Passengers check in at the Spirit Airlines counter at Fort Lauderdale-Hollywood International Airport on February 07, 2022 in Fort Lauderdale, Florida.
Joe Raedle Getty Images
Spirit AirlinesThe icon of budget air travel that reshaped the industry, has filed for bankruptcy protection after years of mounting losses, failed mergers and other demanding consumer sentiments.
The carrier said early Monday that it had reached a prearranged deal with bondholders including $300 million in debt financing to help with bankruptcy, which it expects to exit in the first quarter of next year. Said the vendor, the aircraft lessor will not be disabled.
The airline said it hoped to continue operating as normal and said customers could continue to book during the busy holiday season.
“The most important thing to know is that you can continue to book and fly now and in the future,” Spirit CEO Ted Christie said in a letter to customers on Monday. He said customers can use tickets, credits and loyalty points normally.
Spirit is the first major US airline to file for Chapter 11 since American Airlines 13 years ago.
The Dania Beach, Florida-based airline has struggled with engine recalls that power dozens of jets, rising costs after the pandemic, and the failure of a planned acquisition by JetBlue Airwayswhich was blocked by a federal judge earlier this year on antitrust grounds. The stock is down more than 90% this year.
The airline has repeatedly rejected deadlines with credit card processors to renegotiate $1.1 billion in debt due next year or risk losing the ability to process the transactions.
It said Monday that it had reached an agreement with bondholders for $350 million in equity and “will complete a deleveraging transaction to issue $795 million in debt.”
Roh filed for protection in the US Bankruptcy Court for the Southern District of New York. Roh will be delisted from the New York Stock Exchange as a result of the filing, the company said.
Last week, Roh said it should delay the submission of the quarter and said that there are negotiations to deal with the majority of creditors that do not affect customers, vendors, suppliers and others, but it will wipe out the efforts of the company.
Roh said in a filing that he expected third quarter margins to be 12 percentage points lower than the same period last year and sales $61 million lower than last year, while costs increased and prices increased.
The airline has not made a profit since 2019 and lost more than $335 million in the first half of the year.
To try to make a difference, it has sold dozens of jets to raise money, which has worked because planes are in short supply this year. Most recently, it sold 23 Airbus aircraft to GA Telesis for $519 million. Spirit has said it will end the year with $1 billion in liquidity.
The company also plans to furlough another 330 pilots in January on top of about 200 in September as it cuts routes. But analysts expect the operator will have to shrink from bankruptcy to cover costs.
Spirit Airlines plane at New York’s LaGuardia Airport
Leslie Josephs/CNBC
The Way of the Spirit
Spirit’s business model of offering the lowest fares and fees for everything from seat assignments to cabin baggage has been successful with bargain-seeking customers, allowing it to expand for more than a decade.
Bare-bones service is a favorite punchline for stand-up comics. A greeting card featuring one of the carrier’s yellow planes even states: “I’ll fly Spirit Airlines for you.”
Cheap models and additional costs lead to similar offerings from larger carriers like Delta, American and Unitedwhich rolled out the basic economic rate.
Spirit struggled after the pandemic, however, as costs rose across the industry and limited travel restrictions led to a surge in bookings for international travel outside Spirit’s network. Rates fell in the oversupplied US market.
This summer Spirit began offering bundled fares with seat assignments and other perks, as well as “first class” types that include larger seats at the front of the plane as more travelers choose to pay more for more spacious seats on board.
In January, a federal judge blocked JetBlue’s $3.8 billion planned acquisition of Spirit. In early 2022, Spirit has a deal to join a low-cost airline Frontier before JetBlue swooped in with a bid in April that year. Spirit shareholders support JetBlue’s all-cash offer.
Judge William Young, appointed by former President Ronald Reagan, said the JetBlue deal would raise prices and reduce competition. The airline says it will help it stay competitive, especially in the US where four airlines control about three-quarters of the market.
“Spirit is a small airline. But there are people who like it,” Young wrote in his decision. “To our Spirit customers, this is for you.”
Some analysts expect Frontier and Spirit to resume talks in the coming months.
