ORLANDO, Fla. – Budget airline Spirit Airlines has filed for Chapter 11 bankruptcy protection, with the holiday travel season approaching.
While insiders had speculated about this outcome for weeks, the announcement has still sent shockwaves through the airline industry, especially for passengers.
“My thoughts [are] I’m just a little concerned about the future,” Spirit passenger Shamel Davi told News 6 Monday morning at Orlando International Airport. “My family likes to fly during the holiday season, especially now, [with] the holiday seasons coming up.”
Known for its low fares and minimalist approach, Spirit’s financial turmoil now raises questions for passengers with upcoming travel plans. Despite the filing, the carrier’s leadership says it plans to continue operations while reorganizing. The timing has raised many questions among industry watchers.
Spirit cited significant challenges in its Chapter 11 filing, including rising operational costs, increased competition, and lingering effects of the COVID-19 pandemic.
The Dania Beach, Florida-based airline also faced ongoing financial struggles due to the discovery of a manufacturing defect in the Pratt & Whitney PW1100G-JM engines (manufactured between 2015 and 2021) fitted to its A320neo aircraft. The grounding/inspection of the aircraft has stifled the carrier’s growth and compounded an already tough operating environment.
Financially, the airline’s profitability has been on the ropes for years - Spirit’s shares have plummeted more than 93% this year, underscoring its financial instability. At around 1:30 p.m. on Nov. 18, 2024, Spirit Airlines stock was trading at $1.08 per share. The 52-week high on the stock is $17.02 per share; 10 years ago, the stock hit an all-time high of $76.32.
The ultra-low-cost carrier’s financial troubles became acute after a proposed $3.8 billion merger with JetBlue Airways in 2022 started to fall apart. The Justice Department blocked the merger on antitrust grounds, arguing it would lead to higher fares and reduced competition.
“The merger of JetBlue and Spirit would result in higher fares and fewer choices for tens of millions of travelers across the country,” said Attorney Merrick Garland in a press release in March of 2023.
Associate Attorney General Vanita Gupta added, “Our complaint alleges that JetBlue’s acquisition of Spirit would particularly hurt cost-conscious travelers.”
The cratering of that merger is just another factor contributing to Spirit’s woes (although it received a nice payout for a reverse break-up fee when the deal didn’t go through). The airline also faces pressure from repaying $1.1 billion in debt tied to credit card processing agreements. But while Spirit has reached a deal for $350 million in new equity, a long-term solution to its mounting debt is one of a myriad of challenges on the horizon.
Haven’t seen this in a while
Spirit is the first major U.S. airline to file for Chapter 11 in over a decade. Monday’s filing follows a series of cost-cutting moves, including selling 23 of its Airbus A320ceo/A321ceo jets for $519 million (to Ft. Lauderdale based GA Telesis) furloughing 186 pilots in September, and announcing additional layoffs and re-designations of pilots by January of 2025 (330 more pilots furloughed and 120 captains demoted to the rank of first officer).
The airline hasn’t posted a yearly profit since 2019 (it made $2.3 million in Q2 of 2023) and has recorded losses exceeding $335 million in just the first half of this year. Spirit Airlines has lost over $2.5 billion since 2020.
Travel experts advise Spirit passengers to stay updated on flight details, purchase travel insurance, and have backup travel plans in place.
The airline’s bankruptcy could have far-reaching ripple effects on the industry as other carriers, like JetBlue, Southwest, and Frontier, may, in the short term, absorb some of Spirit’s market share as a hesitation to purchase tickets on Spirit and an increased demand for alternatives to Spirit’s low fares could drive up prices on competitors.
Passengers with existing reservations on Spirit should prepare for potential changes as the airline reorganizes. Spirit assures customers that it will honor existing tickets, but flexibility and preparation are key.
Our advice: frequently check flight details and look out for notifications of any changes or cancellations, especially as the holidays draw closer.
Of their own doing?
Spirit’s business model has focused on offering ultra-low-cost fares by charging for additional services like seat selection, baggage, and food. This model, while popular with budget travelers, has led to a crowded market for bare-bones air travel, with legacy competitors like Delta, American, and United introducing similar “basic economy” fares.
After the pandemic, Spirit faced a turbulent recovery as costs rose throughout the industry, and its core budget travel market softened due to an oversupply of U.S. flights and increased competition. Spirit responded by trying new strategies, such as bundling perks like priority boarding, free bags, and snacks, but the financial gains were limited.
As Spirit navigates bankruptcy, some industry watchers speculate that a merger might still be on the horizon, potentially with Frontier, which previously attempted to merge with Spirit before the JetBlue bid. Other possible dance partners in the ultra-low-cost arena include Allegiant, Avelo, and Breeze, with only Allegiant really being big enough to bring lots to the table.
The Biden administration’s stance against airline consolidation has made mergers challenging, but more than one analyst has speculated that Spirit may eventually benefit from consolidation under the incoming Trump administration.
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