Spirit Airlines went out of business early Saturday. Passengers across the
country were stranded in the middle of their travel, and 17,000 workers lost their jobs, after a $500 million lifeline from the Trump administration fell through.
For context, the war that was the proximate cause for Spirit’s demise has cost $25 billion thus far, about 50 times as much as the rescue package for Spirit would have been. This has not stopped a very self-interested group of financiers and corporate Democrats—some of them aligned with the very bondholders who rejected a Spirit rescue—from reaching back two years to come up with a different cause for Spirit’s death, part of a factional fight about antitrust enforcement and corporate power.
Their argument is transparently ridiculous, and it’s worth documenting the whole history to make clear what destroyed Spirit, why Wall Street Democrats are claiming otherwise, and why Spirit will be only the first of a cascade of airline bankruptcies if the consolidation of the industry is not broken.
Spirit started out as a charter operator before becoming a full-fledged airline in 1992. It was perhaps the most outlandish of the ultra-low-cost carriers (ULCCs), charging dirt cheap prices for tickets but ancillary fees for just about everything; it was the first airline to charge baggage fees, the first to charge for a printed boarding pass, and so on. Ancillary fees made up around 40 percent of total revenue.
While flying Spirit was at times an annoying mental exercise in calculating how much pain you could tolerate in the air, ULCCs performed a critical disciplining function for the Big Four concentrated airlines. Without a hub-and-spoke system, Spirit could just challenge a route and force its competitors to drop fares. The “Spirit effect” would lead to a 17 percent drop on all fares on a particular route on average, and Spirit leaving a route would lead to a 30 percent increase. (That’s what passengers are likely in for now.) Majors like United and Delta implemented
“basic economy” fares to compete with Spirit and other ULCCs.
The problem was that Spirit was nimble but limited, because its lack of “slots” (gates) in major airports put a cap on how many places it could fly. Then the pandemic hurt Spirit, like all airlines; its last profitable year was 2019.
Spirit decided that the way it could better compete with the majors was by combining two ULCCs and adding more slots. Frontier was the natural choice, as it was moving in Spirit’s direction, without many overlapping routes. That merger, which likely would have gone through, was announced in 2022. But JetBlue, a midsized carrier which does have a lot of overlap with Spirit, jumped in and offered more money to buy Spirit instead.
As Matt Stoller pointed out, Spirit’s board of directors immediately saw that a JetBlue deal would increase ticket prices (which JetBlue stated openly) and eliminate half of all ULCC flights in the U.S. And since JetBlue was planning an alliance with American in the Northeast, it would create an even bigger conglomerate in that part of the country. (That alliance would eventually be
blocked.) Spirit’s advisers said there was no way a JetBlue merger would ever get through, and Spirit’s CEO said so publicly. Nevertheless, the shareholders jumped at the offer, perhaps because they were given $425 million in prepayments from JetBlue.
The Justice Department challenged the merger in 2023, and since Spirit had explained publicly why the idea was illegal, it wasn’t that heavy a lift. Furthermore, a merged JetBlue-Spirit would be saddled with an enormous debt load and would be on shaky financial ground. A Reagan-appointee judge rejected the merger in 2024. There would have been one reason for the merger to be approved: if Spirit said that they had no other option to survive. But despite being given the opportunity to say so, they neglected that tactic in the trial. So the merger crumbled.
Spirit has been limping along (which didn’t stop them from giving their executives giant bonuses), but it’s very clear what the kill shot was: jet fuel prices, which have more than doubled since the war began. Jet fuel refining capacity rather than an oil shortage per se is the major problem here, as many refiners in the Middle East have been damaged. The global nature of the
commodity affects all airlines on price, even if some countries have a larger supply issue, which is why you’re seeing dire statements in Europe about having just six weeks of fuel left. In the U.S., it’s mainly been a price shock; even the big boys are reducing earnings forecasts, cutting flights, and raising fares.
Jet fuel accounts for between 25 and 35 percent of airline expenses, and so if you’re already in trouble and you’re a low-cost carrier whose identity is tied up in low fares, there’s really no escape here. Spirit was unable to pass enough of the jet fuel spike to its cost-conscious customers to compete. Indeed, in its own bankruptcy filing, Spirit cites “material additional costs to Spirit” from fuel price spikes that “proved to be too much for its available liquidity to absorb.”
Knowing that it was sunk, Spirit appealed for a bailout, which President Trump at first appeared open to. But major airlines, seeing a possibility of further consolidation and an end to the Spirit effect, opposed any rescue plan, and major shareholders opposed the terms, which gave 90 percent ownership control to the U.S. government. Those shareholders, which amassed their stake in Spirit from a debtor-in-possession loan after its last bankruptcy, included Citadel, Ares Management, Cyrus Capital, and PIMCO. They decided that liquidation would allow them to make back more of their investment. They gave a counteroffer to the government that the government rejected, and that was that.
So let’s run this back: Spirit was a significant antidote to high airfares across the industry, but the majors (allowed to consolidate in the 2000s) muscled it out of slots to limit the damage and later demanded that Spirit be allowed to fail. A would-be major (JetBlue) bigfooted a more legal merger attempt and unsuccessfully tried to end Spirit’s dampening effect on prices. And then a combination of Donald Trump’s idiotic war in Iran and a bunch of private equity predators killed it off.
For some, this translates into being Lina Khan’s fault.
The ways that is wrong are almost innumerable. First of all, Khan’s Federal Trade Commission didn’t have jurisdiction over the JetBlue-Spirit merger; that was a Justice Department Antitrust Division case. Second, Spirit never stated it needed to merge due to financial trouble. Third, the merger case in 2024 did not and could not anticipate a doubling of one of the most important airline industry inputs in 2026, which hit budget airlines much harder than their rivals. (The entire budget sector has asked for a $2.5 billion bailout as a result.)
Beyond that, a successful JetBlue-Spirit merger in 2024 would have also meant the end of Spirit Airlines and its low fares, two years before the eventual liquidation.
Incidentally, a JetBlue with Spirit would almost certainly have also gone bust, and JetBlue alone is now in major financial trouble; its founder thinks bankruptcy is likely, and the last time it turned a profit was when Spirit did, in 2019.
The larger issue is that since COVID, being one of the Big Four major airlines (United, American, Delta, and Southwest) is the only way to make any money. They control most of the gates, have the scale to make money off their credit card programs (airlines are now really more profitable as banks), and can use tactics like predatory pricing to force smaller competitors out of business. The Bush and Obama administrations allowed these companies to get way too big, and any shock will tip over the competition while the Big Four stay upright.
Despite this, the corporate Democrats are out in force. Neera Tanden of the Center for American Progress called for her party to “honestly assess” the merger challenge, and in a statement, Alexander Vindman, who’s running for Senate in Spirit’s home state of Florida, blamed the Biden administration, which “had the opportunity to prevent this from happening.”
Vindman is reflecting parochial anger, but most of the people mourning Spirit’s loss don’t give a crap about the company or its workers. They want to revive a losing argument that Democrats should take a hands-off approach to corporations. They want to purge from the party any aggressive enforcers who get in the way of Wall Street, and hence threaten the flow of financial-industry campaign contributions and cushy post-office jobs for party insiders. In this case, they don’t want to hear that deregulation consolidated the airline industry and led to these kinds of
problems. They just want control of economic policymaking in the Democratic Party. Spirit is just a misguided, absurd talking point in this war.
–David Dayen
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