Spirit Airlines is currently closed down due to a strike by its pilots. The carrier announced today that the shutdown will continue at least through Thursday.

The work stoppage could go on much longer. The pilot’s union issued an ominous statement: “We regret that Spirit management’s failure to take seriously its pilots’ contributions to the company has forced us to strike, but, one way or another, we will make our value clear,” said Capt. Andy Nelson, vice-chairman of the Spirit pilots’ unit of the Air Line Pilots Association, Int’l (ALPA). “For the sake of the passengers who have been inconvenienced by this situation, we urge Spirit management to get serious and present a contract proposal that is fair and equitable for all of its pilots.”

Spirit was founded in 1980 as Charter One. It has 31 aircraft and 40 destinations. The carrier’s central hubs are in Detroit and Fort Lauderdale.

Spirit is small enough that it may not be able to wait out the pilots like larger airlines including British Air, which is in a major labor dispute, can. Spirit has been in talks with the pilot’s union for four yearsSpirit claims that it is the lowest cost airline in the US. That mean Spirit probably runs on relatively modest margins.

Spirit is offering full refunds or booked tickets and credits which are as high as $100 each. Other airlines, especially Southwest Air (NYSE: LUV), say they are picking up passengers from the shuttered airline.  JetBlue NASDAQ:(JBLU) shares have moved up on the belief that it is also picking up new passengers

Spirit is privately held and its major owners are Oaktree Capital Management and Indigo Partners. Unlike most of  large U.S. airlines which have access to capital markets from money, Spirit has to depend on decisions by its equity holders to fund itself.

Even if Spirit has margins as good as the best run airline in the US–Southwest–its net income-to-sales is less than 2%. And, based on Bureau of Transportation Statistics data, Spirit’s margins as indeed tiny, perhaps 8% in a very good year.

Benchmarking Spirit’s size against publicly traded carrier stocks, 24/7 Wall St. estimates that Spirit will have revenue of $710 million this year, and profits of $25 million. In other words, Spirit brings in less than $2 million a day. A strike that lasts two weeks could eliminate almost all Spirit’s profits for the next year.

Spirit will needs to have tens of millions of dollars in the bank should the strike last for a month or more. If it does not, it is hard to see, based on 24/7 Wall St.’s estimates, how it can survive into the third quarter without making massive cuts. Even that would probably not save the carrier.

Douglas A. McIntyre

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