT technology to generate images. 
• Addressing the use of AI in imaging, Andreas Hägele, Vice President Microwave Imaging, Rohde & Schwarz, noted: “We have now entered into the realm of ‘superhuman learning’. This means that our scanners deliver AI-supported detection precision that is far better than the human eye. Our technology makes it possible to even detect objects that the human eye could never have seen.”

— Pranjal Pande

Departures & Arrivals

Notable vacancies, appointments, and retirements from across the industry

Duffy Nominated as New Transport Sec

• President-elect Donald Trump nominated former congressman and Fox Business co-host Sean Duffy for Transportation Secretary, who leads the U.S. Department of Transportation. Duffy served in the House of Representatives for Wisconsin’s 7th congressional district from 2011 to 2019 and was the co-host of the Fox Business show “The Bottom Line.”
• Before he was elected to Congress, Duffy also served as district attorney of Ashland County, Wisconsin. He first found fame when he starred in MTV’s “The Real World: Boston” in 1997. Duffy also competed in the network’s reality show “Road Rules: All Stars,” where he met his wife Rachel Campos-Duffy, who is also a Fox News’ “Fox & Friends Weekend” host with Trump’s pick for Defense Secretary, Pete Hegseth.
• “He will make the skies safe again by eliminating DEI for pilots and air traffic controllers,” Trump said in the statement. The incoming Transportation Secretary will oversee safety-related issues at Boeing, the ongoing air-traffic controller shortage, labor negotiations among pilots and flight attendants, and climate initiatives such as the development of sustainable aviation fuel. 

— Meghna Maharishi 

Airline Yearly

To celebrate our 20th anniversary, we’re highlighting what made the news in years past. We’re featuring a historical nugget from the Airline Weekly archives over 20 issues until the end of 2024.

From our Issue published November 26, 2018, reporting on a recurring theme of the past two decades – trouble at Argentina’s national airline: 

“Aerolineas Argentinas regrettably informed customers that its entire schedule is canceled Monday, affecting some 40,000 passengers. The reason: a strike planned by two of the airline’s pilot unions, plus three of its ground staff unions. This will actually be just the biggest of multiple strikes against the state-owned airline this month. The timing isn’t good. This week, dignitaries from around the world will be traveling to Buenos Aires for this year’s G20 meeting, a gathering of leaders from the world’s largest economies…”

Airline Weekly: November 26, 2018

Picture Perfect

Our favorite image from the week’s global airline developments

Here’s an (Arctic) blast from the past for this week’s featured image. To mark the 70th anniversary of SAS becoming the world’s first airline to operate a commercial flight over the North Pole, the Scandinavian carrier has released a series of archive photographs. On November 15, 1954, the pioneering flight took off from Copenhagen in Denmark, bound for Los Angeles. The above image shows celebrations in the Danish capital ahead of departure. SAS notes that it took four years of research and preparation to figure out how to successfully operate the flights. Given the harsh Arctic climate, passengers were provided with snowsuits, and onboard was a manual on how to survive in the Arctic should the aircraft need to make an emergency diversion en route.

— Gordon Smith

Feature Story

Eleven Sent: Spirit Files for Chapter 11 Bankruptcy. What’s Next? 

As expected, Spirit Airlines—America’s seventh largest airline by revenues—filed for Chapter 11 bankruptcy last week. The move follows four-plus years of heavy losses, leading to unsustainably large debt obligations.

The filing differs significantly from previous airline bankruptcies, which often involved mass renegotiation of contracts with a wide array of stakeholders, including unions, aircraft lessors, and suppliers. Spirit is undertaking a pre-packaged bankruptcy based on a deal it’s already reached with the majority of its bondholders, in other words, investors that lent it money in the past. Bondholders agreed to swap $795m of their debt into stock. They also agreed to pre-purchase an additional $350m in stock, plus provide another $300m in new “debtor-in-possession” loans. DIP loans are first in line to be repaid during a bankruptcy proceeding, cutting ahead of past lenders.     

Spirit says this combination of debt relief and new capital, plus the cash it already has on hand, will be more than sufficient to keep it flying through its “streamlined” bankruptcy stay. Because of its pre-arranged nature, it won’t be a long stay—the airline expects to exit in the first quarter of next year. 

Spirit made clear that employee wages and benefits will be unaffected. Same for vendors, aircraft lessors, and bondholders secured by aircraft collateral. They’ll “continue to be paid in the ordinary course and will not be impaired.” Existing stockholders, however, will be wiped out. Put another way, the airline’s existing owners will lose everything, replaced by bondholders who’ll now become the new owners. 

Management, charged with looking out for the best interest of shareholders, worked hard to avoid a bankruptcy. Earlier this year, the airline—among other moves—slashed capacity, introduced new fare products, furloughed pilots, laid off other workers, and sold planes. These efforts followed a failed merger with JetBlue, a deal deemed to be in violation of antitrust law by a Federal court. JetBlue outbid Frontier to buy Spirit in 2022, just as airlines were exiting the pandemic downturn. Frontier, with a similar ultra-low-cost business model as Spirit, was considering a second attempt at buying Spirit in recent weeks, according to the Wall Street Journal. But nothing came of it. It’s still possible, of course, that Spirit pursues a merger deal, while in bankruptcy or thereafter.

