The Spirit is willing but the cash is weak

Overall yesterday, US airlines were in good spirits… except for Spirit Airlines itself, which saw an absolutely devastating drop in its stock after warning that five months after clawing its way out of bankruptcy, it may not survive, as executives warned in an SEC filing that Spirit continues to struggle in a “challenging pricing environment.”

“Management has concluded there is substantial doubt as to the Company’s ability to continue as a going concern within 12 months from the date these financial statements are issued,” the filing said, explaining that the airline might not have the cash to stay afloat. In other words, we may soon see the last of Spirit in the sky.

Spirit has been the target of buyouts from Frontier (twice) and JetBlue (once), but Spirit rejected Frontier’s low-ball offer and the JetBlue merger was blocked last year over antitrust concerns. Now the airline may be grounded for good as it considers selling aircraft (a trick it has done before) or some of its gate space at airports to raise cash and lift its spirits.

It’s been a rough ride for airlines recently, but other than Spirit, US airlines soared yesterday: Delta Air Lines, United Airlines, American Airlines, JetBlue, and Alaska Air shares all headed skyward as investors seemingly bet that one airline’s loss is every other airline’s gain. Additionally, yesterday’s CPI report showed that plane ticket prices rose 4% in July. As airlines operate on pretty thin margins on profits from plane tickets, that increase was welcome news for shareholders. Maybe not for customers, though.

The Takeaway

Airlines are a tough business, and US budget airlines especially have been hit by a double whammy of inflation and tariffs raising their costs while also hitting the very budget-conscious customers they target. Southwest added bag fees, which could bring in $1 billion in annual revenue (still below what the big four earn from those fees), but Spirit already charges for choosing a seat, carry-on bags, and even in-flight sodas, so any cash infusion is unlikely to come from the customer side.