Spirit Airlines announced Monday it will file for bankruptcy protection and try to reboot as it struggles to recover from a pandemic-induced travel slump and a failed plan to sell to JetBlue.
Spirit, the largest low-cost airline in the United States, has lost more than $2.5 billion since the beginning of 2020 and is on the verge of paying off more than $1 billion in debt next year.
Spirit said it expects to operate as normal as it moves forward with pre-arranged Chapter 11 bankruptcy proceedings, and customers will continue to be able to make reservations and fly without interruption.
Shares in Miramar, Fla.-based Spirit fell 25% Friday after the Wall Street Journal reported the company was negotiating terms with bondholders for a potential bankruptcy filing. This was just the latest in a series of blows that have sent the stock plummeting 97% since late 2018, when Spirit was still profitable.
Spirit Airlines 319 Airbus taxis at Manchester-Boston Regional Airport, Friday, June 2, 2023, in Manchester, New Hampshire (AP Photo/Charles Krupa, File)
Chief Executive Officer Ted Christie confirmed in August that Spirit was in discussions with bondholders’ advisers about future debt maturities. He said talks were a priority and the airlines were trying to reach the best possible agreement as soon as possible.
“There’s been significant market noise around Spirit, but we’re not distracted,” he told investors on an earnings call. “We are focused on refinancing our debt, improving our overall liquidity position, bringing new and reimagined products to market, and expanding our loyalty program.”
People still fly Spirit Airlines. They just don’t pay as much.
In the first six months of this year, Spirit passengers flew 2% more than during the same period last year. But the amount you pay per mile is 10% lower, and your per-mile revenue from fares is down nearly 20%, contributing to Spirit’s deficit.
It’s not a new trend. Spirit was unable to return to profitability even as the coronavirus pandemic eased and travel recovered. There are several reasons behind the recession.
Spirit’s costs, especially labor costs, have increased. America’s largest airline has won over some of its budget-minded Spirit customers by offering bare-bones tickets under its own brand. And fares for U.S. leisure travel, Spirit’s core business, are falling due to an oversupply of new flights.
While the premium end of the air travel market is booming, Spirit’s traditional no-frills end is stagnant. So this summer, Spirit is selling bundled fares that include larger seats, priority boarding, free baggage, internet service, and snacks and drinks. This is a big change from Spirit’s long-standing strategy of luring customers with the lowest fares and making them pay extra for things like carrying carry-on bags and ordering soda.
In a highly unusual move, Spirit plans to cut its schedule from October to December by nearly 20% compared to the same period last year, a move that analysts believe will support fares. But more than boosting spirits, it will help rivals. Deutsche Bank and Raymond James analysts said Frontier, JetBlue and Southwest Airlines would benefit the most because they overlap with Spirit on many routes.
Spirit has also been plagued by needed repairs to Pratt & Whitney’s engines, which have forced the company to ground dozens of Airbus planes. Spirit cited recalls due to pilot furloughs.
Spirit’s relatively young aircraft fleet makes it an attractive acquisition target.
Frontier Airlines attempted to merge with Spirit in 2022, but lost out to JetBlue. But the Justice Department sued, and a federal judge agreed in January, to block the $3.8 billion deal, saying it would drive up prices for Spirit customers who rely on low fares. JetBlue and Spirit called off the merger two months later.
The 1990s and 2000s saw a number of U.S. airline bankruptcies as airlines struggled with fierce competition, high labor costs and skyrocketing jet fuel prices. Pan Am, TWA, Northwest, Continental, United, and Delta dominated. Some companies liquidated, while others took advantage of favorable laws to renegotiate debts such as aircraft leases and keep flying.
The last major U.S. airline bankruptcy ended when American Airlines emerged from Chapter 11 protection and simultaneously merged with US Airways in December 2013.
