By Niraj Chokshi
Spirit Airlines, known for its budget ticket sales devoid of frills that garnered both supporters and critics, sought bankruptcy protection on Monday following a series of challenges, the latest being unsuccessful renegotiations of its impending debt.
The airline, which last recorded a yearly profit in 2019, has faced difficulties in stabilizing after a federal judge barred a proposed merger with JetBlue Airways in January. Additionally, Spirit has encountered challenges in leveraging the post-pandemic recovery due to severe competition, mechanical issues, and other complications.
The company initiated Chapter 11 bankruptcy proceedings in New York. It also revealed a deal with bondholders to reorganize its debts and secure funding to maintain operations during the bankruptcy phase, which it anticipates concluding in the first quarter of the upcoming year.
Spirit, which has incurred losses exceeding $2.2 billion since the beginning of 2020, issued a public letter to clients affirming that travelers could “utilize all tickets, credits, and loyalty points as they normally would.”
Ted Christie, the CEO of the airline, stated in a release that the arrangements disclosed on Monday were a “robust endorsement of confidence in Spirit and our long-term strategy.”
In a court submission, the airline indicated it had between 25,000 and 50,000 creditors, with total debts approximating $9 billion and only slightly more in assets at the close of September. It announced that its stock would be removed from the New York Stock Exchange. Spirit’s share price had plummeted over 90% since the year’s outset.
The airline commenced operations as a freight company under a different name back in 1964. It transitioned to a tour operator before launching flights in 1990, and two years later, it adopted the name Spirit Airlines.
However, the contemporary iteration of the company can be traced back to 2006, when Indigo Partners, a private equity firm, took a controlling interest. Under the guidance of Indigo and Ben Baldanza—who served as Spirit’s CEO for a decade and passed away this month—the airline concentrated on reducing expenses and providing low-cost, no-frills airfare.
This business strategy made the airline a target of late-night television jests, yet it also contributed significantly to transforming the industry. Passengers flocked to Spirit for its affordable fares, often disregarding concerns regarding service quality. The airline consistently generated profits, prompting other carriers to emulate its model. Today, most airlines in the U.S. offer some variant of a low-cost ticket.
Spirit also emerged as a formidable player in the market, compelling competitors to decrease fares. This dynamic was a key element in the Justice Department’s successful lawsuit aimed at blocking the JetBlue-Spirit merger, asserting that the elimination of Spirit would disadvantage consumers.
The bankruptcy announcement follows months of Spirit’s attempts to renegotiate its debts. Many companies, including several airlines, frequently emerge from Chapter 11 bankruptcy with improved financial conditions.
Over the past few decades, airlines have filed for bankruptcy numerous times, according to data from Airlines for America, a trade organization. Three major industry players—American Airlines, Delta Air Lines, and United Airlines—filed for bankruptcy following the September 11 terrorist attacks. However, Spirit’s filing marks the first instance from a major airline in over ten years.
The largest airlines in the nation have benefited from the recovery post-pandemic, partly by capitalizing on the demand for premium and international travel. In contrast, Spirit and other low-cost carriers have faced greater challenges in managing escalating expenses, particularly for labor, alongside heightened competition.
This summer marked the busiest period ever for air travel, as per data from the Transportation Security Administration. Yet, budget airlines encountered difficulties as many popular destinations they serve became oversaturated with seats. The low-cost carriers have also contended with increasing rivalry from larger airlines offering “basic economy” fares.
Spirit transported a slightly larger number of passengers in the first half of this year compared to the same timeframe in 2023. However, those passengers were charged nearly 20% less in fares for each flight.
The airline’s largest union, a segment of the Association of Flight Attendants, advised members to continue their work as scheduled, asserting their commitment to safeguard their interests throughout the bankruptcy proceedings. Spirit employs approximately 12,800 staff members.
Certain challenges lie outside of Spirit’s control. The airline operates over 200 Airbus A320 jets, but an issue with the Pratt & Whitney engines powering some of these aircraft means that around 1 in 10 will be grounded this year. Spirit has indicated that it anticipates starting 2025 with 35 planes inactive, potentially increasing to about 67.
The airline expects to receive $150 million to $200 million in compensation from Pratt & Whitney. To reduce expenses, Spirit postponed the arrival of new aircraft and implemented pilot furloughs. Last month, it sold nearly two dozen planes and may sell additional ones, although most of its fleet is leased.
Over the summer, Spirit sought to revitalize its prospects by introducing premium offerings. In July, it announced plans to launch four fare packages, which include various privileges. The top-tier option encompasses extra legroom, priority boarding, refreshments, and waived baggage fees. Another option features some of those perks along with a guaranteed empty middle seat.
