Spirit Airlines files for financial setback as monetary losses pile up and obligation payments loom

Spirit Airlines said Monday that it has filed for financial setback protection and will attempt to reboot as it struggles to recover from the pandemic-caused swoon in trip and a failed attempt to sell the airline to JetBlue.

Spirit, the biggest U.S. distribution airline, has lost more than $2.5 billion since the commence of 2020 and faces looming obligation payments totaling more than $1 billion over the next year.

Spirit said it expects to operate as normal as it works its way through a prearranged Chapter 11 financial setback procedure and that customers can continue to book and fly without interruption.

Shares of Miramar, Florida-based Spirit dropped 25% on Friday, after The Wall Street Journal reported that the airline was discussing terms of a feasible financial setback filing with its bondholders. It was just the latest in a series of blows that have sent the ownership crashing down by 97% since late 2018 — when Spirit was still making money.

CEO Ted Christie confirmed in August that Spirit was talking to advisers of its bondholders about the upcoming obligation maturities. He called the discussions a priority, and said the airline was trying to get the best deal it could as quickly as feasible.

“The chatter in the economy about Spirit is notable, but we are not unfocused,” he told investors during an profits call. “We are concentrated on debt restructuring our obligation, improving our overall ability to pay position, deploying our recent reimagined product into the economy, and growing our loyalty programs.”

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 profits per mile from fares is down nearly 20%, contributing to Spirit’s red ink.

It’s not a recent pattern. Spirit failed to gain to profitability when the coronavirus pandemic eased and trip rebounded. There are several reasons behind the slump.

Spirit’s costs, especially for labor, have risen. The biggest U.S. airlines have snagged some of Spirit’s distribution-conscious customers by offering their own brand of bare-bones tickets. And fares for U.S. leisure trip — Spirit’s core business — have sagged because of a glut of recent flights.

The extra charge complete of the air-trip economy has surged while Spirit’s traditional no-frills complete has stagnated. So this summer, Spirit decided to sell bundled fares that include a bigger seat, priority boarding, free bags, internet service and snacks and drinks. That is a huge transformation from Spirit’s longtime way of luring customers with rock-bottom fares and forcing them to pay extra for things such as bringing a carry-on bag or ordering a soda.

In a highly unusual shift, Spirit plans to cut its October-through-December schedule by nearly 20%, compared with the same period last year, which analysts declare should assist prop up fares. But that will assist rivals more than it will boost Spirit. Analysts from Deutsche financial institution and Raymond James declare that Frontier, JetBlue and Southwest would advantage the most because of their overlap with Spirit on many routes.

Spirit has also been plagued by required repairs to Pratt & Whitney engines, which is forcing the airline to ground dozens of its Airbus jets. Spirit has cited the recall as it furloughed pilots.

The aircraft fleet is relatively youthful, which has made Spirit an attractive takeover target.

Frontier Airlines tried to merge with Spirit in 2022 but was outbid by JetBlue. However, the fairness Department sued to block the $3.8 billion deal, saying it would drive up prices for Spirit customers who depend on low fares, and a federal judge agreed in January. JetBlue and Spirit dropped their union two months later.

U.S. airline bankruptcies were ordinary in the 1990s and 2000s, as airlines struggled with fierce competition, high labor costs and sudden spikes in the worth of jet fuel. PanAm, TWA, Northwest, Continental, United and Delta were swept up. Some liquidated, while others used favorable laws to renegotiate debts such as aircraft leases and keep flying.

The last financial setback by a major U.S. carrier ended when American Airlines emerged from Chapter 11 protection and simultaneously merged with US Airways in December 2013.