Spirit Airlines said on Monday that it had filed for bankruptcy protection and would attempt to reboot as it struggles to recover from the pandemic-caused decrease in travel and a failed attempt to sell the airline to JetBlue.
Spirit, the biggest US budget airline, has lost more than $2.5bn since the start of 2020 and faces looming debt payments totaling more than $1bn over the next year.
Spirit said it expected to operate as normal as it works its way through a prearranged Chapter 11 bankruptcy process and that customers could continue to book and fly without interruption. All existing tickets, credits and loyalty points can be used as normal. The bankruptcy will not affect employee wages or benefits.
The company said in a statement that it had $300m in financing from bondholders that, along with the company’s cash reserves and revenue, was expected to keep the company running during the bankruptcy process.
Shares of the Miramar, Florida-based Spirit dropped 25% on Friday, after the Wall Street Journal reported that the airline was discussing terms of a possible bankruptcy filing with its bondholders. It was just the latest in a series of blows that have sent the stock crashing down by 97% since late 2018 – when Spirit was still making money.
The airline expected its stock to be delisted from the New York Stock Exchange “in the near term”, the company said in a statement.
Ted Christie, Spirit CEO, confirmed in August that the company was talking to advisers of its bondholders about the upcoming debt maturities. He called the discussions a priority, and said the airline was trying to get the best deal it could as quickly as possible.
“The chatter in the market about Spirit is notable, but we are not distracted,” he told investors during an earnings call. “We are focused on refinancing our debt, improving our overall liquidity position, deploying our new reimagined product into the market, and growing our loyalty programs.”
People are still flying on Spirit Airlines. They are just not paying as 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 a mile, and revenue per mile from fares is down nearly 20%, contributing to Spirit’s red ink.
It is not a new trend. Spirit failed to return to profitability when the coronavirus pandemic eased and travel rebounded. There are several reasons behind the slump.
Spirit’s costs, especially for labor, have risen. The biggest US airlines have snagged some of Spirit’s budget-conscious customers by offering their own brand of bare-bones tickets. And fares for US leisure travel – Spirit’s core business – have sagged because of a glut of new flights.
Last month, Spirit announced it would conduct layoffs as part of $80m in cost-saving measures, though it did not specify how many employees would be affected. The company also announced it had agreed to sell 23 airplanes to GA Telesis, an aviation services company, for $519m. The October announcement briefly boosted the stock, before it came down as bankruptcy appeared likely.
The airlines also said in October that it planned to furlough about 330 pilots starting 31 January 2025, in addition to the 186 pilots it furloughed in September. The company downgraded 120 captains to first officers at the time.
The premium end of the air-travel market has surged while Spirit’s traditional no-frills end has stagnated. So this summer, Spirit decided to sell bundled fares that include a bigger seat, priority boarding, free bags, internet service and snacks and drinks. That is a huge change from Spirit’s longtime strategy of luring customers with rock-bottom fares and forcing them to pay extra for things such as bringing a carry-on bag or ordering a soda.
In a highly unusual move, Spirit plans to cut its October-through-December schedule by nearly 20%, compared with the same period last year, which analysts say should help prop up fares. But that will help rivals more than it will boost Spirit. Analysts from Deutsche Bank and Raymond James say that Frontier, JetBlue and Southwest would benefit the most because of their overlap with Spirit on many routes.
Spirit has also been plagued by required repairs to Pratt & Whitney engines, which is forcing the airline to ground dozens of its Airbus jets. Spirit has cited the recall as it furloughed pilots.
The aircraft fleet is relatively young, which has made Spirit an attractive takeover target.
Frontier Airlines tried to merge with Spirit in 2022 but was outbid by JetBlue. However, the justice department sued to block the $3.8bn deal, saying it would drive up prices for Spirit customers who depend on low fares, and a federal judge agreed in January. JetBlue and Spirit dropped their merger two months later.
US airline bankruptcies were common in the 1990s and 2000s, as airlines struggled with fierce competition, high labor costs and sudden spikes in the price of jet fuel. PanAm, TWA, Northwest, Continental, United and Delta were swept up. Some liquidated, while others used favorable laws to renegotiate debts such as aircraft leases and keep flying.
The last bankruptcy by a major US carrier ended when American Airlines emerged from Chapter 11 protection and simultaneously merged with US Airways in December 2013.
