Spirit Airlines files for bankruptcy as financial losses pile up and debt looms

Spirit Airlines said Monday it has filed for bankruptcy protection and will try to restart as it struggles to recover from the pandemic-induced slump in travel and a failed attempt to sell the airline to JetBlue.

Spirit, the largest U.S. budget airline, has lost more than $2.5 billion since the start of 2020 and faces looming debt payments totaling more than $1 billion over the next year.

Spirit said it expects to be able to operate as normally as it works its way through a pre-arranged bankruptcy process and that customers will be able to continue booking and flying without interruption.

Shares of Miramar, Florida-based Spirit fell 25% on Friday after The Wall Street Journal reported the airline was discussing the terms of a possible bankruptcy filing with its bondholders.

It was just the latest in a series of blows that have sent the shares down 97% since the end of 2018 – when Spirit was still making money.

CEO Ted Christie confirmed in August that Spirit was speaking to advisers to its bondholders about upcoming debt maturities. He called the talks a priority and said the airline was trying to get the best deal as quickly as possible.

“The buzz in the market about Spirit is notable, but we won’t be distracted,” he told investors during an earnings call.

“We are focused on refinancing our debt, improving our overall liquidity position, deploying our new, updated product to the marketplace and expanding our loyalty programs.”

People are still flying Spirit Airlines. They just don’t pay that much.

In the first six months of this year, Spirit passengers flew 2% more than in the same period last year. However, they are paying 10% less per mile, and per-mile revenue from fares is down nearly 20%, adding to Spirit’s red ink.

It’s not a new trend. Spirit failed to return to profitability as the coronavirus pandemic subsided and travel recovered. There are several reasons for the slump.

Spirit’s costs, especially for labor, have increased. The largest US airlines have captured some of Spirit’s price-conscious customers by offering their own brand of bare-bones tickets. And fares for leisure travel in the US – Spirit’s core business – have fallen due to a glut of new flights.

The premium segment of the aviation market has soared, while Spirit’s traditional, no-frills segment has stagnated.

That’s why Spirit decided to sell bundled fares this summer, including a larger seat, priority boarding, free bags, internet service and snacks and drinks.

That’s a huge change from Spirit’s old strategy of luring customers with rock-bottom prices and forcing them to pay extra for things like bringing a carry-on or ordering a soft drink.

In a highly unusual move, Spirit plans to shorten its October through December schedule by nearly 20% compared to the same period last year, which analysts say should help keep fares up.

But that will help rivals more than it will boost Spirit.

Analysts at Deutsche Bank and Raymond James say Frontier, JetBlue and Southwest would benefit the most because of their overlap with Spirit on many routes.

Spirit has also been plagued by necessary repairs to Pratt & Whitney engines, forcing the airline to ground dozens of Airbus planes.

Spirit has cited the recall as pilots being fired.

The aircraft fleet is relatively young, which makes Spirit an attractive takeover target.

Frontier Airlines tried to merge with Spirit in 2022, but was outbid by JetBlue.

However, the Justice Department filed a lawsuit to block the $3.8 billion deal, saying it would drive up prices for Spirit customers who rely on low fares, and a federal judge agreed in January at sometime.

JetBlue and Spirit dropped their merger two months later.

U.S. airline bankruptcies were common in the 1990s and 2000s as airlines faced intense competition, high labor costs and sudden increases in the price of jet fuel.

PanAm, TWA, Northwest, Continental, United and Delta were swept away.

Some were liquidated, while others used favorable laws to renegotiate debts such as aircraft leases and keep flying.

The last bankruptcy of a major US airline ended when American Airlines emerged from Chapter 11 protection in December 2013 and simultaneously merged with US Airways.