Spirit Airlines stock plunges 38% on report it's considering filing for Chapter 11 bankruptcy

• Spirit Airlines may file for Chapter 11 as it faces major debts after a merger with JetBlue failed.
• The airline is saddled with debt of about $3.3 billion.
• A report of a potential bankruptcy sent Spirit's stock tumbling by as much as 38% on Friday.

Spirit Airlines stock plunged by as much as 38% on Friday after a report suggested it may file for Chapter 11 bankruptcy protection.

The Wall Street Journal reported late Thursday that following a failed merger with JetBlue Airways, Spirit has been grappling with heavy losses, making it difficult to manage a $3.3 billion debt load that includes $1.1 billion worth of secured bonds due within a year.

Citing people familiar with the matter, the Journal reported that the budget airline was also exploring restructuring options to alleviate some of its financial pressures, though no filing is imminent.

Spirit's stock fell to as low as $1.40 on Friday after closing at $2.24 on Thursday. Including the single-day sell-off, Spirit's stock has fallen by roughly 90% in 2024.

Spirit's CEO, Ted Christie, said on an earnings call in August that Spirit was in talks with advisors and bondholders about its debt.

While Spirit faces a turbulent future, a Chapter 11 filing isn't necessarily a death sentence for the airline. Rather, Chapter 11 allows businesses to reorganize their debts while continuing their operations. Other airlines have used the process to stay afloat.

Most recently, Scandinavian Airlines filed for Chapter 11 in the US in 2022 following a pilot strike. The airline underwent a $3 billion restructuring plan to revise its fleet and raise money while continuing to operate. The company emerged from bankruptcy in August.

In 2005, Delta Air Lines filed for bankruptcy after shedding 6,000 jobs and slashing $1 billion in labor costs. By optimizing its Atlanta hub and increasing its international routes, the company recovered from its financial troubles and remains one of the largest airlines in the US.

A bankruptcy filing could serve as a similar lifeline for Spirit's management of debt and finances.

Spirit bumped up its ticket prices this summer, shifting away from its ultra-low-cost model to boost revenue after suffering a $143 million loss in the first quarter of this year and a $193 million loss in the second quarter.

Spirit has faced annual losses since before the COVID-19 pandemic, despite the travel industry's recovery, and it continues to struggle against larger airlines that offer competitive fares.

The airline has cut routes, furloughed pilots, and shrunk its operational capacity by nearly 20%.

When contacted by Business Insider, Spirit Airlines referred to Christie's comments in the August earnings call but didn't comment further.

Correction: October 4, 2024 — An earlier version of this story misstated the year Delta filed for bankruptcy protection. It was 2005, not 2007.