A lot of y’all are. A lot of y’all are your car crazy. A lot of y’all was in there when I did the hospitality segment because we have. They ain’t watching me through my webcam. I got the little sliding thing on my show. A lot of y’all was in the Patreon stock club. The last one that we did when we went over the entire hospitality and I went through and I broke down how I look at the hospitality industry specifically now.

It’s funny. Oh, hold on. Hello? Hi, may I speak to Amira, please? Who? Amira. You got the wrong number, babe. Okay, sorry. All right, bye. That’s the call to HR. But a lot of people was in stock club when we was going over to the hospitality industry and I was telling you all, and I was breaking down why I did and didn’t like certain things. Now, I’m not going to go over the things that I was talking about on the Patreon because that’s specifically for bag chases and it’s too much game and it’s too much money in order for us to just be giving out free game.

So we’re not going to do that. But what I want to do is I want to go over Spirit Airlines, because Spirit Airlines at one point was the most profitable, and when I say the most profitable, the most profitable airline within the United States of America at one point. But now their stock is down and they’re trending towards bankruptcy. Make sure you hit a like for the algorithm.

Subscribe to the channel and turn on your notifications. Let me get myself up here real quick. Let’s kick it, y’all. Final segment of the show. Spirit Airlines isn’t wasting any time. Spirit Airlines also wasn’t wasting money when it ipoed. In 2011, it was the most profitable airline in the US, earning 40% more per plane than any other carrier. In the following years, its stock soared, with flights 30% cheaper than competitors.

But after engine troubles, plane delivery delays and two failed mergers, Spirit Airlines shares have taken a nosedive. And now, after reporting narrower losses for the last quarter, its future is up in the air. So what went wrong spared. Airlines charged for basically everything, allowing it to sell tickets at rock bottom prices. The only complimentary item on the plane, ice. Spirit bet there were a lot of customers that regular airlines were kind of leaving on the table because they just can’t afford the cost of a ticket.

They didn’t give us any peanuts or anything, but it’s okay. And even at those low prices, Spirit beta can make a lot of money. From 2008 through 2012, Spirit earned $289,000,000, with just 40 planes at most in operation. Only two us airlines earned more in the period, southwest and Alaska Air, which both had far more planes. And three years after going public, Spirit was the most profitable, fastest growing U.

S. Airline. Stock prices hit an all time high. But as profits were reaching new heights, crags in its business were starting to show how many people know? One of the number one reasons, and one of the biggest reasons why most companies wind up going out of business, one of the number one reasons why most companies fail eventually is debt. Because most companies wind on, wind up taking on debt in order to grow the company.

So when you’re a privately owned company, in most instances, especially ones that’s not backed by venture capitalists, that’s hoping that you go public or IPo, an initial public offering, which basically makes you a publicly traded company, often at times, you grow organically. You don’t necessarily take on debt in order to expand a company unless you can actually justify it from a business perspective, right? So if I can wind up expanding profits and accelerate profits in order to get rid of the debt in order to grow the business, then ultimately that’s a good bet.

That’s why I tell people, hey, don’t necessarily take out a business loan in order to start your business, unless you’re guaranteed or you’re sure or you’ve already vetted out the concept, because all you’re doing is you’re going to mess up the money, right? And most times, a lot of people don’t take into consideration because we look at revenue, but we don’t ultimately look at net, we don’t look at margins, we don’t look at profit.

The margin is the difference between, I don’t want to keep going into this because I’m a deep dive too hard. My point is that debt is one of the biggest killers of wealth, and most companies take on some form of debt, especially when you find yourself in a pandemic or a recession or something like that, or when they have to stop the planes because operations still continue, paychecks are still going up, it’s still difficult for you to manage those operational costs while at the same time not taking in any revenue and not any profit.

So if you have low margins, the minute that something bad happens and you have to take on more debt, it then basically cripples your company. Okay. In 2011, Spirit was also the airline with the most complaints from a customer perspective, like it didn’t necessarily have the best reputation. And at the know, their CEO was kind of, you know, no one goes into McDonald’s and is surprised they don’t see filet mignon on the menu, right? Even still, Spirit execs said they were optimistic.

The company had pioneered a new airline business model in the US. And for the first five years, it had been. Did y’all hear that? See? Did y’all hear the thing? I was like, boom. Successful. But other companies had been watching. As soon as fuel prices dipped in 2015, carriers slashed prices on some tickets, cutting into Spirit’s customer base. And Delta introduced a new cabin class basic economy in an effort to compete with spirit.

People started to get very nervous. Like, how could Spirit survive? Given the choice between a basic economy ticket on American, Delta, United, or a Spirit ticket, why would you still choose Spirit? Other airlines followed suit. United, American, JetBlue, and Hawaiian Airlines launched basic economy seats. Ticket prices fell across the US. Stock prices tumbled. For Spirit, something had to change. So in 2016, the company replaced longtime CEO Ben Baldanza with industry vet Robert Fernaro.

The old CEO was kind of really aggressive about touting the ultra low cost discount model. He was famous for, like, funny ads, and he would get in the overhead bin. Had we not implemented this, there’s no telling what people would try to put in an overhead bin to sort, know, sell the idea that spirit was going to charge you for the overhead bin. So I think they wanted to kind of soften their image and go in a new direction.

