Shares of Spirit Airlines fell to a record low on Friday following a report that the airline is exploring filing for Chapter 11 bankruptcy. The airline, known for its yellow planes and low-cost approach, faces a deadline this month to renegotiate more than $1 billion in debt.
The potential bankruptcy process would mark a dramatic turn for Spirit, a company that was profitable and on-time before the pandemic. Their no-frills service model became joke topic between comedians night shifts and a threat to large airlines, attracting customers with extremely low fares and additional charges for seat assignments and carry-on luggage.
However, large airlines soon successfully copied much of this model with minimal base fares. Additionally, earlier this year, a federal judge blockade JetBlue Airways’ planned acquisition of Spirit on antitrust grounds, cutting short what both companies saw as a key opportunity to compete with their larger rivals.
This failed deal left Spirit in a vulnerable position. The airline has had to deal with an emergency recall for Pratt & Whitney engines, changes in consumer travel patterns and higher operating costs. In January, Spirit had already indicated that it was exploring options to refinance its debt after the collapse of the JetBlue deal.
Spirit has more than $1 billion in debt backed by its loyalty program, and that debt matures in September of next year. The airline has until October 21 to refinance or extend these secured bonds.
Since 2020, Spirit has reported financial losses, including a loss of nearly $193 million in the second quarter of this year. Faced with this situation, the company has been trying to reduce costs, cutting flights, postponing orders for Airbus aircraft and reducing its growth capacity for November and December by approximately 17%, according to Barclays analyst Brandon Oglenski.
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Spirit CEO Ted Christie said in a note to staff that the company is implementing a comprehensive plan to better compete, strengthen its balance sheet and return to profitability. In addition, he indicated that they are in talks with their creditors to ensure the best result for the company.
A Spirit spokesperson declined to comment on a report from The Wall Street Journal which indicated that the airline was considering filing for bankruptcy. Spirit’s adviser, Perella Weinberg Partners, declined to comment.
Despite these efforts, Spirit’s stock price fell more than 24% on Friday, hitting an all-time low of $1.69. The stock has lost almost 90% of its value so far this year. Meanwhile, shares of Frontier Airlines, which at the time also attempted to merge with Spirit, rose 16%, as did those of other airlines that showed a rise in the market.
It is article was originally published in English by Leslie Josephs for our sister chain CNBC.com. For more from CNBC enter here.
