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 its sale to JetBlue Airways.
A federal judge in Boston blocked the proposed merger on Tuesday, agreeing with the Justice Department that the deal would hurt consumers by reducing choices and raising fares. The airlines, which could appeal, say they are considering their options.
Before it struck a deal with JetBlue in July 2022, Spirit was struggling. Unlike larger airlines, it has 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 climb out of its financial hole unless finding another buyer. Some airline experts say the carrier may need to file for bankruptcy protection.
“It’s a challenging financial picture for the company,” said Xavier Smith, director of energy and industrials research at AlphaSense.
In the three days since the decision, Spirit’s stock has lost more than half its value, falling to $5.70 from about $15. On Thursday, stocks fell sharply after The Wall Street Journal mentionted that Spirit was exploring restructuring options.
Asked about this report, the company said it “does not seek or engage in a regulatory 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, down from $3.6 billion in 2019. This month, the company sold and leased 25 jets, which allowed it to reduce its debt by $465 million.
“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 such as 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 been unable to manage the strong profits that many larger airlines have made on flights to Europe or Asia and is more exposed to fierce price wars on US routes.
In addition, Spirit’s expenses have risen more than 60 percent since 2019 due to higher wages for pilots and flight attendants and more expensive jet fuel.
The airline is also facing problems due to problems with the Pratt & Whitney engines on some of its planes. Spirit grounded 26 of its nearly 200 jets after the supplier revealed manufacturing defects.
Analysts say there are two possible outcomes for Spirit: Another airline could acquire it, or the company could use a bankruptcy filing to restructure its debt or sell its assets.
Spirit at its current valuation 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 there are few or no available gates at popular airports. The planes are also in short supply because the two main manufacturers — Airbus and Boeing — have a backlog of orders stretching back as much as five years.
Frontier Airlines, which offered to buy Spirit before JetBlue outbid it, or another low-cost carrier would likely have the easiest time winning antitrust approval, said Dylan Carson, an attorney at Manatt, Phelps & Phillips. .
“This, I think, has the potential to secure the blessing of the antitrust authorities,” said Mr. Carson, a former Justice Department antitrust lawyer.
Frontier’s cash and stock deal with Spirit was valued at about $2.8 billion, compared to the $3.8 billion JetBlue was willing to pay. Now that Spirit’s valuation has fallen, another airline may be able to strike a deal for a lower price.
But Frontier’s share price also fell, more than 60%, after it offered to buy Spirit, which could challenge another bid. Frontier planned to use stock to pay for part of the earlier deal. A Frontier spokesman declined to comment on whether it would consider another offer for Spirit.
Of course, Sprit’s fortunes could improve if demand for domestic air travel picks up significantly, though most analysts don’t expect that to happen anytime soon.
Spirit is known for its unusual experience. It fits more seats on its planes than other airlines, leaving passengers with less legroom. The company charges carry-on fees, which are 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 in 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 eyes, the worst-case scenario is that Spirit disappears and we’re left with a less competitive environment,” Dr Tan said.
Judge William G. Young said in his ruling this week that if the proposed merger went through, JetBlue would absorb an airline that charged very low prices, significantly shrinking the class of such airlines and raising fares.
“Spirit is a small airline,” he said in the ruling. “But there are those who love it. To those dedicated Spirit customers, this is for you.”
Madison Lee, a budget travel blogger, is one of those people.
He said Spirit’s low-cost flights and price influence on other airlines gave Americans an “equal opportunity to travel.” Ms Lee, 25, has been to 60 countries, mostly using low-cost airlines.
“It may not come with all the bells and whistles, you may not feel as comfortable, but frankly a lot of people their purpose for traveling is not necessarily to be comfortable,” he said. “The spirit does the work.”