Spirit Airlines Denies Government Loan With New $ 850 Million Offer
Spirit Airlines announced this week that it was no longer participating in the US Treasury Department’s loan program, which was part of the relief package adopted by Congress for airlines in March. The airline, on the other hand, is leveraging its brand and loyalty program to raise $ 850 million in funding.
The ticket offer
Spirit Airlines is leveraging its brand and loyalty program to raise $ 850 million in 8% senior guaranteed tickets due 2025. These tickets are secured by, among other things, the cash proceeds of the credit card co-branded with the airline’s Free Spirit loyalty program, the $ 9 Fare Club program membership fee, and certain intellectual property required or necessary to operate the airline’s loyalty program, in addition to intellectual property of the brand. The Notes have a maturity date of September 20, 2025.
On September 17, following the completion of the ticket offer, Spirit Airlines also announced that it would not participate in the US Treasury Department’s loan program. This loan program was instituted alongside $ 25 billion in payroll support for the industry in March. There was another $ 25 billion pool available for airline loans. Earlier this year, Spirit Airlines received just over $ 334 million in payroll assistance from the Department of the Treasury and made progress in securing a loan from the Department of the Treasury.
In the second trimester, Spirit posted a net loss of $ 144 million, much better than its peers in the larger network. Its CEO believes that it will be one of the first carriers to return to profitability, citing its low cost structure. Without forgetting, the low cost carrier has plenty of room to grow its network of routes and attract new customers, and therefore new revenues.
However, as a low cost carrier, the airline derives most of its revenue from incidental costs. These include baggage, seat selection fees, in-flight purchases, and more. For example, in the second quarter of 2020, Spirit earned just over $ 63.7 million in fare bookings, while earning over $ 67 million in non-fare items.
Take advantage of the airline’s loyalty program
Loyalty programs are extremely valuable to airlines. The Big Three US carriers have all used their loyalty programs to raise funds. The American was the only one to use his loyalty program for loans from the US government.
United Airlines leveraged MileagePlus earlier this year to secure $ 5 billion in additional liquidity. Meanwhile, Delta Air Lines used its SkyMiles program at raise $ 6.5 billion. Who later swelled to a impressive $ 9 billion.
The size of the loyalty program has a direct relationship to the value an airline can gain from it when heading into the private market. Spirit’s loyalty program is smaller than that of Delta, American and United. With fewer Free Spirit and $ 9 Fare Club members than other programs, the airline’s revenue is lower. Nonetheless, $ 850 million will do the airline a lot of good.
What are these programs?
Spirit Airlines has its main loyalty program called “Free Spirit”. It works like a traditional mileage program where Spirit passengers earn miles every time they travel and spend on other non-airline partners. Then, passengers can redeem their miles for award travel.
Then there’s the $ 9 Fare Club. Despite the name, club membership is $ 59.95 per year (or about $ 5 per month) for the first year and $ 69.95 (or just under $ 6 per month) for each successive year. . Fare Club members at $ 9 get discounted fares on most routes, up to 50% baggage fees compared to paying at the airport.
Spirit Airlines anticipates that these two programs will continue to operate normally despite their leverage effect.
Do you think Spirit Airlines is making the right decision in refusing the loan from the US Treasury Department? Let us know in the comments!