Spirit Airlines said yesterday that it has filed for bankruptcy protection and will attempt to reboot as it struggles to recover from the pandemic-caused swoon in travel, stiffer competition from bigger carriers, and a failed attempt to sell the airline to JetBlue.
Spirit, the biggest US budget airline, filed a Chapter 11 bankruptcy petition after working out terms with bondholders. The airline has lost more than $2.5 billion since the start of 2020 and faces looming debt payments totaling more than $1bn in 2025 and 2026.
The airline said it expects to continue operating normally during the bankruptcy process. Spirit told customers yesterday that they can book flights and use frequent-flyer points as they ordinarily would, and it said it will continue to pay employees and vendors.
The airline said it received commitments for a $350 million equity investment from existing bondholders and will convert $795m of their debt into stock in the restructured company. The bondholders will also extend a $300m loan that, combined with Spirit’s remaining cash, will help the airline get through the restructuring.
Shares of Miramar, Florida-based Spirit dropped 25 per cent on Friday, after The Wall Street Journal reported that the airline was discussing terms of a possible bankruptcy filing with its bondholders. The company missed a deadline for filing its third-quarter financial results, but announced that its operating margin would indicate a bigger loss than the company suffered in the same quarter last year.
Those were just the latest in a series of blows that have sent the stock crashing down by 97pc 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.
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 2pc more than they did in the same period last year. However, they are paying 10pc less per mile, and revenue per mile from fares is down nearly 20pc, 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 US airlines have snagged some of Spirit’s budget-conscious customers by offering their own brand of bare-bones tickets. And fares for US leisure travel – Spirit’s core business – sagged this summer 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. It also dropped cancellation fees after rival Frontier Airlines did so.
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