Spirit Airlines files for bankruptcy as financial losses pile up and debt payments loom

On November 18, 2024By Littum

Spirit Airlines said Monday it has filed for bankruptcy protection and will try to restart as it struggles to recover from the pandemic-induced slump in travel and a failed attempt to sell the airline to JetBlue.

Spirit, the largest U.S. low-cost airline, has lost more than $2.5 billion since the start of 2020 and faces looming debt payments totaling more than $1 billion over the next year.

Spirit said it expects to operate as normal as it works its way through a pre-arranged Chapter 11 bankruptcy process and that customers can continue to book and fly without interruption.

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 possible bankruptcy filing with its bondholders. It was just the latest in a series of blows that have sent the stock down 97% since the end of 2018 — when Spirit was still making money.

CEO Ted Christie confirmed in August that Spirit was talking to advisers to 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 soon as possible.

“The chatter in the market about Spirit is remarkable, but we are not distracted,” he told investors during an earnings call. “We are focused on refinancing our debt, improving our overall liquidity position, implementing our new re-imagined product in the market and expanding our loyalty programs.”

People still fly Spirit Airlines. They just don’t pay that much.

In the first six months of this year, Spirit passengers flew 2% more than they did in the same period last year. But they pay 10% less per mile, and the turnover per miles from fares are down nearly 20%, adding to Spirit’s red ink.

It is not a new trend. Spirit failed to return to profitability as the coronavirus pandemic eased and travel picked up. There are several reasons for the downturn.

Spirit’s costs, especially for labor, have increased. The major US airlines have captured some of Spirit’s budget-conscious customers by offering their own brand of bare-bones tickets. And fares for leisure travel in the US – Spirit’s core business – have fallen due to a flurry of new flights.

The premium end of the air travel market has risen, while Spirit’s traditional no-frills end has stagnated. So this summer, Spirit decided to sell bundled rates that includes a larger seat, priority boarding, free bags, internet service and snacks and drinks. That’s a big change from Spirit’s longtime strategy of luring customers with low prices and forcing them to pay extra for things like bringing a carry-on or ordering a soda.

In a highly unusual move, Spirit plans to cut its October through December schedule by nearly 20% compared to the same period last year, which analysts say should help boost fares. But it will help the rivals more than it will boost the Spirit. Analysts at Deutsche Bank and Raymond James say Frontier, JetBlue and Southwest would benefit most because of their overlap with Spirit on many routes.

Spirit has also been plagued by needed repairs to Pratt & Whitney engines, forcing the airline to ground dozens of its Airbus jets. Spirit has cited the recall as that fired 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 Ministry of Justice sued to block the $3.8 billion 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 increases 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 like aircraft leases and keep flying.

The last bankruptcy of a major US airline ended when American Airlines emerged from Chapter 11 protection and at the same time merged with US Airways in December 2013.