Spirit Airlines filed for bankruptcy protection on Monday. Heavy losses, non-payment of debt, increasing competition for budget travelers, and failure to merge with other airlines have made the company take this tough decision.
The company announced that services will remain smooth during the reconstruction process and passengers will not face any inconvenience. “Passengers can use their tickets, credits and loyalty points as before,” the company said in a statement.
Many companies and airlines in the US have gone through bankruptcy and come back strong. Major airlines such as American Airlines, United, and Delta have also experienced bankruptcy in the past 25 years.
According to Spirit’s statement, discussions with lenders will allow the company to achieve financial stability by reducing debt and increasing investments to provide customers with a better travel experience. Lenders have agreed to provide $300 million in capital for the company’s operations.
But, if the company’s situation worsens, it is likely to be acquired by other airlines or shut down altogether. Many, including American Airlines, have recovered from bankruptcy proceedings through sales.
In the recent past, Spirit has attempted to merge with Frontier Airlines and JetBlue Airways. JetBlue’s proposal was preferred, but the court rejected the proposal on anti-competitive grounds.
JetBlue had expressed concern that Spirit’s low-cost ticket model would drive up industry fares. Because of this, the Justice Department opposed the merger.
Spirit’s low-fare model had prompted other major airlines to introduce “basic economy” variants. However, if Spirit reduces its flight schedule or ceases service, passengers will have fewer options for cheap tickets.
With average domestic round-trip fares of $136, Spirit tickets are 61% cheaper than other major airlines. Therefore, the company’s ban may have a direct impact on passengers.
Spirit has begun negotiations with creditors to restructure $3.1 billion in debt due in 2025 and 2026. During this process, the company will be delisted from the New York Stock Exchange and its stock price will have no value.
In the first half of 2024, the company reported a loss of $360 million, four times the previous year. The company has taken measures to control costs, including the postponement of aircraft sales, pilot furloughs, and aircraft purchases.
Spirit Airlines will now have to work hard to emerge from bankruptcy and re-establish its position in the industry.