The Spirit Airlines collapse: the end of an ultra-low-cost pioneer

For over three decades, Spirit Airlines was one of the most popular ultra-low-cost carriers in the US market. Its business model bet everything on price: it stripped the flight to the essentials and charged less than its competitors. On May 2, 2026, the airline announced it shut down, ceasing all operations effective immediately. In this piece, Diana Vorniceanu, Senior Editor at The Paypers, offers a breakdown of its collapse.

Before it shut down, Spirit Airlines had been struggling financially for years, weighed down by debt and post-pandemic losses it never recovered from, which lead to the company declaring bankruptcy twice.

The first bankruptcy: November 18, 2024

At the time of its first Chapter 11 filing, Spirit Airlines reportedly was the first US airline to file for a bankruptcy in over a decade. According to Spirit, at the time, the company had not recorded a full-year profit since the pandemic, with total losses of reportedly USD 2.5 billion. In the first half of 2024 alone, Spirit reported USD 360 million in losses.

The filing came roughly ten months after the Department of Justice called off Spirit's USD 3.8 billion merger with JetBlue, thus blocking the airline’s main strategy to tackle its long-term debt problem.

The November 2024 bankruptcy was a prearranged restructuring, as Spirit had already lined creator support before filing. Eventually, the company converted approximately USD 795 million of debt to equity and, in March 2025, it exited bankruptcy.

The second bankruptcy: August 29, 2025

The fix did not hold. Although Spirit emerged from its first bankruptcy filing, its losses continued to amass and, just five months later, the carrier returned to bankruptcy court as it filed for a second Chapter 11 on Augst 29, 2025. The numbers showed why this was needed: the company posted USD 245 million in net losses in the second quarter, and its cash on had fell to USD 407 million by end of June. While the first restructuring had focused on cutting debt and raising equity, CEO Dave Davis noted that there was much more work to be done.

On February 24, it was reported that Spirit survived its second Chapter 11 filing and that it had planned to emerge from bankruptcy in spring or summer 2026, after it had reached an agreement with its creditors.

The second restructuring plan, called Project Soar, included the airline selling part of its aircraft to around 76 by min-August 2026, cutting down on airline-related debt and its staff, and focusing on more profitable routes, all in a bit to stabilise its finances.

In 2026, the company aimed to reduce up to USD one billion, alongside revenue gains from pricing, premium seating, among other changes. In the first quarter of 2026, its results showed improvement. As per an 8-K filled on March 16, 2026, Spirit stated its restructuring initiatives led to improved earnings, with Q1 2026 operating margins projected at a negative 5.6%, against a negative 27.1% a year earlier.

However, Spirit’s bankruptcy exit plan faced new pressures in April 2026, as the rise in jet fuel costs caused by the Iran war upended its restructuring plan. According to Reuters, the airline had built its turnaround on fuel averaging around USD 2.24 per gallon in 2026 and USD 2.14 in 2027, per its March discloses. However, by mid-April, jet fuel reached around USD 4.24 per gallon, or roughly twice what its projections assumed.

The failed bailout

In the end, Spirit Airlines collapsed after an 11-hour rescue package fell through. In the airline’s final days, the Trump administration extended a USD 500 million lifeline that came with the condition that the government receive warrants equal to 90% of Spirit’s equity. However, the terms were ultimately the sticking point – as it would have left the creditors who had already financed Spirit with little or nothing in the event the airline collapsed. As a result, Spirit's creditors offered a counterproposal with better terms for themselves. Ultimately, the two sides couldn't close the gap, and after two weeks of talks Spirit's creditors wrote to the board and urged it to begin winding down operations, which happened a few days later.  

It is worth noting that the proposed government bailout was contested well before it failed. Several officials had voiced reservations about funnelling public money into a failing company. Republicans in Congress and airline industry figures also reportedly opposed it, as rescuing a single carrier drew criticism, with earlier bailouts having gone to groups of airlines rather than individual ones.

Efforts to have Spirit acquired by another carrier, including low-cost rivals Frontier, Breeze, and Avelo, were set in motion but also ultimately failed. In 2024, a planned USD 3.8 billion acquisition of Spirit by JetBlue had already been blocked by a federal judge on the grounds that it was anticompetitive, with the court arguing that removing the largest ultra-low-cost carrier from the market would harm working-class travellers.

The fallout

At a time when ticket prices are already high due to rising fuel costs, Spirit’s collapse is anticipated to push fares even higher. For travellers who still hold tickets for future Spirt flights, what happens next depends on how they paid for those tickets. As per the official press release, customers who bought tickets using credit or debit cards, can request a refund. However, those who paid with vouchers, credit, or Spirit points have no quick guarantee of compensation available and will have to wait for more details at a later date through the bankruptcy process. Spirit also stated that it would not reimburse incidental travel expenses.

Several carriers, including America Airlines, United, Delta, JetBlue, Southwest, Allegiant, Frontier, Avelo, and Breeze, stepped in with capped ‘rescue fares’ for stranded Spirit passengers under an arrangement coordinated by the Department of Transportation. While caps are anticipated to limit ticket prices, stranded customers could still pay more than expected.

The bottom line

Spirit’s collapse was years in the making. For several years, the airline’s low-cost model, which once reshaped US air travel, lost its edge as several other carriers copied it. Moreover, the company’s rising costs, and the two bankruptcies it faced left no cushion for the fuel cost shock caused by the Iran war. While the Iran conflict did not cause the collapse on its own, in many ways it ultimately removed the little room Spirit Airlines had to manoeuvre its latest restructuring efforts.

Moreover, Spirit’s failure highlights a weak spot in how travel payments work: a travel ticket is a deferred-delivery product, with the customer paying when they make the booking. When the airline goes into liquidation and stops flying altogether, such was the case with Spirit, how a passenger paid becomes one of the main things that separate those who recover the cost of their tickets easily and those who join the creditor queue.

Ultimately, the cost of the collapse is also felt by the 17,000 workers whose jobs went with the airline. On May 14, Spirit Airlines workers in Florida filled a lawsuit against the company over its abrupt shutdown.

This is not the first time The Travel Payments Series has covered Spirit airlines. You can read our initial coverage here.

This article is part of The Paypers’ Travel Series, which includes contributions on topics spanning emerging trends in travel payments, fraud and security challenges, regulatory and tax impacts, risk management and forex, as well as sustainability in the travel industry. For a complete overview of all the contributions featured, click here. 

About the author

Diana Vorniceanu (Lupuleac) is a Senior Editor at The Paypers. She has an extensive background in content creation and is a graduate of Foreign Languages and Literature studies, currently specialising in payments and ecommerce. She strives to bring forward the latest trends for our readers, while investigating the ever-evolving landscape of cross-border payments, global ecommerce, payments for marketplaces and online platforms, and emerging technologies across the globe. You can reach Diana via email at diana@thepaypers.com or on LinkedIn.