Spirit continues to fight through its Chapter 11 proceeding with surprising success. While many have assumed that the airline would never make it out thanks to its terrible financial performance, it has now reached agreement with secured creditors on the restructuring plan, which means it sees a light at the end of the tunnel. Spirit expects to be out of bankruptcy by early summer.
While this was enough of a milestone for Spirit to put out a press release, it doesn’t guarantee that this ends well for the airline. What it does do is give us some more information to chew on. Spirit has been remarkably quiet, most noticeably in that it still hasn’t filed its December operating statistics. I have no idea what’s going on with that, but it has certainly kept rumors swirling.
But now have a plan that will allow Spirit to complete its restructuring. Unlike the first bankruptcy filing, this slashes costs significantly with debt and aircraft lease obligations tanking from $7.4 billion to around $2.1 billion. Of course, getting rid of more than half your fleet will do that. Commercially, the plan seems to focus on creating a small, Allegiant-like airline with a premium-heavy focus. Let me explain what I mean by that.
Though broad strokes were laid out in the release, it’s an interview that CEO Dave Davis did with CNBC that really shined a light on more details. When I last wrote about Spirit’s fleet plans, it was poised to shrink from 214 airplanes to less than 100. Now it may shrink even further by shedding additional, high-cost aircraft leases that it had not originally rejected.
That last look I did still had 28 A320neo family airplanes on lease, but if the airline rejects those, it will go to an all-A320ceo family fleet. That’s older, some airplanes are owned, and yes, it’s cheaper by a lot. Maybe they don’t all go away, but what is clear is that the future of this airline is in second-hand, used aircraft that cost less. This move would make sense considering the airline’s plan to have “higher aircraft utilization during peak days while reducing off-peak flying, as well as the flexibility to adjust to seasonal demand across markets.”
This has long been Allegiant’s hallmark — and Sun Country’s as well, for that matter. Considering that current CEO Dave Davis came from Sun Country, perhaps this shouldn’t be a surprise. With low aircraft ownership costs, Spirit can fly the airplanes when demand exists and park them when it doesn’t. Allegiant, of course, flies its planes when people want to leave their smaller towns and come primarily to leisure bases in Florida, Nevada, and Arizona. But the CNBC interview suggests that Spirit will focus on the four areas where you would expect considering the current schedule that’s filed.
Spirit’s Fort Lauderdale home will remain important, though it sounds like weakness in Latin America may see that connectivity reduce to some extent. Orlando is also a key city. Other than that? It’s New York and Detroit. Those four will make up the bulk of Spirit’s flying.
Doesn’t this sound like the opposite of Frontier’s current plan? Frontier, after all, just walked away from a lot of New York flying because the airports were too expensive, and it decided to boost utilization by increasing off-peak flying. These airlines just keep trying each other’s strategies on for size until something works.
Yes, there are differences here. Most notably it’s the fleet strategy where Frontier sticks to higher-cost airplanes which can make a real difference. But one thing that both airlines continue to push on is the move to premium. This release says Spirit will expand its First and Premium Economy offerings. This is all relatively new for the airline anyway, but it thinks it needs to lean in further if wants to get more traction. There isn’t money in cheap seats in the back anymore.
I don’t know if that means the premium strategy is working or if it still just appears to be the best path forward. What most certainly is NOT working, however, is Spirit’s operation. That is going to hamper any shot at a recovery if it can’t be fixed quickly. Just take a look at this Anuvu data showing how bad it’s been since December.
Spirit Operational Performance by Month
Data via Anuvu
Now I have to admit that the Feb-to-date number could be closer to 8 percent canceled since there are a few hundred flights that just have “Other” as their status in the system, but either way, it’s very bad since it should be under 1 percent. The culprit appears to be a crew issue. Maybe having this plan in place will convince crews that it’s worth showing up for work, because there’s likely to be a job there for longer. But then again, I don’t have visibility into what’s actually going on. I just know the operation is awful right now, and it has to get better.
This may be good news for Spirit’s plans to… keep existing for awhile longer, but we still haven’t seen any sort of financial performance that suggests there’s a true path forward for the airline in the long run. I say that, but the creditors seem to think it’s worth continuing the fight and not just liquidating to salvage what they can.
