The largest airline based in Florida has declared bankruptcy. Spirit Airlines made it official early Monday, alerting investors, passengers and employees the company expects to continue operations as usual as it reorganizes its finances and operations over the next four months.
For months, bankruptcy concerns have swirled around Spirit. A planned merger with JetBlue was stopped by the federal government. Talks with Frontier Airlines failed to take-off. Labor costs and competition increased while the airline faced deadlines next year on hundreds of millions of dollars of IOUs it borrowed during the global pandemic.
In a message to passengers, CEO Ted Christine wrote to assure them that their tickets remain valid. “The most important thing to know is that you can continue to book and fly now, and in the future,” said Christie in the emailed statement.
That’s important for Spirit to continue generating cash in the months ahead. The company expects to exit bankruptcy by the end of March.
Spirit has more than 3,000 employees based in South Florida. In October, it announced it would be laying off workers early next year in a cost-cutting move that also included selling 23 of its planes to aviation services firm GA Telesis, which is also based in Broward County.
While the company’s current shareholders are wiped out in the prepackaged bankruptcy plan filed in New York, its top executives are staying and could keep hundreds of thousands of dollars in retention bonuses if they stick around. CEO Christie was paid $3.8 million in a retention bonus a week before Spirit declared bankruptcy. He gets to keep it if he is still with Spirit in one year.
Spirit is the dominant carrier at Fort Lauderdale-Hollywood International Airport where it handled one of every three passengers in September. The airport is the largest hub for Spirit.
The majority of the company’s bondholders supported the airline’s bankruptcy plan, including the owners of almost $1 billion of bonds backed by Spirit’s frequent flier program and brand. The company borrowed that money in the spring of 2020 as COVID-19 essentially brought air travel to a standstill for months.
Spirit was facing a December deadline to renegotiate terms of those bonds. That deadline was imposed by Spirit’s credit card processing company, which did not want to get stuck owing money back to passengers who booked flights that may have been canceled if Spirit was unable to operate.
Spirit Airline's strategy to remake the business while in bankruptcy is called Project Bravo.
Its existing bondholders have agreed to take a $350 million ownership position in a reorganized airline. It erases $795 million of debt. Those lenders also have agreed to provide $300 million of debt-in-possession financing, giving Spirit access to cash.
The structure means Spirit has pledged to continue to pay employee wages and benefits through its reorganization.
Christie said the refinancing “will materially strengthen our balance sheet and position Spirit for the future while we continue executing on our strategic initiatives.”
Spirit calls that initiative “Project Bravo” in its financial filing. The goal is “realigning Spirit’s business model to evolved customer needs, while maintaining Spirit’s significant unit cost advantage.”
The airline was a pioneer in the ultra loss cost carrier business model. It used cheeky and sometimes bawdy marketing tactics to highlight its lower fares and a la carte pricing techniques. It worked. Spirit became one of the most profitable airlines with a double digit profit margin until the pandemic hit. The airline has not had a profitable quarter since 2019.
As travelers rushed back to airports, other airliners rushed to discount tickets and break apart fares from other fees such as baggage and seat selection costs.
As Spirit was facing this stiffer competition, it tried to merge with JetBlue. However, the federal government sued and a judge agreed the combination would be anti-competitive. In his decision to stop the merger, Judge William Young wrote, “To those dedicated customers of Spirit, this one’s for you.”
Spirit has since had difficulty finding a profitable business without a merger partner.
Among the priorities of its turnaround strategy is to “pivot network to improve operational reliability and supply/demand balance.” Its network is Spirit’s routes and connections.
Most of Spirit's flights take off and land in the U.S., and are concentrated in tourist-heavy destinations such as South Florida, Orlando and Las Vegas. The plan included in Monday’s filing does not mention any specific changes Spirit may make to the cities it serves other than focusing on “mid-size value-seeking cities.”
It will introduce a new fare option for passengers called “premium leisure,” and consider changing its food and beverage and on-board wi-fi offerings for passengers. The changes reflect an effort by Spirit to rebrand itself as a higher value carrier compared to its legacy image as a low-cost, no-frills airline.
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