Spirit Airlines shares jumped more than 15% on Friday after the budget carrier announced a strategic plan to cut costs and improve cash flow. The airline, which has faced significant financial challenges, revealed late Thursday that it would implement job cuts and sell 23 older Airbus aircraft to bring in an estimated $519 million, according to a securities filing. The company also projected a cost reduction of approximately $80 million through these efforts, primarily from workforce reductions.
Aircraft Sale and Job Cuts Drive Cost-Cutting Strategy
Spirit’s plan to sell 23 of its older Airbus planes is part of a broader effort to stabilize finances as it deals with the lingering impacts of the pandemic and a challenging debt load. The $519 million from the sale will provide critical liquidity, while reducing overall operating costs. Additionally, the company announced that it will lower costs by cutting jobs, though it did not specify the exact number of positions affected. Spirit did indicate that its capacity in 2025 would decrease in the mid-teen percentage range compared to this year.
In recent months, Spirit has been navigating financial turbulence, struggling to adapt to shifts in travel demand and grappling with the grounding of dozens of its Pratt & Whitney-powered aircraft. While furloughs began in September, affecting around 200 pilots, the company suggested that flight attendants may be less impacted due to a high uptake of voluntary leave options among crew members.
Debt Refinancing and Improved Margins Offer Temporary Relief
Last week, Spirit announced another extension on a deadline to refinance over $1 billion in debt, now pushed to late December, providing a temporary buffer in working with its credit card processor. These moves come at a critical time, as Spirit continues its uphill battle to regain profitability following the pandemic.
In a bit of positive news, Spirit also revised its third-quarter outlook, forecasting a negative operating margin of 24.5%, an improvement over its previous estimate of up to a negative 29% margin.
Revival of Frontier Merger Discussions Sparks Interest
The Wall Street Journal reported earlier this week that Spirit and Frontier Airlines had resumed merger discussions, further boosting Spirit’s share price. Spirit and Frontier originally announced plans to merge before JetBlue’s 2022 bid to acquire Spirit disrupted the process. With merger talks potentially back on the table, the company could see additional opportunities to enhance its financial standing.
Despite Friday’s surge in share price, Spirit’s stock has dropped over 80% this year, largely impacted by a court ruling blocking JetBlue’s acquisition of the airline. Nonetheless, Spirit’s recent moves to reduce costs, sell assets, and explore potential mergers highlight its commitment to regaining financial stability. The carrier faces a challenging road ahead, but these steps could lay a foundation for recovery and potential long-term profitability.
