Largest U.S. Budget Airline Files For Bankruptcy, Blames Pandemic [WATCH]

Spirit Airlines, the largest U.S. budget carrier, announced on Monday that it has filed for Chapter 11 bankruptcy protection, citing ongoing financial challenges and an inability to recover from the pandemic’s impact on travel.

Spirit Airlines has filed for bankruptcy pic.twitter.com/e4RxWVeqey

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The filing comes after a failed merger attempt with JetBlue and mounting debt obligations.

The airline, based in Miramar, Florida, said it will continue to operate as usual during the bankruptcy process.

Customers can still book flights, use tickets and loyalty points, and take advantage of affiliated credit card perks, the company confirmed.

Since 2020, Spirit Airlines has reported losses exceeding $2.5 billion.

The airline faces over $1 billion in debt payments in the coming year, contributing to its decision to file for bankruptcy.

Shares of Spirit Airlines dropped 25% on Friday after The Wall Street Journal reported discussions about a potential bankruptcy filing.

Despite the filing, Spirit’s stock saw a modest 4% uptick before Monday’s trading session.

Spirit CEO Ted Christie had previously hinted at the company’s financial troubles during an August earnings call, stating that discussions with bondholders to address upcoming debt maturities were ongoing. “We are focused on refinancing our debt, improving our overall liquidity position, deploying our new reimagined product into the market, and growing our loyalty programs,” Christie told investors.

Although passenger numbers have increased slightly—up 2% in the first half of 2024 compared to the same period in 2023—revenue per mile from fares has dropped nearly 20%. This decline has exacerbated Spirit’s financial struggles.

Spirit has faced rising operational costs, particularly labor expenses.

Additionally, larger U.S. airlines have attracted budget-conscious travelers with their own low-cost ticket options, creating stiffer competition.

The airline has also struggled with declining fares for leisure travel, its core business, due to a surplus of flights in the market.

Spirit has introduced new bundled fares that include perks like larger seats, free baggage, internet access, and refreshments in an effort to attract premium travelers.

This shift marks a significant departure from its traditional no-frills business model, which relied on ultra-low base fares with fees for add-ons.

The airline also announced plans to cut its October-to-December schedule by nearly 20% compared to the same period last year.

Analysts believe this reduction may help stabilize fares but will likely benefit competitors like Frontier, JetBlue, and Southwest, which overlap with Spirit on many routes.

Compounding Spirit’s challenges, the airline has faced disruptions due to required repairs on Pratt & Whitney engines, forcing it to ground several Airbus jets.

The issue has led to pilot furloughs and a further reduction in fleet availability.

In 2022, Frontier Airlines attempted to merge with Spirit but was outbid by JetBlue in a $3.8 billion deal.

However, the Justice Department blocked the merger, citing concerns that it would raise prices for Spirit’s low-cost customers.

A federal judge agreed in January 2024, and the deal was abandoned two months later.

Spirit’s relatively young aircraft fleet has made it an attractive acquisition target in the past, but ongoing financial woes have overshadowed this advantage.

Spirit’s bankruptcy marks the first by a major U.S. airline since American Airlines emerged from Chapter 11 protection in 2013.

U.S. airline bankruptcies were common in the 1990s and 2000s as carriers grappled with rising fuel prices, high labor costs, and fierce competition.

Some, like PanAm and TWA, liquidated, while others, including United and Delta, used bankruptcy to restructure and remain operational.

Spirit’s move to file for bankruptcy underscores the challenges facing budget airlines in a competitive and volatile market.

The company’s future now hinges on its ability to restructure debt, streamline operations, and adapt to evolving customer demands.

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