I’m thrilled to sit down with Katarina Railko, a seasoned expert in hospitality, travel, and tourism, who has also made her mark in the entertainment and events space with a passion for expos and conferences. With her deep understanding of the aviation industry, Katarina is the perfect person to help us unpack the turbulent times facing airlines like Spirit Airlines and Air Canada. Today, we’ll dive into Spirit’s financial struggles and the viability of the ultra-low-cost carrier model, as well as Air Canada’s recent labor challenges and their broader implications for the North American aviation landscape. Let’s get started.
Can you walk us through the financial challenges Spirit Airlines is currently facing, and what does their “going concern” notice signal about their future?
Spirit Airlines is in a really tough spot right now. They emerged from bankruptcy earlier this year, but their recent “going concern” notice is essentially a red flag to investors and stakeholders that they might not be able to stay afloat for another 12 months without a significant infusion of cash. Their operating margins are deeply negative—think -29% in the first quarter of 2025 and -18% in the second. That’s a clear sign they’re burning through money faster than they’re making it. This notice isn’t just a formality; it’s a warning that without drastic action—whether that’s restructuring, a merger, or a sudden market turnaround—their survival is at serious risk.
What do you think is driving Spirit’s steep operating losses, and are there any immediate strategies they could use to stop the bleeding?
The losses come down to a mix of high costs and shrinking demand for their core product. Fuel prices and operational expenses haven’t let up, while the ultra-low-cost carrier model relies on high volume to offset razor-thin margins. Unfortunately, the market is shifting—travelers are leaning toward premium experiences or international routes, not the no-frills domestic leisure travel Spirit specializes in. Quick fixes are hard to come by. They could try trimming capacity to reduce costs, but that risks losing market share. Renegotiating debt or finding short-term financing might buy time, but without a broader strategy, it’s just delaying the inevitable.
Let’s explore the possibility of bankruptcy restructuring for Spirit. What would they need to pull this off successfully?
Restructuring through bankruptcy is a complex path, but it’s doable if Spirit can secure funding and rebuild trust with creditors. They’d need to present a viable plan to cut costs—think fleet reductions or route optimizations—while proving they can still generate revenue. Creditor confidence is key; if lenders believe Spirit can turn things around, they might agree to more favorable terms. But it’s a gamble. If they can’t show a clear path to profitability or if the market doesn’t cooperate, this could just be a stepping stone to liquidation.
If Spirit were to face liquidation, what kinds of assets might they offload, and how long could they realistically keep operating before shutting down entirely?
In a liquidation scenario, Spirit would likely start by selling off tangible assets like aircraft, though many might be leased, which complicates things. Slots at key airports, branding, and even customer data could also be on the table for potential buyers. How long they could keep going depends on how quickly they burn through cash reserves and how much they can fetch for these assets. I’d estimate a few months at best—maybe six to nine—before operations would have to cease entirely if no buyer or merger partner steps in.
On the topic of mergers, why does a deal with Frontier seem more likely than one with JetBlue, and what obstacles might they face in either case?
A merger with Frontier makes more sense because both airlines operate on a similar ultra-low-cost model, so there’s synergy in combining fleets, routes, and cost structures. JetBlue, on the other hand, has a different business focus with more emphasis on premium services, which could clash with Spirit’s identity. Regulatory hurdles are a big obstacle for either deal—antitrust concerns could delay or derail approvals, especially after recent scrutiny of airline consolidations. Plus, integrating operations and cultures is never easy; mismatched strategies or labor disputes could create friction.
Is there a realistic chance that a market recovery could save Spirit, and if so, what specific conditions would need to align for that to happen?
A market recovery isn’t impossible, but it’s a long shot. Spirit would need a sudden surge in domestic leisure travel demand, particularly among price-sensitive customers who prioritize cheap fares over amenities. They’d also benefit from competitors pulling back capacity, allowing Spirit to fill the gap without engaging in brutal fare wars. But given the current trend toward premium and international travel, I’m skeptical. Without a major economic or behavioral shift—like a recession driving travelers to budget options—I don’t see the market bailing them out anytime soon.
Shifting gears to the ultra-low-cost carrier model as a whole, why is the industry’s move toward premium and international travel hitting carriers like Spirit so hard?
