Spirit’s Bankruptcy: Our Answers to the 5 Biggest Questions

18.11.2024 - 19:43 / skift.com / Spirit Airlines / United Airlines / United S.Airlines / Meghna Maharishi / Frontier Airlines

Spirit Airlines became the first major U.S. airline in 13 years to file for a Chapter 11 bankruptcy after facing mounting debts and declining revenues. 

The bankruptcy filing comes after a federal judge rejected the JetBlue-Spirit merger in January, arguing that a combined airline would ultimately cause airfares to increase. 

Spirit will continue to operate and customers can still book Spirit flights using their credit cards or loyalty points. 

But there are a lot of questions still swirling around Spirit. Here’s what you need to know. 

Spirit was once one of the most profitable carriers in the industry, reporting operating margins as high as 20%. Under the leadership of former CEO Ben Baldanza, who died earlier this month, Spirit adopted its bare bones service and unbundled fares that made it so popular with customers. 

But things changed after the pandemic. 

Spirit and other ultra-low-cost carriers had significantly expanded capacity in the domestic market post-pandemic, bullish that they would experience a travel resurgence. 

But international travel recovered a lot quicker than domestic travel. In leisure markets like Florida, Mexico and the Caribbean, legacy carriers also expanded their presence, making it difficult for Spirit to compete. The carrier slashed fares to these markets by as much as 28%, hoping it could offset the oversupply of domestic seating. 

Consumer preferences also changed, with many willing to splurge on premium seating and products. 

Issues with Pratt & Whitney geared turbofan engines also forced Spirit to ground a portion of its aircraft, creating more disruptions for the carrier. Spirit operates the largest fleet of GTF engines in the U.S. 

Spirit had around $3.3 billion in debt, with approximately $1.1 billion expected to reach maturity in 2025, a debt it struggled to renegotiate. 

Spirit said that its Chapter 11 and restructuring agreement had the support of a supermajority of bondholders as part of a pre-packaged filing. Previous airline bankruptcies have typically involved negotiations with stakeholders like unions and suppliers. 

As part of the agreement, bondholders have agreed to swap $795 million of debt into stock. Bondholders also agreed to purchase an additional $350 million in stock and Spirit is receiving $300 million in “debtor-in-possession” financing.

Spirit expects to exit bankruptcy in the first quarter of 2025. 

“However, the airline industry (particularly in the United States) is contending with shifting consumer demand and operational headwinds, such that it is unrecognizable from what it was pre-pandemic,” said Spirit chief financial officer Fred Comer in a court filing submitted to the U.S. Bankruptcy Court for the Southern District of New York on