Reports of Spirit Airlines discussing a possible bankruptcy filing have put a question mark on its future and sent its stock prices tumbling. The airline has been grappling with several successive unprofitable quarters, a failed merger with JetBlue, and increased market competition, among other challenges.
Possible bankruptcy on the cards
According to a report by The Wall Street Journal, Spirit Airlines could look into filing a bankruptcy. The airline is reportedly in talks with bondholders as it navigates the terms of such a filing.
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The budget carrier has so far been exploring ways to bring some stability to its balance sheet, including an out-of-court transaction. However, it seems the situation has reached a point where it could possibly consider a Chapter 11 filing.
Naturally, this has affected the airline’s market perception, and Spirit’s shares witnessed a significant dip of 30% following the news. WSJ, however, mentions that while the airline is reaching a deal with bondholders and other creditors to support a Chapter 11 filing, such a move would not be imminent.
Disappointing financial results
Spirit Airlines
has not seen a profitable quarter in a long time. The airline’s losses in the second quarter of this year were worse than its previous estimates, with an adjusted net loss of around $158 million.
The disappointing results came with the news that the ultra-low-cost airline will furlough 240 pilots due to engine issues and announced several cost-saving measures that would help it save around $75 million by year-end. These included temporarily suspending the recruitment of pilots and flight attendants, offering voluntary unpaid leaves of absence to flight attendants, and reducing discretionary capital spending, among other things.
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Recently, it was also reported that the carrier would make significant changes to its network and
axe more than 30 routes from several markets in the coming days
. Boston is the destination that will be most impacted, with eight route cuts, followed by Dallas/Fort Worth, which will have four routes cut, while Charleston and Las Vegas will see three routes disappear.
Several challenges
The last couple of years have been particularly challenging for Spirit. The airline has been struggling due to intense competition in the US market, including weak fares. It previously said that non-ticket revenue, which results in different fees, came in “several dollars lower than anticipated” per passenger.
Today, a typical US passenger has plenty of options. With premium legacy carriers such as American, Delta, and United, as well as strong budget players like Southwest and several other airlines fighting to attract travelers, the overall market has become crowded, and that means airlines have to keep innovating to keep generating profits.
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A major blow to Spirit also came in the form of a failed merger with JetBlue. Had the two carriers come together, it would have been the fifth-largest airline in the country and would have helped Spirit tremendously with its survival.
The carrier has also been plagued with aircraft troubles, and engine recalls that have kept many of its airplanes grounded. Then, there are also upcoming debt maturities that Spirit has to deal with. Hopefully, the airline will find some way to climb out of its troubles.