Budget carrier Spirit Airlines announced it filed for Chapter 11 bankruptcy on Monday in the face of mounting losses, increased labor costs and a highly competitive air travel market.
The airline has failed to return to profitability following the downturn in air travel caused by coronavirus pandemic lockdowns. According to a report by The Associated Press, the budget airliner has lost $2.5 billion since the beginning of 2020 and has upcoming debt payments exceeding $1 billion.
On Monday Spirit announced a restructuring plan that includes substantial support from a majority of its bondholders, which have committed to a $350 million equity investment and will convert approximately $800 million of their existing holdings into equity in the reorganization. On top of this, bondholders are extending a $300 million loan to fund the bankruptcy process. Spirit anticipates completing its reorganization to be complete by the first quarter of 2025.
The statement from the company outlined that the bankruptcy filing will "position Spirit for long-term success and accelerate investments providing guests with enhanced travel experiences and greater value," as well as a promise that "guests can continue to book and fly without interruption and can use all tickets, credits and loyalty points as normal."
"Spirit expects to continue operating its business in the normal course throughout this prearranged, streamlined chapter 11 process," the company said in the statement.
Newsweek has contacted Spirit via email for additional comment.
But experts aren't so sure. "Spirit as we've known it has come to an end," James Gellert, executive chairman at Rapid Ratings International, a firm that evaluates the financial health of public and private companies, told Newsweek. "It's highly unlikely the restructuring avoids bankruptcy altogether."
What Went Wrong for Spirit?
The embattled airline has faced a host of issues in recent years, including a failed merger that might have saved it. Like other carriers, the COVID-19 shutdown took a significant impact on its earnings, but Spirit has failed to make any profit since the pandemic began in 2020.
"Spirit's decline is largely a function of it having lost billions of dollars in the first two years of the pandemic due to decreased customer demand and Spirit's positioning at the very bottom of the market," Daniel Gielchinsky, partner, cofounder and commercial litigation attorney at South Florida-based DGIM LawSpirit, told Newsweek. "Spirit has failed to report a profit in the last five out of six quarters, which raised doubts about its ability to service debt."
As the world emerged from coronavirus lockdowns in 2022, Frontier Airlines attempted to merge with Spirit Airlines, but JetBlue ultimately outbid them. The Justice Department, however, challenged the $3.8 billion tie-up, arguing it would lead to higher prices for Spirit's budget-conscious customers. A federal judge sided with the Justice Department in January, and two months later, the JetBlue merger was put the wayside.
Other issues have also plagued the airline. "Low-cost and ultra-low-cost carriers like Spirit have been left extremely vulnerable to increasingly volatile costs," AirlineGeeks founder Ryan Ewing told Newsweek in October. Across major carriers like Southwest, Delta, American Airlines and others, airline costs per seat mile have increased an average of 22 percent in 2024 when compared to 2019, according to Visual Approach Analytics, but with Spirit that leap was nearly 43 percent. On average, there has only been an 11 percent increase in revenue per seat mile.
"By some estimates, labor costs have increased by over 20 percent compared to pre-pandemic levels, and of course, inflation and other supply chain woes are also a factor here," Ewing said. For Spirit, labor costs were 43.7 higher in 2024 from 2019, Visual Approach Analytics said.
In attempts to prevent a bankruptcy filing, Spirit announced in October that staff layoffs would take place as part of $80 million in cost-saving measures. It also said it had reached an agreement to sell 23 jets to GA Telesis, an aviation services company, for $519 million.
Spirit is not the first airline to file for bankruptcy. American Airlines, United and Delta, the three biggest U.S. carriers, have all done the same in the past 25 years—and each have survived the process. Others, like PanAm, did not make it through. However, Spirit is the first U.S. airline to make a bankruptcy claim in more than a decade—since American Airlines filed in 2011.
When it comes to whether Spirit will survive the proceedings, Gielchinsky isn't so sure. "This Chapter 11 bankruptcy is Spirit's attempt at achieving a 'go-around,' i.e. negotiating with its bondholders and creditors and canceling equity to avoid a complete liquidation," Gielchinsky said. "It is not even certain that a liquidation sale in bankruptcy can be avoided. Spirit may be grounded forever."
Gielchinsky puts the issue down to Spirit's business model, saying that "trying to run an airline premised on cheap ticket prices is deeply flawed."
"While the market for an ultra-low-cost-carrier—targeting price-conscious customers with low fares and a no-frills flying experience—may have been profitable 10 years ago when Spirit had no competition in this market segment, their low ticket pricing inevitable forced other airlines to reduce ticket prices and invited competition into the market."
Gielchinsky said that same market is now saturated, with Spirit having won a "race to the bottom."
"Running an airline, buying, maintaining and flying airplanes and having adequate staffing is an expensive endeavor," he continued. "Time and experience have shown that attempting to dominate a market segment based on a strategy of selling the cheapest tickets is not sustainable in the long haul."
Others are more confident in their outlook. "This is a prepackaged Chapter 11 bankruptcy filing, which means there will be a reorganization, vs. Chapter 7 bankruptcy filing, which meant they would've had to shut down," Chris Dane, former managing director for American Airlines and current president and managing partner at Hickory Global Partners, told Newsweek. "For people who have booked with Spirit in the coming future, they should have no worries at this time."
As for other U.S. airlines, Ewing says they are unlikely to follow suit—but changes will be on the way. "Right now at least, it appears that no major players will 'go bust,' per se, but customers could see changes in route networks and fare offerings as these airlines adapt to a dynamic market," Ewing said.
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