On Monday, November 18, Spirit Airlines filed for bankruptcy protection.
The mentioned decision was made by the specified company because it is currently in a very difficult situation. The firm is faced with debts that have become an insurmountable problem. Also, recently, the company has been observing a gradually increasing amount of losses. Another unfavorable circumstance of the reality in which the brand currently exists is the impossibility of merging with other airlines. Moreover, the company is faced with such a factor in the current configuration of the existence of the air transportation industry as increased competition for bargain-seeking airline passengers. In the present condition of Spirit Airlines, it is very difficult to cope with the corresponding challenge.
The company separately said that its activities will continue after debt restructuring. In a statement published by the firm, it was noted that guests can continue to book tickets and fly without interruptions. Special attention was also paid to the continued opportunity to use tickets, credits, and loyalty points as usual.
Airlines and other companies in the United States often file for bankruptcy. For a business that finds itself in a difficult situation from a financial point of view, the appropriate procedure provides an opportunity to become stronger. Over the past 25 years, most major US airlines, including American Airlines, United, and Delta, have filed for bankruptcy.
In a statement, Spirit Airlines noted that as a result of bankruptcy and negotiations with existing creditors, the company will have the opportunity to emerge early next year. The firm expects to have reduced debt and increased financial flexibility by the mentioned moment. The company also assumes that the specified factors will help it achieve long-term success and accelerate investments. The firm will provide guests with enhanced travel experiences and greater value.
The company’s statement also contains information that the creditors have agreed to pump an additional $300 million into the airline to finance its operations through the bankruptcy process.
Also, do not exclude the possibility that the company will eventually be bought by another airline or will face an insurmountable need to liquidate itself. In this context, attention should be paid to the experience of previous years, indicating that many airlines, including American Airlines, have had their assets purchased out of bankruptcy and merged with another firm in the same industry.
In recent years, Spirit Airlines has undertaken two merger attempts. The company intended to implement the relevant deals with Frontier Airlines and JetBlue Airways, which topped the offer from Frontier only to have its purchase blocked by a federal judge on antitrust grounds.
According to media reports, the problems that shape the current position of Spirit Airlines may cause higher fares across the industry. It is worth noting that scaling up the practice of implementing the low-fare model prompted major airlines to also offer so-called basic economy seats in their planes. The corresponding proposal provides for the absence of any frills. The pressure to use the mentioned model will decrease significantly if the company is forced to scale back its schedule and the cities that it serves, or gets purchased by another larger industry player.
According to media reports, the new deal for the buying of Spirit Airlines and its merger with another airline is highly likely not to face the problems that have become an obstacle to the successful implementation of earlier similar attempts. This assumption is based on the expectation that bankruptcy filing would raise the possibility of liquidation as an alternative. Also, in the context of the relevant forecast, it should be noted separately the expectation that the US Justice Department, which monitors compliance with antitrust laws, after the inauguration of Donald Trump scheduled for January, may take a more favorable position about corporate merger compared to the administration of the current President of the United States Joe Biden, which opposes the appropriate deals. Over the past four years, several deals of the mentioned categories have been challenged on antitrust grounds, although with a different position of the regulator, the environment for the implementation of these business agreements could be better.
Last week, Spirit Airlines said in a US Securities and Exchange Commission filing that it is in productive negotiations with creditors about debt restructuring, which comes due in 2025 and 2026. Previous filings of the company disclosed it had $3.1 billion in long-term debt on its balance sheet.
The firm expects that the result of the bankruptcy filing will be the delisting of its shares from the New York Stock Exchange in the near term. The company said about this on Monday. The firm also expects that its common stocks will be canceled and will have no value as part of the restructuring.
Last week, Spirit Airlines shares fell by 59%. The corresponding dynamic of securities was recorded against the background of the company’s statements that it was negotiating with creditors and, due to this process, was unable to complete its financial report for the third quarter of 2024 by the prescribed time. Then the shares of the firm fell by another 18%. The reason for this dynamic was the information that the bankruptcy filing is inevitable. Since the beginning of the current year, the value of the company’s securities has fallen by 93%.
It is worth noting that Spirit Airlines was a pioneer in the US market in offering ultra-low base fares. At the same time, this company charges customers an additional fee for almost all other options, including carry-on bags.
It is also worth noting separately that the mentioned low-fare model has caused many complaints from customers of the firm. The results of the most recent passenger satisfaction survey conducted by JD Power indicate that Spirit Airlines and Frontier Airlines show the lowest rates in terms of the mentioned criterion.
Moreover, the low-fare model has led to concerns that a sale to JetBlue will cause the growth of the appropriate figures across the industry. Against this background, the US Justice Department has filed an antitrust case that blocked the deal.
In the first two years of the coronavirus pandemic, all airlines in the United States faced billions of dollars in financial losses. This problem was not fixed even after the mentioned companies received federal economic assistance to continue flying and prevent mass layoffs. This assistance was estimated at billions of dollars. The profitability of major airlines has been on a growth trajectory after demand for air travel bounced back in 2022.
Smaller carriers such as Spirit Airlines continue to face difficulties. It is worth clarifying that in this case, companies that offer lower fares are meant to gain tourists interested in bargaining options for obtaining services in the air travel area, are meant.
In the first six months of the current year, Spirit Airlines faced losses of $360 million. This indicator has increased almost four times compared to the result for the same period in 2023.
Spirit Airlines has also taken several measures to raise cash and cut costs. As part of the relevant decisions, the company announced the sale of its 23 Airbus jets and delayed future aircraft deliveries. The company has also laid off hundreds of pilots. Moreover, there are plans to continue cutting the workforce in January 2025.
As we have reported earlier, BurgerFi Files for Bankruptcy.
