Spirit Airlines Stock: What Bankruptcy Means for Investors?

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Spirit Airlines Stock

Spirit Airlines, a major budget airline in the United States, filed for Chapter 11 bankruptcy on November 18, 2024. This news raised doubts about what it meant to investors, especially for Spirit Airlines shareholders. The airline has faced serious financial problems and losses in the last few years. With the bankruptcy filing, many wonder whether Spirit Airlines stock will recover or is headed for total loss. 

This filing will alert investors who own Spirit Airlines stock. Spirit Airlines shares have already dropped, and many fear they will continue to slide. As Spirit organizes itself for restructuring, common shareholders lie at the rock-bottom recovery phase. In this blog post, we will explore the repercussions of Bankruptcy for investors and whether any glimmer of hope remains for those who own shares in Spirit Airlines. 

Impacts of Bankruptcy on Spirit Airlines Stock

This effect of the bankruptcy filing has severely affected Spirit Airlines’ stock. The announcement led to a sharp drop of 25% in a day. Since 2018, Spirit Airlines’ stock price has shown a more than 97% decline during financial struggles. 

Spirit’s bankruptcy plan mainly intends to reduce its listing under the New York Stock Exchange (NYSE) and transition to an over-the-counter (OTC) format. This shift will make the stock harder to trade and potentially less liquid for investors.

1) Stock Price Decline

Spirit Airlines has witnessed a steep drop in its stock prices. On the day of bankruptcy news, company shares fell 25%. Over the past few years, Spirit Airlines has consistently lost ground in its stock prices, shrinking 97% from 2018. 

Investments have shrunk for shareholders who remain. With the bankruptcy proceedings in process, Spirit Airlines stocks are not expected to be much more stable or make significant recovery attempts.

2) Investors’ Predictions

The long-range financial forecast for Spirit Airlines stock could be better for investors, especially common shareholders. In Bankruptcy, creditors are arranged in a strict hierarchy; secured creditors are paid first, followed by priority claims and unsecured creditors. 

Spirit Airlines stocks are at the bottom of this tower in importance. Common stockholders generally get very little in bankruptcy cases, and studies suggest shareholders may see anywhere between 2% and 7% return on the original investment. 

3) Speculation on Spirit Airlines Stocks Trading

Once Spirit Airlines stock is delisted from the NYSE and begins trading on an over-the-counter (OTC) market, it may still attract speculative traders hoping for miraculous recoveries. For example, bankrupt companies such as Yellow Corporation have seen their stocks rise from such speculative tactics. 

However, such trades usually end in disappointment because the company’s financial position needs to improve sufficiently to delight shareholders. Investors must be cautious about any speculative trading in Spirit Airlines shares.

Source: StockCake

How does Spirit Airlines Stock Bankruptcy affect investors?

Let’s discuss these effects in detail:

1) Impact on Shareholders

When Spirit Airlines files for Bankruptcy, the company’s common stock will likely be canceled. This means that Spirit Airlines stock may be worthless for present shareholders. For shareholders holding Spirit Airlines stock, don’t expect to get much from your investment. In most cases of Bankruptcy, common stockholders recover as little as 2-7% of their original investment. 

2) Bondholders and Secured Creditors

Bondholders and secured creditors are better protected than others in a bankruptcy. The restructuring is meant to safeguard the interests of these groups first. Such creditors usually recover a huge proportion of their investment as they hold secured debt against the airlines’ assets. But you, as common stockholders, are likely to see something decent. 

The sale of Spirit Airlines stock may be more effective for bondholders than the Spirit Airlines stock prices to shareholders. If you have Spirit Airlines stock, you should know that the bondholders and secured creditors will be at the front of the line for repayment. 

3) The effects of Bankruptcy on the potential for Long-Term Viability

Even after Spirit Airlines fetches new funding and finally resolves the debt issue, predicting that the airline will survive Bankruptcy takes work. It can retain customers, and that remains the secret of its sustenance. 

Yet the competition from other budget airlines is stiff. If you are thinking about the Spirit Airlines stock sale or Spirit Airlines stock price, keep in mind that what will determine the airliner recovery is mainly the post-bankruptcy performance. Rebuilding customer preferences will take a while for Spirit to create effective competition again.

The Role of Speculators in Bankruptcy Spirit Airlines Stock

  • After a firm applies for Bankruptcy, some investors purchase stocks with expectations of a turnaround. This could have short-lived price boosts, but it is too dangerous. For example, why would speculative investors get involved? The investor can somehow believe that the company’s assets or even real estate will be worth more than the debt and profits if the company survives.
  • As far as the ordinary investor is concerned, most regular investors will lose money due to Bankruptcy, especially Spirit Airlines shareholders. In contrast, most speculators would make money at the end of the day.
  • Speculating on Spirit Airlines stock during Bankruptcy may be tempting. Still, in many cases, such speculation would result in a loss of investment for most investors who needed a better strategic plan.

Conclusion

Spirit Airlines’ Bankruptcy is a wake-up call for investors holding Spirit Airlines stock. With the airline’s financial troubles and a significant drop in stock value, there is little hope for a meaningful recovery, especially for common shareholders. Stock prices are expected to be volatile as the company goes through its Chapter 11 proceedings. Many investors need to know that there is little gain from Bankruptcy on the stockholders’ side, as the majority of recovery usually goes to bondholders and secured creditors. 

Be cautious when deciding whether to buy or hold Spirit Airline stock price. The stock price shows little chance of recovering soon. After Bankruptcy, Spirit Airlines stock will likely be delisted from the over-the-counter (OTC) market, making it more difficult to trade. Speculation might cause price swings in a short time. Investors must weigh their options carefully and remember that Bankruptcy generally leaves little recovery for common stockholders.

FAQs

What will happen to Spirit Airlines’ stock in Bankruptcy?

During Chapter 11 bankruptcy proceedings, Spirit Airlines’ stock will likely be delisted from the New York Stock Exchange (NYSE). After that, it will most likely be traded in over-the-counter houses, where buying and selling are less active.

Will Spirit Airlines cease to operate?

No, Spirit Airlines is not stopping. The business is still on, and the company expects to exit bankruptcy filing early in 2025. They can reduce their fleet and narrow their routes, thus influencing how they price and compete. 

What does Spirit Airlines’ Bankruptcy mean for the investor?

It seems better news for Spirit Airlines investors. Most common shareholders will likely lose their investments. The bankruptcy process may cancel the stock despite little recovery from immaterial recoveries, secured creditors, and bondholders taking cutthroat priority. 

Who stands to gain from Spirit Airlines’ Bankruptcy?

Companies like Frontier and JetBlue are the other expected beneficiaries of Spirit Airlines’ Bankruptcy. The bankruptcy process could lead to losses for common shareholders, and the experts expect little value to remain in the stock after Bankruptcy. 

Should I sell Spirit Airlines stock right now?

If you own shares of Spirit Airlines, consider divesting before the company’s impending delisting. Shareholders are most likely to incur greater losses during bankruptcy procedures and, as such, expect the stock to have no or greatly reduced value once the company emerges from Bankruptcy.

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