The 29.4 billion low-cost airline giant is going bankrupt

These days, does no one love to fly on budget airlines anymore?

The story originates from the well-known North American budget airline giant Spirit Airlines, which has been struggling to operate. To recover financially, Spirit Airlines recently sold 23 Airbus A320 and A321 aircraft to GA Telesis, raising $519 million. By the way, GA Telesis is a company specializing in aircraft maintenance, leasing, and parts sales.

In its latest financial report for August, Spirit stated that its fleet consists of 210 aircraft, meaning that the sale of these planes accounts for over 10% of the airline's total fleet. This sale will further reduce Spirit's capacity, and the company expects its capacity to decline "by several times" next year. In contrast, major airlines like United Airlines, Delta Air Lines, and American Airlines reported in their third-quarter earnings that they expect passenger demand to increase, with premium cabins boosting profits.

However, this transaction has provided Spirit Airlines with some breathing room, resulting in a net cash inflow of approximately $225 million, which means that while they may struggle in 2025, they are unlikely to hit rock bottom.

Nevertheless, discussions about Spirit Airlines ultimately heading towards bankruptcy have never ceased.

1. Claimed to be "the wildest in North America"?

Anything related to "budget" tends to attract negative reviews, and Spirit Airlines is no exception; it has been dubbed "the wildest budget airline in North America" by North American netizens.

How wild is it, exactly? For example, foreign media once reported an incident where a passenger was seen fighting with Spirit Airlines staff in the cabin. Former IRS lawyer Chris Johnson joked, "If you enjoy wandering around a lunatic asylum, you definitely shouldn't miss Spirit Airlines."

According to data from the U.S. Department of Transportation in 2022, Spirit Airlines earned the title of the second most complained-about airline in the country. In the Skytrax ratings, Spirit Airlines was rated as a three-star airline and was once the only airline to receive a two-star rating. Regarding the experience of flying with Spirit Airlines, one netizen summarized, "Flying with Spirit Airlines, you really have a chance to have your soul ascend."

Of course, in the face of poverty, Spirit Airlines has still managed to attract a steady stream of passengers. Founded in 1980 and headquartered in Miramar, Florida, Spirit Airlines primarily operates scheduled international routes to the Caribbean and Latin America.

The bad situation began with the pandemic. Since 2020, Spirit Airlines has been operating at a loss, and this year's performance has been particularly disappointing, with a loss of nearly $193 million in the second quarter of 2024. As of the end of June 2024, Spirit Airlines had a net asset of $810 million, total assets of $9.559 billion, and a debt-to-asset ratio of 91.5%.

Spirit Airlines has reported a loss in five out of the last six quarters, attributing this to fierce competition for price-sensitive leisure travelers and an oversupply of seats in the domestic market. In the second quarter of this year, the company's total operating revenue was $1.28 billion, a year-on-year decrease of 10.6%, and the net loss widened to $192.9 million Regarding the company's weak performance, the founder attributed the reasons to "we have been negatively impacted by severe weather and delays related to air traffic control, especially on the East Coast and in Florida."

To cut costs, Spirit Airlines has made several adjustments, such as occasionally placing 260 pilots on unpaid leave, reducing some flights, and delaying orders for Airbus jets. Additionally, learning from industry leaders, Spirit Airlines has launched new ticket packages to attract higher-income customers.

Furthermore, the company recently stated that they plan to cut costs by $80 million early next year, primarily through layoffs, as flight volumes are expected to decline. Spirit Airlines has not concealed the company's pessimistic situation, openly stating that they expect the company's capacity for the entire year of 2025 to decline by several times compared to the previous year.

Emphasizing honesty.

II. Considering Bankruptcy Filing

The Wall Street Journal recently reported that Spirit Airlines is considering filing for bankruptcy under Chapter 11. Since the beginning of the year, its stock price has fallen by about 90%.

In addition to the company's ongoing struggle to achieve profitability, the failed merger with JetBlue Airways seems to have compounded the company's difficulties. As of December 31, 2023, its total long-term debt and financing lease obligations amount to approximately $3.06 billion, excluding current due debts. It is understood that the airline must refinance $1.1 billion in loyalty bonds due next year before October 21.

Regarding the merger dispute with JetBlue Airways, the latter offered a purchase price of up to $3.8 billion. It is worth noting that even though Spirit Airlines' stock price has rebounded slightly in recent days, its market capitalization is around $300 million, meaning $3.8 billion could buy 13 Spirit Airlines.

The reason JetBlue offered such a high price of $3.8 billion is that in February 2022, Frontier Airlines had already announced plans to merge with Spirit Airlines, proposing to acquire Spirit for $2.9 billion in cash and stock.

In April, JetBlue generously offered a $3.6 billion check, and not only that, in the following two months, JetBlue repeatedly raised its acquisition price, ultimately winning the bidding war at $3.8 billion. However, this deal was ultimately blocked by the U.S. government, which stated that it would reduce competition and raise ticket prices.

If the merger were successful, JetBlue would become the fifth-largest airline in the U.S., following American Airlines, Southwest Airlines, Delta Air Lines, and United Airlines.

However, according to foreign media reports, Spirit Airlines has recently resumed negotiations with Frontier Airlines regarding the merger agreement. The founder of Spirit Airlines stated in a conference call that although JetBlue is not the company's "preferred" merger partner, this decision is still "very positive for consumers and our other stakeholders." Industry analysts have suggested that merging with Frontier Airlines would be beneficial for Spirit Airlines in applying for bankruptcy liquidation.

III. Are People Losing Interest in Budget Airlines?

When Spirit Airlines completed its IPO on NASDAQ in 2011, this budget airline giant was on a strong upward trajectory, with sales revenue of $1.654 billion in 2013, a year-on-year increase of 25.5% Net profit was $177 million, a year-on-year increase of 63.1%, with a profit margin of 10.69%, setting a new high for global airlines—at that time, the average profit margin for global airlines was 3%, and Spirit Airlines exceeded that by more than three times.

At one point, the company's market value reached approximately $4.2 billion, but as of the time of writing, the company's market value is only around $300 million, marking the decline of a once-great airline giant.

In fact, it's not just Spirit Airlines; Southwest Airlines, the pioneer of low-cost airlines globally, is also facing tough times. As the most successful low-cost airline in the world, Southwest Airlines once set a record of 47 consecutive years of profitability. However, starting in 2023, Southwest Airlines began to weaken, and by the first quarter of 2024, the company reported a net loss of $231 million.

In contrast, Delta Air Lines and United Airlines have seen continuous growth in their performance. As the most profitable airline in the world, Delta Air Lines even concluded that for many years, the revenue growth from premium economy class has consistently outpaced the sales growth of standard economy class.

However, when it comes to the Chinese aviation market, the profitability of low-cost airlines is quite remarkable. Taking Spring Airlines as an example, its 2024 mid-year report shows that the company's main revenue was 9.875 billion yuan, a year-on-year increase of 22.97%; net profit attributable to the parent company was 1.361 billion yuan, a year-on-year increase of 62.28%; and net profit excluding non-recurring items was 1.355 billion yuan, a year-on-year increase of 79.14%. It is the "cheapest" airline but also the most profitable.

In conclusion, regarding low-cost flights, I personally feel that two words suffice to summarize: truly fragrant