Spirit Airlines is on the brink of filing for bankruptcy protection following the collapse of merger talks with Frontier Airlines.

The airline's stock has plummeted 89% year-to-date, reflecting severe financial distress, with operational losses reaching $360 million in the first half of 2024, nearly quadrupling losses from the same period in 2023.

In light of these struggles, Spirit's shares have decreased by 80.31% this year, significantly underperforming the NYSE Composite, which has risen by 17.88%.

The bankruptcy filing is anticipated to occur within the next few weeks as the airline seeks to restructure its debts.

Currently, Spirit is engaged in advanced discussions with bondholders to develop a bankruptcy plan that secures backing from the majority of creditors.

As part of its restructuring efforts, the airline may cancel existing shares while aiming to protect unsecured creditors, employees, customers, and suppliers.

The airline's operating margin is projected to be significantly worse than the previous year's third quarter, with rising expenses and declining revenue contributing to its financial woes.

The risk of bankruptcy poses a substantial downside for shareholders, potentially leaving them with nothing and presenting a poor risk/reward profile for investors.

Rising labor costs and increased competition have diminished Spirit's pricing power and market share, exacerbating its financial challenges.

Intensified competition in the airline industry post-pandemic has further strained Spirit, as rivals offer better reputations and competitive pricing.

Analysts express concern that Spirit's financial troubles may drive customers to choose other airlines, further straining its liquidity.

The historical context of U.S. airline bankruptcies suggests a challenging environment for Spirit, reminiscent of past industry struggles during the 1990s and 2000s.