In what shouldn’t come as much of a surprise, Spirit Airlines filed for Chapter 11 bankruptcy protection today in the Southern District of New York. The airline has faced years of mounting losses due to a range of issues, some of which were outside of the airline’s control.
According to the New York Times, the carrier has lost $2.2 billion since the beginning of 2020. A proposed merger with JetBlue was seen as a lifeline before it was scuttled by the Department of Justice (DOJ). Spirit was attempting to rekindle an earlier proposed merger with fellow ultra low-cost carrier (ULCC) Frontier but, talks were called off last week.
Spirit Airlines Bankruptcy Restructuring
The Dania Beach, Florida based carrier entered into a restructuring support agreement (RSA) supported by a supermajority of its loyalty and convertible bondholders. This restructuring is expected to reduce the carrier’s debt, increase financial flexibility, position it for long-term success and accelerate investments around enhanced travel experiences.
In a press release, the airline announced it has received backstopped commitments for a $350 million equity investment from existing bondholders and will complete a deleveraging transaction to equitize $795 million of funded debt. To implement the RSA, the Company has commenced a prearranged chapter 11 process in the United States Bankruptcy Court for the Southern District of New York (the “Court”). Existing bondholders are also providing $300 million in debtor-in-possession (“DIP”) financing, which, together with Spirit’s available cash reserves and cash provided by operations, is expected to further support the Company through the Chapter 11 process.
The company plans to continue operations as scheduled so passengers shouldn’t notice anything different when traveling with the airline. Passengers can still book and travel with the airline as normal and all employee wages will continue to be paid. For anyone having questions about the bankruptcy and RSA, the airline has launched a webpage, Spirit Go Forward, with more information.
Ted Christie, Spirit’s President and Chief Executive Officer, had this to say about the announcement:
“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. 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.”
As a result of the Chapter 11 filing, Spirit expects that it will be delisted from the New York Stock Exchange (NYSE: SAVE) in the near term.
Spirit Go Forward Proposed Changes
As first reported by IshrionA, there are a few interesting proposals floating around as part of Spirit’s restructuring plan. Some of these shouldn’t come as much of a surprise as we’ve already seen the carrier make significant changes to its business model in recent months.
Spirit Airlines files for Chapter 11 Bankruptcy. Operations continue as normal.
— Ishrion Aviation (@IshrionA) November 18, 2024
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
In addition to the changes that have already been announced to onboard options, Spirit is planning to make significant changes to its network. The proposal calls for:
- Eliminating unproductive markets.
- Shifting capacities to cities with more attractive demand/pricing.
- An increase in “less than daily” routes (similar to Allegiant’s business model) and focusing on peak travel days and seasons.
- Maximizing out and back flying allowing for enhanced recovery opportunities (and saving money on hotels).
- Codeshares with partner airlines.
- Exploring joint ventures and airline alliances.
The airline is also reportedly planning a realignment of capacity with a focus on mid-size “value-seeking” cities and, upgrading the interiors of its planes to include in-seat power, new overhead bins, and lighting upgrades.
What’s Next for Spirit?
While the Chapter 11 bankruptcy came as no surprise, the real question is where does the airline go from here? The press release and proposed transformation plan provide an outline of things to come but, is that really enough to turn around the struggling carrier?
Many of the changes seem rather obvious, why wouldn’t an airline want to eliminate unproductive markets and focus on the most attractive pricing and demand destinations? However, more drastic changes seem necessary in order for the turnaround to be successful. Spirit’s recent changes have indicated they are attempting to go more upmarket, and move away from their previous positioning of being a ULCC. Though there is still one major issue as far as I’m concerned, those bright yellow planes.
For years Spirit has developed a reputation as the low-cost carrier in the country. While most readers of this site know all of the ULCCs operating around the country, the casual traveler may know of one or two at most.
I managed to spend the first 30 years of my life without stepping foot on a ULCC before flying Spirit for the first time last month. Honestly, if it wasn’t for this site, I would have just booked the American option around the same time without a second thought.
If the carrier is looking to become a more premium player, it needs to change its perception in the minds of potential travelers. Otherwise, it may find itself in limbo. While the country might not need three major ULCCs, the competition is even stronger once you move towards a more premium offering.
Summary
Spirit Airlines has filed for Chapter 11 bankruptcy with plans to restructure. The airline will continue normal operations and has entered into a restructuring support agreement with its bondholders to take steps towards profitability. With over $2 billion in losses over the last five years, the airline will need a major shake-up to improve its fortunes. While some aspects of the proposed transformation plan have been floating around, I’m not sure if it’s enough to move the needle.
