An expert provides analysis on the carrier’s bankruptcy filing and reorganization plan.
Spirit’s first A321neo (Photo: Spirit Airlines)
Industry experts are analyzing what Spirit’s recent bankruptcy filing could mean for the carrier and the market at large.
Spirit announced Monday that it filed for Chapter 11 bankruptcy protection. The carrier’s bankruptcy filing is attributed to continued quarterly losses dating back to the COVID-19 pandemic, as well as a federally blocked $3.8 billion merger with JetBlue.
In a Form 8-K filed by the airline on Monday, Spirit announced it has entered into a restructuring support agreement (RSA) with aims to reduce its debt, provide increased financial flexibility, and position Spirit for long-term success.
Spirit stated in the form that it expects to continue operating its business normally throughout the Chapter 11 process. Customers will be able to book and fly without interruption and can use all tickets, credits, and loyalty points as normal.
Additionally, the Chapter 11 process will not impact employee wages or benefits. Spirit stated that vendors, aircraft lessors, and holders of secured aircraft indebtedness will continue to be paid normally.
“I am pleased we have reached an agreement with a supermajority of both our loyalty and convertible bondholders on a comprehensive recapitalization of the Company, which is a strong vote of confidence in Spirit and our long-term plan,” said Spirit CEO Ted Christie in the Form 8-K. “This set of transactions will materially strengthen our balance sheet and position Spirit for the future while we continue executing on our strategic initiatives to transform our Guest experience, providing new enhanced travel options, greater value and increased flexibility. I’m extremely proud of the Spirit team’s hard work and dedication, which is key to our sustained progress in advancing our business and delivering for our Guests.”
As part of the Chapter 11 process, Spirit stated it is filing a proposed plan of reorganization dubbed “Project Bravo” and expects to be delisted from the New York Stock Exchange in the near term. Its common stock will continue to trade in the over-the-counter marketplace through the Chapter 11 process. Shares are expected to be canceled and have no value as part of Spirit’s restructuring.
The airline’s reorganization plan – also included in its 8-K – details a turnaround initiative to realign the carrier’s business model to evolved customer needs while maintaining low costs.
Dubbed Project Bravo, it is broken down into five segments: liquidity enhancements, maintaining an industry cost advantage, network enhancements, improving the guest experience, and revamping Spirit’s branding.
For customers, the plan will add free changes across fares, new simplified boarding zones, free Wi-Fi access for loyalty sign-ups, improved contact center service with reduced wait times, and more. All passengers will also be served water and a small snack on their flights.
Network enhancements will include an effort to maximize “out and back” flying and increase “less than daily” flying. Spirit’s loyalty program will also see an upgrade.
Spirit’s transformation plan (Photo: Spirit Airlines)
Project Bravo is currently in phase 2 of its implementation timeline for the rest of 2024. During phase 2, Spirit is upgrading its loyalty program, expanding the premium check-in experience, and upgrading kiosk/bag drop functionality. Phase 3 is expected to begin in 2025 onward and will add revised premium cabin seating, in-seat power, interior changes to bins and lighting, and network/partner code-share agreements.
Spirit’s plan to roll out changes (Photo: Spirit Airlines)
Cory Bengtzen, pilot and CEO of SkyShare, provided insight into what Spirit’s bankruptcy merger could mean for the carrier and industry at large.
“Given that Spirit’s Chapter 11 filing is still fresh within the industry, there’s certainly an opportunity for rivals to claw-back market share,” Bengtzen told AirlineGeeks in an emailed statement. “Primarily by expanding flight routes or reducing fares while Spirit reduces capacity. However, should Spirit ultimately exit the market or consolidate in any way, other airlines could very well flip the script and raise prices in the absence of competition. A heightened sense of industry uncertainty might strain financial stability and sway investor confidence.”
He said that while Project Bravo could help boost its reputation with customer satisfaction, Spirit now needs to prioritize financial recovery plans.
“To improve growth and earnings, the airline might also need to consider strengthening its operational efficiency, addressing fleet issues, and restoring customer confidence,” Bengtzen said. “Spirit Airlines’ bankruptcy filing, which is expected in the very near future, will likely have an immediate impact on our industry and throw a curveball into this holiday season.”
With the busy holiday travel season approaching, Bengtzen said that he foresees Spirit reducing its flight schedules due to its financial struggles – which in turn could cause disruptions, cancellations, and reduced flight options for customers.
Bengtzen cited AAA, which projects nearly six million travelers by air over Thanksgiving alone this year. Because Spirit typically operates more than 700 daily flights, Bengtzen said a reduction of its normal flight schedule will put pressure on other carriers which may create a domino effect.
“Another critical concern for travelers is uncertainty – will the airline be able to meet demand?” Bengtzen said. “Will Spirit maintain their usual low-cost fares throughout the busy travel period or increase costs to bolster their bottom line? The timing of this announcement in many ways is a setback for the entirety of our industry.”
Spirit has already furloughed 186 pilots this year and plans to cut 330 more in early 2025. Bengtzen said that the carrier’s pilot furloughs improve its financial standing, but new pilot hires take weeks or even months to get certified due to training slot shortages.
“With a pilot shortage dominating all of aviation, to jettison so much of your most critical workforce unfortunately speaks volumes,” Bengtzen said.
So what does this bankruptcy mean for consumers? Bengtzen said that many travelers rely on budget airlines like Spirit for affordable travel options, especially for regional flights.
“Spirit may not significantly alter its pricing in the short term; however, the bankruptcy process could involve tightening capacity, rolling-back routes, and shifting operational resources,” he said. “This could potentially lead to higher fares on many routes and/or higher costs for add-ons like carry-on baggage, seat selection, and on-board conveniences, ultimately putting the total price of travel on par with other airlines.”
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