Spirit Airlines said Monday it has filed for bankruptcy protection and will try to restart as it struggles to recover from pandemic-induced travel fatigue, intense competition from major carriers, and a failed attempt to sell the airline to JetBlue.
Spirit, the largest low-cost airline in the United States, has filed for Chapter 11 bankruptcy after reaching terms with bondholders. The airline has lost more than $2.5 billion since the beginning of 2020 and faces imminent debt payments totaling more than $1 billion in 2025 and 2026.
The airline said it expects to continue operating normally during the bankruptcy process. Spirit told customers on Monday they could book flights and use frequent flyer points as they normally would, and said it would continue to pay employees and vendors.
The airline said it has received commitments for a $350 million equity investment from existing bondholders and will convert $795 million of its debt into shares in the restructured company. The bondholders will also provide a $300 million loan, which, along with Spirit’s remaining cash, will help the airline get through the restructuring process.
Shares of Miramar, Florida-based Spirit fell 25% on Friday, after the Wall Street Journal reported that the airline was discussing the terms of a potential bankruptcy filing with its bondholders. The company missed the deadline to submit its third-quarter financial results, but announced that its operating margin would indicate a larger loss than the company incurred in the same quarter last year.
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That was just the latest in a series of hits that have sent the stock crashing 97% since late 2018 — when Spirit was still making money.
CEO Ted Christie confirmed in August that Spirit was speaking with advisors to its bondholders about upcoming debt maturities. He described the discussions as a priority and said the airline was trying to get the best possible deal as quickly as possible.
People still fly on Spirit Airlines. They don’t pay much.
In the first six months of this year, Spirit passengers flew 2% more than they did in the same period last year. However, they are paying 10% less per mile, and revenue per mile fares are down nearly 20%, contributing to red ink for Spirit.
It’s not a new trend. Spirit failed to return to profitability when the coronavirus pandemic eased and travel rebounded. There are several reasons behind the recession.
Soul costs have risen, especially for labor. The largest U.S. airline has captured some of Spirit’s budget-conscious customers by offering its own brand of basic tickets. Prices for leisure travel in the United States – Spirit’s core business – fell this summer due to a glut of new flights.
The premium end of the air travel market has soared while Spirit’s traditional, no-frills end has remained stagnant. So this summer Spirit decided to sell bundled fares that include a larger seat, priority boarding, free bags, internet access, snacks and drinks. It also dropped cancellation fees after rival Frontier Airlines did so.
These are huge changes from Spirit’s long-standing strategy of attracting customers with ultra-low prices and forcing them to pay extra for things like bringing a handbag or ordering a soft drink.
In a highly unusual move, Spirit plans to cut its October-to-December schedule by about 20%, compared to the same period last year, which analysts said will help support prices. But this will help the competitors more than it will boost the spirit. Analysts from Deutsche Bank and Raymond James say Frontier, JetBlue and Southwest stand to benefit the most because of their overlap with Spirit in many ways.
Spirit also struggled with needed repairs to its Pratt & Whitney engines, which forced the airline to ground dozens of its Airbus planes. Spirit cited the recall because it put the pilots on leave.
The aircraft fleet is relatively new, making Spirit an attractive acquisition target.
Frontier tried to merge with Spirit in 2022 but was outbid by JetBlue. However, the Justice Department sued to block the $3.8 billion deal, saying it would raise prices for Spirit customers who rely on low prices, and a federal judge agreed in January. JetBlue and Spirit called off their merger two months later.
U.S. airline bankruptcies were common in the 1990s and 2000s, as airlines struggled with fierce competition, rising labor costs, and skyrocketing jet fuel prices. PanAm, TWA, Northwest, Continental, United and Delta were swept. Some were liquidated, while others used favorable laws to renegotiate debts such as aircraft leases and to continue flying.
The most recent bankruptcy of a major US airline ended when US Airways emerged from Chapter 11 protection and simultaneously merged with US Airways in December 2013.
& Edition 2024 The Canadian Press
