Last year, Spirit Airlines, a U.S. low-cost carrier (LCC) that applied for bankruptcy protection and narrowly succeeded in recovery, is once again on the brink of bankruptcy. As the world's 6th largest LCC by revenue, the impact on the aviation industry is expected to be substantial.
On the 12th (local time), according to major foreign media, Spirit Airlines stated in its quarterly report released the night before that failure to secure additional cash could lead to a debt default, noting that there are 'significant doubts' about whether the company can continue as a going concern within 12 months.
Spirit Airlines reported that its credit card processor will not renew its contract expiring on December 31 unless more funds are deposited. If the processor cannot secure the required cash by that period, ticket payments will be blocked.
Famous for its yellow aircraft color, Spirit Airlines filed for bankruptcy protection (Chapter 11) in November last year after years of accumulated losses and liabilities due to the COVID-19 pandemic. Subsequently, with the support of creditors, it managed to exit the bankruptcy process in March this year.
Since then, Spirit Airlines has implemented various measures to recover. Despite being an LCC, it has expanded the application of its premium economy 'Go Comfy' to attract customers and announced in April that it would reduce 12,000 flights during May and June this year. Last month, it stated it would furlough about 270 pilots.
However, the recovery process of Spirit Airlines has been impacted by the economic uncertainty due to the tariff war of the Donald Trump administration. Concerns over tariffs and rising prices have led to an increase in cases where consumers are canceling or completely abandoning planned trips.
In this quarterly report, Spirit Airlines explained that 'overcapacity in domestic flights and weak domestic passenger demand in the second quarter' are continuing to create a challenging market environment, leading to intense price competition. Spirit Airlines is considering selling some assets such as aircraft, real estate, and airport gates to extend its lifespan.
The effects of tariffs are influencing the entire U.S. aviation industry. American Airlines, one of the three major airlines in the U.S., lowered its annual profit outlook range in its earnings announcement last month due to weak air travel demand. U.S. LCC Southwest Airlines also projected its annual pre-tax profit forecast for this year to be between $600 million and $800 million, significantly lower than the $1.7 billion it announced at the beginning of the year.
Savanti Sis, an analyst covering the aviation industry at Wall Street investment bank Raymond James, noted to the economic journal Forbes that 'Spirit Airlines will face liquidity issues after summer,' adding that there are options such as fundraising, mergers, downsizing, and liquidation, but the first option seems to already be out of reach.