Spirit Airlines, known for being one among the most cost effective carriers within the U.S., announced Monday morning that it’s filing for bankruptcy because it struggles to beat challenges like increased competition on its leisure routes and better labor costs.
Whether you’ve an upcoming Spirit flight, a balance of Spirit miles in your account or ownership of the airline’s stock, you likely have some questions on what this all means — not only for the airline, but for you.
Take a deep breath. Airline bankruptcies are literally relatively common, and so they typically don’t result in immediate flight cancellations. But customers — and investors — will still likely be affected by this bankruptcy process in several ways.
Here’s what we all know right away:
What does bankruptcy mean?
Corporations like Spirit elect to file for Chapter 11 bankruptcy protection in dire financial circumstances so as to restructure debts and reorganize the business.
Unlike Chapter 7 bankruptcy, through which an organization ceases operations and its assets are liquidated, chapter 11 protection can allow the business to maintain operating.
What’s going to occur to Spirit Airlines now?
Spirit said in a news release that it hopes to proceed flying during bankruptcy and emerge in a stronger financial position because of this of the method.
Spirit had been operating with about $3.6 billion of long-term debt, the airline said in a court filing Monday. The corporate said the restructuring moves should reduce its debt by $795 million, with creditors swapping debt in exchange for equity.
Spirit said it’s raising $350 million through an equity rights investment, and bondholders are providing $300 million of financing that may support the corporate within the bankruptcy process.
Are my Spirit flights canceled?
In its statement, Spirit Airlines said it “expects to proceed operating its business in the conventional course throughout this prearranged, streamlined Chapter 11 process.” Meaning existing Spirit tickets are valid, and customers can proceed booking latest tickets, the airline said.
Spirit also noted that “other airlines which are operating successfully today have undertaken an identical process.” Nonetheless, previously, other airlines have taken significant steps to chop costs through the bankruptcy process, including trimming flight schedules and reducing fleet sizes.
Spirit already planned to cut back its flight schedule by 20% this quarter in comparison with the prior yr.
While near-term disruptions to existing bookings could also be unlikely, customers with plans to fly Spirit Airlines should monitor their itineraries for any unexpected changes.
What happens to my Free Spirit points?
Spirit Airlines said customers will have the option to make use of their credits and loyalty points “as normal.”
The airline’s frequent flyer program is named the Free Spirit loyalty program. General customers earn six points for each dollar spent; these points can then be used to book flights.
Prior to now when U.S. airlines have filed for bankruptcy, frequent flyer miles have often been honored. If the airline were to be liquidated, nevertheless, it may very well be a unique story.
In 2022, JetBlue arranged to amass and merge with Spirit, but federal antitrust regulators intervened to dam the plan earlier this yr. While there are not any indications of plans for a merger right now, it’s notable that the incoming Trump administration is anticipated to be more friendly toward mergers.
What’s next for Spirit stock after the bankruptcy?
In response to the Recent York Stock Exchange, trading on Spirit Airlines stock was halted Monday morning on account of regulatory concern. The airline, which went public in 2011, said in its statement that it “expects to be delisted from the Recent York Stock Exchange within the near term.”
As of Monday, the corporate’s stock price was down over 93% this yr. Its stock will trade within the over-the-counter market, and the shares will ultimately be canceled, Spirit said.
Has this ever happened before?
Yes, many U.S. airlines have filed for Chapter 11 bankruptcy protection in recent a long time. Plenty of major airlines still in operation filed for bankruptcy and made it to the opposite side, including:
- American Airlines (filed in 2011)
- Frontier Airlines (2008)
- Delta Air Lines (2005)
- United Airlines (2002)
JetBlue and Southwest Airlines are the one large American airlines that have not yet passed through bankruptcy.
In other cases when airlines have filed for bankruptcy, they’ve ceased operations and had all their assets sold. Examples include Pan American Airways, which filed for bankruptcy in 1991, and Trans World Airlines, which ceased operations in 2001.
More from Money:
Airlines Now Must Mechanically Refund You in These 5 Situations
You Can Now Renew Your Passport Online (but It Still Costs $130)