Spirit Airlines Files for Chapter 11 Bankruptcy

Major United States budget carrier Spirit Airlines has filed for Chapter 11 bankruptcy after months of recent financial struggles, and their decision could impact the aviation industry in a big way.

Chapter 11 bankruptcy, also known as reorganization bankruptcy, allows a company to get their finances in order and pay their debts while staying in business. There are several different types of bankruptcy: Chapter 7 bankruptcy allows individuals to liquidate, or sell assets, to pay their debts. Chapter 12 bankruptcy is for family farmers and fishermen, allowing them to keep their property while paying off their debts, and Chapter 13 allows individuals to reorganize and repay their debts over a period of three to five years without liquidation. Chapter 11 bankruptcy is the most common among large businesses, as it allows them to handle their debts without affecting their operations.

Spirit is known for its bare-bones business model, which is designed to get passengers from point A to point B. Anything extra, including carry-on bags, checked baggage, in-flight refreshments, selecting your seat, carrying pets, priority boarding, and even printing your boarding pass at the airport costs extra money. In addition, Spirit is one of the most disliked airlines in the United States-- the American Customer Satisfaction Index (ACSI) consistently ranks Spirit as one of the most dissatisfactory airlines for numerous reasons, including baggage mishandling and high additional fees.

The aviation industry suffered after the spread of COVID-19 in 2020, and many airlines never recovered. One of those airlines was Spirit, who have lost over $2.5 billion since then while amassing massive amounts of debt.  While demand is still relatively high, soaring labor costs have hurt the airline, and many travelers have switched over to other low-cost carriers like Southwest, Frontier, Allegiant, and JetBlue, among others. Spirit has not made a full-year profit since 2019, and they lost over $360 million in the first half of 2024 alone.

Due to these factors, Spirit fell into deep debt, and the company decided to file for Chapter 11 bankruptcy yesterday morning. They have confirmed that their tickets, memberships, credit cards, and frequent flyer miles will remain intact for their members, and operations should continue smoothly throughout the travel season while they attempt to pay off their outstanding debts. Over the next few months, they will reorganize their finances to complete this-- Spirit has also cut 20% of all flights from October to December to cut costs.

Spirit has stated that they have secured $300 million in financing to help them with their troubles, and they aim to end their bankruptcy in early 2025. Unfortunately, while Spirit is counting on record Thanksgiving travel to aid in their recovery, this announcement of bankruptcy could end up driving customers away. Many consumers avoid relying on companies in a fragile state like bankruptcy, as it poses a risk to their future benefits. If Spirit were to shut down right now, thousands of the airline's members would lose the 34.3 billion unredeemed frequent flyer miles sitting in customer accounts, which are worth around $105 million.

Because of their struggles in the aviation industry, Spirit has tried to merge with several other low-cost carriers to relieve them of their problems. However, these attempts failed both times. Back in 2022, an ailing Spirit announced that they were ready to merge with another carrier, leading Frontier to immediately make a proposal. JetBlue soon entered the conversation, though, and quickly outbid Frontier. Then, as the merger was passing through its final stages, a court ruling by the US Department of Justice blocked the $3.8 billion acquisition, claiming that it would drive up prices for Spirit customers who rely on the airline's low prices.