Fornaro set out to address the growing number of customer complaints, reorienting the company toward customer service. By lowering fees and delays. He pulled spirit out of its freefall. But before the company could rebuild. The breaking news. Stay at home. As the coronavirus pandemic spreads. The airline industry taking a devastating hit. Major airlines preparing to voluntarily shut down. Coming out. The number one thing that I hate and the reason why I personally will never, ever, and you all need to really go and look at that second stock club that we did.

And then we got a third one that’s coming up this weekend. The number one reason why I hate investing in a hospitality industry. Actually, it’s two reasons. The number one reason is that the margins are too low. But the biggest reason is that the long term prospects of it is temporary, even if the company is doing well. Because eventually you’re going to go through a downturn. Because the minute that something happens, the minute that something happens, whether it’s a recession or the pandemic or a downturn in the economy or inflation is up too high, or people are having too many costs, the first thing that they cut out is what? Leisure travel, anything related to airlines and airplanes.

People will even drive and go on a road trip in order to cut costs. And so it’s a very difficult thing. It’s an unstable industry, and it is a very difficult industry. Whether you in spirit or anything, if you start looking at the numbers, and again, this is why I tell y’all to join stock club, if you start looking at the numbers, it is too volatile. You absolutely right, Yakar.

It is too volatile. And so even if they were doing incredibly well compared to their peers, eventually the peers are going to catch up, they’re going to adjust. There’s going to be more competition. And then the minute that something happens within the industry, you’re going to have to take on more debt in order to survive. And that’s going to absolutely kill your business because it kills your margins.

Out of the pandemic, people were not really traveling for business in the same way they had before. And the bigger airlines started going after people going on vacation, flying for leisure. And those had always kind of been Spirit’s best customers. So no one was surprised when two years later, Frontier, another budget airline, announced a $2. 9 billion cash in stock deal to buy Spirit. The deal was announced and everything kind of seemed to be going along and then kind of out of nowhere.

In April, JetBlue swoops in with its own offer for Spirit. That offer came in 2022, all cash, $3. 6 billion. Shares rose 22%. JetBlue’s offer was not. I would have sold immediately, and Spirit was really resistant to it, Spirit execs said of JetBlue. I have wondered whether blocking our deal with Frontier is in fact their goal. By July, the frontier deal fell through, and on the 20 eigth, JetBlue agreed to acquire Spirit for $3.

8 billion. I talked to the CEO, Spirit and the CEO of JetBlue right after they ultimately came to their agreement, and CEO Spirit Ted Christie basically said like, well, business is business. Spirit’s problems didn’t end with the failed merger. It had ordered expensive new planes from Airbus to run more flights, but deliveries were delayed. Then in July 2023, there was a recall for an Airbus engine. Spirit had to ground some of its planes.

Exposure to this issue is very unique and material for us and is having an impact on our margin. Spirit was already in debt, so it sold more than two dozen planes and used that money to pay down $465,000,000 in debt. In debt so it had to sell assets just to meet expectations from debt that ultimately is killing its business and it’s probably going to drive the company into bankruptcy.

I anticipate personally, if Spirit don’t get bought out, I anticipate personally that one of these airlines are going to be filing for bankruptcy within the next five years. According to my research and according to the numbers that we run inside of the Patreon, inside of the bag, chases inside of stock Club, I anticipate spirit probably being the one that’s at the forefront of filing bankruptcy within the next five years if it’s not another airline before it.

But even if you see Spirit or one of these airlines, you’re probably going to see a domino effect and it’ll be more than one that filed for bankruptcy. But absolutely, I believe that spirit is going to go into bankruptcy. As a matter of fact, I even considered shorting a stock. I don’t even short stocks because what I do is I invest for the long term, and so I invest in companies that I believe in.

But I absolutely, positively at some point was thinking about shorting a stock. Now I’m outside of it because it’s already down over 60%. The stock price is down more than 60%. So it’s almost like, how much lower could it go? You know what I’m saying? But I think that spirit at some point will probably file for bankruptcy. I wouldn’t doubt it. What is the share price? Let me see something.

$6 and 33 cent share. Suffering. Suffering. Absolutely suffering. Then rented the planes back to keep flights running. Spirit’s plan to get out of debt seemed to be working. But on January 16, a federal judge blocked JetBlue’s acquisition of Spirit, citing antitrust issues, and killed the company. That day, shares fell 47%. Crazy. Even though Spirit is a really small player, the Justice Department felt that it plays a really important role.

It serves people who maybe wouldn’t have access to travel otherwise, who just couldn’t afford to travel on another airline. As of January, the company has roughly $1. 1 billion in debt, due in September 2025. There are analysts who think that spirit doesn’t necessarily have much of a path forward and might ultimately have to file for bankruptcy and maybe even liquidate rather than going through a chapter eleven. But for now, spirit’s share price is suffering.

And it’s unfortunate. And I think that it’s cyclical. You often at times see players within the hospitality industry either merging or filing for bankruptcy. And another one of the reasons why I. Another one of the things that you’ll see within the industry is not just within the hospitality industry itself, but you’ll start to see companies spin off other divisions of the company in order to saddle that side with debt and to be able to save this aspect of the business.

You know what I’m saying? But that’s a whole nother conversation that we’ll be talking about at stock club this weekend. .

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