Quo vadis Spirit Airlines? |

Now that the merger deal with JetBlue has been dropped, the focus is on what happens with Spirit Airlines. JetBlue's need to grow out of its second tier among US airlines is well understood. How that plays out in the future is a separate story. Spirit Airlines is the weaker of the two in the proposed merger. Spirit is vulnerable, and the DoJ does not appear to like airline mergers anymore. We reviewed Spirit's recent financial reporting here. Early in 2022, Spirit looked like it was merging with Frontier. At that time, Bill Franke from Indigo Partners led the team to create what would have become the fifth-largest US airline. Franke was behind the creation of Spirit. But once Indigo Partners acquired Frontier, the Spirit relationship was dropped. Mr. Franke confirmed that neither he nor IndiGo Partners has a stake in Spirit Airlines. What do we see in the market that might guide us? The chart lists US domestic traffic volumes for the major US airlines. Note that Spirit carries more traffic than Frontier. But that is not the best metric - volume does not equate with financial success. [caption id="attachment_81885" align="aligncenter" width="580"] T-100; AirInsight[/caption] Here is the same data from a different perspective. The ULCC segment has seen steady growth, while the LCC segment seems to have peaked. Network carriers lost their ~70% hold on traffic, but are clawing back marketshare. [caption id="attachment_81886" align="aligncenter" width="580"] T-100; AirInsight[/caption] Slicing into the data by airline segment, we see the following for the ULCCs. Whereas Spirit was the larger ULCC, in 2023, there was a flip, and Frontier had 927,000 passengers compared to 744,000. The data is through November. [caption id="attachment_81887" align="aligncenter" width="580"] T-100; AirInsight[/caption] The swing is current, and we have no reason to believe the momentum swing will go back to Spirit. Frontier has been taking delivery of A321neos with GTF engines. These aircraft are among those that do not require engine fixes as they are new. Spirit has run into several AGO events with its older GTF-powered fleet. Spirit's GTF repairs are expected to average 25 aircraft for the year with ~40 AOG. Spirit is financially vulnerable, and its ability to grow out these issues with JetBlue are dashed. The market reaction was quick. What are the options? The airline's debt makes Chapter 11 a real possibility. Post the recent earnings call, TD Cowen noted: "After the earnings call, it was reported the company hired Davis Polk and Perella Weinberg to advise them on their upcoming debt maturities. They have ~$1.2 billion of debt that needs to be refinanced. This excludes aircraft deliveries, which are fully financed." Spirit is slowing deliveries, and United will likely pick these slots up as it looks for A321neos. Incidentally, JetBlue is also slowing deliveries, which is a second source of relief for United. Spirit had reported 27 aircraft coming this year, financed by Airbus and lessors delivering aircraft on direct operating leases. Might Frontier and IndiGo Partners come back? This would be a long shot. Also, there is the DoJ to overcome. Is there some other merger option? The two that come to mind are Breeze and Allegiant. The former means giving up control to David Neeleman, which would be good. The latter means giving up control to Maury Gallagher, which is also a good outcome. How will DoJ view either of these deals? Probably unfavorably. There are no easy and good choices for Spirit Airlines.

US Flight Planner - US DoT On-Time Data	Airbus vs Boeing - Official OEM Data
US Airline Schedule Performance - US DoT Data	Daily OEM Production & Deliveries -

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