Shares of Spirit Airlines parent company plummeted Tuesday after the company warned it may cease operations as it runs low on cash and struggles with a difficult operating environment. But other airline stocks rallied, possibly on the prospects of reduced competition, but also on data showing airfares rising.
The airline, which emerged from bankruptcy in March, continues to suffer from adverse market conditions, including weak demand for domestic leisure travel, Spirit Aviation Holdings said in an SEC filing.
The airline said "there is substantial doubt as to our ability to continue as a going concern" within the next 12 months. Spirit said it is at risk of failing to meet minimum liquidity requirements under its debt obligations and credit card processing agreement.
Spirit said it expects its operating challenges and uncertainties to stretch into the rest of the year. The company is trying to stanch the bleeding with its new Premium Economy class, sale-leaseback deals for spare engines while taking other steps. Last month, the carrier furloughed about 270 pilots as it shrank its flying schedule.
Other steps the company may take to raise cash include selling some aircraft, real estate or excess airport gate capacity.
Spirit Just Out Of Bankruptcy
In a quarterly report late Monday, Spirit reported $559.6 million in cash and cash equivalents, slightly lower than in the first quarter. It reported a Q2 loss of $7.24 a share and a 20% drop in revenue, to $1.019 billion.
Spirit filed for bankruptcy protection last year, after the U.S. Justice Department blocked a proposed merger with JetBlue. Regulators said the combination would reduce competition and increase fares.
Spirit Air stock plummeted more than 45% Tuesday at midday to an all-time low. Following the bankruptcy, the stock reemerged on the NYSE April 29 and closed that day at 8.90 after rising as high as 13. It's been trending lower since, quoted at about 2 a share now. It has a Composite Rating of 4.
Airline Stocks Rally
Airline stocks, however, were the best-performing industry group Tuesday at midday, up more than 4%.
The July consumer price index, released early Tuesday, showed airlines are regaining pricing power. The index for airline fares increased 4% over the month, after declining 0.1% in June and falling 2.7% in May, the Bureau of Labor Statistics said.
Low-cost domestic competitors to Spirit showed some of the industry's best gains. JetBlue and Frontier Group rallied 11% and 18%, respectively. Two other low-cost domestic players, Allegiant Travel and Sun Country Airlines, rose 10%-13%.
Among the major airlines, American Airlines, United Airlines, Delta Air Lines and Alaska Air Group rallied at least 9%. Southwest Airlines was up nearly 4%.
SkyWest — the regional carrier for United, Delta, American and Alaska Airlines — rose nearly 6% and reclaimed the 115.40 buy point of a cup-with-handle base, according to IBD MarketSurge pattern recognition.
Foreign airline stocks also rose, while Spirit Airlines sold off.
The U.S. Global Jets ETF jumped more than 6% after finding support at the 200-day moving average.
