Spirit Airlines Restructures $1.6 Billion Debt in Bankruptcy, Worrying US Holiday Travelers

Spirit agreed to file a prepackaged bankruptcy to restructure its $1.6 billion in debt

Spirit Airlines Inc. filed for bankruptcy protection on Nov. 18, joining a long list of US carriers that have fallen victim to financial pressure. Ticket holders became anxious about reaching their destination in time for the Thanksgiving holiday, the busiest travel period in the US.

Instead of shutting down, Spirit Airlines is restructuring to maintain operations under its so-called Chapter 11 bankruptcy file. Spirit assured passengers that all 84 airports would continue to operate flights normally and that they could use all of their tickets, credits, and loyalty points as if nothing had happened.

To restructure its $1.6 billion in debt, the airline agreed with most of its creditors and filed what is known as prepackaged bankruptcy.

Current bondholders will receive new debt and ownership in the company. As in almost all large company bankruptcies, including airline companies, stockholders will receive nothing.

Spirit Airlines was requested for a comment but was not answered.

Some of Spirit’s problems are specific to its carrier class, which focuses on low-cost domestic service. Large competitors came out of the pandemic stronger because of the billion-dollar government aid, when domestic-focused, low-fare airlines had traditionally increased their market share.

The major carriers then hired thousands of pilots from airlines like Spirit to fill the void created by a record number of pilots who quit or took early retirement. When Spirit’s pilot compensation increased by 34% over two years due to a round of post-pandemic labor contracts, the airline’s staffing problems got worse.

The biggest airlines now offer basic economy tickets to prevent budget-conscious passengers while simultaneously providing more flights and destinations putting more pressure on discounters like Spirit.

Spirit faced many challenges when travel increased in 2022 and 2023. Airlines increased their flying capacity but were forced to lower tickets to load planes after exceeding demand in the US market. Even when demand was high, the carriers could still not make high profits.

Spirit was compelled to ground aircraft due to a manufacturing defect in Pratt & Whitney engines manufactured by RTX Corp. Due to a shortage of parts and supply chain delays, the repairs took longer than usual.

Spirit announced that 60 of its planes would be grounded in 2025 due to repairs that would take more than 400 days each. Cirium data shows that of the 213 aircraft, 182 are currently in operation. It has agreed to pay Pratt a certain amount, and negotiations are still ongoing.

In February, it agreed to be purchased by its rival Frontier Group Holdings Inc. for $2.9 billion in cash and equity. But, JetBlue Airways made a counteroffer when Spirit terminated the Frontier agreement and consented to a $3.8 billion JetBlue acquisition.

A federal judge banned the transaction as it would increase fares and limit competition. JetBlue and Frontier are also losing money, much like Spirit.

The US airline industry has a long history of bankruptcies, allowing airlines to reset their debt and continue operating without stopping operations. US Airways, Trans World Airlines, and Frontier, the country’s biggest airlines, American Airlines Group Inc., Delta Air Lines Inc., and United Airlines Holdings Inc., have all filed for Chapter 11 bankruptcy.

While some smaller carriers have collapsed, others were bought during bankruptcies.

The airlines may exit Chapter 11 in the first quarter of 2025 due to its planned filing, which prevents creditors from battling in bankruptcy court over who gets paid what. A bankruptcy court judge has to approve its reorganization plan, and shareholders will oppose it.

After the bankruptcy, it is planning to sell 23 of its Airbus SE aircraft, reduce unproductive routes, and suspend around 500 pilots.

Spirit has hired a brand strategist to act as a brand advisor to overcome its reputation as one of America‘s most disliked airlines.

Spirit has added premium options to its offerings in response to its US travelers, especially younger ones. They have now added options like extra legroom and priority check-in.