Debts pile up and losses mount – Spirit Airlines finally files for bankruptcy after struggling to stay afloat

Spirit Airlines has filed for Chapter 11 bankruptcy, a strategic move to stabilize its finances while keeping operations running smoothly. The airline is known for its ultra-low-cost business model and has faced mounting challenges, including more than $1 billion in deferred debt, a $158 million quarterly loss this year and failed merger efforts with JetBlue and Frontier Airlines.

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According to a statement from the company, Spirit’s restructuring plan includes $300 million in new financing and $350 million in equity investments from bondholders, which will reduce nearly $795 million in debt. The airline expects to emerge from bankruptcy in early 2025.

CEO Ted Christie assured passengers in an open letter to customers that the restructuring would not affect flights and bookings. “You can continue to book and fly with confidence now and in the future,” said Christie. Spirit has pledged to maintain ticket sales, flights and loyalty programs without disruption throughout the process.

Spirit’s financial problems did not arise overnight. According to CNBC, the airline has not made a profit since 2019, when it lost $335 million. The COVID-19 pandemic significantly impacted travel demand, severely impacting Spirit’s operations.

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The 2023 recall of Pratt & Whitney engines put further pressure on the airline by disrupting fleet availability, while rising fuel costs and intense competition from larger airlines put additional pressure on margins.

Regulatory hurdles exacerbated these challenges. In January, US courts blocked Spirit’s $3.8 billion merger with JetBlue, citing concerns about reduced competition in the budget travel market.

However, analysts warn that more drastic measures, such as shortening routes or reducing flight frequencies, may still be necessary. Statista reported that Spirit’s total flight capacity decreased by 33% between 2019 and 2020 to 27.7 billion available seat miles.

TD Cowen’s senior research analyst Helane Becker told CNBC: “Spirit Airlines’ goal should be to preserve as much value as possible.”

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In response to the financial problems, Spirit has started implementing cost-saving measures. The Associated Press reported that the airline plans to sell 23 older planes for $519 million and cut jobs, saving an estimated $80 million a year.

The Wall Street Journal revealed that Spirit Airlines and Frontier Airlines have resumed talks on a possible merger, sending their stock prices soaring. However, these setbacks have reduced investor confidence. According to CNBC, Spirit’s stock price fell from $3.22 to $1.15 after The Wall Street Journal reported that the company would go bankrupt.

Tom Fitzgerald, analyst at TD Cowen, recently highlighted Spirit Airlines’ precarious situation on the UPI front. He stated that balancing cost-cutting measures and maintaining passenger confidence is critical to the airline’s survival. He noted that customers could avoid the airline if financial problems increase.

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