Could Spirit Airlines Be on Its Way to Bankruptcy? Here’s What You Need To Know.

Spirit Airlines can occasionally be the comedic punching bag in the world of travel for its bare-bones approach to getting its passengers from A to B. Despite its lack of luxury and head-scratchingly odd flight scheduling, it’s an important part of the transportation ecosystem.

Yet, even as airlines are expected to have some of their highest demand ever this summer, the Florida-based carrier has been hitting significant turbulence. Could the bitter end of bankruptcy be a potential outcome of its financial disarray?

The airline recently deferred its delivery of Airbus A320 aircraft until 2030 to relieve some pressure on its balance sheet. This comes after a federal judge’s decision in January to strike down the potential merger between Spirit and JetBlue, as the courts deemed it anti-competitive. Both short- and long-term investors have seen the stock nosedive: it’s down over 90% in the last 5 years.

Now, why does this matter if you don’t fly with Spirit or own shares of it? If an airline goes defunct, it affects all travelers alike.

Here’s what’s happening and what you need to know if you plan on booking a ticket with the airline.

The 30,000 Foot View Doesn’t Escape Ground Level Troubles

Ultra-low-cost carriers (ULCC) like Spirit have become significant competitors of full-service airlines as they give cost-conscious travelers a more budget-friendly option. In January 2024, Spirit flew 3.7% of commercial flights in the U.S., according to the Air Travel Consumer Report. The “yellow bus in the sky” currently operates roughly 850 flights per day in over 350 markets, with a reported 80% of total seats filled in Q4 2023.

Despite its importance and consumer demand, the airline’s balance sheet has been its largest detriment. Bloomberg reported in March that bondholders are growing concerned about the company’s $3 billion in maturing debt, suggesting that the debt owners are preparing for options if bankruptcy comes to fruition.

The airline has not been profitable since 2019, and its most recent earnings show continued financial bleeding. It lost $214 million in Q4 2023 and $495 million across 2023.

Creditsafe says the airline hasn’t paid bills punctually, indicating, “Late payments increased over several months in 2023. For example, the number of late payments (1-30 days) rose from 7.00% in September 2023 to 30.87% in October 2023. A similar pattern occurred when the number of late payments (1-30 days) rose from 6.37% in November 2023 to 30.54% in December 2023 and then again to 51.08% in January 2024.”

Mounting negative headlines led the airline’s CEO, Ted Christie, to fight back in Spirit’s most recent earnings call. Christie told investors, “This misguided narrative has been advanced by an assortment of pundits. However, back in the real world, we are focused on facts.”

The airline will report its Q1 2024 earnings on May 6.

What Happens if the Airline You’ve Booked With Goes Belly-Up

Travel insurance is a great option for any traveler, regardless of which airline or hotel you select. It can protect you against a long list of potential travel snafus. But how does it work if your operator seizes operations and leaves you with a worthless boarding pass?

First, travelers should know that travel insurance coverage offered with select travel credit cards may cover their purchases in the case of financial insolvency (when an entity cannot pay its debts), but it is unlikely. Each credit card varies in coverage, so check your policy to see how it covers potential insolvency.

For example, the Chase Sapphire Reserve^® lists the following in its coverage documents as an instance that is not covered:

Default of the Common Carrier resulting from Financial Insolvency or Financial Insolvency of a Travel Agency, Tour Operator, or Travel Supplier (Please contact Chase Disputes or the number on the back of your Chase credit card if your trip has been canceled due to financial insolvency).

Additionally, the U.S. Department of Transportation has a go-to guide for consumers when an airline operator halts operations due to financial matters.

In any case, if you’re planning on flying Spirit in the near future (like I am), be sure to have a travel insurance policy that covers insolvency just in case this happens. Also, be sure to save all receipts so you can hopefully recover any lost funds.

Final Thoughts

If you don’t fly with Spirit, the potential for insolvency will likely create shockwaves throughout the travel world. With 1 less airline, there could be less competition, resulting in higher prices for all travelers.

Let’s all collectively root for the “eyesore in the sky” to have many more flights planned in the future.