Major airline and 2 travel brands face Chapter 11 bankruptcy risk
According to The Street, It’s rare for a company to file for Chapter 11 bankruptcy without showing signs of financial distress. Observant customers and analysts can often detect these warning signals, such as lower staffing levels, reduced inventory, or diminished product quality. While some companies may attempt to cut costs to survive, it’s generally difficult to improve financial health by slashing expenses, especially when deeper issues are present.
For publicly traded companies, financial trouble can be even more transparent. They are required to report their financial performance, and when expenses exceed revenue, analysts often spot a company heading for trouble long before bankruptcy is declared.
Creditsafe’s Head of Brand, Ragini Bhalla, recently shared her company’s Financial & Bankruptcy Outlook: Transportation Report with TheStreet, which highlights three major players in the transportation industry currently facing significant financial risks.
The Transportation Industry Faces a Crisis
Bhalla explained that the transportation industry is grappling with post-pandemic challenges. Mergers and acquisitions (M&A) surged during the pandemic, with deal values climbing from $51 billion in 2020 to over $150 billion in 2021, before declining to $95 billion in 2022. However, in 2024, Bhalla predicts that consolidation will dominate the industry.
“2024 will be the year of consolidation,” Bhalla said. “Both buyers and sellers need to exercise due diligence, including running business credit checks and compliance checks to avoid investments in companies facing financial or legal issues.”
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Spirit Airlines and Two Rental Car Companies in Trouble
Spirit Airlines (SAVE) has been under financial scrutiny since its merger with JetBlue (JBLU) fell through. Creditsafe sees a significant risk of Spirit filing for Chapter 11 bankruptcy, with concerns about whether the ultra-low-cost airline model is sustainable.
Earlier this year, Spirit attempted to refinance $1.1 billion in debt due in 2025. The company’s financial troubles are evident in its rising late payments, with delinquency rates spiking dramatically from September 2023 to January 2024. Shares of Spirit Airlines have plummeted by 73.8% this year, closing at $4.29 on Friday.
Similarly, rental car companies Avis Budget Group (CAR) and Hertz (HTZ) are also struggling financially. Avis has seen its long-term debt increase consistently over the past three years, while its bill payment delays spiked from 8 days in March 2023 to 31 days by April 2023. Hertz is facing comparable issues, with its delinquent payments (91+ days) rising steadily throughout 2023.
Avis Budget closed at $107.70 on Friday, down 39.2% this year, while Hertz ended at $7.58, a 25.7% drop on the year.
These troubling financial trends suggest that unless these companies can stabilize their finances, bankruptcy may be on the horizon.
