Passengers check in on the Spirit Airlines counter on the Fort Lauderdale-Hollywood International Airport on February 07, 2022 in Fort Lauderdale, Florida.
Joe Raedle | Getty Images
Spirit Airlines, an icon of budget air travel that reshaped the industry, has filed for bankruptcy protection after years of mounting losses, a failed merger, increased competition and more demanding consumer tastes.
The carrier early Monday reached a prearranged deal with its bondholders, including $300 million in debtor-in-possession financing, to assist it through the bankruptcy, which it said it expects to exit in the primary quarter of next 12 months. Spirit said vendors and aircraft lessors is not going to be impaired. Spirit listed its assets and liabilities between $1 billion and $10 billion, in a court filing.
The airline said it expects to proceed operating, and CEO Ted Christie tried to reassure customers that they’ll still book, fly and use loyalty points on the carrier.
“An important thing to know is that you would be able to proceed to book and fly now and in the long run,” Christie said in a letter to customers on Monday.
Spirit is the primary major U.S. airline to file for Chapter 11 since American Airlines 13 years ago.
Host of challenges
A Spirit Airlines plane at Latest York’s LaGuardia Airport
Leslie Josephs/CNBC
The Dania Beach, Florida-based airline had struggled with an engine recall that grounded dozens of its jets, a surge in costs after the pandemic, and the failure of its planned acquisition by JetBlue Airways, which was blocked by a federal judge earlier this 12 months on antitrust grounds. Its shares have fallen greater than 90% this 12 months.
The airline had repeatedly pushed back a deadline with its bank card processor to renegotiate $1.1 billion in loyalty bonds due next 12 months or risk losing the power to process transactions.
It said Monday that it had reached a cope with bondholders for $350 million in equity and that noteholders will swap $795 million for equity. Spirit’s stock will probably be delisted from the Latest York Stock Exchange because of this of its filing, within the U.S. Bankruptcy Court of the Southern District of Latest York.
Last week, Spirit said it needed to delay its quarterly filing and said it was in discussions for a cope with a majority of creditors that may not affect customers, vendors, suppliers and others, but that may wipe out the corporate’s existing equity.
Spirit had said it expects its third-quarter operating margins were 12 percentage points below its negative-15% margin it posted a 12 months ago as costs surged and fares slipped. Sales fell $61 million.
Spirit Airlines and NYSE Arca Airline index
The airline hasn’t had a profit since 2019 and it lost greater than $335 million in the primary half of the 12 months.
To attempt to make up the difference, it has sold dozens of jets to shore up money, which worked in its favor since planes are briefly supply this 12 months. Most recently, it sold 23 Airbus aircraft to GA Telesis to generate $519 million. Spirit has said it expects to finish the 12 months with roughly $1 billion in liquidity.
The corporate also plans to furlough one other 330 pilots in January on top of about 200 in September because it slashed routes. But analysts expect the carrier can have to shrink further in bankruptcy to get a handle on costs.
The Spirit way
Spirit’s business model of offering rock-bottom fares and costs for all the things from seat assignments to cabin baggage was successful with bargain-hunting customers, allowing it to expand over greater than a decade.
Its bare-bones service became a favorite punchline for stand-up comics. A greeting card featuring a drawing one in all the carrier’s yellow planes even states: “I’d fly Spirit Airlines for you.”
The low-fare and add-on-fee model sparked similar offerings from larger carriers like Delta, American and United, which rolled out basic economy fares.
Spirit struggled after the pandemic, nevertheless, when costs rose throughout the industry and lifted travel restrictions sparked a surge in bookings for international trips outside of Spirit’s network. Fares fell within the oversupplied U.S. market.
Spirit this summer began offering bundled fares with seat assignments and other perks, in addition to a form of “first-class” that included larger seats on the front of the plane as many travelers have opted to pay up for more spacious seats on board.
In January, a federal judge blocked JetBlue’s $3.8 billion planned acquisition of Spirit. In early 2022, Spirit had a deal to merge with fellow budget airline Frontier before JetBlue swooped in with a bid in April of that 12 months. Spirit shareholders backed JetBlue’s all-cash offer.
Judge William Young, who was appointed by former President Ronald Reagan, said the JetBlue deal would drive up fares and reduce competition. The airlines had argued it could help them higher compete, especially within the U.S. where 4 airlines control about three-quarters of the market.
“Spirit is a small airline. But there are those that adore it,” Young wrote in his ruling. “To those dedicated customers of Spirit, this one’s for you.”
Some analysts expect Frontier and Spirit to resume talks in the approaching months.
