Low-Cost Carrier Spirit Airlines Seeks Bankruptcy Protection
2min read Due to intensified market competition, increasing losses, and the failure to merge with JetBlue Airways, the U.S. low-cost airline Spirit Airlines had no choice but to officially file for bankruptcy protection on Monday, local time.
According to court documents, the airline filed for Chapter 11 bankruptcy protection in New York, with total assets and liabilities between $1 billion and $10 billion.
Spirit Airlines stated that it has reached an agreement on the terms of a comprehensive balance sheet restructuring, which will allow the company to reorganize by the beginning of next year, reduce debt, and increase financial flexibility. Under the restructuring agreement, Spirit Airlines has received a commitment from existing bondholders to invest $350 million in equity to fund its operations during the bankruptcy process. It will also complete a deleveraging transaction, converting $795 million of financing debt into equity.
During the debt restructuring period, Spirit Airlines will continue to operate. Passengers can continue to book and fly, and the services will not be affected; all tickets and loyalty points can be used as normal.
Spirit Airlines, a low-cost U.S. airline headquartered in Miramar, Florida, was founded in 1980 and mainly operates regular international routes to the Caribbean and Latin America.
In the United States, airlines often file for bankruptcy. Over the past 25 years, most major U.S. airlines, including the three major airlines of American Airlines, United Airlines, and Delta Air Lines, have filed for bankruptcy.
In recent years, Spirit Airlines has attempted two mergers, one with low-cost airline Frontier Airlines, and the other with JetBlue Airways.
Since a federal judge blocked JetBlue Airways' $3.8 billion acquisition of Spirit Airlines, the latter has been negotiating with creditors. The judge ruled that the merger would raise airfares across the industry, harming the interests of cost-conscious travelers. The federal government challenged the merger on antitrust grounds.
After the outbreak of the COVID-19 pandemic, Spirit Airlines fell into difficulty. Major U.S. airlines increasingly used basic economy fares to attract passengers to give up on Spirit Airlines. The company has been losing money since 2020, and as of November 15th of this year, its stock price has plummeted by 93%.
Data from aviation analytics firm Cirium shows that so far this year, the average round-trip economy fare for Spirit Airlines domestically is $136 (excluding taxes). This is 61% lower than the average level of the U.S. airline industry and 69% lower than the average of the four major U.S. airlines—American Airlines, United Airlines, Delta Air Lines, and Southwest Airlines.
Spirit Airlines' problems could lead to increased airfares across the industry. Its low-cost model has prompted major airlines to also offer economy class on their flights. If it is forced to reduce its flights or the cities it serves, or if it goes bankrupt or is acquired by a larger airline, the pressure on other companies to offer lower fares will decrease.
Spirit Airlines also announced that due to the bankruptcy filing, it expects to be delisted from the New York Stock Exchange in the near future and added that, as part of the restructuring, its common stock is expected to be canceled and have no value