A Wall Street Journal report on Spirit’s challenging financials was the catalyst for both stocks.
Two low-cost airline stocks were moving in opposite directions Friday after a report by the Wall Street Journal that one of them, Spirit Airlines (NYSE:SAVE), was exploring bankruptcy.
The report sent Spirit stock plummeting as much as 35% on Friday at the opening bell to $1.45 per share. As of 1:00 p.m. ET, it was at about $1.64 per share, still down 26%.
Not surprisingly, its chief rival, JetBlue Airways (NASDAQ:JBLU), was taking off, soaring some 16% to over $7.40 per share on Friday.
Spirit facing financial woes
JetBlue and Spirit are two of the leading low-cost carriers in the U.S. and they had been in merger talks for much of the past two years.
JetBlue was looking to acquire Spirit to better compete with the larger carriers — American, United, Delta, and Southwest. However, in January, a federal judge rejected the deal, saying the merger would take a low-cost carrier off the market, thus reducing options for consumers.
However, some nine months later, Spirit is reportedly exploring filing for bankruptcy, as the Journal first reported.
On Friday, Bloomberg reported that efforts by Spirit to restructure its debt with bondholders had hit a snag. Without a deal, reported Bloomberg, a chapter 11 bankruptcy filing would hard to avoid, although nothing was certain or imminent.
In Spirit’s second quarter earnings report, released Aug. 1, the company said, “we remain in active discussions with the advisors to the noteholders to address the upcoming debt maturities and will provide updates on our progress when appropriate.”
Spirit has more than $3 billion in long-term debt and about $1.1 billion in secured bonds coming due in less than a year, according to the Journal report. It also has negative cash flow and had a net loss of $193 million in the second quarter.
Since the merger deal fell apart in January, Spirit has plunged into penny stock territory, dropping from almost $17 per share to its current $1.64 — a 90% decline.
JetBlue takes off
JetBlue stock, as the main competitor to Spirit, took off on Friday, rising around 16% to around $7.40 per share.
Since the acquisition was rejected last January, JetBlue stock has climbed about 48% and is up around 32% year-to-date.
JetBlue has been busy reinventing itself since then, hiring a new CEO, Joanne Geraghty, and launching a new strategic plan called JetForward. The JetForward plan is designed to drive efficiencies, cut costs, and refocus the airline on its most profitable routes and regions, mainly the Northeast and Florida.
In the second quarter, JetBlue topped earnings and revenue estimates, returning to profitability after three quarters of net losses. The airline also got a vote of confidence when activist investor Carl Icahn of Icahn Enterprises took a 10% stake in the company.
Clearly, JetBlue will be the main beneficiary of Spirit Airlines struggles, but investors may want to be cautious, as JetBlue stock has already had a sizable increase this year, and it is in a period of transition.
While JetBlue appears to be on a good path, it would be wise for investors to gain more insight into its progress and wait for the results of its Q3 earnings report around October 22.
