Spirit Airlines followings news of major cutbacks. That’s the case today as they prepare to exit service in twelve U.S. cities, in the face of mounting financial woes. The airline has now just completed its second bankruptcy. In August, it issued a dire forecast that without a substantial infusion of new cash, it won’t make it through the next year.
These cuts mean ending all service in cities such as Albuquerque, NM, Birmingham, AL, and Sacramento, CA. This strategic move is part of a larger plan to reduce the size of the network and flea. These changes should save an estimated “hundreds of millions of dollars” each year.
In recent months, Spirit Airlines has come under increasing financial pressure. Since leaving Chapter 11 bankruptcy in March, it has lost almost $257 million as of the end of June. The airline’s position continued to spiral after it borrowed down the maximum $275 million under its revolving credit facility. Your card processor may even be able to hold on to $3 million a day. It puts even more strain on your cash flow.
Frontier Airlines has taken advantage of that opportunity to launch 20 new routes. As a market competitor and as the second-largest budget airline in the U.S., these routes will likely square off against Spirit Airlines. This expansion is remarkable, especially considering that Spirit is cutting back its operations.
As part of its restructuring efforts, Spirit Airlines is canceling plans to initiate service in Macon, Georgia, scheduled for October 16. The airline’s decision to exit these markets reflects broader industry challenges and the need for survival amid increasing competition from larger carriers.
Our priority is getting deeper cuts—those expected in bankruptcies—Spirit Airlines rep. The airline has been juggling operational strategy with survival as it seeks to come out of this chaotic time period.
Spirit Airlines’ new CEO, Dave Davis, did not shy away from what lies ahead for the airline. He underscored the need to keep pushing during their ongoing restructuring process.
“Since emerging from our previous restructuring, which was targeted exclusively on reducing Spirit’s funded debt and raising equity capital, it has become clear that there is much more work to be done and many more tools are available to best position Spirit for the future,” – Spirit CEO Dave Davis
As Spirit Airlines tries to get its financial house in order, United Airlines is already acting on possible, even likely, upheavals in the industry. Patrick Quayle, United’s senior vice president of global network planning and alliances, noted the impact of Spirit’s struggles on customers.
“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,” – Patrick Quayle
Industry analysts have pointed out that consumers are increasingly gravitating towards larger network airlines such as Delta and United due to improvements in onboard services and network expansion. Melius Research analyst Conor Cunningham recently emphasized this turning point. He speculated that the ultralow-cost carriers such as Spirit will have a hard time competing if they don’t improve their product.
“Improving onboard product (premium, free Wi-Fi, inflight entertainment) and network expansion, consumers are increasingly choosing network airlines like [Delta] and United over the historical market disruptors,” – Melius Research analyst Conor Cunningham
Spirit Airlines is predicting a $252 million net profit for the year. This estimate seems rather ambitious given the scale of operations today and the competitive environment. Significantly, the airline will probably focus exclusively on reordering its business. In the extremely competitive streaming market, it hopes to ensure it has enough financial resources to remain afloat.