Attempts to disrupt the major air carriers have had mixed success. That’s because the incumbents have a lot of advantages.

Consumers have favorite carriers and many frequent fliers are tied to brands based on loyalty programs. Those programs are structured to prompt travelers to stick with specific airlines so they can earn perks like free flights and even seat upgrades.

Southwest Airlines (LUV) – Get Free Report has proved to be the exception to the rule. It found success by offering high-value fares at low prices with few add-ons. The model found a sweet spot in the market as, aside from its 2022 holiday-season meltdown, the company has generally been popular with customers.

Related: Southwest Airlines making a major onboard change

That’s partly because Southwest’s pricing structure is clear. Customers know that when they buy a ticket with Southwest, they get a seat and free baggage. Some people might find the lack of a seat assignment and being able to sit in any available seat confusing, but the airline has generally convinced consumers that it offers an affordable alternative to Delta, United and American Airlines. 

Ultra-low-cost carrier Spirit Airlines (SAVE) – Get Free Report has struggled to connect with consumers in the same way. The company puts value over everything, and that leads to a less-than-ideal customer-service situation.

Spirit sells tickets that do not include checked bags, a carry-on bag (beyond a small personal item like a purse), or even a seat assignment. Instead, passengers can pay extra for the things they need, theoretically saving them money.

The model has struggled — and led the airline to enter a merger agreement with JetBlue,  (JBLU) – Get Free Report a carrier that uses a model closer to Southwest or a traditional airline. 

Now that the federal government has blocked that merger, Spirit Airlines finds itself in a precarious position.

Spirit Airlines had a bleak quarter

Spirit’s business took a negative turn in its most recent quarter. The company lost $157 million in the third quarter and did not expect a strong finish to the year.

“Softer demand for our product and discounted fares in our markets led to a disappointing outcome for the third quarter 2023,” Chief Executive Ted Christie said in the airline’s earnings news release. 

“We continue to see discounted fares for travel booked through the pre-Thanksgiving period. And unfortunately, we have not seen the anticipated return to a normal demand and pricing environment for the peak holiday periods.”

The company plans to slow its airplane order book and has targeted $100 million in cost reductions. At the time of the release, Spirit was still hopeful that it would complete the merger with JetBlue. 

“We continue to believe merging with JetBlue and creating a viable competitor to the Big Four US airlines is in the best interest of consumers, team members, and shareholders,” the CEO added. 

“We are prepared to make the necessary strategic shifts to enable Spirit to compete effectively in this new demand backdrop.”

Spirit Airlines faces bankruptcy risk 

”We believe this is a positive for JetBlue, as business at Spirit turned negative between the time the merger was announced to now,” Helane Becker, TD Cowen aviation analyst and managing director, wrote.

She blames added capacity from other carriers as a drag on Spirit’s business.

“We believe Spirit is likely to look for another buyer … but a more likely scenario is a Chapter 11 filing, followed by a liquidation,” Becker wrote. “We recognize this sounds alarmist and harsh, but the reality is we believe there are limited scenarios that enable Spirit to restructure.”

Spirit had $1.2 billion in available cash and borrowing capacity at the end of Q3.

“Spirit’s recent decision to raise $419 million by selling and leasing back some of its aircraft could provide enough capital for Spirit to self-finance a Chapter 11 filing,” Flight Global quoted Becker as saying. 

“Chapter 11 bankruptcy proceedings would allow Spirit to restructure its debt and pay creditors back over an agreed upon period,” Flight Global reported.

Spirit Airlines did not immediately return a request for comment on the possibility of a bankruptcy filing.