Spirit Airlines in trouble: financial losses and debts threaten its future

US low-cost airline Spirit Airlines has announced that it has filed for Chapter 11 bankruptcy protection. The company has decided to use this legal tool to restructure and attempt a rescue, as it faces significant financial problems resulting from the pandemic and a failed merger attempt with rival JetBlue.

Spirit Airlines $SAVE, the largest low-cost airline in the United States, has lost more than $2.5 billion over the past four years and faces mounting debt. That's why it decided today to file for Chapter 11 bankruptcy protection, which will allow it to continue normal operations as it attempts to recover. The company said customers can continue to book flights and fly without interruption. The move comes after the company's stock fell 25% on reports that Spirit is in talks with bondholders over the terms of a possible bankruptcy.

The company has been losing value for several years. Since the end of 2018, when it was still profitable, its shares have fallen more than 100%. CEO Ted Christie confirmed in August that the company was in talks with bondholder advisors about upcoming debt maturities. He expressed that securing the best possible deal is a priority for the company.

Although Spirit Airlines passenger numbers were up 2% in the first half of this year, ticket revenue fell 10% per mile and total revenue per mile fell almost 20%. This situation contributed to the increase in losses. Spirit was unable to return to profitability even after the travel market improved following the pandemic.

The main causes of the financial problems are rising costs, especially labour, and increasing competition from other US airlines that have started to offer low-cost flights. The price of tickets in the US leisure sector, a key segment of Spirit Airlines, has fallen due to a glut of new flights. To do this, Spirit has adopted a new strategy of offering ticket packages that include larger seats, priority boarding, free baggage and other services, a significant change from the previous "low-cost" air travel model where customers had to pay extra for everything.

Spirit Airlines has also been struggling with necessary engine repairs from Pratt & Whitney that have caused it to temporarily scrap dozens of its Airbus aircraft. This has led to pilot layoffs and other operational complications.

In 2022, Spirit Airlines attempted to merge with competitor Frontier Airlines, but that attempt was thwarted by a bid from JetBlue. Subsequently, the U.S. Department of Justice filed a lawsuit to block the merger because they said it would significantly increase prices for Spirit customers who are used to low fares. A federal judge granted the suit and the merger of the two airlines was cancelled.

Airline bankruptcies have not been uncommon in the U.S. in the past, especially in the 1990s when airlines struggled with high costs, competitive pressures and fuel price fluctuations. In some cases, airlines have filed for bankruptcy protection, allowing them to negotiate better terms to repay debts and continue operations. The last major U.S. airline bankruptcy was American Airlines, which emerged from Chapter 11 proceedings in 2013 while merging with US Airways.

Spirit Airlines now faces a difficult task: restoring its financial stability in a competitive airline market, while at the same time dealing with high costs and continued pressure on ticket prices. However, the question is whether its restructuring will succeed and whether it can remain relevant in a rapidly changing market.

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Source: Yahoo Finance, Reuters, CNBC.