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- [00:02]
A
I'm Brett Snyder, author of Cranky Flyer.
- [00:04]
B
And I'm Brian Summers. I write the Airline Observer. You're listening to the Air show, the podcast where we talk about what goes on in the business of the sky. John is in Washington D.C. this week. Last I heard Brett, he was trying to learn how Andrew Levy saved his airline. That's a velo by ordering 50 Embraer E2s. We know John loves Embraer. It's a major shift from Avelo's used 737 NG strategy. And I'm sure we'll talk about it on an upcoming podcast. But today, Brett, it's just you and me.
- [00:38]
A
Statistically, this means there will be 24.5% less fleet content than usual.
- [00:43]
B
The statistics oi people love it.
- [00:46]
A
I get emails.
- [00:48]
B
Do they really love it?
- [00:49]
A
They do. And for the record, I think we all love getting these emails or WhatsApp or texts, whatever. Do not hesitate to send them to us. This will be my little PSA for the day. We've had some really good email discussions with several of you after last week's American episode and some less good discussions with some listeners. Okay, sure, that's fine. But still keep them coming. Some of the feedback it helps does to shape the future episodes too. So, you know, let's keep doing that. But this week probably gonna be a little less wonky. We are talking about Spirit.
- [01:25]
B
Oh, good, good, Brett. I know our listeners are hoping for another episode about an eighth rate US airline that should have merged with a competitor a long time ago. But I'll give you the benefit of the doubt today because I think what's happening at Spirit is important broadly to the health of the US airline industry, which probably still has too many airlines. Plus, you know, I'd like to see a United hub in South Florida. Look, if it's not already clear, I think Spirit should probably go kaput.
- [01:54]
A
Thank you for saying that it was not clear.
- [01:57]
B
Okay, but. But big US airlines don't disappear all that often. Small ones do. And it may not happen this time either. So a quick recap for our listeners. Spirit is back in bankruptcy and it has an all new go forward plan, I believe. Brett, they call this chapter 22, is that right?
- [02:18]
A
That is correct. Until it becomes chapter 18.
- [02:21]
B
Oh, okay. Remarkably, this airline only emerged from its last bankruptcy in April. I guess that did not fix things. Not to pat us on the back too much, Brett, but I believe on an earlier podcast we predicted that the first bankruptcy might not do what the airline had hoped.
- [02:43]
A
Yeah, I Don't. I don't think that was a real stretch to predict that, though.
- [02:46]
B
Just pat yourself on the back.
- [02:49]
A
We did a great job. Look at that. But list. Listen, what is most remarkable about this whole thing is that I don't think they even tried to fix things in the last bankruptcy. I suggested on that. That show we did back in April, last time we talked about this, that I thought Spirit should merge with Sun Country. I do not believe that now the speed with which the airline has deteriorated means it would be hard, I think, for any airline to justify acquiring Spirit. Instead, the vultures are circling, getting ready to picket the carcass already starting. And I have no doubt that sun country is keeping its eye on Detroit very closely.
- [03:30]
B
No doubt. You say. You sound very certain. Because last I heard, sun country was making a pivot away from passenger service in 2025 to focus on cargo. But maybe it's nimble enough.
- [03:43]
A
Yeah, I mean, look, I think it's possible. I'm not saying they should buy a piece of anything. I'm just saying if Spirit goes away, that seems like a great opportunity to duplicate the model. But anyway, enough about sun country.
- [03:56]
B
All right? Spirit second quarter was not very kind to this airline. It posted awful Q2 results. It blew about 250 million in cash, so it had just about 400 million in the bank. It spent August trying to raise money anywhere it could, but obviously that was not enough. So, Brett, I think the real question for us, and probably a lot of the listeners, you made that joke about chapter 18 before. I don't know if people can do math, but maybe this will help them. So will Spirit actually exit chapter 11 this time, or will this become a chapter 7 liquidation?
