Spirit, the largest U.S. budget airline, has lost more than $2.5 billion since the start of 2020 and faces debt payments totaling more than $1 billion over the next year.
Spirit said it expects to operate as normal as it works its way through the prearranged Chapter 11 bankruptcy process and that customers can continue to book and fly without interruption.
Shares of Miramar, Florida-based Spirit fell 25 percent on Friday, after the Wall Street Journal reported that the airline was discussing possible bankruptcy terms with its bondholders. It was the latest in a series of 97% losses for the stock since the end of 2018 – when Spirit was still making money.
CEO Ted Christie confirmed in August that Spirit was talking to advisers to its bondholders about upcoming debt maturities. He called negotiations a priority, and said the airline was trying to get the best deal as soon as possible.
“The chatter about spirit in the market is significant, but we are not engaged,” he told investors during an earnings call. “We are focused on refinancing our debt, improving our overall liquidity position, deploying our newly envisioned product in the market, and expanding our loyalty programs.”
People are still flying on Spirit Airlines. They just aren’t paying 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 revenue per mile from fares is about 20% lower, contributing to Spirit’s red ink.
This is not a new trend. Spirit failed to return to profitability when the coronavirus pandemic eased and travel resumed. There are several reasons behind the decline.
Spirit costs, especially for labor, have increased. America’s biggest airlines have snapped up Spirit’s budget-conscious customers by offering their own brand of bare-bones tickets. And American leisure travel fares — Spirit’s core business — have been squeezed by a glut of new flights.
The premium end of the air travel market has grown while the traditional no-frills end of Spirit has stagnated. So this summer, Spirit decided to sell bundled fares that include a larger seat, priority boarding, free bags, internet service and snacks and drinks. It’s a big shift from Spirit’s longtime strategy of luring customers in with rocket-bottom fares and forcing them to pay extra for things like bringing a carry-on bag or ordering a soda.
In a highly unusual move, Spirit plans to cut its October-to-December schedule by about 20 percent from the same period last year, which analysts say should help boost fares. will But this will help competitors more than it will boost spirits. Analysts at Deutsche Bank and Raymond James say Frontier, JetBlue and Southwest will benefit the most due to their overlap with Spirit on many routes.
Spirit has also been affected by Pratt & Whitney’s need for engine repairs, forcing the airline to ground dozens of its Airbus jets. Spirit has cited the recall of pilots.
The aircraft fleet is relatively young, making Spirit an attractive takeover target.
Frontier Airlines tried to merge with Spirit in 2022, but JetBlue beat it out. However, the Justice Department sued to block the $3.8 billion deal, saying it would raise prices for spirits consumers who rely on low fares, and a federal judge agreed in January. JetBlue and Spirit called off their merger two months later.
US airline bankruptcies were common in the 1990s and 2000s, as airlines struggled with fierce competition, high labor costs and sudden increases in the price of jet fuel. Went to Panama, TWA, Northwest, Continental, United and Delta Lake. Some were liquidated, while others used favorable terms to renegotiate loans such as aircraft leases and continued flying.
The last bankruptcy of a major US carrier ended when American Airlines emerged from Chapter 11 protection and simultaneously merged with US Airways in December 2013.
