Spirit Airlines received some credit lifelines ahead of a Monday deadline. But this wasn’t a stay of execution, this is the start of a reinvention and a new premium opportunity.
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Debt Relief And Credit Extensions
Spirit Airlines announced on Friday that it had extended the deadline to refinance some of its debt. The new deadline, originally set for October 21, has been moved to December 23. This refinancing relates to a credit card processing agreement with the U.S. National Bank Association for payments made via Visa and MasterCard.
There have been concerns from Wall Street analysts that Spirit could face bankruptcy if the negotiations did not go well. The Wall Street Journal reported the airline has been in talks with bondholders about a potential bankruptcy filing.
Spirit also confirmed it had fully utilized its $300 million revolving credit facility but expects to end the year with over $1 billion in liquidity. The airline is engaged in discussions regarding its debt maturing in 2025 and 2026.
Since the pandemic, Spirit has not posted a profit, and its future as a standalone airline is uncertain following a federal judge’s decision to block its merger with JetBlue. Additionally, engine issues from Pratt & Whitney have grounded some of Spirit’s planes. In the second quarter, Spirit reported a loss of $192.9 million, compared to a $2.3 million loss in the previous year.
To strengthen its financial position, Spirit has cut costs, furloughed 186 pilots, delayed Airbus deliveries, and introduced new revenue strategies such as bundled fares and premium seating.
A chapter 11 bankruptcy filing remains possible with the looming $1.1 billion debt note due next year but CEO, Ted Christie, and team have shored up the most critical aspects of the balance sheet. The terms of a potential Spirit Airlines bankruptcy are unlikely to be better than privately restructuring, and Spirit appears well on the way to succeeding in that regard.
Re-Positioning Spirit Airlines
New ads, with or without the credit reprieve, had already rolled out. The carrier announced its four new booking fare classes (Go, Go Savy, Go Comfy, and Go Big) with a premium and bundled bend. It hired some appropriate talent, Frankie Muniz famous for his eponymous role on Malcolm in the Middle, to highlight the Go Comfy class which includes a blocked middle seat.
For the uninitiated, a blocked middle seat qualifies as Business Class for most European flag carriers on continental flights, and the carrier’s Big Front Seat is about the same size and dimensions as most US carriers’ domestic first class product (excluding lie flat trans-continental.)
Spirit has spent the last six months doing away with more of the “gotcha” fees that are the hallmarks of Ultra Low Cost Carriers. For example, while all US carriers besides Southwest Airlines (for now) have added charges for checked luggage, Spirit lagged behind still by only allowing 40 pounds per bag but has increased that to a standard 50 pounds.
It eliminated change fees, award redemption fees and two years ago created one of the best loyalty programs for mid-tier frequent flyers.
While the modus operandi in a situation such as Spirit’s should be to cut costs, the carrier started adding benefits and throwing out frivolous charges. Just about the only thing left that makes Spirit a ULCC is the price point.
The Future For Spirit, Discounters In America
There is a playbook for moving away from the days of Bare Fares and crude marketing to a competent, reliable, affordable carrier. Southwest was once chided by network airline loyalists for its lack of amenities. The “Southworst” mantra faded over time with its simplistic functionality favored over complicated boarding processes and unreasonably high fares. Southwest had the benefit of other carriers slashing and burning their offerings which Spirit will not be able to rely upon.
JetBlue shared a similar discounter approach for most of its development until Mint Class made it the darling of trans-Continental elites. Spirit will not add trans-Atlantic flights nor lie flat seats to its fleet but it does have an opportunity to stand above its remaining discount peers.
Allegiant flies mostly to disused airports following the Ryan Air model that flyers will fly “from somewhere to nowhere, or nowhere to somewhere, but not nowhere to nowhere.” Meaning that it can afford to operate flights from Des Moines, Iowa, or Pittsburgh, Pennsylvania to Punta Gorda (halfway between Sarasota and Fort Myers, Florida) but not Latrobe, Pennsylvania (40 minutes outside of Pittsburgh) to Punta Gorda. Allegiant offers an irregular schedule.
Frontier is also inconsistent with flight schedules making it harder to become consistent for regular flyers. It, too, will occasionally fly to secondary airports (like Trenton, New Jersey) but also operates from its Denver hub. A fare from Pittsburgh to Fort Lauderdale on Frontier would first head to Denver before connecting to south Florida making a two-hour-flight an all-day affair.
This is where Spirit has an opportunity to shine. It routinely flies a consistent schedule from major airport to major airport. It has shed the traits that kept it from competing with network carriers, and now offers unique market positions in that it is the only discounter to offer a first-class equivalent product, and the only US carrier to offer an open-middle-seat option.
It still operates the fittest fleet of any sizable carrier in the country with an enviably young average fleet age and highly fuel efficient aircraft.
Earning points in the loyalty program is better than some network carriers (enhanced earnings on ancillary revenue) but lags behind considerably on redemption value.
Conclusion
Assuming that Spirit Airlines can further negotiate with its lenders and convince them that they will get more out of an alive Spirit than what they will from bankruptcy court, Spirit has its perfect moment for reinvention as a value carrier delivering more than network peers with the advantage of nonstop flights. I, for one, think they can.
What do you think?
Purchase by Frontier is inevitable. The US can only support one ULCC and it needs to be at scale. I’m also firmly convinced that the US can and should only support four national carriers, and those should be United, American, Southwest, and Alaska. Delta needs to die and die now.
Are you okay?
Perfectly fine. What’s wrong to wish for the deserved destruction of Delta, JetBlue, and Breeze? I”d also ask for the spaying and neutering of all their fanboys, but that might be considered excessive, despite it being justified.
I do not believe Delta Air Lines will go away anytime soon. Instead, some years down the road Alaska and American Airlines may merge to become a super airlines with 30%+ domestic market share.
Yeah….just wait until the earnings call on the 24th. They’re just running the clock until a new administration is in place.
“ Frankie Muniz famous for his eponymous role on Malcolm in the Middle”
Yea we have a different view of famous. But he does have an estimated net worth of $30 million, nothing to sneeze at.
“Allegiant flies mostly to disused airports following the Ryan Air model that flyers will fly “from somewhere to nowhere, or nowhere to somewhere, but not nowhere to nowhere.”
Buzz, KLM’s previous low cost subsidiary, did fly ‘nowhere to nowhere’, especially within France, so it’s no surprise that they gave up!
Chapter 11 is the friend of the airlines. Most every major (excluding Southwest) has visited the courthouse at one time or another. TWA went there three times (Chapter 33).
As noted in the above string, trying to run out the clock doesn’t cut it in the long run. Visit the court house; have a debtor-in-possession plan; do some triage to the balance sheet; and exit with a “PAX Friendly” marketing program. Don’t be surprised if several other airlines (looking at you B6) follow in your footsteps.
By the way, I’m a big friend of “Malcolm in the Middle”. Hope he can shed some humor on an awkward situation.
I do not believe Delta Air Lines will go away anytime soon. Instead, some years down the road Alaska and American Airlines may merge to become a super airlines with 30%+ domestic market share.