- [04:34]
A
Yeah, that wasn't really a joke, but still, fair enough. But this is the big question, right? And of course, we can't answer that, because every time I think someone won't put money into something really stupid in this industry, it happens again. So maybe Spirit will find a white knight. I just think it's gonna be really tough to convince someone to put money in, especially after the airline just told the proud fly why? Shareholders. Is that how we say it? Fly why? I don't know. It doesn't matter because it's gone again. They have been told that they're brief investment for five months here will go back to being worth absolutely nothing.
- [05:19]
B
Yes, indeed. But you are right about crazy things happening in this industry, Brett. Avello was just saved this week. It got financing. I did not see that one coming.
- [05:33]
A
Yeah. To me, the thing that Grabbed my even more than that was if you noticed in the release that Avelo said it has been profitable for four of the five most recent months. So something changed very quickly after Q1. I'm not sure the investment was saving them if that is actually the case. But man, I really can't wait to see dot data for Q2. We need that to come out right now.
- [05:57]
B
Yeah, I agree. But let's go back to Spirit and what happened in August for that airline that led immediately to this second bankruptcy. I think understanding that might be helpful to the listeners.
- [06:09]
A
Yeah. All right. So at this point, we can only try to piece everything together, but we have a lot of clues. So at the end of June, as you said, had 400 million in cash and it was burning fast. So Spirit started to sell airplane engines. Said in a bankruptcy filing it raised $250 million from that, which is pretty good. On the other hand, maybe those are the engines that actually worked instead of the Pratt and Whitney engines that are still waiting to be fixed. I don't know. It also maxed out its revolving credit line. So the problem here, you'd think, oh, it has a bunch of money, but it needed to do that because it needed more money. It had to renegotiate its deal with its credit card processor. And that meant setting aside 50 million right away to help create some, some buffer so that the processor doesn't have risk. It also means taking a hit every day. I think it was up to $3 million that they would hold back until they. They were feeling sufficiently okay about the risk from the card processor side. And after that, the airline still had to file for bankruptcy protection anyway. Or perhaps that was part of the plan to maximize the cash. Not 100% sure, but we do know some things.
- [07:30]
B
Yeah, none of that was very good, Brett. And I think Spirit might have ended up in bankruptcy, probably would have ended up in bankruptcy at some point anyways. But the airline was pretty a SEC filing about what actually drove it into bankruptcy on that very day. So it blamed the lessor aircap. According to this filing, AerCap said Spirit was in default based on the terms of a sale leaseback agreement in which Spirit sold Delivery slots to AerCap and then Spirit would have leased them back when they were delivered starting in 2027.
- [08:09]
A
Yeah, isn't this wild? Can we just talk about this for a second? These are not airplanes that exist. And yet it pushed an airline into bankruptcy. My assumption is that AERCAP just was not feeling great about Spirit's long term prospects. Here. And, you know, if we're talking about deliveries in 27 starting, then they probably really didn't want to be putting these airplanes into a Spirit configuration only to have Spirit fail. So maybe at this point, if it can say they're in default, get out of the deal, remarket them, have a new lessee just in time to put the interiors on. But if Spirit did indeed default, and Spirit argues that it did not, we'll see what happens. But if that happens, then Spirit would actually owe Air cap $2.1 million per airplane. And with 36 airplanes in this deal, that's over $75 million. So that is no small chunk of change. Again, for airplanes that do not.
- [09:12]
Spirit is obviously fighting this. We'll see how it plays out. But this does appear to be the thing that pushed them in immediately. But now that they are in bankruptcy, now the fun begins. What will happen now, Brett?
- [09:26]
B
We can blame AERCAP for the timing, but I think we need to be honest around here. This was a pretty broken airline before the first bankruptcy filing. It was a broken airline after the. The first bankruptcy filing. We talked about this in that earlier episode, but the first prepackaged bankruptcy really didn't address the airline's cost structure, not in any material way. It seemed designed to buy Spirit some time, so maybe it could ride out what it thought was going to be a big recovery for all airlines. But I think we know that the opposite happened. Spring and even part of the summer were less good than airlines had expected.
- [10:08]
A
And except for a Velo, apparently.
