Flying is likely to become more expensive for some passengers if Spirit Airlines falls into bankruptcy protection.
The company's stock tanked on 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 in October that Spirit was weighing up 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, industry outlet The Points Guy reported. It serves 81 destinations as of November, per Cirium data.
The cuts include the Charlotte to Los Angeles route, which will only be served by American Airlines from January.
Routes operated by one carrier are likely to mean higher fares for passengers due to the lack of competition.
Spirit has struggled since a planned merger with JetBlue was called off in March after a federal judge blocked it over antitrust concerns. Before that, it was planning to merge with Frontier, but JetBlue presented a higher offer.
In a note this week, Raymond James airline analyst Savanthi Syth said, "Equity holders are likely to be wiped out in either an in-court or out-of-court restructuring."
Raymond James analysts believe a merger with Frontier is still likely once Spirit's balance sheet and fixed costs have been resized, despite the Journal's report that negotiations had broken down.
JetBlue founder and low-cost airline veteran David Neeleman last month told Business Insider 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, ultra-low-cost carriers like Spirit have faced heightened competition from mainline carriers like American.
Peter McNally, global head of analysts at 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 the legacy airlines are benefiting 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.
Bankruptcy could be a warning that the era of budget airlines' power is coming to a close.
