Embattled carrier Spirit Airlines has announced plans to cut flights next month and warned employees that job cuts will follow.
Spirit will be reducing capacity by 25 percent year-over-year in November, according to an internal company memo from CEO Dave Davis shared with Newsweek. He said that the changes will “inevitably affect the size of our teams as we become a more efficient airline.”
Why It Matters
November ranks among the busiest periods for the U.S. aviation industry—Spirit having completed over 5,200 flights in Thanksgiving week alone last year. The changes could therefore affect the options of those planning their vacations, especially those who have come to rely on Spirit’s cut-price fares.
The announcement also serves as the latest signal of the challenges confronting Spirit—still one of the country’s largest low-cost carriers and a major source of fare competition—which recently filed for bankruptcy for the second time in under a year and openly expressed doubt about its long-term survival.
What To Know
In Wednesday’s memo, the CEO explained that reducing capacity forms part of Spirit’s plan to “optimize our network to focus on our strongest markets.” Davis added that the company will continue to re-evaluate its fleet size ahead of upcoming meetings with its union leaders.
In a separate letter to the Spirit pilots’ union, shared with Business Insider, chief operating officer John Bendoraitis said that Spirit must “achieve significant cost savings” to “secure the company’s future.” This comes as Spirit attempts to renegotiate pilot pay amid the ongoing Chapter 11 process.
Late last month, Spirit filed for bankruptcy for the second time in less than a year, having emerged from the process in March. John Milton, the chairman of Spirit’s board, told The Wall Street Journal that the company required “a complete revamp of the business plan.”
In a regulatory filing in mid-August, the company said profitability struggles and sluggish demand had created “substantial doubt” over its ability to continue operating within 12 months’ time. However, in a memo obtained by Newsweek, CEO Davis told employees that the company was taking several remedial steps, including considering canceling its “unprofitable routes.”
What People Are Saying
Spirit Airlines CEO Dave Davis, in a message to employees seen by Newsweek, said: “Unfortunately, these are the tough calls we must make to emerge stronger. We know this adds uncertainty, and we are committed to keeping you as these decisions are made.”
Jonathan Williams, professor of economics at the University of North Carolina at Chapel Hill, told Newsweek: “[Spirit] had an uphill task to survive and now customers’ doubts about their ability to continue operating will make it harder to secure bookings—further harming the necessary cash flow to continue operating.”
“At this point, a merger seems to make a lot of sense for them, and there are certainly some parties that I’d expect to be interested—e.g., JetBlue, Frontier, etc.”
Ian Savage, director of Northwestern University’s Transportation and Logistics Program, told Newsweek: “I was not shocked that there was a second bankruptcy filing, although somewhat surprised that this came so soon. After all, how many firms in any industry file for bankruptcy within six months of emerging from the previous bankruptcy. I think liquidation, or perhaps sale of parts of the operation as a going concern to rivals cannot be far away.”
What Happens Next?
Davis said that while November’s schedule will not be finalized until next week, “this plan allows our teams to anticipate upcoming changes.”
Spirit has not provided a time line for when any potential layoffs may take effect. The airline told CNBC that it had “engaged our labor unions to discuss the impacts of the network and fleet adjustments on our team members, and we will share more as these discussions progress.”