In the low-cost airline industry, a race to the bottom
During the golden age of commercial aviation, passengers enjoyed gourmet meals and stretched out in roomy comfort. Fast forward to the current state of flight, epitomized by Spirit Airlines, an ultra-low-cost carrier notorious for poor service that nonetheless is being pursued by two rivals.
On July 27, Spirit shareholders are expected to settle a bidding war that has stretched for months between Frontier, which struck a deal in February to acquire the airline, and JetBlue, which in April dangled a sweeter offer for the unlikely prize.
The bidding war comes amid rough times in commercial aviation. The industry has mostly failed to accommodate a predictable surge in pent-up travel demand, despite having pocketed tens of billions in public money during the pandemic — supposedly to stay staffed up and at the ready.
The heat not only is on airlines and airports but government as well. Secretary of Transportation Pete Buttigieg has been babbling about how the Feds have got the backs of the traveling public while cancellations and delays continue to pile up.
It’s hardly reassuring that Buttigieg has unveiled an expanded “passenger bill of rights,” a summary of existing laws reflecting how travelers with disabilities are especially vulnerable to bad service. Complaints against airlines are up 300% from pre-pandemic levels. Every day, it seems, there’s another story of air carriers scratching flights after making passengers wait for hours, then refusing to cough up refunds.
Rights? No. Bills? Yes.
If it seems that carriers are in a race to the bottom, that pretty much sums up the business model of Spirit Airlines. The company fittingly got its start under the name “Clippert Trucking Co.” in the 1960s, began charter air operations in 1990 and grew rapidly in more recent years.
Spirit identified a niche among leisure travelers willing to endure any amount of inconvenience for the lowest possible ticket price. The company figured out that people booking online would go with a rock-bottom fare even if they were later charged fees for carry-on bags, printed boarding passes, advance seat selection, bottled water and practically anything else that travelers might expect from an airline remotely interested in their goodwill.
Spirit has been clever at pouring on these fees. For each flight segment that a typical passenger takes, the airline’s nonticket revenues have soared from an average of $5 in 2006 to $59 as of 2021, according to its public filings.
Other carriers have largely followed suit by introducing stripped-down “basic economy” fares to match Spirit’s deceptively low online ticket prices. They also evidently took note of how Spirit gets away with murder from a customer service standpoint, in some cases matching policies that make a joke out of “rights” for passengers.
Although COVID-19 and soaring fuel prices hurt the financial results of all airlines in recent years, Spirit grew from its humble beginnings into a solid moneymaker, which is rare in the airline biz. It expanded its footprint from coast-to-coast, plus international routes from the U.S. to the Caribbean and Latin America.
While mergers have whittled down the number of competing carriers to the detriment of consumers, this proposed Frontier-Spirit deal seemed likely to create a new player with the scale to better compete against United, American, Delta and Southwest, which along with their commuter affiliates control 80% of the domestic market.
The merger threatened to leave JetBlue isolated in its northeastern U.S. stronghold, however, prompting it to launch a takeover bid for Spirit that is higher in value, but also more likely to set off Justice Department antitrust watchdogs who could scuttle the deal.
If Spirit shareholders go with the higher bid from JetBlue, a more customer-friendly carrier, we expect government lawyers to take a tough line. JetBlue already has fought the Justice Department over its Northeast Alliance, a joint venture with American. It proactively offered to divest Spirit routes in Boston and New York to preserve what’s left of competition. That may not be enough.
We’re hopeful that from this messy start a strong No. 5 carrier emerges to keep the Big Four honest and, with any luck, put an end to the proliferation of Spirit-style anti-passenger policies — before airsickness bags start going for $6.50 and emergency oxygen for $12.99.