- [10:11]
B
Yeah. But Spirit is still pretty much a spill carrier, so if there are fewer passengers to spill, things are not going to be so good for them. One other thing. There was a filing after the bankruptcy from Spirit's cfo, and he actually blamed Southwest for some of this pricing trouble. He had said that Southwest had some difficulty. We talked about that, I think, before.
- [10:35]
A
Right, we did.
- [10:36]
B
They had some problems after their model change.
- [10:39]
A
The basic economy rollout.
- [10:41]
B
Exactly. So they had to discount. All right, so, Brett, you want to hear the new Spirit plan? It has four parts.
- [10:47]
A
Oh, the most exciting thing in the world. Please go.
- [10:50]
B
You know, it. Number one, redesign the network. Number two, optimize fleet size. Number three, address the cost structure. And number four, effectively compete and meet evolving consumer preferences with. With three options. Spirit first, Premium, Economy, and Value.
- [11:09]
A
That last one is so confusing to me. I don't even understand. What does that have to do with bankruptcy? Wasn't that the plan? And has been for a year now. And it. It's clearly not working. Maybe they think they just need more time. But this isn't some magical bankruptcy strategy. This is just a way to, like, add another bullet point to the list so that it looks more substantial.
- [11:30]
B
No, it's not a magical plan, as you say. But some of the other bullet points are not the same as the first post bankruptcy plan. I don't recall a major focus on fleet size or cost structure the first time around. Those things have to be addressed by management. The problem, Airline Economics 101, is that smaller fleet and lower costs don't necessarily work well together. Right, because you, you want better unit costs. You'd prefer to have more airplanes flying more often. But maybe if Spirit is ruthless in this bankruptcy, it can right size the cost structure to match the new fleet size. I have to assume that's the goal.
- [12:09]
A
It must be those three bullet points all work together, you know, to reduce your cost and reduce fleet size. Only bankruptcy can make that happen. And then you need to figure out your network. But I just. Spirit does not seem to be able to figure out how to use the aircraft it has in its fleet, even with a bunch of airplanes grounded from the Pratt and Whitney engine problem. So in Q2, its daily utilization was 7.8 hours. And even if we take into account the grounded aircraft, it didn't crack 10 hours of daily utilization. This is the tail end of peak spring break and then early summer. This should be closer to prime time. Spirit still couldn't figure out what to do?
- [12:52]
B
No, it couldn't. And it's already started shedding airplanes. I don't think that they've told us how low they're going to go, But Spirit had 215 aircraft in the fleet at the end of the second quarter. And we know it's going to go below that.
- [13:05]
A
Yeah, it has to. And it can't do that outside of bankruptcy or costs will just keep going up. It's already in trouble. That just makes it worse. But we've already seen the network start to contract, so it will want fewer airplanes, probably a lot fewer. But, Brian, I want to hear your thoughts on this. I mean, we've talked about it a little, but the general consensus is and has always been shrinking to profitability doesn't work. Do you agree, Brett?
- [13:34]
B
These rules are not ironclad. The idea in the industry is that it's hard to shrink to better profitability. Your competitors may gain that way because there's going to be less capacity in the market. But the actual airline that does the shrink, it tends to do worse. But Spirit is an absolute mess right now, so much that I think that you can throw these rules out the window. Like, it's not like the airline is going to grow its way to profitability either, certainly not under the current paradigm. So I think Spirit can slim down, at least temporarily. I think that's probably the only choice it has. So I can't. I can't fault this approach.
- [14:13]
A
Yeah, it's a fair point. Adding more airplanes would make things worse. So I, I get this as well, but I just don't think it's going to work either way. But it's happening, and we will talk more about what that might look like after the break.
- [14:35]
B
All right. Sarah, can you use his humming?
- [14:38]
A
Oh, please. Brian, I got some emails from some people recently that asked us how they could get in touch to sponsor the air show, to which I said, why aren't you just listening? Don't we talk about this every time? But I guess people don't listen to the credits in the end. So maybe we need to say this here and make it more clear for people to understand.
- [15:01]
B
I think we absolutely should, Brett. So how should people get in touch with us?
