After failed merger attempts, Spirit Airlines files for bankruptcy

DANIA BEACH, Florida: Spirit Airlines, the U.S. pioneer of no-frills travel, has filed for Chapter 11 bankruptcy protection, citing ongoing financial struggles, failed merger attempts, and looming debt maturities.

The Florida-based carrier plans to restructure its debts with the support of bondholders and expects to exit bankruptcy by the first quarter of 2025.

The airline assured customers that operations would continue without interruption, with flights and bookings unaffected during the proceedings. Employee wages and benefits will also remain intact, and payments to vendors and aircraft lessors will continue. However, Spirit expects to be delisted from the New York Stock Exchange, with its shares canceled and rendered worthless under the restructuring plan.

Struggles with profitability
Spirit has not turned a full-year profit since 2019, losing US$360 million in the first half of 2024 despite a surge in travel demand. Challenges include a collapse in pricing power due to intense competition among U.S. carriers for budget-conscious travelers and an oversupply of domestic airline seats. Its average fare per passenger dropped 19 percent year-on-year in the first half of 2024.

The airline was also heavily affected by problems with Pratt & Whitney's Geared Turbofan engines, which forced it to ground multiple aircraft and increased operational costs.

Spirit's financial woes deepened after a Boston judge blocked its planned $3.8 billion merger with JetBlue Airways in January, which analysts had viewed as a potential lifeline. Without the merger, doubts about Spirit's ability to manage its debt led the company to shrink operations, furlough hundreds of pilots, delay aircraft deliveries and sell planes to raise liquidity.

Comprehensive restructuring
Spirit filed for bankruptcy in New York, announcing plans for a "comprehensive balance sheet restructuring" to reduce its debt by $795 million, provide financial flexibility, and accelerate investments. Existing bondholders have committed to a $350 million equity investment and $300 million in debtor-in-possession financing, which, combined with cash reserves, will sustain operations during the bankruptcy process.

A legacy of budget travel
Founded in 1964 as a trucking company, Spirit transitioned to aviation in 1983 and rebranded as Spirit Airlines in 1992. Known for its bright yellow planes, the carrier gained popularity for ultra-low fares, targeting customers willing to trade amenities for affordability.

However, post-pandemic shifts in traveler preferences have pressured ultra-low-cost carriers, with some analysts questioning the sustainability of the no-frills model. Spirit's bankruptcy underscores the challenges facing budget airlines as the industry adapts to changing consumer demands and economic pressures.