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In order to prevent bankruptcy, Spirit Airlines is implementing significant measures to address its financial difficulties and regain profitability. The airline has recently announced several drastic changes aimed at cutting costs and increasing revenue to ensure its long-term sustainability.
Hippocrates, the ancient Greek physician, is famously quoted as saying “desperate times call for desperate measures,” a sentiment that resonates with Spirit Airlines (SAVE) as it navigates a challenging financial landscape.
In a regulatory filing made on October 24, Spirit Airlines unveiled a series of aggressive steps to address its financial woes, including the sale of aircraft and job cutbacks. These measures are part of a broader strategy to generate revenue and reduce operating expenses in order to avoid potential bankruptcy.
Following the announcement of these measures, Spirit’s stock experienced a significant increase, closing at $2.79, marking a 15.3% increase in share price. The company’s decision to sell 23 vintage Airbus aircraft to GA Telesis is expected to generate $519 million in revenue, with deliveries scheduled from this month through February 2025.
In addition to the sale of aircraft, Spirit Airlines also plans to cut costs by approximately $80 million through job reductions. This includes reducing the number of commanders by around 100 and terminating approximately 240 pilots. Additionally, the airline has implemented a temporary freeze on recruiting new flight attendants and pilots, as well as offering voluntary unpaid leave for current cabin crew members.
The financial challenges facing Spirit Airlines have led to speculation about potential mergers with other airlines. Reports had suggested that Frontier Airlines (ULCC) and Spirit were in talks regarding a possible merger, with discussions intensifying after Frontier made an offer to acquire Spirit for $2.9 billion in 2022. However, JetBlue ultimately outbid Frontier with a $3.8 billion offer, leading to a proposed merger that was eventually rejected by a federal magistrate in January.
Wall Street veteran and analyst Stephen Guilfoyle has weighed in on the potential mergers, expressing skepticism about the viability of a Spirit-JetBlue or Spirit-Frontier partnership. Despite the financial challenges facing Spirit, Guilfoyle believes that Frontier Airlines may be the superior investment option among the three carriers, citing Frontier’s improved financial performance and balance sheet.
In response to reports of restructuring and debt refinancing, Spirit Airlines saw fluctuations in its stock price, with shares declining on news of potential restructuring plans but rebounding following the completion of a debt refinancing agreement. The airline reported in October that Visa and Mastercard agreed to postpone a $1.1 billion loyal bond debt until December 23, providing temporary relief and additional liquidity.
Looking ahead, Spirit Airlines anticipates a decline in capacity during the fourth quarter of 2024, with a year-over-year decrease of approximately 20%. The airline aims to provide further details on its performance during the third quarter when it releases earnings in mid-November. Spirit expects its overall capacity in 2025 to decrease by the mid-teens annually, attributed in part to the sale and removal of aircraft from service, as well as fleet changes and engine issues.
Despite the challenges facing Spirit Airlines, the company remains committed to addressing its financial difficulties and implementing measures to ensure its long-term viability. With a focus on reducing costs, generating revenue, and improving operational efficiency, Spirit Airlines is taking proactive steps to avoid bankruptcy and secure its future in a competitive airline industry.
