Spirit Airlines filed its third-quarter earnings report late, revealing significant financial challenges that contributed to its recent bankruptcy declaration. The company reported a loss of $308 million against $1.2 billion in revenue. These results were unaudited.
Spirit acknowledged the difficulty of operating in an increasingly competitive pricing environment, which has been particularly tough for budget airlines. The company’s attempts to transform and align more closely with larger legacy carriers, such as through its merger with JetBlue Airlines, also faced substantial obstacles. Despite strategic moves, including introducing first-class seats and altering fee structures, the financial turnaround did not materialize as hoped.
“The expected short-term impact of certain policy changes, such as the removal of change and cancel fees, have negatively affected revenue performance,” Spirit said in a statement. “In addition, challenging market conditions, including increasing costs, have impacted the Company’s performance. These trends are expected to continue for at least the remainder of 2024, creating uncertainty in operating results.”
Investors reacted unexpectedly to the grim results; Spirit shares surged about 130% in Tuesday trading, despite the company being delisted from the New York Stock Exchange.
The shares are currently trading at around 50 cents apiece. Spirit Airlines has filed for bankruptcy protection, marking the first major carrier in America to go bust since American Airlines in 2011. The low-cost airline has struggled financially, not recording an annual profit since 2019.
Like other discount rivals, Spirit has faced a plunge in ticket prices due to a surplus of seats. Earlier in January, a judge blocked Spirit’s proposed takeover by JetBlue Airways on competition grounds. Additionally, a potential merger with Frontier Airlines fell through.
Over the years, Spirit has frequently appeared at the top of lists ranking America’s most disliked airlines. Whether you fly with Spirit or not, the airline’s recent Chapter 11 bankruptcy filing indicates larger shifts in travelers’ attitudes toward budget flights. In short, cheaper isn’t always better.
Spirit Airlines has hit some financial turbulence, and we take a closer look at what’s in store. Spirit Airlines is embracing the “new year, new me” mindset after announcing this week that it is filing for Chapter 11 bankruptcy. The carrier plans to debut its restructuring plan during the first quarter of 2025 and has signaled it will be moving away from its traditional budget carrier operating model.
The airline now faces a challenging road ahead as it works to stay in the skies and aims to significantly reduce its debt, as detailed in a letter from CEO Ted Christie shared with loyalty members. “Spirit has entered into an agreement with our bondholders that 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,” wrote Christie.
spirit faces turbulent financial challenges
Yes, Spirit Airlines is still flying and is not shutting down operations. Filing for Chapter 11 bankruptcy is the first step in addressing financial challenges. It is not a liquidation but an effort to stabilize the company’s finances.
If you’ve already booked a flight with Spirit Airlines, the company has reassured travelers that operations will continue as normal throughout the bankruptcy process. “The most important thing to know is that you can continue to book and fly now and in the future,” Christie wrote in the letter to customers. No flights have been canceled yet, and all flight credits and Spirit frequent flier miles remain valid for future use.
However, Spirit customers should monitor their bookings closely. According to Mike Arnot, aviation industry commentator and spokesperson for Cirium, Spirit is unlikely to raise its low fares as a short-term solution to tackle its debt. “The average round-trip fare for Spirit this year is $140 excluding taxes and fees,” Arnot explained.
Spirit may reduce some flying routes to manage costs, but significant fare hikes are not anticipated in the near term. It has been nearly 15 years since a major U.S. airline filed for Chapter 11 bankruptcy: the last was American Airlines, which eventually merged with US Airways. Such filings are not unusual in the aviation industry, said Scott Keyes, chief flight expert and founder of Going, an airfare deals app.
“Airlines frequently declare bankruptcy without ceasing operations; major carriers like Delta, United, and American have all done so in the past two decades,” Keyes said. According to Keyes, Spirit faces three potential futures: a merger with another airline, emerging as a leaner independent airline, or ceasing operations entirely if restructuring efforts fail. Spirit has built its reputation on ultra-low fares while relying heavily on ancillary fees to turn a profit.
However, Spirit’s no-frills fare model is no longer resonating with today’s post-pandemic travelers, who now expect more value from their base ticket. “We are redefining Spirit as a high-value low-cost carrier, offering a broader array of products including a more premium leisure travel experience at an affordable price. As part of our transformation, we will offer four travel options that all include the flexibility of no change or cancellation fees,” Christie said.
Spirit has been making significant changes throughout 2024, including introducing new fare bundles with more amenities like Wi-Fi and extra legroom seats. The airline is also facing industry-wide challenges like rising operational costs, changing consumer preferences, and fluctuating demand. At large, Spirit’s financial struggles stem from increased pilot wages, a costly engine recall impacting much of its fleet, and growing competition from other budget carriers.
Additionally, legacy airlines offer basic economy fares that rival Spirit’s low prices while providing more amenities, making it harder for Spirit to stand out. Travelers should stay informed about Spirit’s restructuring process and any potential impacts on their travel plans.