Passengers check in at the Spirit Airlines counter at Fort Lauderdale-Hollywood International Airport on February 07, 2022 in Fort Lauderdale, Florida.
Joe Riddle | Getty Images
Spirit Airlinesan icon of budget air travel that reshaped the industry, has filed for bankruptcy protection after years of mounting losses, a botched merger and demanding consumer tastes.
The carrier said earlier Monday that it has reached a tentative deal with its bondholders that includes $300 million in debt financing to help it through bankruptcy, allowing it to close next year. The exit is expected in the first quarter. It states that vendors, aircraft charterers will not be harmed.
The airline said it expects to continue operating as normal and said customers can continue bookings as the busy holiday season approaches.
“The most important thing to know is that you can continue to book and fly now and into the future,” Spirit CEO Ted Christie said in a letter to customers Monday. He said customers can usually use tickets, credit and loyalty points.
Spirit is the first major U.S. airline to file for Chapter 11 since American Airlines 13 years ago.
The Dania Beach, Florida-based airline had struggled with engine recalls that grounded dozens of its jets, rising costs following the pandemic, and the failure of its planned acquisitions. Jet Blue AirwaysThat was blocked by a federal judge earlier this year on antitrust grounds. Its shares are down more than 90 percent so far this year.
The airline had repeatedly pushed back a deadline to renegotiate a $1.1 billion debt due next year with its credit card processor or risk losing the ability to process those transactions.
It said Monday that it has entered into an agreement with bondholders for $350 million in equity and that it will “complete a deleveraging transaction to equalize $795 million of funded debt.”
Spirit has filed for protection in the US Bankruptcy Court for the Southern District of New York. The filing will result in Spirit being delisted from the New York Stock Exchange, the company said.
Last week, Spirit said it had to delay its quarterly filing and said it was negotiating with a majority of creditors for an agreement that would not affect customers, vendors, suppliers and others, but This will wipe out the existing equity of the company.
Spirit said in the filing that it expects its third-quarter margin to be 12 percentage points lower than the same period a year ago and that its sales were $61 million lower than last year, while costs increased. Air and fares decreased.
The airline has not turned a profit since 2019 and lost more than $335 million in the first half of the year.
To try to make up the difference, it has sold dozens of jets to raise cash, which has worked in its favor since aircraft are in short supply this year. Recently, it sold 23 Airbus planes to GA Telesis to earn $519 million. Spirit has said it expects to end the year with about $1 billion in liquidity.
The company also plans to lay off another 330 pilots in January, leaving about 200 in September as it cuts routes. But analysts expect the carrier to shrink further into bankruptcy to contain costs.
A Spirit Airlines plane at New York’s LaGuardia Airport
Leslie Josephs/CNBC
The path of the soul
Spirit’s business model of offering rock-bottom fares and fees for everything from seat assignments to cabin baggage was a hit with bargain customers, allowing it to expand for more than a decade.
His bare-bones service became a favorite punchline for stand-up comics. A greeting Card One of the carrier’s yellow planes even featured: “I’ll fly Spirit Airlines for you.”
The low-fare and surcharge model has led to similar offerings from major carriers. Delta, American And unitedwhich implemented basic economic fares.
Spirit struggled after the pandemic, however, as costs rose across the industry and bookings for international trips outside of Spirit’s network increased as travel restrictions were lifted. Fares fell in the oversupplied US market.
This summer, Spirit began offering bundled fares with seat assignments and other perks, as well as a “first class” variant that includes larger seats in the front of the plane because many passengers have more space on board. Opted to pay more for spacious seats.
In January, a federal judge blocked JetBlue’s planned $3.8 billion acquisition of Spirit. In early 2022, Spirit entered into a merger agreement with fellow budget airline. Frontier Before JetBlue bid in April that year. Spirit shareholders supported JetBlue’s all-cash offer.
Judge William Young, who was appointed by former President Ronald Reagan, said the JetBlue deal would raise fares and reduce competition. Airlines had argued that this would help them compete better, especially in the US where four airlines control about three-quarters of the market.
“Spirit is a small airline. But it has fans,” Young wrote in his ruling. “For those dedicated Spirit users, this one’s for you.”
Some analysts expect Frontier and Spirit to resume negotiations in the coming months.
