NEW YORK – American low-cost carrier Spirit Airlines has filed for bankruptcy on the morning of Monday, November 18th. A series of complications which included a disapproved takeover by JetBlue and failure in the airline renegotiating its debts culminated with its filing for Chapter 11 bankruptcy protection in New York.
Spirit announced an agreement with its shareholders to restructure its debts as well as raise money for operation in its current phase, which is anticipated to come to an end by the end of 2025’s first quarter. Additionally, customers with already purchased tickets and loyalty points have been told that they can still use all tickets and points as normal.
Spirit Airlines history and cause for bankruptcy
Spirit Airlines came into existence in 1992 and its no-frills model had an equal share of supporters and opposers. Indigo Partners, a private equity fund, purchased a majority stake in Spirit in 2006 with the objective of lowering its cost and selling tickets without the inclusion of additional services like checked-in baggage, food and seating.
Such a model kept Spirit profitable and was influential in the aviation industry not just in the US but around the world. Today, there are several airlines which emulate Spirit’s model which yielded profitability for a long time. The carrier’s last annual profit report came in 2019, however, and post-COVID complications started leading to its downfall.
Spirit has struggled to stay on par with its competition in the last five years, a factor that has been compounded by Pratt & Whitney’s engine issues. Over 200 aircraft from the A320 family have been affected, although it is expected for the airline to receive $150-200 million in compensation.
Nevertheless, a few cost-cutting measures have already been taken in the shape of delayed aircraft deliveries and furloughing of pilots. Spirit even sold 23 airplanes last month and is intent on selling more to fuel its recovery from bankruptcy.
What is chapter 11 bankruptcy?
Chapter 11 bankruptcy has been applied for 180 times over the last decade. The three biggest American airlines – American, Delta and United – also filed under the process after the 9/11 attacks, so it does not mean that it culminates in the liquidation of an airline.
Spirit’s idea is also to recover sooner rather than later, although low-cost carrier have had their fair share of problems. Their biggest challenge has been anticipating profitability as a result of rising costs, not offering premium cabins and having mainly domestic flights.
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