Spirit Airlines Could Be Bankrupt!
The Department of Justice (DOJ) blocked the Jetblue-Spirit merger; Will this kill Spirit?
The Department of Justice (DOJ) blocked the Jetblue-Spirit merger; Will this kill Spirit?
What’s happening: Spirit Airlines seems to have been looking for a buyer for some time now. The initial merger was supposed to be between Spirit Airlines (Spirit) and Frontier Airlines (Frontier). However, Jetblue Airways (Jetblue) thought that the deal was more valuable to them so they jumped in with a hostel, bid, and made a higher offer. Unfortunately for the deal, the DOJ is not a fan of further consolidation within the U.S. airline industry. The DOJ has officially blocked the merger of the two airlines via accord in New York. What does this mean for Spirit and the traveling public?
- The ultra-low-cost carriers (ULCCs) market within the United States is not as profitable as that of Europe, and Spirit has been struggling for some time.
- The blocking of this merger will hurt Spirit, but the fallout will go beyond the airline.
Get Involved: Do you believe that the government should’ve blocked the merger between Spirit and JetBlue? Do you believe Spirit will go bankrupt? Please share your thoughts in the comments below.
The ULCC market within the U.S. is not as strong as in Europe. Airlines within this segment of the industry find it difficult to remain afloat.
- Spirit’s profitability underperformed throughout 2023, with the carrier reporting a negative operating margin of -15% in the third quarter, with guidance towards further losses (Fitch Ratings 2024). Fitch has recently downgraded Spirit to B- with a further negative outlook.
- The trouble for Spirit started long before this issue with the merger with JetBlue. We believe that this merger was one of the paths back to profitability for the struggling ULCC. The question we need to ask ourselves is: What is next for the ailing airline?
- We believe that if something is not done dramatically to improve the airline’s situation, the company will go bankrupt. Currently, the short-sellers for the company stock — $SAVE — could be looking to have a payday. Given how the stock has dramatically declined since the news broke about the merger being blocked. Let us be clear here, the stock was underperforming for the past five years because of the condition of the company.
On Aviation™ Note: We do not wish to see Spirit file for bankruptcy, however, if it does, this could have the same effect the DOJ was trying to avoid by creating further consolidation in the industry.
Given the condition of Spirit, the blocking of this merger will have effects beyond those not readily seen by observers.
- As said above, the blocking of the merger could see Spirit file for bankruptcy. The irony here is that the DOJ was looking to prevent further industry consolidation within the airline industry.
- If Spirit goes out of business, then its assets and routes will be sold off to viable candidates, more likely JetBlue and Frontier. This in itself would be de facto further consolidation within the industry.
- What about the consumer? One of the arguments that was floating around on both sides about the merger was the reduction in prices for the average consumer who travels on ULCCs. If the DOJ is correct, and consolidation will lead to higher prices for the consumer, then this de facto consolidation — if Spirit files for bankruptcy — would lead to increased prices anyway.
On Aviation™ Note: We believe that the DOJ must’ve had knowledge of the state of affairs at Spirit and that this merger was possibly a lifeline for the company. If their reason for blocking the merger was to protect consumer prices, then a bankrupt Spirit would lead to further consolidation and increase consumer prices based on the DOJ’s argument.
Conclusion
There’s an ongoing argument as to whether there should be heavy government intervention within the airline industry. Those on the side of greater regulations believe that regulations help to keep the industry safe and customers’ interests at the forefront at all times. Those who are against regulations argue that customers’ interest in a competitive, free, and unhampered market will remain at the forefront since it is customers’ money that airlines are competing for. Whichever side of the fence you are on this argument, it is clear that if actions that would have been undertaken to keep the industry stable were blocked, and subsequent instability ensues, we can say with confidence that those blocking regulations or actions hurt more than they help.
Thank you for reading this week’s On Aviation™ full article.Do you believe that the government should’ve blocked the merger between Spirit and JetBlue? Do you believe Spirit will go bankrupt? Please share your thoughts in the comments below. Remember to check out our On Aviation™ Podcast and continue the conversation on our Twitter and Instagram.
Orlando — On Aviation™
