Spirit Airlines, the nation’s largest ultra-low-cost airline, has filed for bankruptcy protection, the company announced Monday.
The Dania Beach, Fla.-based airline, which is facing significant financial headwinds, announced it has entered Chapter 11 bankruptcy proceedings to “position the company for long-term success.”
The move comes as Spirit faces mounting debt, a major engine recall and changing consumer tastes that have been troubling for low-cost airlines in recent years.
Importantly for passengers, all Spirit operations will continue during the process. That means travelers who book tickets on Spirit in the coming months should expect their flights to operate as scheduled.
“These transactions materially strengthen our balance sheet and position Spirit for the future,” Spirit President and CEO Ted Christie said in a statement announcing the news. We will be positioning ourselves for this.”
But the bankruptcy filing also raised questions about where the company is headed in the long term.
FAQ: Spirit Airlines bankruptcy and its impact on travel
Spirit faces significant financial challenges
Monday’s announcement comes after months of speculation amid financial turmoil for the low-cost carrier.
various problems
Spirit has faced a myriad of financial hurdles in recent years, dating back to the beginning of the coronavirus pandemic. The airline had billions of dollars in debt, more than $1 billion of which was due soon.
daily newsletter
Get rewarded in your inbox with the TPG Daily newsletter
Join over 700,000 readers and get breaking news, in-depth guides, and exclusive deals from TPG experts.
In early 2024, the airline was blocked in federal court from a planned merger with JetBlue, which fell apart after merger talks with low-cost airline rival Frontier Airlines failed.
The company’s fleet has been disproportionately affected by engine recalls affecting a wide range of airlines and aircraft around the world, which has forced the company to take jets out of service for extended periods of maintenance. It’s gone.
This, along with a domestic hyper-competitive environment that has squeezed airline profitability, contributed to Spirit cutting dozens of routes over the course of this year.
Industry headwinds
Meanwhile, Spirit has also fallen victim to industry trends that have hurt some low-cost carriers in recent years. After the widespread success of low-cost carriers in the 2010s, larger network carriers, particularly Delta Air Lines and United Airlines, have driven the U.S. airline industry’s profitability since the pandemic.
“The entire aviation industry faces significant challenges, including rising operating costs, changing consumer preferences, and fluctuations in demand, and we are not immune to these impacts,” Spirit said on Monday. said.
With customers flocking to airlines with premium seating options in recent years, the airline announced major changes to its product this summer as a way to boost revenue. Spirit has revamped the way it presents and sells tickets and add-on bundles, repackaging the Big Front Seat as a new “Business Class” product. Like Frontier, the airline has eliminated long-standing change and cancellation fees on most tickets.
Bankruptcy filing widely predicted
Despite the changes, many industry players had predicted Monday’s move.
For example, in late September, Deutsche Bank analyst Michael Linenberg predicted Spirit’s eventual bankruptcy filing, likening the expected financial losses to “taking cash and just setting it on fire.” Ta.
“They’re definitely going to restructure. They have to,” Linenberg said while speaking at the 2024 Regional Air Association Leaders Conference in Washington.
“I don’t know if it’s in court or outside court,” Linenberg added at the time. “But as a result, they will shrink.”
What if I book a flight with Spirit?
In an open letter to customers on Monday, Spirit sought to allay flyers’ concerns.
Even though the bankruptcy proceedings are ongoing, customers will still be able to use cash or frequent flyer miles to book tickets on Spirit, executives said. And the airline plans to operate as planned during the upcoming important holiday period.
“You will continue to benefit from our Free Spirit loyalty program, Saver$ Club benefits, and credit card terms,” the company wrote.
Looking to exit early in 2025
Spirit plans to exit bankruptcy proceedings by the end of the first quarter of 2025, the company announced Monday.
Steve Walt, a professor at the University of Virginia School of Law, said the schedule sounds realistic given that Spirit entered into a “pre-arranged” Chapter 11 proceeding. That means Spirit had already reached an agreement with its creditors before filing for bankruptcy.
“They came to an agreement, they solicited votes, the plan was distributed to the various creditors and stockholders, and they voted,” Walt said.
“Customers, in principle, will not feel any impact,” he added.
Long-term questions remain
Still, questions remain about what the future holds for Spirit, despite the airline’s insistence that it will continue business as usual in the short term.
Some industry analysts predict that the airline could continue to reduce the number of routes it flies, following trends seen through 2024.
“The question going forward will be how much smaller will Spirit be on the other side of the Chapter 11 process and where will the assets go?” Melius Research’s Conor Cunningham said in a report Monday. said.
Additionally, Cunningham noted that Spirit could again merge with another airline or sell some of its assets. (The Wall Street Journal reported last month, citing sources familiar with the matter, that Spirit and Frontier had reignited merger talks, which later fell through.)
Spirit currently has 182 aircraft in its fleet, with an additional 31 in storage, according to data from aviation analytics firm Cirium. This includes 155 Airbus A320s, 56 A321s and two A319s.
conclusion
While news of the bankruptcy may be worrying for Spirit’s customers, there is strong precedent for major U.S. airlines continuing to operate near-normally during bankruptcy proceedings.
Many of the largest U.S. airlines have gone through bankruptcy this century, with American Airlines being the most recent, culminating in its merger with US Airways, which closed in 2014. Delta Air Lines and United Airlines each declared bankruptcy in the 2000s, and similar bankruptcy proceedings continue. Because it merges with its main rival and emerges as a stronger and leaner competitor.
Related books:
