Budget Carrier Returns to Chapter 11 Months After Completing its Restructuring

No, this isn’t an old title; Spirit Airlines is back under Chapter 11 bankruptcy protection, merely five months after completing its restructuring process. The ultra-low-cost carrier has been teetering on the edge after taking a hard financial hit during Covid-19 and failing to bounce back with its competitors.

Spirit announced that it will keep flying passengers while, once again, working itself back up the ladder. CEO Dave Davis, who took the role around a month after Spirit’s last recovery, took a more optimistic tone and framed the move as a way to give Spirit access to “more tools” for restructuring… though flight attendants’ union leaders are warning members to “prepare for all possible scenarios.”

For now, Spirit says tickets, loyalty points, and credits remain valid, and employees and contractors will continue to get paid. The airline is essentially asking travelers and staff to carry on as if nothing had happened, despite its long-term debt sitting at $2.4 billion and a negative free cash flow of $1 billion at the end of the second quarter.

The numbers have been going in the wrong direction for years. Spirit reported more than $2.5 billion in losses between 2020 and completed its first Chapter 11 filing last November, largely due to the accumulating effects of the pandemic and its inability to rebound. That restructuring converted $795 million of debt to equity and brought in a $350 million investment, but management acknowledged in a recent quarterly filing that there is “substantial doubt” about the airline’s ability to continue operations through 2025.

Part of the problem is competition. Spirit’s bare-bones model has been copied or undercut by pretty much all the larger carriers that can afford to subsidize low fares. The airline has attempted to shoot back with tiered ticketing options that add larger seats, boarding priority, and internet access, aiming to draw in more upscale travelers. Still, job cuts and furloughs are already scheduled for later this year, including 270 pilots and the downgrade of 140 captains to first officers.

Another consideration is acquisitions. Spirit has, historically, eyed mergers with JetBlue and Frontier to get a little financial relief. However, both of these airlines tried and failed to cut a deal during Spirit’s bankruptcy, with the carrier saying it wants to focus on self-growth.

FMI: www.spirit.com