Spirit Airlines Files for Bankruptcy: What It Means for Passengers

After years of mounting losses and rising debt, two unsuccessful mergers, higher costs, and increased market competition, iconic low-cost carrier Spirit Airlines has filed for bankruptcy protection, but its CEO has reassured passengers that it will continue to operate as normal as it seeks a debt repayment plan.

The Florida-based low-cost carrier announced it had filed for Chapter 11 bankruptcy 11 on Monday, just a week after the airline confirmed it was discussing a restructuring plan with its bondholders.

As part of the deal agreed with its bondholders, existing creditors will provide Spirit with $300 million in debtor-in-possession (DIP) financing to help it through the bankruptcy, which Spirit expects to exit during the first quarter of 2025.

Looking Back: What Went Wrong?

Spirit was initially founded as a trucking company in 1964 before entering the aviation industry in 1983 as Charter One Airlines, before re-branding as Spirit in 1992 and going on to become one of the most popular ultra-low-cost carriers in the United States.

However, its commitment to offering affordable, no-frills travel has ultimately led to its many failings, culminating in an extended run of quarterly losses and piling debts.

Photo: Courtesy of Justin Sullivan/Getty Images

The airline has also been hampered by a couple of failed mergers in recent years, the first of which was a proposed deal with fellow low-cost carrier Frontier Airlines.

That deal fell through in 2022 following an ambitious $3.8 billion takeover bid from JetBlue, which many experts said would have provided a lifeline to the struggling carrier.

However, JetBlue’s planned merger with Spirit was blocked by a U.S. judge in January 2024 due to anti-competition concerns.

What to expect?

While Spirit is the first major U.S. carrier to file for Chapter 11 bankruptcy since American Airlines did so in 2011, its $300 million cash injection and transformation plan means it’s likely to stave off liquidation for now. However, any future takeover from another airline may now be more likely to be allowed to proceed due to the heightened risk of going bust.

“I am pleased we have reached an agreement with a supermajority of both our loyalty and convertible bondholders on a comprehensive recapitalization of the Company, which is a strong vote of confidence in Spirit and our long-term plan,” said Ted Christie, President and Chief Executive Officer of Spirit Airlines.

Photo: Courtesy of San Diego International Airport

“This set of transactions will materially strengthen our balance sheet and position Spirit for the future while we continue executing on our strategic initiatives to transform our Guest experience, providing new enhanced travel options, greater value and increased flexibility. I’m extremely proud of the Spirit team’s hard work and dedication, which is key to our sustained progress in advancing our business and delivering for our Guests.”

Views from Analysts

While Spirit will continue to operate flights as normal in the short term, some analysts have warned that disruption and cancellations could be expected as we head into the winter travel season.

Robert W. Mann Jr, president of the independent airline consultancy firm R. W. Mann and Co., told USA Today that schedule changes may become apparent by the end of the year and suggested that Spirit customers should keep an eye on any changes ahead of their departure date.

Spirit Airlines counter in Orlando International Airport / Photo: Viaval Tours/Shutterstock

“Their best notice is going to be the notice they get from the carrier, like time changes or rebooking, inability to rebook, or cancellations,” said Mann. “Then, of course, they’re subject to the new (Department of Transportation) rules on how travelers should be handled, so understanding that is probably an important thing.”

Mann also reassured Spirit’s frequent flyers that their loyalty points and miles should be protected whether the airline manages to exit the bankruptcy or not, as the program would likely be combined with another airline’s loyalty program should it be taken over in a merger.

According to Ishrion Aviation, an aviation analysis website, part of Spirit’s transformation plan aims to enhance the guest experience, such as adding free in-flight Wi-Fi, water, snacks, and in-flight power, as well as expanded codeshare and joint venture partnerships.

Spirit Airlines files for Chapter 11 Bankruptcy. Operations continue as normal.

Couple of interesting points they’re considering in their proposed transformation plan:

• Free Wi-Fi (loyalty sign-up), water, snacks for everyone
• Explore codeshare/joint ventures
• Aiming for… pic.twitter.com/NB5ezHad2N

— Ishrion Aviation (@IshrionA) November 18, 2024

It also plans to restructure its flight network by redeploying aircraft to mid-sized cities, launching in new markets, and targeting a 50 percent seat share in high-value cities such as Fort Lauderdale-Hollywood International Airport (FLL).

Following the announcement of its bankruptcy, Spirit was quick to reassure its customers that its operations would remain unaffected for the time being and that travelers could continue to book flights with the airline.

All flight tickets, credits, and loyalty points can continue to be used as normal, while frequent flyers can continue to benefit from the Free Spirit loyalty scheme, Saver$ Club perks, and credit card terms. Customers can also continue to get in touch with Spirit’s customer service team to discuss queries or make complaints, while staff wages and benefits will continue to be paid and honored as usual.

Photo: Courtesy of Denver International Airport.

Jim Corridore, a senior analyst for Industrials at PitchBook, also believes it’s likely that Spirit’s bankruptcy will result in a successful merger sometime in the future, saying: “With reduced debt and a new administration likely to be more constructive on M&A deals, Spirit could see increased investment, a potential merger with one of the smaller major airlines (JetBlue, Alaska, Frontier), or a private equity leveraged buyout.”

Challenging Outlook

Spirit’s bankruptcy filing marks a critical turning point for the beleaguered low-cost carrier, raising pressing questions about the future of its operations and potential market reshuffling within the U.S. aviation industry.

As Spirit works to transform and stabilize, can its ambitious restructuring efforts keep it soaring above mounting challenges, or will it find itself grounded once more by market pressures and stiff competition?