How Spirit Airlines Fell Apart

Budget carrier Spirit Airlines announced it filed for Chapter 11 bankruptcy on Monday in the face of mounting losses, increased labor costs and a fiercely competitive air travel market.

The airline has failed to return to profitability following the decline in air travel caused by corona pandemic lockdowns. According to a report by The Associated Press, the low-cost airline has lost $2.5 billion since early 2020 and has upcoming debt payments of over $1 billion.

On Monday, Spirit announced a restructuring plan that includes significant support from a majority of its bondholders, who have committed to a $350 million equity investment and will convert about $800 million of their existing holdings to equity in the reorganization. On top of this, the bondholders are extending a $300 million loan to finance the bankruptcy process. Spirit expects its reorganization to be complete in the first quarter of 2025.

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The statement from the company outlined that the bankruptcy filing will “position Spirit for long-term success and accelerate investments that provide guests with enhanced travel experiences and greater value,” as well as a promise that “guests can continue to book and fly without interruption and can use all tickets , credits and loyalty points as usual.”

“Spirit expects to continue to operate its business in the normal course through this pre-arranged, streamlined Chapter 11 process,” the company said in the statement.

Newsweek has contacted Spirit via email for further comment.

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But experts aren’t so sure. “The spirit as we’ve known it has come to an end,” said James Gellert, executive chairman of Rapid Ratings International, a firm that evaluates the financial health of public and private companies. Newsweek. “It is highly unlikely that the restructuring will completely avoid bankruptcy.”

What went wrong with Spirit?

The embattled airline has faced a host of problems in recent years, including a failed merger that could have saved it. Like other airlines, the COVID-19 shutdown had a significant impact on its earnings, but Spirit has failed to make a profit since the pandemic began in 2020.

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“Spirit’s decline is largely a function of losing billions of dollars in the first two years of the pandemic due to declining customer demand and Spirit’s positioning at the very bottom of the market,” Daniel Gielchinsky, partner, co-founder and commercial trial attorney at South Florida-based DGIM LawSpirit, told Newsweek. “Spirit has failed to report a profit in the past five out of six quarters, raising doubts about its ability to service debt.”

As the world emerged from coronavirus lockdowns in 2022, Frontier Airlines tried to merge with Spirit Airlines, but JetBlue ultimately outbid them. However, the Justice Department challenged the $3.8 billion bond, arguing it would lead to higher prices for Spirit’s budget-conscious customers. A federal judge sided with the Justice Department in January, and two months later the JetBlue merger was blocked.

Other problems have also plagued the airline. “Low-cost and ultra-low-cost carriers like Spirit have become extremely vulnerable to increasingly volatile costs,” said AirlineGeeks founder Ryan Ewing Newsweek in October. Across major airlines such as Southwest, Delta, American Airlines and others, the airlines’ costs per seat miles increased an average of 22 percent in 2024 compared to 2019, according to Visual Approach Analytics, but with Spirit, that jump was nearly 43 percent. On average, there has only been an increase of 11 percent in turnover per seat miles.

“By some estimates, labor costs are up over 20 percent compared to pre-pandemic levels, and of course inflation and other supply chain issues are also a factor here,” Ewing said. For Spirit, labor costs were 43.7 times higher in 2024 from 2019, Visual Approach Analytics said.

In an effort to stave off a bankruptcy filing, Spirit announced in October that layoffs would take place as part of $80 million in cost-cutting measures. It also said it had reached an agreement to sell 23 jets to GA Telesis, an aerospace company, for $519 million.

Spirit is not the first airline to file for bankruptcy. American Airlines, United and Delta, the three largest US carriers, have all done the same for the past 25 years – and each has survived the process. Others, like PanAm, didn’t make it through. However, Spirit is the first US airline to file for bankruptcy in more than a decade – since American Airlines filed in 2011.

As for whether Spirit will survive the suit, Gielchinsky isn’t so sure. “This Chapter 11 bankruptcy is Spirit’s attempt to achieve a ‘go-around,’ i.e., to negotiate with its bondholders and creditors and cancel equity to avoid a full liquidation,” Gielchinsky said. “It’s not even certain that a bankruptcy liquidation sale can be avoided. Spirit could be grounded forever.”

Gielchinsky puts the issue down to Spirit’s business model, saying that “trying to run an airline based on cheap fares is deeply flawed.”

“While the market for an ultra-low-cost carrier – targeting price-conscious customers with low fares and an easy flying experience – may have been profitable 10 years ago, when Spirit had no competition in this market segment, their low ticket pricing inevitably forced others airlines to reduce fares and invited competition into the market.”

Gielchinsky said that same market is now saturated, with Spirit winning a “race to the bottom.”

“Operating an airline, buying, maintaining and flying aircraft and having sufficient staff is an expensive endeavour,” he continued. “Time and experience have shown that trying to dominate a market segment based on a strategy of selling the cheapest tickets is not sustainable in the long run.”

Others are more certain of their views. “This is a prepackaged Chapter 11 bankruptcy filing, which means there will be a reorganization, vs. Chapter 7 bankruptcy filing, which meant they would have had to shut down,” Chris Dane, former CEO of American Airlines and current president and managing partner at Hickory Global Partners, said Newsweek. “For people who have booked with Spirit for the foreseeable future, they should have no concerns at this time.”

As for other U.S. airlines, Ewing says they’re unlikely to follow suit — but changes will be coming. “Right now, at least, it looks like no major player will ‘go bust’ per se, but customers could see changes in route networks and fares as these airlines adapt to a dynamic market,” Ewing said.