Before the pandemic, Spirit was outpacing the market, luring price-sensitive travelers and forcing larger carriers to introduce their own versions of budget offerings.
The airline’s business model of an integrated fleet, keeping planes flying more hours in the day and putting more seats on every aircraft, helped optimize its resources and kept costs down. Its high fleet utilization produced double-digit operating margins for nine straight years until 2020.
But the global health crisis changed the operating environment and travel patterns, and Spirit struggled to adapt.
Spirit’s average daily aircraft utilization is down 16% this year versus 2019, fueling cost pressures.
Consumer demand has shifted in favor of full-service airlines in the past two years as middle- and upper-income households were vacationing extensively, while inflation hurt lower-income spenders.
Spirit, like many other airlines, chased growth, but did so by adding more than $2 billion in debt between 2020 and 2023. Sticking to its pre-pandemic playbook, it grew capacity on average by 27% in the past three years in a bid to grab a bigger slice of the leisure travel market.
Analysts urged Spirit and its no-frills peers to slow expansion plans.
Spirit spent 82% of its revenue on non-fuel operating costs in the first half of this year, up about 22 percentage points from 2019. The company said on Monday inflationary pressures have “disproportionately” affected margins for low-fare carriers.
CHASING VACATIONERS
But Hooman Yazhari, a partner and aviation bankruptcy expert at law firm Michelman & Robinson, said the airline lacked “the muscle and the balance-sheet power” to compete in that market.
“There are so many reasons why this just didn’t go right,” Yazhari said.
A sluggish return of business travelers after the pandemic also hurt as it sent all American carriers chasing vacationers, causing a glut of airline seats in markets such as Florida and Las Vegas.
The effects were easy to see. Delta shares are up 87% over the last two years, while Frontier and JetBlue have lost 23% and 58%, respectively. Spirit shares lost nearly all of their value before filing for Chapter 11.
Sandeep Dahiya, a professor at Georgetown University, said the company’s debt became difficult to service as it has not reported a full-year profit since 2019.
“The writing was pretty much on the wall,” Dahiya said.
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Reporting by Rajesh Kumar Singh; Editing by David Gaffen and Rod Nickel
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