Spirit Airlines files for bankruptcy amid financial woes

Spirit Airlines announced Monday that it has filed for Chapter 11 bankruptcy protection as it seeks to recover from pandemic-related setbacks, increasing competition from larger carriers, and a failed attempt to sell the airline to JetBlue.

The airline, the largest budget carrier in the U.S., filed the petition after negotiating terms with its bondholders. Spirit has lost more than $2.5 billion since 2020 and faces upcoming debt payments of over $1 billion in 2025 and 2026.

Despite the bankruptcy filing, Spirit reassured customers that operations will continue as usual. Passengers can still book flights, use frequent-flyer points, and employees and vendors will continue to be paid.

Spirit secured commitments for a $350 million equity investment from its bondholders and plans to convert $795 million of its debt into equity in the restructured company. The bondholders will also extend a $300 million loan, which, along with Spirit’s remaining cash, will help the airline navigate through the restructuring process.

Spirit's shares dropped 25% following reports that the airline was negotiating the bankruptcy terms with bondholders. The company had missed a deadline for its third-quarter financial results and warned of a bigger loss compared to the same period last year.

This bankruptcy follows a series of financial struggles for Spirit, with its stock plummeting by 97% since 2018, when the airline was still profitable. In August, CEO Ted Christie confirmed that Spirit was in talks with bondholders about its upcoming debt maturities and emphasized the urgency of securing the best deal.

While Spirit’s passenger numbers increased by 2% in the first half of this year compared to last year, the airline is earning 10% less per mile and experiencing a nearly 20% drop in revenue per mile, further contributing to its financial difficulties.

Several factors have led to Spirit’s challenges, including rising labor costs, increased competition from other budget airlines offering similar low-cost tickets, and a general decline in U.S. leisure travel fares. Additionally, Spirit’s efforts to appeal to premium customers have not had the desired impact, with the airline introducing bundled fares for additional services like priority boarding, larger seats, and free bags, as well as eliminating cancellation fees.

In an unusual move, Spirit plans to reduce its flight schedule by nearly 20% for the October to December period, which analysts suggest may boost fares. However, competitors such as Frontier, JetBlue, and Southwest, who share many of Spirit’s routes, are likely to benefit the most from this cut.

Spirit has also been dealing with required repairs to Pratt & Whitney engines, grounding dozens of its Airbus jets, which has contributed to the airline furloughing pilots.

Despite these difficulties, Spirit’s relatively young fleet made it an attractive target for acquisition. In 2022, Frontier attempted to merge with Spirit but was outbid by JetBlue. However, the Justice Department blocked the $3.8 billion deal, arguing it would raise prices for Spirit’s low-fare customers. JetBlue and Spirit eventually dropped the merger in March 2023.

U.S. airline bankruptcies were common in the 1990s and 2000s as carriers struggled with competition, labor costs, and fuel price increases. Some airlines, like PanAm, TWA, and Northwest, liquidated, while others used bankruptcy protection to renegotiate debts and continue flying. The last major U.S. carrier to exit bankruptcy was American Airlines, which merged with US Airways in December 2013.