The ultra-low-cost model thrives on high-density, short-haul routes with a steady stream of leisure travelers willing to sacrifice comfort for price. But post-pandemic, we’ve seen a clear pivot—people are splurging on premium seats for long-haul or international trips, seeking experiences over savings. This shift undercuts the growth ULCCs need to maintain profitability. Spirit and others built their business on volume, but when that volume dries up or moves elsewhere, their economics just don’t hold up. It’s a structural problem that’s hard to pivot away from without reinventing the entire operation.
How does Spirit’s predicament compare to other ultra-low-cost carriers like Frontier, and are they all grappling with the same pressures?
Spirit and Frontier are in similar boats, but Spirit seems to be sinking faster due to its heavier debt load and weaker financial cushion. Both are squeezed by the same industry trends—declining domestic leisure demand and rising costs—but Frontier has shown a bit more resilience in managing margins. That said, the ULCC model as a whole is under stress. These carriers rely on growth to offset low fares, and when the market shifts as it has, they’re all feeling the pinch. Spirit’s just the most visible casualty right now.
Turning to Air Canada, can you explain how the recent flight attendant strike impacted their operations during the peak summer travel season?
The strike hit Air Canada at the worst possible time—peak summer, when demand is sky-high and profits are typically strong. Flight attendants grounding operations for several days meant canceled flights, stranded passengers, and a logistical nightmare. Beyond the immediate disruption, it damaged customer trust at a time when loyalty is critical. Summer is when airlines like Air Canada make a big chunk of their annual revenue, so the timing amplified the chaos, leaving them scrambling to rebook passengers and restore normalcy.
Analysts estimate a $300 million hit to Air Canada’s earnings from the strike. How does losing nearly a quarter of their 2024 operating profits affect their financial outlook for next year?
That $300 million loss is a massive blow, especially since it wipes out nearly a quarter of their projected operating profits for 2024. It’s not just a one-time hit; it could drag into 2025 by weakening their cash position and potentially forcing cuts to investments in fleet upgrades or network expansion. They’ll need to rebuild customer confidence and manage costs tightly to avoid a lingering impact. If they can’t offset this with stronger performance in other quarters, it might spook investors and limit their flexibility for future growth.
Before the strike, Air Canada was posting a respectable 7% operating margin in Q2 of 2025. What was contributing to that success, and how does it stack up against their U.S. competitors?
Air Canada’s 7% margin in Q2 was a solid result, driven by strong demand for their routes, particularly international ones where they’ve got a competitive edge. They’ve also benefited from operational efficiencies and a focus on higher-yield passengers. Compared to U.S. peers, though, it’s a bit lower—many American carriers are posting margins closer to 10% or higher in the same period. Air Canada’s performance is decent, especially given their historical ups and downs, but they’re not quite at the top of the pack.
Since the third quarter is typically a strong season for Air Canada, how much does the timing of the strike worsen the financial damage?
The timing couldn’t have been worse. Q3, especially summer, is when Air Canada rakes in a disproportionate share of its annual profits due to high travel demand. A strike during this period doesn’t just disrupt a few days of revenue; it ripples through the quarter, affecting bookings, customer goodwill, and even future sales if passengers start looking elsewhere. The financial hit—already steep at $300 million—feels even heavier because it’s coming out of their strongest earning window. Recovery will be an uphill battle.
The flight attendants secured some notable benefits, like boarding pay, during the strike. How significant are these gains, and could they influence labor negotiations across North American airlines?
These wins are a big deal. Boarding pay—compensating flight attendants for the time they spend managing passengers before takeoff—isn’t standard across the industry, and it acknowledges work that’s often gone unpaid. This could set a precedent, inspiring unions at other North American airlines to push for similar benefits. It’s a sign of growing labor power, especially post-pandemic when workers are more vocal about fair compensation. If other carriers face similar demands, it might reshape cost structures and labor relations across the board.
Looking ahead, what is your forecast for the future of ultra-low-cost carriers like Spirit in light of these ongoing industry shifts?
I think the road ahead for ultra-low-cost carriers like Spirit is going to be incredibly challenging. The shift toward premium and international travel isn’t a passing trend—it’s a structural change driven by evolving consumer preferences and economic factors. ULCCs will need to adapt, perhaps by diversifying revenue streams or finding niches where low fares still dominate demand. Without innovation or a major market reversal, I fear more carriers in this space will struggle to stay viable. Consolidation might be their best bet, but even that comes with no guarantees. I’m curious to see who can pivot fastest, because survival will depend on it.
