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Spirit Airlines filed for bankruptcy protection on Monday, saying mounting losses, unpayable debt, increased competition for bargain-seeking airline passengers and an inability to merge with other airlines left little choice.
The airline said it will continue to operate while it restructures its debt.
“Guests can continue to book and fly without interruption and can use all tickets, credits and loyalty points as normal,” it said in a statement.
Airlines and other companies in the United States often file for bankruptcy and come out stronger on the other side of the process. Most major U.S. airlines, including the three largest – American Airlines, United and Delta – have filed for bankruptcy at some point in the last 25 years.
Spirit’s statement said that as a result of the bankruptcy and negotiations with existing creditors early next year, it will be able to reduce debt and increase financial flexibility, which will position Spirit for long-term success and investment will accelerate, providing guests with better travel experiences and better travel experiences. greater value.” It added that creditors had agreed to pump a further $300 million into the airline to finance its operations through the bankruptcy process.
But it’s also possible that Spirit (SAVE) will eventually be bought by another airline or forced into liquidation. Numerous airlines, including American, have had their assets bought out of bankruptcy and merged with another airline.
In recent years, Spirit has attempted two mergers, one with fellow bargain carrier Frontier Airlines and once with JetBlue Airways, which topped Frontier’s bid but had its purchase blocked by a federal judge on antitrust grounds.
No-nonsense Spirit Airlines will offer frills
Spirit’s problems could lead to higher rates across the industry. The low fare model had prompted major airlines to also offer basic ‘basic economy’ seats on their planes. If the country is forced to scale back its flight schedule or the cities it serves, goes bankrupt or is acquired by a larger airline, the pressure to offer lower fares will diminish.
But a new deal to buy Spirit and merge it into a larger airline may not face the same problems this time, as the bankruptcy filing would raise the possibility of liquidation as an alternative. It’s also possible that Trump’s Justice Department, which enforces antitrust laws, is not as opposed to corporate mergers as the Biden administration had been. Several deals that may have been done in the past have been challenged on antitrust grounds over the past four years.
Spirit said in a Securities and Exchange Commission filing last week that it is in “productive” negotiations with its lenders to restructure its debt, which matures in 2025 and 2026. Previous filings showed the company had $3.1 billion in long-term debt. balance.
As a result of the bankruptcy filing, Spirit expects to be delisted from the New York Stock Exchange “in the near term,” it said Monday, adding that its common stock is expected to be canceled and have no value as part of the restructuring.
Shares of Spirit fell 59% on Wednesday after it announced it was in discussions with creditors and disclosed that as a result of those negotiations it was unable to complete its third-quarter financial report in the prescribed time. Shares of Spirit fell another 18% in trading Friday amid reports that a bankruptcy filing was imminent and have lost 93% of their value so far this year.
Spirit pioneered the US market by offering ultra-low base fares but charging extra for virtually all other options, including carry-on luggage.
But that low-cost model also resulted in a large number of passenger complaints against Spirit. Spirit and Frontier were the bottom two airlines in J.D. Power’s most recent passenger satisfaction survey.
The low-cost model also raised concerns that a sale to JetBlue would lead to higher rates across the industry — concerns that resulted in the Justice Department’s antitrust lawsuit blocking the deal.
All U.S. airlines lost billions during the first two years of the pandemic, despite receiving billions of dollars in federal aid to keep flying and avoid widespread layoffs. But when demand for air travel returned in 2022, profitability at the larger airlines also rose.
Smaller airlines – such as Spirit – that offered lower fares to attract bargain-hunting holidaymakers continued to struggle. Spirit reported operating losses of $360 million in the first six months of this year, nearly four times the losses reported in the first half of 2023.
The airline has also taken several steps to raise cash and cut costs, recently announcing the sale of 23 of its Airbus aircraft and delaying future aircraft deliveries. The company has also laid off hundreds of pilots and plans to cut additional staff in January.
This story has been updated with additional reporting and context.