- [15:04]
A
Well, the best thing to do is to go to theairshowpodcast.com and we have all the information on there. But, Brian, there is a pretty new development that we should mention. Anyone who has worked with me on the Cranky Network Awards may be aware of Bullpen Strategies. They are now working with us as well here, and they will be very good to work with. You can even email Graham directly@grahamullpenstrategy.com but all that is on the website as well.
- [15:40]
B
You know, sometimes people ask me, they say, brian, I want to sponsor the show, but is anybody important listening to the show? Because we need to reach the decision makers. You think we reach the decision makers, Brett?
- [15:51]
A
I know we do. In fact, I was talking to one this morning, an executive at an airline who was about to get on a long flight and was sad when I told him that this week's episode would not be ready to help him pass the time.
- [16:04]
B
Do you want your company to advertise on the air show? We're booking for 2026 and we still have a few slots for later this year. If you want to learn more, go to theairshow podcast.com.
- [16:19]
A
And we're back. So the question now is whether this bankruptcy plan to shrink to profitability is going to work. So, Brian, will it.
- [16:28]
B
You seem to specialize in asking me questions to which I do not know the answer.
- [16:33]
A
I take great pride in it.
- [16:34]
B
Okay. But I can say that people in this industry don't like to quit. So, you know, if you ask me, Spirit probably should have taken whatever Frontier offered after the JetBlue deal fell apart. I'm sure the offer was terribly insulting, but Spirit didn't have a lot of leverage then. I don't think Spirit has any leverage now. But I also don't think that Robert Milton and Dave Davis accepted these gigs to quit after a few months and then liquidate the business. So they've come up with a plan. The plan may or may not work. I don't know that many people who think Spirit can emerge as a strong independent business, but I think those two guys probably want to try.
- [17:15]
A
Yeah, I don't think it's going to work, but more power to them for trying if they can keep it going. And, you know, the creditors are probably going to end up with less in the end. But really the question is, is there a way for Spirit to survive at all and avoid Chapter seven? The only way that I can see getting out of that is a merger. But I just think it's really hard to find a partner at this point when you're in so much trouble. The thing about a merger is capital loves mergers. Right. We've seen this so many times, so maybe that's how it can find the money to keep going. But otherwise, as a standalone plan, who would be interested in pouring money down that hole when the last bankruptcy trip was five months ago, and that was wildly unproductive?
- [17:58]
B
All right, so we just need to figure out what Spirit has that other airlines might want. Is there enough here for a merger, Brett?
- [18:06]
A
Seems like a stretch. Look, Frontier and Spirit were going to merge until Spirit's investors got greedy, went with the much riskier JetBlue option, as you mentioned, as we all know, that got shut down, and then Frontier tried again in the last bankruptcy. But the thing is, Spirit's financial position just keeps deteriorating every time. Spirit has had this thought that it was worth a lot more than Frontier thought it was. So nothing ever happened. And now I'm not sure Frontier thinks it's worth anything. After all, we've seen Frontier launch this blitz of, I think it was 42 new routes in two tranches recently, all targeting Spirit markets. It has proclaimed it wants to be number one in the big markets where Spirit is number one. And so seems like, you know, it's moved on.
- [18:57]
B
Yeah, don't forget that United has responded to all this drama with a network move and a fiery press Release of its own. It had an announcement recently about some new flights from Houston, Chicago, Newark and Los Angeles. I won't name them, but they're all on top of Spirit routes. And they had this zinger in the press release said by Patrick Quayle, SVP of Global Network Planning and Alliances. Quote, 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.
- [19:32]
A
Oh, yeah. Quite the quote from Patrick there, don't you think? Sure. The Chattanooga and Columbia flights come after Spirit leaves, so those will be welcomed by all, I'm sure.
- [19:45]
The rest of this, though, looks like an effort to get everyone to realize that if Spirit goes away, there's plenty of capacity to be deployed to help fill the vacuum. So, so generous of them. And let's not neglect JetBlue now, which announced new Fort Lauderdale routes the very morning we recorded this. It is going into eight markets that Spirit already flies, mostly in the Caribbean and Latin America, but also New Orleans and Pittsburgh. Then it's bumping up service on nine more routes that it already flies where it overlaps with Spirit. The piling on is just brutal.
