The recent Chapter 11 bankruptcy filing by Spirit Airlines has sent ripples through the aviation industry, raising critical questions for airports and ground handling companies that rely on the ultra-low-cost carrier (ULCC) for a significant portion of their operations.
Known for its aggressive growth strategy and budget-friendly fares, Spirit’s financial struggles have placed a spotlight on the vulnerability of ULCCs and the cascading effects such bankruptcies can have on the broader aviation ecosystem.
While the future is unsure for Spirit, it also raises a lot questions for airports and vendors like ground handlers who have become dependent on ULCC carriers in their market.
Immediate Impact on Airports
Hooman Yazhari, a partner at Michelman & Robinson with extensive experience managing aviation bankruptcies, outlined the immediate challenges Spirit’s bankruptcy poses for airports.
“The airline has a lot of ground operations, vendors, and regulatory obligations to manage,” Yazhari explained. “They need to show stakeholders, including employees and airport operators, that they have enough liquidity and operational resilience to continue business as usual.”
For airports, the primary concern lies in the potential disruption of landing fees, gate leases, and concession agreements. While larger hub airports may have the capacity to weather such disruptions, smaller regional airports that rely heavily on Spirit face greater vulnerabilities. Yazhari noted that Spirit’s likely strategy to “shrink to profitability” could mean scaling back on unprofitable routes, leaving smaller airports with fewer flights and reduced revenue streams.
This reduction in flights could also have a domino effect on ancillary businesses such as car rentals, retail concessions, and hospitality services.
“A reduced footprint from a leaner Spirit means fewer passengers at these airports, which directly impacts ground handlers, baggage services, and consumer-facing businesses,” Yazhari said.
The airports most at risk are those that have limited airline diversity and rely heavily on ultra-low-cost carriers like Spirit for passenger traffic. Yazhari explained that these smaller, regional airports often operate on thinner margins and have fewer alternative revenue streams.
“If Spirit pulls out, these airports are left with a significant gap that can take months or even years to fill,” he noted.
In contrast, major hubs where Spirit operates are less vulnerable due to their broader mix of airlines and higher passenger volumes. However, Yazhari pointed out that even large airports could face challenges if they have invested heavily in infrastructure to support Spirit’s operations.
“Hubs might be safer from a revenue perspective, but they are not immune to the ripple effects of a major airline restructuring,” he added.
Protecting Against Immediate Risks
Airports and ground handling companies are not powerless in the face of such challenges. Yazhari emphasized the importance of proactive financial and operational measures.
“One key step is to keep a strict eye on payments and not let invoices go past due,” he advised. “Airports can also request deposits or letters of credit to ensure some level of financial security.” For vendors, renegotiating contracts with stronger bankruptcy protections can serve as a safeguard.
Operational flexibility is equally important. Yazhari suggested that airports and vendors prepare contingency plans to address potential disruptions. “This includes streamlining operations and having alternative revenue sources or customers lined up,” he said. For smaller airports, collaboration with local governments and community stakeholders can be crucial to managing potential economic fallout.
Additionally, airports can work with legal and financial advisors to ensure their contracts and operations are bankruptcy-resilient. “It takes planning and tenacity to approach an airline with financial concerns and demand assurances, but it’s a necessary step,” Yazhari stressed.
The Future of ULCCs and Strategic Adaptations
The Spirit bankruptcy raises larger questions about the future viability of the ULCC business model in a post-pandemic landscape. According to Yazhari, a combination of rising operational costs, inflationary pressures, and changes in consumer demand has placed many budget carriers in precarious positions.
“There’s been a competitive dynamic where legacy carriers have entered the low-cost space, offering economy fares that compete directly with ULCCs,” Yazhari explained. This competition, coupled with ULCCs’ limited ability to absorb rising costs, has challenged their financial stability.
Despite Spirit’s struggles, Yazhari is cautiously optimistic about the broader ULCC market. “While Spirit is the most visible example, other ULCCs like Frontier are also under pressure to turn to profitability,” he said. He added that Spirit’s restructuring could open opportunities for legacy carriers and well-capitalized competitors to acquire gates, routes, or aircraft Spirit no longer needs.
The availability of empty gates and slots at airports previously served by Spirit represents both a challenge and an opportunity. Yazhari explained that these assets might appeal to other airlines looking to expand their footprint, particularly in underserved markets. “Legacy carriers or even other ULCCs with stronger balance sheets could see this as a chance to move in and capture market share,” he said.
However, Yazhari also emphasized that this process is not automatic. Airports must take a proactive role in attracting new carriers to fill these gaps. “They can’t simply wait for airlines to come to them,” he warned. “Instead, airports need to actively market themselves, highlighting the potential for profitability in the regions they serve and the facilities they can offer.”
To optimize their appeal, airports can offer competitive incentives, such as reduced landing fees or marketing support for new entrants. Additionally, Yazhari suggested that airports with significant vacant capacity should consider diversifying their business models by exploring opportunities in air cargo or private aviation. “Airports that think creatively and expand beyond traditional passenger operations are likely to be more resilient in the face of airline bankruptcies,” he noted.
For smaller airports, collaboration is key. Working with local economic development agencies, chambers of commerce, and community stakeholders can create compelling value propositions for attracting new carriers. Yazhari highlighted that partnerships with regional governments can also help secure funding for infrastructure upgrades or marketing initiatives aimed at drawing in airlines.
Ultimately, Yazhari concluded, the success of filling these gaps depends on both the broader market environment and the strategic agility of the airports themselves. “While some may struggle in the short term, those that innovate and adapt will position themselves to thrive in the long term,” he said.
Lessons from Past Bankruptcies
Reflecting on lessons learned from previous airline bankruptcies, Yazhari emphasized the importance of vigilance and preparation. “You can often see the financial distress coming with a decent amount of warning,” he noted. “The key is to have contingency plans and maintain financial discipline.”
He also highlighted the role of collaboration within the aviation ecosystem. Airports, vendors, and other stakeholders must work together to ensure a smooth transition during periods of disruption. “This is not just about surviving the immediate impact—it’s about creating a foundation for sustainable growth,” Yazhari concluded.
As Spirit navigates its restructuring, the airline’s fate will serve as a critical case study for the aviation industry. For airports and ground handlers, the lessons learned will be instrumental in shaping strategies to mitigate risks and capitalize on new opportunities in an ever-evolving market.
