Spirit Airlines, once a fast-growing low-cost carrier, is struggling to convince investors it has a path forward after an antitrust ruling blocked the company’s sale to JetBlue Airways.
A federal judge in Boston blocked the proposed merger on Tuesday, agreeing with the Justice Department that the deal would harm consumers by reducing their choices and raising taxes. Airlines, which could appeal, say they are considering their options.
Before reaching a deal with JetBlue in July 2022, Spirit was struggling. Unlike major airlines, it never fully recovered from the early days of the pandemic in 2020. The budget airline is losing money, and some analysts say it’s hard to see how Spirit could recover. get out of your financial hole, except to find another one. Buyer. Some airline experts say the carrier may have to file for bankruptcy protection.
“It’s a difficult financial situation for the company,” said Xavier Smith, director of energy and industrial research at AlphaSense.
In the three days following the ruling, Spirit’s stock lost more than half its value, falling from about $15 to $5.70. Stocks fell sharply on Thursday after the Wall Street Journal reported that Spirit was exploring restructuring options.
When asked about the report, the company said it was “not pursuing or involved in a statutory restructuring”.
Spirit, like other airlines, took on heavy debt during the pandemic, but it has not seen the financial rebound that larger carriers have seen. It now owes about $6.6 billion, up from $3.6 billion in 2019. This month, the company sold and leased 25 jets, helping it reduce its debt by $465 million. dollars.
“Spirit has taken and will continue to take prudent steps to ensure the strength of its balance sheet and ongoing operations,” the company said in a statement Thursday.
Unlike major carriers like Delta Air Lines and United Airlines, Spirit flies primarily within the United States; its few international routes are relatively short. As a result, it has failed to achieve the large profits that many major airlines have made on flights to Europe or Asia, and it is more exposed to fierce price wars on U.S. routes.
Additionally, Spirit’s expenses have increased more than 60% since 2019 due to higher salaries for pilots and flight attendants and cheaper jet fuel.
The airline is also struggling due to problems with Pratt & Whitney engines on some of its planes. Spirit has grounded 26 of its nearly 200 planes after the supplier revealed manufacturing defects.
Analysts say there are two likely outcomes for Spirit: Another airline could acquire it, or the company could resort to filing for bankruptcy to restructure its debt or sell its assets.
Spirit, at its current valuation, may be an attractive option for an airline looking to expand. Buying another airline is often the easiest and most efficient way to expand, as there are few or no gates available at popular airports. The projects are also rare because the two main manufacturers – Airbus and Boeing – have an order book that extends over five years.
Frontier Airlines, which offered to buy Spirit before JetBlue outbid, or another low-cost carrier, would likely have an easier time winning approval from antitrust authorities, said Dylan Carson, an attorney at Manatt, Phelps & Phillips .
“This, I think, has the potential to get the blessing of the antitrust authorities,” said Mr. Carson, a former Justice Department antitrust lawyer.
Frontier’s cash-and-stock deal with Spirit was worth about $2.8 billion, compared to the $3.8 billion JetBlue was willing to pay. Now that Spirit’s valuation has fallen, another airline might be able to strike a deal at a lower price.
But Frontier’s stock price has also fallen more than 60 percent since it offered to buy Spirit, which could pose a challenge to another bid. Frontier planned to use stock to pay for part of the previous deal. A representative for Frontier declined to say whether it would consider another offer for Spirit.
Of course, Sprit’s fortunes could improve if demand for domestic air travel increases significantly, although most analysts don’t expect that to happen anytime soon.
Spirit is known for its no-frills experience. Its plans include more seats than other airlines, leaving passengers with less legroom. The company charges a fee for carry-on baggage, which is included on other airlines. Since many of its customers do so to save money, Spirit has limited ability to raise its rates.
Kerry Tan, a professor at Loyola University Maryland who has studied airfares, said that when Spirit offered service on a particular route, competitors were forced to lower their prices.
“In my eyes, the worst case scenario is that Spirit disappears and we find ourselves in a less competitive environment,” Dr Tan said.
Judge William G. Young said in his ruling this week that if the proposed merger were to go through, JetBlue would absorb an airline that had very low prices, thereby significantly reducing the category of those airlines and increasing fares.
“Spirit is a small airline,” he said in the ruling. “But there are those who like it. To those dedicated Spirit customers, this one is for you.
Madison Lee, a budget travel blogger, is one of those people.
She said Spirit’s cheap flights and its influence on other airlines’ prices give Americans “an equal opportunity to travel.” Ms Lee, 25, has visited 60 countries, mostly using budget airlines.
“It might not come with all the features, you might not feel as comfortable, but honestly for a lot of people the purpose of their trip isn’t necessarily to be at home. “comfortable,” she said. “The mind does the work.”