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It’s an announcement that no company wants to make. But Spirit Airlines had to go there on Monday, announcing it was filing for Chapter 11 protection after attempts to cut costs, find new sources of revenue, or merge with another carrier failed. The budget airline has been losing money for years, and has more than $1 billion in debt payments coming due over the next two years, the Associated Press reported.
Nosedive. While it has some challenges in common with other airlines, Spirit has been hit harder by the turbulence. Its share price has fallen by 97% over the last six years, according to the AP, and when travel picked up after the early stages of the Covid-19 pandemic, it “failed to return to profitability.”
It has struggled to adjust to rising costs, “especially for labor,” the AP reported, while bigger airlines have started offering budget fares that have eaten into Spirit’s business.
Spirit also took a hit after it grounded dozens of planes over issues with their engines. And while other US airlines have been cutting flight capacity, Spirit’s nearly 20% reduction in late 2024 will send more of its potential customers to JetBlue, Southwest, and competing budget flier Frontier, analysts told the AP.
Unfare? Along with cuts to flights, Spirit’s other changes haven’t been enough, or come soon enough, to right its course. In late summer, after worse-than-expected second-quarter earnings, it announced it would furlough 240 pilots, pause recruiting for pilots and flight attendants, and offer a la carte services like snacks, drinks, and wi-fi, the Wall Street Journal reported. In January, a US district court blocked its potential acquisition by JetBlue on antitrust grounds in a case brought by the Justice Department and several states.
Flotation devices. The airline, which wants you to know that you can keep flying with it through the financial hiccups, “expects to emerge from a streamlined Chapter 11 process in the first quarter of 2025,” it said in a statement.
Spirit’s bondholders are converting $795 million in debt into stock, and will inject a further $350 million in equity, along with a $300 million loan, to see the company through the reorganizing process, according to the AP. “Spirit listed its assets and liabilities between $1 billion and $10 billion, in a court filing,” CNBC reported.
Its assets could be “purchased out of bankruptcy and merged with a different airline,” CNN suggested, which is what happened after the 2011 bankruptcy of American Airlines—the last major US airline to file for Chapter 11 protection.