Spirit Airlines announced on Monday that it has filed for Chapter 11 bankruptcy protection, seeking to revitalize its operations amid the ongoing challenges stemming from the pandemic, increased competition from larger carriers, and a failed merger attempt with JetBlue.
As the largest budget airline in the U.S., Spirit’s bankruptcy filing comes after significant financial losses exceeding $2.5 billion since 2020 and impending debt obligations exceeding $1 billion in 2025 and 2026. The airline emphasized that it will maintain normal operations throughout the bankruptcy process, allowing customers to book flights and use their frequent-flyer points without disruption. Employees and vendors will continue to receive their payments as well.
Spirit has secured a $350 million equity investment from its existing bondholders, who will also convert $795 million of their debt into equity in a restructured entity. Additionally, they are extending a $300 million loan to assist during the restructuring phase.
Despite a 25% drop in its shares following news of the bankruptcy discussions, CEO Ted Christie expressed optimism, calling the bondholder agreement a strong endorsement of Spirit’s long-term strategy. Notably, while more passengers are flying with Spirit—2% more in the first half of this year compared to last—fare prices have decreased by 10% per mile, contributing to the financial strain.
The airline has faced various challenges, including rising labor costs and competition from major U.S. airlines that offer streamlined, budget-friendly options, inadvertently attracting Spirit’s cost-conscious customer base. A summer surplus in leisure travel flights has also led to declining fares—impacting Spirit’s primary business.
In response, Spirit has shifted its business model to offer bundled fares that include added perks such as priority boarding and free bags, moving away from a strict low-fare strategy. The airline plans to reduce its flight schedule by nearly 20% for the last quarter of the year in hopes of stabilizing fare rates.
This restructuring marks a critical juncture as Spirit navigates operational difficulties, including required repairs on Pratt & Whitney engines that have led to the grounding of several Airbus jets, resulting in pilot furloughs.
Historically, U.S. airline bankruptcies have been common, especially in fiercely competitive eras. Although many airlines have struggled or merged throughout the years, some have successfully renegotiated debts to continue operations. Spirit’s current situation brings to mind these previous trials, emphasizing the resilience needed in the aviation sector.
With strategic changes underway and backing from its bondholders, there is hope that Spirit Airlines will emerge from this restructuring process even stronger, potentially finding a more sustainable path in the competitive airline market.