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Spirit Airlines unveils strategic plan amid bankruptcy filing

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Spirit Airlines unveils strategic plan amid bankruptcy filing
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Spirit Airlines, which recently filed for Chapter 11 bankruptcy, has announced a strategy to focus on premium leisure options in response to changing market demands. The airline aims to achieve sustainable profitability by the latter half of the decade.

The company identified shifting customer preferences and operational challenges post-pandemic as key factors affecting its business. Spirit Airlines noted an increase in low-fare options from non-low-cost carriers and a rise in demand for premium leisure travel, while business travel remains below pre-pandemic levels. Additionally, inflation-related costs have impacted no-frills airlines' margins more than others.

Issues with original equipment manufacturers (OEMs), such as problems with the 737 MAX and Airbus delivery delays, have further constrained capacity in the domestic market. In light of these challenges, Spirit Airlines has been preparing for life after a failed merger with JetBlue since mid-2023. The merger was blocked due to concerns about consumer impact.

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To address these issues, Spirit Airlines has launched 'Project Bravo,' a comprehensive transformation plan aimed at maintaining its cost advantage despite rising unit costs since 2019. "One of the pillars of ‘Project Bravo’ will be to maintain its cost advantage," stated Spirit Airlines.

The airline plans to enhance its liquidity through various measures, including sale-and-leaseback transactions and compensation agreements related to grounded aircraft. These efforts are expected to benefit the company by up to $1 billion by year-end.

A key aspect of 'Project Bravo' is improving the passenger experience through network enhancements and differentiated offerings for premium and elite customers. This includes introducing four new fare products and upgrading airport experiences with dedicated check-in lines and priority boarding.

Spirit Airlines also intends to implement six priorities within its network transformation plan: eliminating unproductive markets, aligning capacity with market dynamics, increasing less-than-daily flights on specific routes, maximizing out-and-back flying, operating flights during profitable periods while limiting off-peak capacity, and driving higher TRASM through codesharing and alliances.

In terms of financial projections, Spirit Airlines expects total revenue per ASM (TRASM) adjustments under 'Project Bravo' will positively impact revenues despite a shift away from ancillary fees. The company forecasts returning to profitability by 2025 following projected losses in 2024.

As part of its new business model targeting upmarket segments willing to pay higher fares, Spirit Airlines anticipates growing average per-passenger revenue from $122 in 2023 to $138 post-'Project Bravo.'

Despite current financial challenges resulting in an estimated net loss of $915 million by end-2024, Spirit Airlines projects swinging back into profit next year before experiencing another minor loss in 2026 but aims for significant profits thereafter.

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