Spirit Airlines brings down airfares. But only if it stays in business
Chicago Tribune Editorial Board
U.S. District Judge William Young is a big fan of Spirit Airlines. “To those dedicated customers of Spirit,” Young wrote in his lengthy ruling last week blocking rival airline JetBlue’s $3.6 billion acquisition of the ultra low-cost carrier, “this one’s for you.”
Following the ruling, which appeared to kill the deal, the stock and bond markets quickly demonstrated that they did not share Young’s affection.
Spirit’s shares, worth more than $60 each in 2019, nosedived, falling more than 70% since the last trading day before the ruling as investors reacted to the real possibility of insolvency. Shares recovered somewhat on Friday, as Spirit raised its financial guidance for the fourth quarter of 2023, thanks to strong holiday season bookings, and said it would try and refinance its risky $1.1 billion in debt. But this looked to some like a dead cat, or at least a very troubled cat, bounce and even $7 is a far cry from $60.
Southwest Airlines stock moved in the opposite direction last week as investors bet that it, and its legacy rivals, would be well served by an involuntary Spirit exit.
Young, it seems, may have fallen victim to the increasingly common peril of unintended consequences.
Most flyers love only one thing about Spirit: low fares. Air travel these days is a nofrills experience, to say the least, and fees for every little thing abound. Buying a ticket on the Spirit website is to run the gantlet of optional extras. Scenes of chaos at Spirit’s gates, usually starring irate customers, make regular appearances on YouTube.
That intractable PR problem — “Friends don’t let friends fly Spirit” is a common refrain among airline bloggers — is a big reason the carrier has been bleeding cash, along with various other problems, including rising labor costs and the need to replace the Pratt & Whitney engines on many of its Airbus jets because of a manufacturing defect. Other low-cost carriers have better customer service reputations, including Allegiant Airways and Frontier.
It’s a low bar, sure, but people genuinely like JetBlue. If the deal with Spirit had managed to combine that affection with affordable pricing, it could have been a very positive development for air travelers in Chicago and elsewhere.
As major airline executives have told us often, airfares within the United States are not set by actual costs but entirely by the marketplace. So if Spirit is flying somewhere, the tickets on other carriers will tend to be lower.
As an example, Spirit offers nonstop flights from O’Hare Airport to New York’s LaGuardia for as little as $45 one-way next month and nonstop to Orlando in February for just $73 on many days. That means fares on other airlines serving those routes have to be competitive, and it explains why American, for example, has reduced its capacity on the lucrative Chicago-to-New York air corridor. It can’t make money when Spirit is in the market.
That’s why Young, taking the side of the Justice Department, balked at Jet Blue’s plans to rip out Spirit’s crammed seats and make its planes match JetBlue’s more comfortable offering.
There were two problems with the Justice Department’s lawsuit and Young’s ruling. One is obvious: Spirit is in poor financial shape
(it hasn’t turned a full-year profit since 2019), and its status as an ongoing concern
is in question. The second is related but more subtle.
It’s widely acknowledged that the antitrust cops permitting Delta’s 2008 merger with Northwest Airlines (forming what was then the largest commercial airline in the world), United Airlines’ 2010 merger with Continental Airlines, and the 2013 combination of American Airlines and US Airways all were various levels and flavors of mistake. We’ve ended up with too few carriers with too much pricing power in the U.S. market. Thankfully, Chicago, currently clinging to crucially important hubs for United, American and Southwest, arguably is an exception to that rule.
But that’s left the country with four dominant carriers. Competition would be better served by allowing another carrier, such as a JetBlue/Spirit combo, to rise up and turn an oligarchy of four (Southwest rarely is cheaper than its competitors now) at least into a more promising five. The potential carrier that Young blocked actually might have lowered fares overall, especially since it would have been obligated to hand off some routes to Allegiant and Frontier. In some ways, Young’s decision, and the Biden administration’s effort to block this recent merger, are tacit admissions of mistakes made during the Obama administration and a desire not to compound them.
But the times they have a’changed and Spirit, beloved as it may be by a federal judge in Massachusetts, is in a severely weakened state, albeit with a lot of competitively important slots and routes and hundreds of planes. By not allowing these two relatively minor players to come together, the government risks giving the major airlines a yet-tighter grip on our scheduling options and our wallets.
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