Spirit Airlines said Monday that it filed for bankruptcy protection and will attempt to reboot as it struggles to recover from the pandemic-caused swoon in travel, stiffer competition from bigger carriers, and a failed attempt to sell the airline to JetBlue.
Spirit, the biggest U.S. budget airline, filed a Chapter 11 bankruptcy petition after working out terms with bondholders. The airline lost more than $2.5 billion since the start of 2020 and faces looming debt payments of more than $1 billion in 2025 and 2026.
The airline said it expects to continue operating normally during the bankruptcy process. Spirit told customers Monday they can book flights and use frequent-flyer points as they ordinarily would, and said employees and vendors would continue getting paid.
The airline’s shares dropped 25% on Friday, after The Wall Street Journal reported that the airline was discussing terms of a possible bankruptcy filing with its bondholders. Spirit, based in Dania Beach, Florida, missed a deadline for filing its third-quarter financial results but announced that its operating margin would indicate a bigger loss than the company had in the same quarter last year.
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Those were just the latest in a series of blows that sent the stock crashing by 97% since late 2018, when Spirit still made money.
People are still flying on Spirit Airlines. They’re just not paying as much.
In the first six months of this year, Spirit passengers flew 2% more than they did in the same period last year. However, they are paying 10% less per mile, and revenue per mile from fares is down almost 20%, contributing to Spirit’s red ink.
It’s not a new trend. Spirit failed to return to profitability when the coronavirus pandemic eased and travel rebounded. There are several reasons behind the slump.
Spirit’s costs, especially for labor, rose. The biggest U.S. airlines snagged some of Spirit’s budget-conscious customers by offering their own brand of bare-bones tickets, and fares for U.S. leisure travel — Spirit’s core business — sagged this summer because of a glut of new flights.
The premium end of the air-travel market surged while Spirit’s traditional no-frills end has stagnated. So this summer, Spirit sold bundled fares that include a bigger seat, priority boarding, free bags, internet service and snacks and drinks.
Those were huge changes from Spirit’s longtime strategy, which focuses on grabbing customers with rock-bottom fares and then getting them to pay extra for things that are free on many other airlines.