What the Spirit Airlines bankruptcy means for travellers

Spirit Airlines, the largest budget carrier in the United States, filed for Chapter 11 bankruptcy protection Monday. The airline said customers should not see any disruption to their travel plans while the process unfolds.

The filing followed years of struggles for the Florida-based airline, which is known for its no-frills, low-cost flights. Spirit failed to bounce back from the COVID-19 pandemic, largely due to rising operating expenses and stiffer competition. The airline has lost more than US$2.5 billion since the beginning of 2020 while also racking up mounting debt.

The bankruptcy proceedings are aimed at restructuring the company and shoring up its finances. Still, unease around the bankruptcy petition may have some travellers looking elsewhere for flights ahead of the busy holiday travel season.

Here’s what you need to know.

Effect on bookings or loyalty points

For now, it’s business as usual. Spirit says it expects to continue operating normally throughout the bankruptcy process, and that travellers can continue making reservations and taking flights without interruptions.

All existing tickets, credits and loyalty points remain valid, as do the airline’s affiliated credit cards and other membership perks, the company said.

Reassuring customers that the bankruptcy won’t impact their travel plans or loyalty programs will be crucial to Spirit’s short-term ability to preserve business, according to Sarah Foss, global head of legal at financial services company Debtwire.

“If you’re someone that’s booking your holiday December travel ... are you going to book Spirit, which is in bankruptcy? Or are you going to choose maybe Southwest or Delta – or something else that you view as potentially being more stable?” Foss said.

As long as Spirit is on track to reach a deal with lenders relatively quickly and avoid wider liquidation, frequent flyer miles and other loyalty program should remain untouched, she said. But the response from customers to the Chapter 11 could threaten the company’s turnaround efforts.

Foss said Spirit estimates show some 34.3 billion frequent-flyer miles worth about US$105 million are currently unredeemed. “A rush to use these miles or otherwise have its customers choose another airline to travel for the holidays could be disastrous for the airline’s reorganisation efforts,” she said.

Will there be fewer flights available down the road?

While Spirit says currently scheduled flights won’t be affected, the airline already warned about tightened capacity before Monday’s filing and said it would reduce the number of trips it offered in the coming months.

In a highly unusual move, Spirit announced plans to cut its October-December schedule by nearly 20 per cent, compared with the same period last year. The airline also has had to ground dozens of its Airbus jets due to required repairs to Pratt & Whitney engines.

A reduced schedule should help prop up Spirit’s fares, according to some analysts, but it would give the airline’s rivals more of a boost than Spirit itself. Analysts from Deutsche Bank and Raymond James say Frontier, JetBlue and Southwest would benefit the most because of their overlap with Spirit on many routes.

Spirit flies in and out of destinations across the United States, as well as Latin America and the Caribbean.

The airline’s largest hub is Fort Lauderdale-Hollywood International Airport in Florida. Spirit is the biggest airline at the airport, accounting for 30 per cent of all passengers in August, according to US Transportation Department figures.

Spirit’s second-biggest hub is also in Florida. It’s Orlando International Airport, where Spirit follows only Southwest in terms of passenger counts – ranking slightly ahead of Delta, Frontier and American. The airline also has big operations in Las Vegas, Atlanta and Los Angeles. The carrier’s largest maintenance facilities are in Detroit and Houston.

Spirit frequently ranks among US airlines with the highest consumer complaint rates, according to the US Transportation Department.

Other budget airlines

Spirit may still be the biggest discount airline in the US, but it faces more competition. The company recorded much of its recent losses as more and more rival carriers began offering their own versions of low cost, no-frills tickets.

Some of Spirit’s biggest competitors are other budget airlines, like Frontier and JetBlue, both of which previously tried to merge with Spirit. JetBlue and Spirit abandoned their latest deal this year after a federal judge sided with the Justice Department in its lawsuit to block the US$3.8 billion deal, arguing it would drive up prices too much for customers who depend on low fares.

Major carriers also offer competitive, tiered pricing today. Southwest’s ‘Wanna Get Away’ fares and the basic-economy options offered by United and Delta, for example, have become popular with budget-conscious travellers.

AP