- [20:19]
B
It's nice to see JetBlue doing some rational, aggressive moves.
- [20:24]
A
Absolutely. They benefit so much from a Spirit failure, and they are doing the best they can to help make that a reality. So good on them. But back to Frontier. You might say Frontier was trying to weaken Spirit with its new route ads. I might say that, too. But it could have been to try and get the price down in a merger. But can Spirit be weakened any further? The thing is, mergers suck, right? You have to integrate tech and policies and labor, and at some point, it's just not worth it. And at this point, it seems like Spirit is close enough to being done for that everyone else is just sitting around jumping on him, hoping for Chapter seven and getting ready to try and pick at the pieces.
- [21:09]
B
Yeah, but any Chapter 7 filing would bring a lot of bidders.
- [21:13]
A
Sure. So what does Spirit have that Frontier might want so badly that it was worth doing a merger?
- [21:18]
B
Well, they're the Fort Lauderdale gates. And maybe the airplanes, maybe LaGuardia slots, maybe some Newark Runway timings, but I'm not sure it's actually that. I think what Frontier needs is relevance and maybe size. If the big guys get to divvy up Spirit's assets, the larger airlines are going to be even stronger. And then Scott Kirby can beat down on Barry Biffle with even more force. And I think what sometimes people forget about the airline industry is it's kind of a zero sum game. You've got your winners and your losers, and sometimes you win by not losing. And I just wonder if not losing to those other airlines is Frontier's end game here.
- [21:58]
A
Do you really think acquiring Spirit gets Frontier relevance, though? Spirit's barely relevant itself right now outside of Fort Lauderdale and Detroit, I just don't think there's a lot of value there anymore. I don't think it's enough. But you do mention Fort Lauderdale. So I'll ask you this. Do you think United would go for this? You said earlier you wanted them to. But could it be the beginning of a South Florida hub?
- [22:21]
B
Yeah. First point here, Brett. I think it's relevance in the sense that if you're a Frontier and your competitors get bigger and you stay the same size, you inherently lose out. Now, for Fort Lauderdale, the United people will sometimes suggest that the answer is to no. Spirit's operation is big for ulcc, but it's not that big. And then United would have to compete in south Florida with JetBlue in Fort Lauderdale and American in Miami, which is probably a better market. But there aren't a lot of hubs in the United States with room for 400 daily operations that are just right out there for the taking. And sometimes you'll see a big airline. Delta does this pretty well. They start with what they can get and they grow from there. And I think that if United wants a new hub in the Southeast, it might have to start small and grow and grow and grow little by little. So I just think it's not out of the question that maybe United wants this beachhead in South Florida. What are your other ideas?
- [23:23]
A
Well, sun country, obviously.
- [23:25]
B
Oh, that again, Brett.
- [23:27]
A
Yeah, but. But no, I can't imagine that being worth acquiring at this point. Anyways, like I said, sun country be drawing plans up to move into Detroit and be ready to pounce.
- [23:39]
B
You love to talk about Detroit Motor City. All right, what about the other parts of the network? So we've done Detroit, we've done Fort Lauderdale. Is there anything else in there worth taking?
- [23:50]
A
Well, Fort Lauderdale is as close to a sure thing as you can get. Right? It's. It's actually pretty impressive for the gates they have. It's the one part that operates as a true hub, gets into Latin America. If that goes so to Spirit, I think Orlando presumably stays as well. Those are numbers one and two in terms of size in the network. I don't know how great Orlando is, though, compared to a Fort Lauderdale with the competitive nature there. And number three is Detroit. Again, another stronghold.
- [24:23]
B
The next largest market is Las Vegas. That one is already starting to crumble. I don't think that that's Spirit's fault. That has other reasons for happening. But Spirit has already told us that in the first round of bankruptcy cuts, it's going to exit 11 cities and not start service to a 12th. Eight of those, Brett, have Vegas service?
