Spirit Airlines Files for Bankruptcy

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Facts

  • Spirit Airlines, the largest ultra-low-cost carrier in the US, has filed for Chapter 11 bankruptcy protection in New York in a bid to restructure its billion-dollar debt.[1][2]
  • The move was announced in a press release on Monday, detailing that existing bondholders committed to a $350M equity investment, as well as to provide a $300M debtor-in-progression financing to help the company through the process.[3]
  • Business is expected to continue as usual during the process, as Spirit said that customers will be able to book and fly and use all tickets, credits, and loyalty points, and that contracts with team members and others will be honored.[3]
  • This comes as the company — the first major US airline to file for bankruptcy since American Airlines in 2013 — posted its most recent full-year profit in 2019, and has lost in excess of $2.5B since the beginning of 2020.[4][5]
  • Uncertainty over Spirit's future had further intensified after the US District Court for the District of Massachusetts sided with the US Justice Department and blocked a $3.8B merger with JetBlue Airways in January on antitrust grounds.[2][6]
  • Last week, the Wall Street Journal reported that the Florida-based carrier was preparing to file for bankruptcy protection after potential merger talks with rival Frontier Airlines collapsed.[7][8]

Sources: [1]Associated Press, [2]Reuters, [3]Spirit Airlines, [4]Forbes, [5]CBS, [6]United States Department of Justice, [7]FOX News and [8]Wsj.

Narratives

  • Narrative A, as provided by Newsweek. Spirit Airlines epitomizes the enduring crisis that has engulfed budget US airlines since the pandemic. Given that operational costs have never returned to pre-pandemic levels, the entire low-cost industry has been pushed to the point of unsustainability. There could be a way out, if these companies learn from models used in Europe, but this depends on passengers accepting these changes.
  • Narrative B, as provided by Skift. While it's true that Spirit and Frontier have failed to be profitable for years, several other ultra-low-cost airlines in America have posted profits. The business model isn't the problem here, but rather the fact that some carriers have decided to bundle fares and offer premium products, which there simply isn't a market for.

Predictions