The troubled US budget carrier Spirit Airlines has filed for “bankruptcy protection” after losing more than $2.5bn since 2020 – and failing to secure deals with two possible suitors.
The company says it “has commenced a voluntary prearranged chapter 11 process in the United States Bankruptcy Court” that “will allow it to emerge as a stronger company”.
When many passengers hear the words “bankruptcy” and “airline”, they may reasonably assume that the carrier has shut down – as has happened in the UK recently with Thomas Cook, Monarch and Flybe (twice).
In fact, chapter 11 bankruptcy is a procedure many airlines have used over the decades – including giants such as American Airlines The process is known as the “carwash” in the aviation industry, because of the way it freshens up airlines
These are the key questions and answers.
What has gone wrong at Spirit?
Florida-based Spirit is the biggest ultra-low-cost carrier (ULCC) in the US. It has a main base in Fort Lauderdale, together with crew bases at many of the biggest hubs in America: Atlanta, Chicago O’Hare, Dallas-Fort Worth, Detroit, Houston Intercontinental, Las Vegas, Miami, New York Newark and Orlando. Its all-Airbus network extends into the Caribbean and northern Latin America.
The company’s mission is this: “We are dedicated to pairing great value with excellent service while re-imagining the airline experience. We make it possible for our guests to venture further, travel often and discover more than ever before. We believe it should be easy to take off and go have some fun.”
Unfortunately Spirit was hard hit by Covid. A proposed merger with the other big ULCC, Frontier, was scuppered in 2022 when jetBlue marched in with a better offer. The takeover was barred by a federal judge on competition grounds. Fresh talks began with Frontier, but fizzled out.
Since the start of 2024, Spirit’s share value has fallen by nearly 80 per cent. On 12 November it announced a 12 per cent fall in its operating margin “due to lower total operating revenues and higher total operating expenses”. Between July and September, revenue was $61m (£48m) down on the corresponding quarter a year earlier, with costs up $52m (£41m) due to “an increase in aircraft rent expense, other operating expense, salaries, wages and benefits, and landing fees”.
Then what happened?
Spirit has been working with the bondholders to whom it owes money “on the terms of a comprehensive balance sheet restructuring”.
The aim: “To reduce Spirit’s debt, provide increased financial flexibility, position Spirit for long-term success and accelerate investments providing guests with enhanced travel experiences and greater value.”
Ted Christie, Spirit’s president and chief executive, said the deal with creditors on “a comprehensive recapitalisation of the company” was “a strong vote of confidence in Spirit and our long-term plan”.
Spirit has filed a petition for chapter 11 bankruptcy in New York.
What exactly does chapter 11 bankruptcy involve?
The aim is to keep a company running normally while restructuring debts – for example by extending the term over which they need to be repaid. Fresh deals may be struck with unions that allow the firm to reduce its costs.
Creditors often see a benefit in relaxing their terms in order to ensure they are repaid rather than seeing the company close down – leaving many people who are owed money.
What does it mean for passengers?
Spirit is assuring passengers:
- You can continue to book and fly now and in the future.
- You can use all tickets, credits and loyalty points as normal.
- You can continue to benefit from our Free Spirit loyalty program, Saver$ Club perks and credit card terms.
- Our amazing Team Members are here to offer you excellent service and an elevated experience.
What about staff?
Spirit says: “The chapter 11 process itself will not impact Team Member wages or benefits, which are continuing to be paid and honored for those employed by Spirit.”
How long will the restructuring take?
The company says: “We expect to complete this process in the first quarter of 2025 and emerge even better positioned to deliver the best value in the sky. Other airlines that are operating successfully today have undertaken a similar process.
“As we head into the holiday season and beyond, we look forward to welcoming you on board again soon.”