Spirit Airlines Files for Bankruptcy
19 Nov 2024 CW Team
Spirit Airlines, whose approach to selling cheap tickets without amenities earned it fans and detractors, filed for bankruptcy protection Monday after a string of setbacks, most recently a failure to renegotiate its looming debt.
The airline, whose last annual profit was in 2019, has had trouble finding its footing after a federal judge blocked a planned merger with JetBlue Airways in January. Spirit has also struggled to capitalize on the recovery from the pandemic because of intense competition, engine problems and other factors.
The company filed for Chapter 11 bankruptcy protection in New York. It also announced an agreement with bondholders to restructure its debts and raise money to help it operate during the bankruptcy process, which it expected to exit in the first quarter of next year. The company published an open letter to customers noting that flyers could "use all tickets, credits and loyalty points as normal."
Ted Christie, Spirit's CEO, said in a statement that the arrangements announced Monday represented "a strong vote of confidence in Spirit and our long-term plan."
The airline said in a court filing that it had 25,000 to 50,000 creditors, and total debt of about $9 billion at end of September. It said its shares, which plunged as its problems became more acute, would be delisted from the New York Stock Exchange.
Spirit began operations as a trucking company operating under a different name in 1964. It later became a tour operator and started offering flights in 1990. Two years later, it became Spirit Airlines.
But the modern incarnation of the company traces its roots to 2006, when Indigo Partners, a private equity fund, acquired a majority stake in Spirit. Under Indigo and the leadership of Ben Baldanza -- who spent a decade as Spirit's CEO and died this month -- the airline sharply focused on lowering costs and selling cheap, bare-bones tickets.
Spirit's business model made the airline the butt of late-night jokes, but also helped to reshape the industry. Travelers flocked to Spirit for its low fares, often overlooking concerns about the quality of its service. The airline earned consistent profits and other companies sought to emulate its approach. Today, most U.S. airlines offer some version of a no-frills ticket.Spirit also became a powerful force in the industry. The airline's presence in a city would often pressure others to lower fares. That phenomenon became a central part of the Justice Department's successful lawsuit to prevent the JetBlue-Spirit merger, on the grounds that losing Spirit would harm consumers.
A round-trip flight on Spirit cost $140 on average, not including taxes, fees and add-ons, according to Cirium, an aviation data firm. That's slightly higher than the $136 for Frontier Airlines and $134 for Allegiant Air, both rival budget carriers.
The bankruptcy filing comes after Spirit had spent months trying to renegotiate its debts. Companies, including many airlines, often emerge from Chapter 11 bankruptcy cases on stronger financial footing.
Airlines have filed for Chapter 11 more than 180 times in recent decades, according to data from Airlines for America, a trade group. Three of the industry's largest companies -- American Airlines, Delta Air Lines and United Airlines -- filed bankruptcy cases after the Sept. 11 terrorist attacks.Those big airlines have profited from the pandemic recovery, in part by taking advantage of demand for premium and international travel. But Spirit and other budget airlines have had a more challenging time with rising costs and increased competition in large part because they did not fly to distant destinations or offer premium services like business class.