What Does Spirit Airlines Bankruptcy Mean for Travelers?

by Scott Laird
Last updated: 7:50 AM ET, Tue November 19, 2024

Spirit Airlines filed for Chapter 11 bankruptcy protection on Monday in New York. The airline will continue to operate normally in bankruptcy and says it will honor all existing reservations, tickets, flight credits, and loyalty points. Spirit also says it has already secured agreements from the majority of its creditors to restructure its outstanding debt, and it expects an expedited process that it anticipates emerging from in the first quarter of 2025.

So, what does this mean for Spirit and its passengers moving forward? The airline was once viewed as a disrupting force in the airline industry, with low fares and extra fees for everything outside of the seat itself, even being the impetus for a new classification of airline—the Ultra Low-Cost Carrier (ULCC).

Spirit was profitable until 2019, but its fortunes haven’t recovered in line with the rest of the industry in the years after. After the pandemic, airlines saw surges in demand for premium cabin products and long-haul flights to Europe—both areas where Spirit doesn't compete and wasn't able to reap benefits. Spirit had also taken on a lot of debt to finance new aircraft acquisitions in anticipation of continuing the explosive growth it experienced in the last decade.

Now, the debt is coming due, and Spirit has a revenue shortfall because other airlines have caught up with the ULCC model. Legacy carriers have since begun to offer stripped-down low-fare categories (often termed Basic Economy) that are competitive with Spirit's unbundled fare model but offer the superior onboard service and access to airline alliance networks they're known for. And instead of depending on filling their flights with low-fare, fee-paying passengers like Spirit, they can offset some of their low fares on the same flight by selling extra legroom economy seats and those in their premium cabins.

An acquisition agreement by JetBlue Airways could have been a salvage operation for the airline's fortunes, but the acquisition was blocked by a federal judge earlier this year. That left Spirit with two options—another buyer, or bankruptcy protection. After discussions with Frontier Airlines that ultimately ended without an agreement, Spirit has now opted for the bankruptcy route, seeking protection from their creditors in court while they reorganize their debt.

Airline bankruptcies are typically a multi-year process, as they must go through a court-supervised process to restructure their debt. It's a process that most legacy carriers went through in the past two decades, but Spirit's bankruptcy will be different. The most time-consuming part—negotiating settlements with creditors—has already been taken care of. All that remains now is to have the court approve the company's reorganization plans and hammer out further agreements from a small pool of creditors with which the airline has not yet reached agreements.

Spirit is already a smaller airline than last year, having trimmed 20% of the flights from its schedule and selling 23 Airbus aircraft to raise cash. Several pilots were furloughed in October, and more have been told they will be furloughed by January, while several Captains have been downgraded to First Officer.

Part of the reorganization plan calls for further reductions to the airline’s schedule, which could disrupt passengers who have already bought their tickets, but details on the schedule reduction plans are forthcoming. Spirit could also sell assets to other airlines—including aircraft, airport facilities, international landing authorities, and landing slots—to help raise cash, but whether this is part of any reorganization plan is also forthcoming.

For now, it’s business as usual, with the condition that as news of the reorganization plans drip out, it could result in changes to how the airline’s network. Brett Snyder, author of the airline industry blog Crankyflier outlines several parts of Spirit that could be attractive pickups for competing carriers. While federal regulators blocked the JetBlue/Spirit merger over antitrust concerns, it’s likely that strategically selling off smaller portions of the airline would more easily pass regulatory hurdles.

With reduced flights, it could result in fewer redemption options for Spirit's loyalty members. Reducing the number of seats in the market could also drive up fares, although overall passenger demand is a larger driver of fare levels, and other airlines could replace any flying Spirit might cut to save money while they reorganize.

It's still the early stage of Spirit's bankruptcy filing, and on the surface, it's pretty much a pre-planned formality. Travelers who typically consider Spirit when buying their flights, or who have accumulated quite a few points should keep an eye on the news as Spirit works its way through the process, bearing in mind a different airline from the Spirit they’ve known is likely to emerge on the other end.

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