We’ve just learned that Spirit Airlines has ceased operations effective immediately. The airline had been in Chapter 11 bankruptcy twice in the past two years, it hadn’t turned a profit in seven years, and it had the worst margins in the US airline industry.
As you’d expect with something like this, there’s a lot of finger pointing going in, and people are trying to use this situation to score political points. You have some people blaming Trump for Spirit’s shutdown, and you have other people blaming Biden. Who is actually right here? Well, both and neither, so let me explain…
In this post:
“Trump’s Iran war & high jet fuel prices killed Spirit”
Many Democrats argue that Trump starting a war with Iran, and the resulting massive increase in jet fuel prices, is to blame for Spirit shutting down. Technically that’s true, in terms of the increase in jet fuel prices causing Spirit to burn through its little remaining cash faster than planned.
However, that doesn’t tell the full story. As mentioned above, Spirit has been losing money for seven years, and has the industry’s worst margins. The airline didn’t have any sort of a viable path to profitability. So while an increase in jet fuel prices might’ve moved forward the timeline of Spirit liquidating, it’s by no means the reason for the carrier’s troubles.
It’s not like Spirit was doing well, then suddenly jet fuel prices increased, and that was the start of the carrier’s problems. Spirit’s management so badly botched so many things, ranging from a first Chapter 11 bankruptcy filing that failed to set the airline up for success, to seemingly not actually having a turnaround plan.
“Biden’s blocking of the JetBlue merger killed Spirit”
Many Republicans argue that the Department of Justice (DOJ) under Biden blocking JetBlue’s takeover of Spirit is to blame for Spirit shutting down. As many will remember, JetBlue was going to buy Spirit, Biden’s DOJ blocked that, and a (Reagan appointed) judge sided with the DOJ over the airlines, causing the merger to be called off. As the judge explained in his decision at the time:
Spirit is a small airline. But there are those who love it. To those dedicated customers of Spirit, this one’s for you. Why? Because the Clayton Act, a 109-year-old statute requires this result –- a statute that continues to deliver for the American people.
Yeah, that aged like mold. As I said at the time, and as I’ve been saying ever since, I strongly disagreed with the Biden administration’s decision to block this takeover:
- Spirit no longer had a viable business model, and the lawyers for Spirit did a really poor job making that point clear
- Spirit was trying to move upmarket anyway, and what the US airline industry needs is more large competitors, who can leverage loyalty programs for profitability (given the extent to which US airline profits come from loyalty programs)
But we also have to be honest with ourselves — this was a blessing in disguise for JetBlue, and if JetBlue and Spirit had actually merged, both airlines might’ve liquidated at this point. This merger came at a confusing time for the industry, where post-coronavirus demand shifts were viewed more as fads than as structural industry changes.
Keep in mind that JetBlue also hasn’t turned a profit in seven years, and it has around $8 billion in debt. It’s not that far off from a Chapter 11 bankruptcy filing itself. When JetBlue wanted to acquire Spirit, it argued that this is what would allow it to grow the fastest.
Well, in the couple of years since the merger was blocked, JetBlue has voluntarily deferred new aircraft deliveries, has paid pilots to accept early retirement packages, etc. If JetBlue had actually taken over Spirit, it would’ve been catastrophic. Spirit didn’t actually have a lot to offer JetBlue, other than planes and employees, which wouldn’t have actually helped JetBlue. Simply combining two unprofitable airlines isn’t a solution to anything.
So the Biden administration did JetBlue a favor, even if the logic was completely off.
Nothing and no one could’ve saved most Spirit jobs
Regardless of anyone’s preferred finger pointing, I think we can all agree that it’s really sad that 15,000+ Spirit employees are losing their jobs. When Trump was trying to come up with a bailout to save the airline, he claimed it was all about saving jobs.
I think the important thing to remember is that Spirit’s jobs would’ve never been fully preserved, even if the airline had been “saved,” and stayed in business. Before the latest Iran war situation, Spirit’s plan was to massively downsize its fleet, to 76-80 planes. Last year, at its peak, the airline had around 215 planes. So even best case scenario, the airline would’ve decreased in size by around two-thirds.
So even if Spirit had been artificially kept alive, a majority of staff would’ve likely lost their jobs anyway, in order to keep the airline in business.
Bottom line
With Spirit Airlines having shut down, a lot of people are trying to place blame on politicians in a way that suits their narrative. Some people blame Trump for high jet fuel prices, and how that sped up the demise of Spirit. Others blame Biden, for blocking JetBlue’s takeover of Spirit.
As I see it, both of those perspectives miss the big picture. Spirit was a very unhealthy and very unprofitable company, and it no longer had a viable business model.
Yes, higher jet fuel prices might’ve expedited Spirit’s demise, but it was inevitable. Yes, Biden blocking JetBlue’s takeover of Spirit technically contributed to Spirit liquidating, but the combined airline would’ve been really, really unhealthy.
So yeah, I blame neither and both of them at the same time (with a lot more “neither” than “both”). Ultimately I think the failure comes down to Spirit’s lack of evolving its business model, and basically sitting idle for years, without making major changes.
Where do you place blame for Spirit’s failure?
@Lucky, I think the piece missing from this analysis is that JetBlue’s merger attempt with Spirit was Spirit’s second one on the table, which spoiled the first one which may or may not have had a clearer run through the DOJ. While the JetBlue merger was clearly about getting rid of a competitor and acquiring their assets, the proposed Frontier merger was arguably more about creating a larger scale UCC drawing on the bases of...
@Lucky, I think the piece missing from this analysis is that JetBlue’s merger attempt with Spirit was Spirit’s second one on the table, which spoiled the first one which may or may not have had a clearer run through the DOJ. While the JetBlue merger was clearly about getting rid of a competitor and acquiring their assets, the proposed Frontier merger was arguably more about creating a larger scale UCC drawing on the bases of both operators to better compete with the big 4 at a national scale. JetBlue coming to the table with an over-priced offer cruelled that deal, and all for nought in the end.
Would a combined F9-NK (am I the only one who thinks Frontier Spirit would have been the perfect name for an American airline?) have weathered the current storm better? I don’t know. But when obituary on Spirit is given, the failed Frontier merger should definitely be mentioned.
V/F
I buy the argument from VFTW that it was actually blocking the AA-B6 deal that was the original sin, and the B6-NK deal only made sense at the time that the AA-B6 deal was on the table. After that was blocked, the rest was formalities but the fate was sealed.
Which one is next?