- [24:43]
A
Yes. We have Albuquerque, Boise, Oakland, Portland, Sacramento, Salt Lake, San Diego and San Jose going away. Plus Seattle, which already ended this summer.
- [24:53]
B
Yeah. Plus one network chief. I do want to wish a real congratulations to John Kirby, who is retiring after 42 years. Not all of them at Spirit. He actually started at People Express. One of the nicest guys around.
- [25:09]
A
Yeah, absolutely. And for those who are wondering, we've told John he and his yellow jacket have a standing invitation to the Cranky Network Awards. But back to the west, here in Vegas, we've already talked about how nine cities have gone. Denver already went away previously. So there are now only 6 cities left in the west in the entire Spirit Network. You want to guess what they are?
- [25:31]
B
Well, certainly Vegas and Los Angeles. And I'm pretty sure my local airport, Burbank, still has something on Spirit. So that's three.
- [25:40]
A
Yeah. Burbank has Vegas and Vegas. Only Orange county has Vegas and seasonal Detroit. Then there is the mighty Reno with just Vegas. And don't forget Phoenix, which is down to just a Detroit flight, along with a very seasonal fall flight to Fort Lauderdale. That's it.
- [26:00]
B
That is incredible. So. So other than a couple of stragglers, it's really Los Angeles and Vegas. What's interesting to me is with a velo out of the west coast as well, it's. It's like a whole nother world for ULCCs and LCCs out here. I think Alaska probably deserves some credit for that, but that's a podcast for another time.
- [26:19]
A
Mm. Mm. And, you know, looking out into January for Spirit, LAX has 13 destinations right now. Vegas has 23. That schedule is not final by any stretch, but nearly all of the flights go to Texas, Florida, the Midwest or the Northeast. This is effectively Spirit's east west network, which complements its Florida, Caribbean, north, south stuff. Vegas and LA are still good size, but they're good sized spokes. As I said in a post on Cranky Flyer earlier this week, this is like JetBlue when it left LA. Finally, it made the West a destination, not an origin.
- [26:54]
B
So any go forward Spirit plan you think consolidates around Florida, the Caribbean, and east, west, flying, maybe.
- [27:01]
A
I don't know. I mean, we, we talked about Orlando, part of Florida, obviously, but Orlando has a lot of the same characteristics as Las Vegas. So I'm not sure how that works for Spirit in the end. But even beyond that, you know, there's the question of Newark and LaGuardia, how that's working. And then they have decent positions in some bigger cities like think Houston, Dallas, Atlanta, Baltimore, New Orleans, Chicago, Nashville. Frontier is making a run on a lot of these. And of course Southwest is going really hard on Nashville. I would imagine that not all of these would survive, but I don't know which ones would make it.
- [27:41]
B
I'm going to hazard a bet and say that the ones that are going to make it are the ones that make money. Spirit doesn't have time to be looking at things from a strategic or long term direction. We get the sense that Atlantis fares are pretty weak and in New Orleans, Spirit has struggled to full airplanes. It's probably just a matter of figuring out which ones are good and which ones should be kept. This is not like a true hub and spoke network, so that's probably easier to do. You can get rid of certain routes and not affect the overall network.
- [28:14]
A
Yeah, it's true. But going back to the earlier question of what is there beyond Fort Lauderdale and Detroit, not that much. And I think to me it may just end up being a matter of seeing how many leases can be rejected in bankruptcy and then they'll cut the network as much as they need to use those airplanes that remained if there is a hope of them staying independent.
- [28:38]
B
This is so depressing, Brett. It's like Spirit is just trying to avoid liquidation. But I suppose desperate times call for desperate measures.
- [28:50]
A
You've been listening to the Air Show. If you have suggestions or questions for us, or if you're interested in sponsoring the podcast, go to our website, theairshowpodcast.com to get in touch.
- [29:00]
B
The Air show podcast is produced and edited by Sarah Fay. Our theme music is by Joshua Mosher. Thanks for listening and we'll be back soon.
- [29:12]
A
Sam.