It didn’t take long after Spirit Airlines declared bankruptcy for the second time in a year for some sharks to start circling. United Airlines, for example, stepped right up last week and said it would add some additional flights just in case, you know, Spirit is brought down by Chapter 11, the sequel. From United’s press release:
United…will fly larger aircraft between Chicago and New York LaGuardia to help customers outside of United’s hubs connect to these added flights…. “If Spirit suddenly goes out of business it will be incredibly disruptive, so we’re adding these flights to give their customers other options if they want or need them,” said Patrick Quayle, United’s senior vice president of Global Network Planning and Alliances.
Spirit didn’t take the news all that well, according to Entrepreneur:
Spirit’s Senior Vice President of Corporate Communications, Duncan Dee [said] in a statement that it is “wishful thinking on the part of a high-cost airline looking to eliminate a low-cost competitor” and the company is “focused on competing and running a great operation,” though it appreciates “the obsession certain airline executives have with us.”
The innovator’s punishment
When Spirit declared bankruptcy again after only emerging from the previous restructuring in March the no-frills airline’s innovations had been absorbed by its much larger and well-capitalized competitors. This has placed Spirit in the unenviable position of having to compete on price at a time when its revenues are under stress and its operational structure is too expensive. Basically, Spirit has too many planes, and that excessive fleet size is dragging it down.
So it has to shrink. And while it sounds like the company has every intention of doing that and coming out of bankruptcy leaner and meaner, its competition isn’t wasting any time telling Spirit customers that, hey, this thing could go south, and we’re there for you! Spirit’s pushback is admirable. But anyone paying attention can see that Spirit’s financial problems run deep and that even the best case leads to an airline that’s alive but whose ability to disrupt the industry is severely curtailed.
Bankruptcy isn’t a bad thing
It’s better to think of Spirit’s second Chapter 11 as a continuation of its first. Bankruptcy number one usefully restructured $1.6 billion in debt, but the underlying difficulty was that Spirit stopped making money in 2020 and needed to merge with another carrier to take the pressure off. A tie-up with JetBlue was blocked by the government, however, and Frontier saw a lowball offer rejected last year before Spirit’s first bankruptcy.
So now restructuring will do what restructuring is supposed to do: reset Spirit’s balance sheet, or at least clean it up, so that it can remain competitive and chart a path back to profits. Bankruptcy is a good thing in this respect, and it keeps Spirit in the picture and forces the likes of United to avoid resting on market share. So Spirit’s response to United’s dig might be justified: the big guy is still thinking about the little guy.
