Spirit Airlines has filed for Chapter 11 bankruptcy protection, marking the first major U.S. airline to take this step in over a decade. The airline, known for its no-frills services, made the announcement on November 13, 2024, following years of financial challenges, failed mergers, and mounting debt. Despite this, the company assured passengers that it will continue normal operations, with bookings and flights remaining unaffected.
Challenges Leading to Bankruptcy
The Florida-based airline cited intense competition in the U.S. domestic market as a key factor in its struggles. Competition for budget-conscious leisure travelers and an oversupply of seats drove down pricing power. Spirit’s average fare per passenger dropped by 19% in the first half of the year compared to the same period in 2023. These factors, compounded by issues with Pratt & Whitney Geared Turbofan engines supplied by RTX, further disrupted operations and raised costs by forcing multiple aircraft out of service.
The carrier has not posted a full-year profit since 2019. It reported a $360 million loss in the first half of 2024, even amid strong travel demand. Spirit had also been scaling back its operations, furloughing pilots, delaying aircraft deliveries, and selling planes to improve liquidity.
Earlier this year, Spirit faced a major setback when a proposed $3.8 billion merger with JetBlue Airways fell through. A Boston judge blocked the deal, citing concerns that it would harm competition in the market. This decision left Spirit with limited options to manage its financial obligations, especially with looming debt maturities.
Details of the Restructuring Plan
Spirit Airlines filed for bankruptcy in New York with a pre-arranged deal involving its bondholders. This “comprehensive balance sheet restructuring” aims to reduce the airline’s total debt, provide financial flexibility, and accelerate investments to ensure long-term success.
The restructuring includes a $350 million equity investment from existing bondholders and a $795 million debt reduction through a debt-to-equity swap. Additionally, the company secured $300 million in debtor-in-possession financing, which, alongside available cash, will support operations during the bankruptcy process. Spirit expects to emerge from Chapter 11 in the first quarter of 2025.
The airline stated that employee wages, benefits, and working conditions will remain unchanged. Vendors and aircraft lessors will also continue to receive payments without disruption. However, Spirit’s shares, which have plummeted by over 90% in 2024, are expected to be canceled and delisted from the New York Stock Exchange.
Spirit’s History and Business Model
Spirit Airlines began as a trucking company in 1964 before transitioning to aviation in 1983 under the name Charter One Airlines. It rebranded to Spirit in 1992, becoming an ultra-low-cost carrier that appealed to budget-conscious travelers. Spirit became popular for its affordable fares, achieved by limiting amenities like checked bags and assigned seating.
However, the COVID-19 pandemic disrupted the business model of many low-cost carriers, including Spirit. A shift in passenger preferences toward more comfortable travel options has further affected its ability to recover. Wall Street analysts have since questioned the viability of the ultra-low-cost carrier model in the post-pandemic market.
Despite its challenges, Spirit Airlines remains committed to continuing operations and serving passengers during the restructuring process.
