Spirit Airlines, once a fast-growing low-cost carrier, is struggling to convince investors it has a clear path forward after an antitrust ruling blocked the company’s sale to JetBlue Airways. Is.
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 fares. Airlines that may appeal say they are considering their options.
Before reaching a deal with JetBlue in July 2022, Spirit was struggling. Unlike larger 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 can dig itself out of its financial hole barring finding someone else. Buyer. Some airline experts say the carrier may have to file for bankruptcy protection.
“It’s a challenging financial picture for the company,” said Xavier Smith, director of energy and industrial research at Alphasense.
In the three days since the decision, Spirit’s share value has more than halved, falling from about $15 to $5.70. Stocks fell sharply on Thursday after the Wall Street Journal informed of She was exploring soul restructuring options.
Asked about that report, the company said it was “not pursuing nor engaged in a statutory restructuring.”
Spirit, like other airlines, took on a lot of debt during the pandemic, but it hasn’t had the financial recovery 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 back 25 jets, helping it reduce its debt by $465 million.
“Spirit has been 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 larger carriers such as Delta Air Lines and United Airlines, Spirit flies mostly within the United States; Some of its international routes are relatively short. As a result, it has not been able to manage the strong profits many larger airlines make on flights to Europe or Asia, and it is exposed to fierce price wars on US routes.
Additionally, Spirit’s expenses have increased by more than 60 percent since 2019 due to higher wages for pilots and flight attendants and expensive jet fuel.
The airline is also struggling due to problems with Pratt & Whitney engines in some of its aircraft. Spirit grounded 26 of its approximately 200 jets after the supplier disclosed manufacturing defects.
Analysts say there are two possible outcomes for Spirit: Another airline could acquire it, or the company could use the bankruptcy filing to restructure its debt or sell its assets.
At its current valuation, Spirit could be an attractive option for an airline looking to expand. Buying another airline is often the easiest and most efficient way to grow because popular airports have few or no gates available. The planes are also in short supply because the two main manufacturers – Airbus and Boeing – have a backlog of orders that stretches back as much as five years.
Frontier Airlines, which proposed buying Spirit before JetBlue could put forward a bid, or another low-cost carrier would have the easiest time winning antitrust approval, said Dylan Carson, an attorney at Manatt, Phelps & Phillips.
“I think it has the potential to get the blessing of antitrust enforcers,” said Mr. Carson, a former Justice Department antitrust lawyer.
Frontier’s cash-and-stock deal with Spirit was worth about $2.8 billion, while JetBlue was willing to pay $3.8 billion. Now that Spirit’s valuation has fallen, another airline may be able to strike a deal at a lower price.
But Frontier’s share 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 the stock to pay for part of the earlier deal. A representative for Frontier declined to comment on whether it would consider any other offers for Spirit.
Of course, Spirit’s fortunes could improve if domestic air travel demand grows significantly, although most analysts do not expect that to happen in the near future.
Spirit is known for its no-frills experience. It packs more seats into its planes than other airlines, giving passengers less leg room. The company charges a fee for carry-on bags, which is included with other airlines. Because many of its customers fly it to save money, Spirit has limited ability to raise fares.
Kerry Tan, a professor at Loyola University Maryland who has studied airline fares, said that when Spirit offered service on a particular route, its competitors were forced to lower their prices.
“In my view, the worst-case scenario is that Spirit disappears and we are left with a less competitive environment,” Dr Tan said.
Judge William G. Young said in his ruling this week that if the proposed merger goes through, JetBlue would absorb an airline that charged very low prices, which would significantly reduce the class of such airlines and drive up fares.
“Spirit is a small airline,” he said in the ruling, “but there are people who love it. For those dedicated Spirit customers, this one’s for you.”
Budget travel blogger Madison Lee is one of those people.
He said Spirit’s cheaper flights and impact on other airlines’ prices gave Americans a “level playing field to travel.” Ms Lee, 25, has traveled to 60 countries, mostly using budget airlines.
“It may not come with all the bells and whistles, you may not feel as comfortable, but honestly, the purpose of a lot of people’s travel is not necessarily to be comfortable,” she said. “The Spirit gets things done.”