The last year has been a period of uncertainty and bad news for Spirit Airlines. (SAVE) .
The low-cost airline spent the first half of 2024 assuring investors that bankruptcy was not in the cards after a federal judge blocked JetBlue from acquiring Spirit Airlines. (JBLU) . But in early October there were multiple reports that one of the options being discussed with bondholders was a Chapter 11 filing.
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Related: Spirit Stock Falls Amid Bankruptcy Talks
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Here's the latest on a Spirit bankruptcy that looks more likely
While Spirit was able to refinance the debt to push the deadlines for the more imminent $1.1 billion to the end of December, the problem remains of not being able to land an investor or begin to dramatically attract more funds. There were some reports about a possible merger with low-cost airline Frontier Airways. (FRONT) which finally broke sometime last week.
On November 13, the Wall Street Journal reported Spirit was in advanced talks to file for bankruptcy after the Hail Mary deal with Frontier fell through.
“The airline said its operating profit margin in the third quarter was 12 percentage points lower than the same period a year earlier, reflecting higher expenses and lower revenue,” wrote WSJ journalists Alison Sider and Alexander Gladstone. “It said revenue would be about $61 million less, due in part to the airline no longer charging change and cancellation fees (Spirit eliminated them last July due to pressure to keep up with other low-cost competitors that make the same)”.
Related: I Just Flyed Business Class on Spirit: Here's How It Was
Spirit Stock Sees Biggest Drop in Airline History
Following news of the bankruptcy, Spirit shares fell nearly 60% to $1.38 on Wednesday afternoon. While there were double-digit declines due to bankruptcy rumors published in recent weeks, this marks the largest drop in share value in the airline's history.
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Since the beginning of 2024, Spirit shares have fallen more than 91%. While Spirit has not commented on bankruptcy speculation, it has issued a separate statement saying it remains in “constructive discussions” about a restructuring agreement with its senior bondholders.
The airline said any deal would be “expected to lead to the cancellation of the company's existing share capital.”
Analysts at TD Cowen, who were among the first to say bankruptcy was inevitable even as Spirit was assuring shareholders otherwise, sent a note to a client saying the most likely scenario is that Spirit “is significantly downsized by a restructuring”.
Between the pandemic-related travel decline and the increased competition from other low-cost airlines that arose from it, Spirit has racked up more than $3.8 billion in debt in total. Efforts to raise more money, such as restructuring its base fare model to one with different fare classes, have yet to yield notable results. At the same time, the Frontier deal would have faced similar antitrust concerns as the JetBlue acquisition.
“We recognize this sounds alarmist and harsh, but the reality is that we believe there are limited scenarios that allow Spirit to restructure,” TD Cowen analyst Helene Becker wrote in January 2024.
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