Budget carrier Spirit Airlines announced Monday that it has filed for bankruptcy due to mounting losses, higher labor costs and a highly competitive air travel market.

The airline has failed to return to profitability after the decline in air traffic due to the corona pandemic. According to a report from The Associated Press, the budget airline has lost $2.5 billion since the start of 2020 and has upcoming debt obligations of more than $1 billion.

On Monday, Spirit announced a restructuring plan that includes substantial support from a majority of its bondholders, who have committed to a $350 million equity investment and will convert approximately $800 million of their existing assets into equity during the reorganization. In addition, bondholders are providing a $300 million loan to finance the bankruptcy process. Spirit expects the reorganization to be completed in the first quarter of 2025.

More from Newsweek Vault: Compare the best Rewards credit cards for travel

The company’s statement outlines that the bankruptcy filing will “position Spirit for long-term success and accelerate investments that will provide guests with better travel experiences and greater value,” as well as a promise that “guests can continue to book and fly without interruption and can do all use tickets, credits and loyalty points normally.”

“Spirit expects to continue operations as normal during this pre-arranged, streamlined Chapter 11 process,” the company said in the statement.

Newsweek has contacted Spirit via email for additional comment.

More from Newsweek Vault: Best Rewards Card to Combine with the Chase Sapphire Preferred® Card

But experts aren’t so sure. “The ghost as we knew it is at an end,” said James Gellert, executive chairman of Rapid Ratings International, a company that evaluates the financial health of public and private companies. Newsweek. “It is very unlikely that the restructuring can prevent bankruptcy altogether.”

What went wrong with Spirit?

The embattled airline has faced a host of problems in recent years, including a failed merger that could have saved it. Like other airlines, the COVID-19 shutdown had a significant impact on revenues, but Spirit has not made any profits since the pandemic began in 2020.

More from Newsweek Vault: Compare the best travel insurance companies

“Spirit’s decline is largely a result of it losing billions of dollars in the first two years of the pandemic due to decreased customer demand and Spirit’s positioning at the bottom of the market,” said Daniel Gielchinsky , partner, co-founder and commercial litigation attorney at South Florida-based DGIM LawSpirit, said Newsweek. “Spirit has not reported a profit for the past five out of six quarters, raising questions about its ability to service debt.”

As the world emerged from coronavirus lockdowns in 2022, Frontier Airlines attempted to merge with Spirit Airlines, but JetBlue ultimately surpassed them. However, the Justice Department disputed the $3.8 billion commitment, arguing it would lead to higher prices for Spirit’s price-conscious customers. A federal judge sided with the Justice Department in January, and the JetBlue merger was thrown out two months later.

Other problems have also plagued the airline. “Low-cost and ultra-low-cost airlines like Spirit have become extremely vulnerable to increasingly volatile costs,” said Ryan Ewing, founder of AirlineGeeks. Newsweek in October. According to Visual Approach Analytics, major airlines like Southwest, Delta, American Airlines and others will see airline costs per seat mile increase by an average of 22 percent in 2024 compared to 2019, but at Spirit that jump was almost 43 percent. On average, revenue per seat mile has only increased by 11 percent.

“By some estimates, labor costs have increased by more than 20 percent compared to pre-pandemic levels, and of course inflation and other supply chain issues also play a role,” Ewing said. For Spirit, labor costs were 43.7% higher in 2024 than in 2019, according to Visual Approach Analytics.

In efforts to avoid a bankruptcy filing, Spirit announced in October that it would be making employee layoffs as part of $80 million in cost-cutting measures. It also said it had reached an agreement to sell 23 aircraft to GA Telesis, an aviation services company, for $519 million.

Spirit is not the first airline to file for bankruptcy. American Airlines, United and Delta, the three largest U.S. airlines, have all done the same thing over the past 25 years — and each survived the process. Others, like PanAm, didn’t make it. However, Spirit is the first U.S. airline to file a bankruptcy claim in more than a decade, since American Airlines filed in 2011.

When it comes to whether Spirit will survive the procedure, Gielchinsky isn’t so sure. “This Chapter 11 bankruptcy is Spirit’s attempt to achieve a restart, i.e. negotiating with its bondholders and creditors and withdrawing equity to avoid a complete liquidation,” Gielchinsky said. “It is not even certain that a liquidation sale can be avoided in bankruptcy. Spirit could remain grounded forever.”

Gielchinsky attributes the issue to Spirit’s business model, saying that “trying to run an airline based on cheap ticket prices is deeply flawed.”

“While the market for an ultra-low-cost airline – which targets price-conscious customers with low fares and a no-frills flying experience – may have been profitable a decade ago when Spirit had no competition in this market segment, their low ticket prices forced inevitably other airlines to lower ticket prices and invited competition into the market.”

Gielchinsky said the same market is now saturated, with Spirit winning a “race to the bottom.”

“Running an airline, buying, maintaining and flying aircraft and having sufficient staff is an expensive undertaking,” he continued. “Time and experience have shown that attempts to dominate a market segment based on a strategy of selling the cheapest tickets are not sustainable in the long term.”

Others are more confident in their prospects. “This is a pre-packaged Chapter 11 bankruptcy filing, which means there will be a reorganization, versus a Chapter 7 bankruptcy filing, which meant they would have had to close,” said Chris Dane, former American Airlines executive and current president and director of American Airlines. managing partner at Hickory Global Partners, said Newsweek. “For people who have booked with Spirit in the coming future, there is no need to worry at this time.”

As for other U.S. airlines, Ewing says they are unlikely to follow suit, but changes are coming. “Right now, at least, it doesn’t look like any major players are going to go bankrupt,” Ewing says.