Spirit was hardly alone in encountering distress following the pandemic. Other low-cost carriers including Frontier and JetBlue, but also Southwest and Allegiant, have posted either losses or uncharacteristically weak profits in the past two and a half years. But Spirit’s losses were especially severe. It suffered a $133m operating loss in 2022, followed by a $386m operating loss in 2023. It then spilled another $343m in red ink just during the first half of 2024 (all figures exclude one-off accounting items).

“You can see why it was becoming so hard for Spirit to pay off its debts, much of it amassed during the Covid pandemic…”

Before the Covid crisis, Spirit was one of America’s most profitable airlines, earning an operating profit that exceeded half a billion dollars in 2019. Under CEO Ben Baldanza (who passed away earlier this month), Spirit adopted the ultra-low-cost carrier (ULCC) model pioneered by Ryanair in Europe, which involves heavy reliance on ancillary revenues (from bag fees, for example), dense seating configurations, low overhead costs, a junior workforce, and intensive aircraft utilization. Spirit was originally founded as a trucking company in the 1960s, launching air charter flights in 1990. By 1999, it had relocated its headquarters from Michigan to Fort Lauderdale, Florida, still one of its strongest markets (not to mention its largest). Baldanza began the airline’s ULCC transformation in 2007, underpinning more than a decade of financial success. The investment firm Indigo Partners, which today owns Frontier, owned Spirit from 2006 to 2013. 

Like all U.S. airlines, Spirit was rescued by government money during Covid. But it failed to get back on its feet after the crisis ended, challenged by heavy cost inflation. In the past, Spirit would keep costs in check by aggressively adding planes and people, thereby achieving economies of scale. But this strategy was stymied by a dearth of aircraft availability—a significant portion of its fleet (23 planes on average this year) was out of service for an engine inspection issue that affected many airlines. In addition, rival carriers like Delta, American, and United expanded the availability of their ULCC-like unbundled fare offerings. They also eliminated ticket change fees and took other measures to compete more effectively with carriers like Spirit. 

Spirit itself, meanwhile, was digesting an aggressive 33% increase in seat capacity between the summers of 2019 and 2024, notwithstanding its recent aircraft availability woes (data courtesy of Cirium Diio). Frontier, growing at an even faster clip, was often growing in the same markets, with Las Vegas and Orlando two notable markets where both carriers battled head-to-head. All the while, traveling habits changed, with many Americans opting to pay extra for premium amenities—of the sort Spirit doesn’t offer. Many also opted for overseas trips—to places where Spirit doesn’t fly. And if all of this weren’t troubling enough, a slow recovery in business traffic drove rivals like the Big Three to focus more on leisure and family-visit fliers—fliers that represent Spirit’s bread and butter.

Spirit’s new “Project Bravo” plan involves balance sheet repair for sure, including steps to generate more cash. But it no less importantly involves moving the airline’s product and service offering somewhat upscale, stressing operational reliability and improved brand reputation. It now offers four distinct fare products, with the higher-fare options granting perks like a checked bag, unlimited snacks, and priority check-in and boarding. Premium economy passengers get a blocked middle seat. Change fees for all tickets are eliminated. All passengers now get water, a small snack, and the option to buy food onboard. A new boarding process aims to reduce gate area congestion. Planes will have Wi-Fi. They’ll have larger overhead bag bins. And so on. 

“All the while, traveling habits changed, with many Americans opting to pay extra for premium amenities—of the sort Spirit doesn’t offer…”

Importantly, the carrier will improve its ‘Free Spirit’ loyalty plan, a key area where it lags rivals in revenue generation—it blames this in part on the nature of its product and network, as well as its lack of partners. It now plans to codeshare with other airlines and “explore joint ventures and alliances.” It does so, no doubt, with loyalty plan dollars top of mind. (Note that it currently offers co-branded credit cards with Bank of America and MasterCard).

As it looks to 2025 and life post-bankruptcy, Spirit accepts the reality that non-fuel unit costs will inevitably rise as it adds perks, grapples with inflation, and sharply reduces capacity. Nevertheless, it expects to maintain its stage-adjusted CASM ex-fuel advantage versus Southwest, not to mention Alaska, JetBlue, and the Big Three. Allegiant and especially Frontier will still have lower ex-fuel CASM. Helpfully, other airlines including Southwest and JetBlue are themselves significantly reducing their capacity, which should lift industry unit revenues domestically on shorthaul Latin routes. Back on the unit cost side, the recent decline in fuel prices—assuming trends don’t reverse—will be a major tailwind for Spirit going forward.

Clearly, Spirit grew too fast. It took on too much debt. It was victimized by a whirlwind of adverse trends beyond its control. But some of those trends appear to be shifting (like the domestic capacity situation). And Spirit itself is shifting its business model to adapt. The fact is, the U.S. airline sector remains rather consolidated relative to the size of the economy. And that bodes well for any and all U.S. carriers. Spirit, furthermore, might yet seek further consolidation. Maybe then will it return to financial heaven, from bankruptcy Chapter 11. 

— Jay Shabat

On Our Radar