Failed JetBlue buyout leaves Spirit Airlines with a tough path forward

Spirit Airlines is on shaky footing after JetBlue Airways' proposed $3.8 billion takeover of the budget carrier was blocked by a federal judge this week.

Industry-watchers say the carrier could be forced to cut its already low fares even more. Some Wall Street analysts argue the discount carrier could have to restructure, if not liquidate.

Spirit's shares fell 47% after the decision was issued Tuesday. They were down another 22% on Wednesday, notching a new record low of $5.74 a share, before recovering slightly.

Spirit, whose last profitable year was 2019, had challenges even before the ruling: It's navigating groundings of some Airbus narrow-body jets for Pratt & Whitney engine issues, and it's facing softer-than-expected demand in the wake of the pandemic, along with higher costs.

The carrier could look for another buyer, "but a more likely scenario is a Chapter 11 filing, followed by a liquidation," said Helane Becker, an airline analyst at TD Cowen, in a note. "We recognize this sounds alarmist and harsh, but the reality is we believe there are limited scenarios that enable Spirit to restructure."

A potential bankruptcy could force the airline, known for its low fares and fees for everything else like seat selection and cabin baggage, to slash fares even more.

"We may see some shocking prices on major Spirit routes as the carrier tries to bring as much cash in the door as possible," Becker wrote.

Spirit and other carriers have been grappling with higher employee salaries and other costs, while a surge in domestic flight capacity has forced them to cut fares, particularly in the off-peak periods. That dynamic might be good in the short term for consumers, but not for airlines that require large amounts of cash to operate.

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