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Spirit Airlines said Monday that it has filed for bankruptcy protection and will attempt to reboot as it struggles to recover from the pandemic-caused swoon in travel and a failed attempt to sell the airline to JetBlue.
Spirit, the biggest U.S. budget 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 prearranged Chapter 11 bankruptcy process and that customers can continue to book and fly without interruption.
Shares of Miramar, Florida-based Spirit dropped 25% on Friday, after The Wall Street Journal reported that the airline was discussing terms of a possible bankruptcy filing with its bondholders. It was just the latest in a series of blows that have sent the stock crashing down by 97% since late 2018 — when Spirit was still making money.
CEO Ted Christie confirmed in August that Spirit was talking to advisers of 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 quickly as possible.
“The chatter in the market about Spirit is notable, but we are not distracted,” he told investors during an earnings call. “We are focused on refinancing our debt, improving our overall liquidity position, deploying our new reimagined product into the market, and growing our loyalty programs.”
People are still flying on Spirit Airlines. They’re just not paying as much.
In the first six months of this year, Spirit passengers flew 2% more than they did in the same period last year. However, they are paying 10% less per mile, and revenue per mile from fares is down nearly 20%, contributing to Spirit’s red ink.
It’s not a new trend. Spirit failed to return to profitability when the coronavirus pandemic eased and travel rebounded. There are several reasons behind the slump.
Spirit’s costs, especially for labor, have risen. The biggest U.S. airlines have snagged some of Spirit’s budget-conscious customers by offering their own brand of bare-bones tickets. And fares for U.S. leisure travel — Spirit’s core business — have sagged because of a glut of new flights.
The premium end of the air travel market has surged while Spirit’s traditional no-frills end has stagnated. So this summer, Spirit decided to sell bundled fares that include a bigger seat, priority boarding, free bags, internet service, and snacks and drinks. That is a huge change from Spirit’s longtime strategy of luring customers with rock-bottom fares and forcing them to pay extra for things such as bringing a carry-on bag or ordering a soda.
In a highly unusual move, Spirit plans to cut its October-through-December schedule by nearly 20%, compared with the same period last year, which analysts say should help prop up fares. But that will help rivals more than it will boost Spirit. Analysts from Deutsche Bank and Raymond James say that Frontier, JetBlue, and Southwest would benefit the most because of their overlap with Spirit on many routes.
Spirit has also been plagued by required repairs to Pratt & Whitney engines, which is forcing the airline to ground dozens of its Airbus jets. Spirit has cited the recall as it furloughed 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, the Justice Department 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.
U.S. airline bankruptcies were common in the 1990s and 2000s, as airlines struggled with fierce competition, high labor costs, and sudden spikes 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 such as aircraft leases and keep flying.
The last bankruptcy by a major U.S. carrier ended when American Airlines emerged from Chapter 11 protection and simultaneously merged with US Airways in December 2013.
Spirit Airlines, known for being one of the cheapest carriers in the U.S., announced Monday morning that it’s filing for bankruptcy as it struggles to overcome challenges like increased competition on its leisure routes and higher labor costs.
Whether you have an upcoming Spirit flight, a balance of Spirit miles in your account or ownership of the airline’s stock, you likely have some questions about what this all means — not just for the airline, but for you.
Take a deep breath. Airline bankruptcies are actually relatively common, and they typically don’t lead to immediate flight cancellations. But customers — and investors — will still likely be affected by this bankruptcy process in several ways.
Here’s what we know right now:
What does bankruptcy mean?
Companies like Spirit elect to file for Chapter 11 bankruptcy protection in dire financial circumstances in order to restructure debts and reorganize the business.
Unlike Chapter 7 bankruptcy, in which a company ceases operations and its assets are liquidated, chapter 11 protection can allow the business to keep operating.
What will happen to Spirit Airlines now?
Spirit said in a news release that it hopes to continue flying during bankruptcy and emerge in a stronger financial position as a result of the process.
Spirit had been operating with about $3.6 billion of long-term debt, the airline said in a court filing Monday. The company said the restructuring moves should reduce its debt by $795 million, with creditors swapping debt in exchange for equity.
Spirit said it’s raising $350 million through an equity rights investment, and bondholders are providing $300 million of financing that will support the company in the bankruptcy process.
Are my Spirit flights canceled?
In its statement, Spirit Airlines said it “expects to continue operating its business in the normal course throughout this prearranged, streamlined Chapter 11 process.” That means existing Spirit tickets are valid, and customers can continue booking new tickets, the airline said.
Spirit also noted that “other airlines that are operating successfully today have undertaken a similar process.” However, in the past, other airlines have taken significant steps to cut costs during the bankruptcy process, including trimming flight schedules and reducing fleet sizes.
Spirit already planned to reduce its flight schedule by 20% this quarter compared to the prior year.
While near-term disruptions to existing bookings may be unlikely, customers with plans to fly Spirit Airlines should monitor their itineraries for any unexpected changes.
What happens to my Free Spirit points?
Spirit Airlines said customers will be able to use their credits and loyalty points “as normal.”
The airline’s frequent flyer program is called the Free Spirit loyalty program. General customers earn six points for every dollar spent; these points can then be used to book flights.
In the past when U.S. airlines have filed for bankruptcy, frequent flyer miles have usually been honored. If the airline were to be liquidated, however, it could be a different story.
In 2022, JetBlue arranged to acquire and merge with Spirit, but federal antitrust regulators intervened to block the plan earlier this year. While there are no indications of plans for a merger at this time, it’s notable that the incoming Trump administration is expected to be more friendly toward mergers.
What’s next for Spirit stock after the bankruptcy?
According to the New York Stock Exchange, trading on Spirit Airlines stock was halted Monday morning due to regulatory concerns. The airline, which went public in 2011, said in its statement that it “expects to be delisted from the New York Stock Exchange in the near term.”
As of Monday, the company’s stock price was down over 93% this year. Its stock will trade in the over-the-counter market, and the shares will ultimately be canceled, Spirit said.
Has this ever happened before?
Yes, many U.S. airlines have filed for Chapter 11 bankruptcy protection in recent decades. Several major airlines still in operation filed for bankruptcy and made it to the other side, including:
- American Airlines (filed in 2011)
- Frontier Airlines (2008)
- Delta Air Lines (2005)
- United Airlines (2002)
JetBlue and Southwest Airlines are the only large American airlines that haven’t yet gone through bankruptcy.
In other cases when airlines have filed for bankruptcy, they’ve ceased operations and had all their assets sold. Examples include Pan American Airways, which filed for bankruptcy in 1991, and Trans World Airlines, which ceased operations in 2001.