Some big names in the airline industry are skeptical that struggling Spirit Airlines will be able to keep flying even as it restructures in bankruptcy.
“I think the current business plan is not going to work and, if they pursue it, Chapter 11 will be a brief pit stop on the way to Chapter 7,” Scott Kirby, CEO of United Airlines, said at an event at Washington’s Dulles International Airport on Thursday. (Chapter 7 is the section of the U.S. bankruptcy code where a company shuts down and liquidates its assets.)
A longtime critic of Spirit’s business model that wooed travelers with low, à-la-carte fares, Kirby echoed the skepticism expressed in some corners of the airline industry. Many question Spirit’s restructuring plan that leans heavily on growing revenue with new premium products and fare “bundles” while only marginally improving its debt-and-balance sheet.
“Spirit remains dedicated to pairing great value with excellent service and firmly believes our low-fare business model is important for competition in the U.S. domestic airline market, which is 80% controlled by four dominant carriers,” a spokesperson for the airline shared with Travel + Leisure. “We would note that our bondholders, who are highly sophisticated investors, have chosen to become equity holders in Spirit following our prearranged, streamlined chapter 11 process. This is a clear vote of confidence in our business model and long-term path.”
The airline filed for “Chapter 11” bankruptcy, or court-led restructuring, in November in part to address a $1 billion-plus debt bill due in 2025. The airline, despite already making some of the changes outlined in its restructuring plan, expects a deep loss this year. A liquidation would leave any travelers with tickets on Spirit in the lurch. Any potential refunds would be up to a bankruptcy court judge to grant and the wait could be months or even years. And Spirit loyalty points would evaporate overnight.
But travelers are unlikely to be totally out of luck. When airlines have shut down suddenly in the past, competitors have stepped up to help stranded passengers. This is what Hawaiian Airlines did in the wake of Aloha Airlines closure in 2008, offering anyone with an Aloha ticket free standby on its own flights, and quickly added thousands of seats to its schedule to compensate.
For added peace of mind, experts recommend anyone flying on Spirit with concerns about their flight home should buy travel insurance in the event things go awry. Most high-end credit cards include travel insurance.
Spirit is not expected to close its doors imminently. The airline has enough cash to keep flying through the holidays and has already lined up new financing from creditors to help it through bankruptcy.
And United CEO Kirby is not an unbiased observer. Wall Street analysts and others have speculated that his airline is interested in acquiring some of Spirit’s assets, like its base at the Fort Lauderdale airport. A Spirit liquidation would improve the chances of such a deal happening.
Frontier Airlines and JetBlue Airways are also believed to be interested in some or all of Spirit’s assets.
Spirit hopes to emerge from bankruptcy as its own airline, albeit a smaller one with a more diverse array of products than its no-frills, “bare fares” brand is known for.
