Spirit Airlines files for bankruptcy

On By Littum


New York/London
CNN
—

Spirit Airlines filed for bankruptcy protection Monday as mounting losses, unaffordable debt, increased competition for bargain-hunting airline passengers and an inability to merge with other airlines left it with no 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 declaration.

Airlines and other companies in the US 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 past 25 years.

Spirit’s statement said that as a result of its bankruptcy and negotiations with existing creditors, it will be able to emerge early next year with reduced debt and increased financial flexibility that will “position Spirit for long-term success and accelerate investments that provide guests with enhanced travel experiences and greater value.” It added that creditors had agreed to pump an additional $300 million into the airline to fund its operations through the bankruptcy process.

But it’s also possible that Spirit (SAVE) will end up being bought by another airline or forced into liquidation. Several 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 bidder Frontier Airlines and once with JetBlue Airways, which topped the offer from Frontier only to have its purchase blocked by a federal judge on antitrust grounds.

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No-frills Spirit Airlines is starting to offer frills

Spirit’s problems could lead to higher prices across the industry. Its low-cost model had led major airlines to also offer no-frills “basic economy” seats on their planes. If it is forced to scale back its schedule or cities it serves, goes bankrupt or is bought by a larger airline, the pressure to offer lower fares will be reduced.

But a new deal to buy Spirit and merge it into a larger airline might not run into the same problems this time, as its bankruptcy filing would raise the possibility of liquidation as an alternative. It’s also possible that Trump’s Justice Department, which enforces antitrust laws, may not be as opposed to corporate mergers as the Biden administration had been. Several deals that may have gone through in the past have been challenged on antitrust grounds in the past four years.

Spirit said last week in a filing with the Securities and Exchange Commission that it is in “productive” talks with its lenders to restructure its debt, which matures in 2025 and 2026. Its previous filings revealed it had $3.1 billion in long-term debt on its balance sheet.

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.

Spirit’s shares fell 59% on Wednesday after it said it was in talks with creditors and revealed it was unable to complete its third-quarter financial report by the deadline because of those talks. Shares of Spirit fell another 18% in trading on Friday amid reports that the bankruptcy filing was imminent and have lost 93% of their value so far this year.

Spirit pioneered the US market in offering ultra-low base fares, but charged extra for virtually every other option, including carry-on.

But this low-cost model also resulted in a large number of passenger complaints against Spirit. Spirit and Frontier were the bottom two airlines recently passenger satisfaction survey performed by JD Power.

Its low-cost model also led to concerns that a sale to JetBlue would lead to higher prices across the industry — concerns that resulted in the Justice Department’s antitrust case blocking the deal.

All US airlines bled billions during the first two years of the pandemic, despite receiving billions of dollars in federal aid to keep flying and prevent widespread layoffs. But as demand for air travel picked back up in 2022, profitability also increased at the major airlines.

Smaller carriers — like Spirit — that offered lower fares to attract bargain hunters have 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 measures to raise cash and cut costs, recently announcing a sale of 23 of its Airbus jets and delaying future aircraft deliveries. The company also laid off hundreds of its pilots, and it plans to cut additional staff in January.

This story has been updated with additional reporting and context.