Spirit Airlines made a significant announcement on Monday as it embarked on a journey through bankruptcy protection. This move comes as the airline grapples with the aftermath of the pandemic-induced slump in travel and a failed attempt to sell to JetBlue. The biggest U.S. budget airline has faced substantial losses since 2020 and is now dealing with looming debt payments.
Customer Continuity Amidst Bankruptcy
Spirit Airlines assures customers that they can continue to book and fly without interruption. All tickets, credits, and loyalty points remain valid, along with affiliated credit cards and membership perks. This commitment to customer service is crucial during these challenging times. Despite the bankruptcy filing, the airline aims to operate as normal through the prearranged Chapter 11 process.Financial Struggles and Stock Performance
Since the start of 2020, Spirit Airlines has lost more than $2.5 billion. The stock has taken a severe hit, dropping 97 percent since late 2018 when the airline was still profitable. On Friday, shares dropped 25 percent after reports of possible bankruptcy discussions with bondholders. However, on Monday, shares rose nearly 4 percent before the opening bell. These fluctuations in stock price reflect the uncertainty and challenges faced by the airline.Cost Increases and Market Shifts
Spirit's costs, particularly in labor, have risen. Meanwhile, other major airlines have attracted budget-conscious customers with their own bare-bones ticket offerings. Additionally, the glut of new flights in the U.S. leisure travel market has led to sagging fares, affecting Spirit's core business. Despite passenger numbers increasing by 2 percent in the first six months of this year, revenue per mile has declined nearly 20 percent due to lower fares.Strategic Changes and Fare Bundling
This summer, Spirit made a major strategic shift by selling bundled fares that include a bigger seat, priority boarding, free bags, internet service, and snacks and drinks. This is a departure from their longstanding strategy of luring customers with low fares and making them pay extra. The airline also plans to cut its October-through-December schedule by nearly 20 percent, which analysts believe will help prop up fares. However, this will benefit rivals more than Spirit, as competitors like Frontier, JetBlue, and Southwest have overlapping routes.Engine Recalls and Fleet Issues
Spirit has been plagued by required repairs to Pratt & Whitney engines, forcing the airline to ground dozens of its Airbus jets. This has led to the furlough of pilots. Despite having a relatively young aircraft fleet, which made it an attractive takeover target, previous merger attempts, such as Frontier's bid in 2022 and JetBlue's failed merger, have faced legal challenges.Historical Context of U.S. Airline Bankruptcies
U.S. airline bankruptcies were common in the 1990s and 2000s due to fierce competition, high labor costs, and sudden spikes in jet fuel prices. Many airlines, including PanAm, TWA, Northwest, Continental, United, and Delta, faced similar struggles. Some liquidated, while others used bankruptcy laws to renegotiate debts and continue flying. The last major U.S. carrier to emerge from bankruptcy was American Airlines in 2013 when it merged with US Airways.READ MORE