Spirit Airlines stock surged on Friday, closing at $2.79 per share after the budget airline revealed its plan to cut jobs and sell off aircraft in a bid to improve its challenging financial situation.
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Late Thursday, Spirit Airlines announced a plan to reduce costs and increase cash flow by selling 23 older Airbus planes. According to a report submitted by the company to the U.S. Securities and Exchange Commission, the sale will bring in $519 million.
Additionally, Spirit Airlines stated it would cut costs by approximately $80 million, primarily through job cuts. However, the company has not yet disclosed the number of employees who will be affected. Spirit projects that by 2025, its capacity will be down by approximately 15% compared to this year. In September, Spirit began furloughing around 200 pilots, while flight attendants have largely avoided layoffs due to a high number of voluntary leaves.
Spirit’s financial struggles stem from challenges following the pandemic, with shifting travel demand and the grounding of dozens of Pratt & Whitney-powered aircraft. The airline has been grappling to return to profitability amidst rising costs and decreased capacity. Last week, Spirit also announced it would extend the deadline to refinance more than $1 billion in debt to late December, buying time to negotiate with its credit card processor and avoid a serious cash crunch.
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Despite Friday’s stock surge, Spirit Airlines shares are still down more than 80% this year after a judge blocked its planned merger with JetBlue Airways. This merger was originally expected to help Spirit strengthen its financial position and better compete in the budget airline market.
Earlier this week, The Wall Street Journal reported that Spirit and Frontier Airlines had revived discussions about a potential merger. Previously, the two low-cost carriers had a merger agreement, but it was delayed after JetBlue made an offer to purchase Spirit outright in April 2022. This news led to a further rise in Spirit’s stock as investors anticipated that the merger could provide relief from the airline’s financial struggles.
Spirit also forecasted a negative operating margin of 24.5% for the third quarter, better than the previous estimate of a negative 29% margin. This revised outlook came after the company implemented various cost-saving measures to bolster liquidity.
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For Spirit Airlines, the decision to sell planes and reduce its workforce is difficult yet necessary amid declining revenues and increasing financial pressure. Before the pandemic, Spirit was one of the fastest-growing budget airlines in the U.S., following an “ultra-low-cost” model focused on providing low fares and earning revenue from add-on services. However, the pandemic fundamentally changed customer demand, making this model more challenging to sustain.
Delays in refinancing projects and the burden of over $1 billion in debt have forced Spirit to seek significant cost-cutting measures. The decision to sell off planes signals the airline’s attempt to maintain cash flow in the short term, avoiding bankruptcy amid ongoing financial challenges.
With Spirit Airlines already beginning to furlough pilots and other staff, the broader airline job market will feel the impact of these layoffs. However, Spirit’s flight attendants are reportedly “well-positioned” due to the high number of voluntary leaves, sparing this department from drastic job cuts.
Investors and analysts are closely watching to see if Spirit can improve its financial position and return to profitability. The company is set to release its third-quarter earnings report next Tuesday and is expected to provide additional details about its restructuring plan during the investor call.
