Budget travel icon Spirit Airlines files for bankruptcy protection after mounting losses

Passengers check in at the Spirit Airlines counter at 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 and more demanding consumer tastes.

The carrier early Monday said it reached a prearranged deal with its bondholders including $300 million in debtor-in-possession financing. It said that vendors, aircraft lessors will not be impaired.

The airline said it expects to continue operating normally and said customers can continue to book. It said it expects to exit bankruptcy protection in the first quarter of next year.

“The most important thing to know is that you can continue to book and fly now and in the future,” Spirit CEO Ted Christie said in a letter to customers on Monday. He said customers can use tickets, credits and loyalty points “as normal.”

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 year on antitrust grounds. Its shares are down more than 90% so far this year.

Spirit is the first major U.S. airline to file for Chapter 11 since American Airlines 13 years ago.

The airline had repeatedly pushed back a deadline with its credit card processor to renegotiate a $1.1 billion debt due next year or risk losing the ability to process those transactions.

Last week, Spirit said it had to delay its quarterly filing and said it was in discussions for a deal with a majority of creditors that would not affect customers, vendors, suppliers and others, but that it would “lead to the cancellation of the Company’s existing equity.”

Spirit said in the filing that it expects its third-quarter margins to be 12 percentage points lower than during the same period a year ago and that sales were $61 million lower than last year, while costs surged and fares slipped.

The airline hasn’t had a profit since 2019 and lost more than $335 million in the first half of the year.

To try to make up the difference, it has sold dozens of jets to shore up cash, which has worked in its favor since planes are in short supply this year. Most recently, it sold 23 Airbus aircraft to GA Telesis to generate $519 million. Spirit has said it expects to end the year with approximately $1 billion in liquidity.

The company also plans to furlough another 330 pilots in January on top of about 200 in September as it slashed routes. But analysts expect the carrier will 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 fees for everything from seat assignments to cabin baggage was a success with bargain-hunting customers, allowing it to expand over more than a decade.

Its bare-bones service became a favorite punchline for stand-up comics. A greeting card featuring one of the carrier’s yellow planes even states: “I would 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, however, 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 in the oversupplied U.S. market.

Spirit this summer started offering bundled fares with seat assignments and other perks, as well as a sort of “first-class” that included larger seats at the front of the plane as many travelers have opted to pay more for more spacious seats on board.

In January, a federal judge blocked JetBlue’s $3.8 billion planned acquisition of Spirit. Spirit had previously had a deal to merge with fellow budget airline Frontier before JetBlue swooped in with a bid in April 2022. Spirit shareholders backed the JetBlue 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 would help them better compete, especially in the U.S. where four airlines control about three-quarters of the market.

“Spirit is a small airline. But there are those who love it,” Young wrote in his ruling. “To those dedicated customers of Spirit, this one’s for you.”