By Allyson Versprille Jonathan Randles and Mary Schlangenstein | Bloomberg
Spirit Airlines told customers Monday that they should continue feeling comfortable booking flights “now and in the future,” despite the airline filing for bankruptcy.
The US carrier sought Chapter 11 protection in New York on Monday to restructure $1.6 billion of debt after struggling to overcome mounting losses and failed merger attempts, according to court filings. The company said it plans to relinquish control to its bondholders. Its shares will be delisted.
In the message to customers, Spirit said the agreement “is expected to reduce our total debt, provide increased financial flexibility, position Spirit for long-term success and accelerate investments providing Guests with enhanced travel experiences and greater value.” The company has said it will continue to operate normally throughout the bankruptcy process, which it expects to complete early next year.
The carrier said during that time, customers can continue to use their tickets and loyalty points and benefit from rewards programs. A representative for Spirit declined to comment further.
The proceedings come ahead of the busy Thanksgiving travel season, which Airlines for America, a trade group for the largest carriers, predicts will set an all-time record with more than 31 million passengers flying on US airlines.
Spirit had been seeking to tie up with rivals amid competition from traditional carriers and higher inflation. It was forced to start restructuring talks with creditors after a federal judge blocked a $3.8 billion acquisition by JetBlue Airways Corp., ruling the combination would harm cost-conscious travelers by driving up the price of airline tickets across the industry. Separate talks for a merger with Frontier Group Holdings Inc. also fell apart in recent weeks, paving the way for the bankruptcy filing.
FILE – Airline passengers self check in at the Spirit airlines counter at Orlando International Airport on July 3, 2024, in Orlando, Fla. (AP Photo/John Raoux, File)
The discount carrier has reached a broad overhaul agreement with creditors holding about 80% of the debt to be restructured and has enough support to receive court approval, according to court documents.
Under the plan, which can be revised during the Chapter 11 process, existing bondholders will swap $795 million of their notes for equity, while shares will be delisted. Holders of senior secured and convertible notes will receive $840 million of new secured notes. Bondholders also committed to inject $350 million of fresh equity and provide $300 million of debtor-in-possession financing to support Spirit throughout the Chapter 11 process.
The carrier said it has about $3.6 billion in long term debt, including $136 million in unsecured term loans it owes the federal government as part of Covid-19 pandemic-era related support.
Post-covid blues
Spirit, which employs 12,800 people, has struggled following the Covid-19 pandemic as the largest US carriers stepped up use of basic economy fares to lure travelers away, while part of its fleet was grounded by an engine manufacturing defect. Most recently, fares were held down during the crucial summer travel period because airlines put too many seats into the domestic market.
The developments kept Spirit from the constant growth that’s needed to keep the discount model successful, offering rock-bottom fares but making money by charging for items such as coffee, bottled water, carry-on bags and printed boarding passes.
The company has posted annual losses since 2020 and its stock has plummeted 93% this year through Nov. 15.
“The airline industry (particularly in the United States) is contending with shifting consumer demand and operational headwinds, such that it is unrecognizable from what it was pre-pandemic,” Fred Cromer, chief financial officer of Spirit, said in a court document. “Low-fare carriers — whose business models rely on much slimmer margins — are disproportionately affected.”
The discount carrier in recent months announced it would begin offering items like extra leg room and free checked bags in response to growing consumer demand for more upscale travel options. It also hired a “world recognized” advertising agency and a brand adviser to help shed its reputation as one of America’s most disliked airlines.
Spirit’s Chief Executive Ted Christie told customers in an emailed letter on Monday that they could continue to book and make flights on the carrier “now and in the future,” using all tickets, credits and loyalty points as normal.
“We expect to complete this process in the first quarter of 2025,” Christie said. “Other airlines that are operating successfully today have undertaken a similar process.”
Spirit follows into bankruptcy budget Brazilian airline Gol Linhas Aereas Inteligentes SA, which in January filed for Chapter 11 in New York.
The case is Spirit Airlines Inc., 24-11988, US Bankruptcy Court, Southern District of New York (Manhattan).
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