Flying could become more expensive for some passengers if Spirit Airlines falls into bankruptcy protection.
The company's stock tanked Wednesday after The Wall Street Journal reported Spirit was preparing to file for Chapter 11 within weeks following the breakdown of merger talks with Frontier Airlines.
The Journal reported last month that Spirit was weighing bankruptcy. Spirit shareholders were later encouraged by plans to furlough hundreds of pilots and raise just over $500 million by selling 10% of its fleet.
Gains were erased by the latest bankruptcy signals, leaving the company worth $144 million at Thursday's close, down 91% this year.
Chapter 11 would allow Spirit to restructure its finances and continue operating, albeit on fewer routes.
The airline cut about two dozen routes earlier this month, the industry outlet The Points Guy reported. It serves 81 destinations as of November, per Cirium data.
The cuts include the Charlotte, North Carolina, to Los Angeles route, which, beginning in January, would only be served by American Airlines.
Routes operated by one carrier are likely to mean higher fares for passengers because of the lack of competition.
Merger hopes
Spirit has struggled since a federal judge blocked a planned merger with JetBlue in March over antitrust concerns. The airline had planned to merge with Frontier, but JetBlue presented a higher offer.
"Equity holders are likely to be wiped out in either an in-court or out-of-court restructuring," Savanthi Syth, a Raymond James airline analyst, said in a note this week.
Raymond James analysts believe a merger with Frontier could happen once Spirit's balance sheet and fixed costs have been resized, despite the Journal's report that negotiations had broken down.
David Neeleman, the founder of JetBlue and a low-cost airline veteran, told Business Insider last month that he believed Frontier and Spirit should join forces.
"I think if they stop competing with each other, they could carve out a niche, though it won't grow at the same rate as before," he said.
Post-pandemic, ultralow-cost airlines such as Spirit have faced heightened competition from mainline carriers like American.
Peter McNally, the global head of analysts at the investment research firm Third Bridge, said Spirit and other budget airlines are "finding it more difficult to compete in the domestic market with the Big Three US carriers — Delta, American, and United."
He added that legacy airlines benefit from the long-haul international market and can compete on price thanks to their loyalty programs.
"The domestic US air travel market does need some rationalization, and it is likely to start with Spirit Airlines," McNally said.
The airline's bankruptcy could be a warning that the era of budget airlines' power is coming to a close.
