Budget travel giant Spirit Airlines files for bankruptcy protection as losses mount

Date: Nov 29, 2024 Views: 1056

　　Spirit Airlines, the low-cost airline icon that reshaped the industry, has filed for bankruptcy protection after years of mounting losses, failed mergers, increased competition and increasingly discerning consumer tastes.

　　On Monday morning, Spirit reached a prearranged agreement with bondholders that includes $300 million in debtor-in-possession financing to help it through the bankruptcy process. Spirit said it expects to exit bankruptcy in the first quarter of next year. Spirit said suppliers and aircraft lessors would not be affected. In a court filing, Spirit listed its assets and liabilities as between $1 billion and $10 billion.

　　The airline said it expects to continue operating, and CEO Ted Christie sought to assure customers that they can still book, fly and use loyalty points with the airline.

　　"The most important thing to know is that you can continue to book and fly now and in the future," Christie said in a letter to customers on Monday.

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

　　Many challenges

　　The Dania Beach, Florida-based airline has been troubled by engine recalls that grounded dozens of planes, soaring costs after the pandemic and a failed acquisition of JetBlue Airways that was blocked by a federal judge on antitrust grounds earlier this year. Its shares have fallen more than 90% this year.

　　The airline has repeatedly postponed the deadline to renegotiate $1.1 billion in loyalty bonds due next year with its credit card processors or risk losing the ability to process transactions.

　　The company said Monday it had reached an agreement with bondholders to exchange $350 million for equity and $795 million for equity. Spirit's shares will be delisted from the New York Stock Exchange after it files for bankruptcy in the U.S. Bankruptcy Court for the Southern District of New York.

　　Last week, Spirit Airlines said it had to delay filing its quarterly report and said it was negotiating a deal with most of its creditors that would not affect customers, vendors, suppliers and others, but would wipe out the company's existing equity.

　　Spirit Airlines had said it expected third-quarter operating margins to be 12 percentage points lower than the -15% in the same period last year due to soaring costs and falling fares. Sales fell by $61 million.

　　The airline has not been profitable since 2019 and lost more than $335 million in the first half of this year.

　　To make up the difference, Spirit has sold dozens of aircraft to replenish cash, which is beneficial to it because aircraft are in short supply this year. Recently, it sold 23 Airbus aircraft to GA Telesis, earning $519 million. Spirit said it expects to have about $1 billion in liquidity at the end of this year.

　　The company also plans to lay off another 330 pilots in January on top of the layoffs of about 200 pilots in September to cut routes. But analysts expect the airline will have to scale back further after bankruptcy to control costs.

　　The Spirit Way

　　Spirit's business model of offering rock-bottom fares and fees for everything from seat assignments to cabin baggage check-in has been a success among bargain-hunting passengers and has allowed it to grow for more than a decade.

　　The company's spartan service has become a favorite punchline for comedians. One greeting card, featuring a picture of the company's yellow plane, even reads, "I'd fly Spirit for you."

　　The low-fare and surcharge model has sparked similar moves by big airlines like Delta, with American and United launching basic economy fares.

　　However, Spirit has struggled in the wake of the pandemic, with rising costs across the industry and the lifting of travel restrictions sparking a surge in bookings for international travel outside Spirit's network. Fares have fallen in the oversupplied U.S. market.

　　This summer, Spirit began offering bundled fares that include seat assignments and other benefits, as well as a "first class" cabin that includes larger seats at the front of the plane, as many travelers choose to pay for the roomier seats.

　　In January, a federal judge blocked JetBlue's plan to acquire Spirit Airlines for $3.8 billion. In early 2022, Spirit Airlines reached a merger agreement with fellow budget airline Frontier. In April of the same year, JetBlue suddenly made a takeover offer. Spirit Airlines shareholders supported JetBlue's all-cash acquisition offer.

　　Judge William Young, appointed by former President Ronald Reagan, said JetBlue's deal would push up fares and reduce competition. Airlines believe it will help them compete better, especially in the United States where four airlines control three-quarters of the market share.

　　"Spirit is a small airline. But some people love it," Young wrote in his ruling. "For those loyal Spirit customers, this is for you."

　　Some analysts expect Frontier and Spirit Airlines to resume negotiations in the coming months.

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