A judge has just ruled to block JetBlue’s takeover of Spirit, arguing that it’s bad for competition. This obviously has major implications for both JetBlue and Spirit, and barring a successful appeal, the airlines are going to have to figure out new strategies ASAP.
Understandably, many people are applauding this decision, saying that Spirit typically has the lowest fares in the markets in which it operates, and it’s important to keep the airline independent. I totally get that sentiment, but there’s only one major problem… I wanted to take a closer look at that in this post.
In this post:
Spirit Airlines has been losing money for four years
Spirit Airlines hasn’t turned a profit since the start of the pandemic, so the airline has been losing money for 16 consecutive quarters. Obviously the first couple of years of the pandemic were rough for airlines. However, the past couple of years have been fantastic for many carriers, as we’ve seen a strong recovery in leisure demand.
Unfortunately ultra low cost carriers haven’t benefited from this in the same way as the legacy carriers, at least here in the United States:
- We’ve seen a massive increase in labor costs in the airline industry, and this has the biggest impact on ultra low cost carriers, since their business models are most reliant on a low cost structure
- Much of the leisure demand has been for both premium and long haul travel, and these are markets in which ultra low cost carriers typically can’t compete, due to their fleets and cabin products
- The legacy carriers make a large percentage of their profits from their loyalty programs and lucrative co-brand credit card agreements, and that’s something ultra low cost carriers can’t benefit from in the same way, since they don’t have many affluent, brand loyal consumers
- Ultra low cost carriers continue to face increased competition from legacy carriers, especially as they increasingly take delivery of larger jets (like A321neos), and therefore end up selling more basic economy fares that are competitive with the ultra low cost carriers
Unfortunately there are no signs of things changing for the better at Spirit. During the trial, the chairman of Spirit Airlines’ board testified that profits aren’t in sight for the airline without a deal.
Obviously this presents a major issue. Yes, Spirit offers amazing value for consumers, but if the airline can’t turn a profit, it won’t be around to offer those fares.
Can Spirit Airlines be independently profitable?
We talk about how we need more innovation from airlines, and I’d argue that Spirit has actually been incredibly innovative. The airline offers attractive fares, and has some cool features, like Wi-Fi and the Big Front Seat. Yet the airline can’t turn a profit.
Usually I enjoy playing armchair CEO, but I’m not actually sure I have a good answer as to how Spirit is supposed to become profitable. Does anyone want to take a swing at it?
- It’s not like Spirit isn’t doing everything it can to generate ancillary revenue
- Spirit would raise fares if it could, but obviously it can’t
- One of Spirit’s big issues is costs due to inflation and increases in labor costs, but that’s not necessarily such an easy thing to tackle
Does anyone want to take a swing at what Spirit could do to become profitable as an independent carrier? There are only a couple of things I can think of, but I’m not sure they’d make a material difference:
- Spirit struggles with operational reliability, and that’s something that should improve, but I’m not sure it’s the reason that the airline isn’t doing well financially
- Frontier has a similar business model to Spirit, and is currently working on transforming its business, by becoming more like Ryanair, setting up several mini-hubs, and focusing on having the same planes return to the same bases every day; maybe something like that makes sense for Spirit as well
Is Spirit Airlines’ only path forward through a merger?
We’ve seen several airline executives and analysts suggest that we’re going to see some more consolidation in the airline industry. In the case of Spirit, the judge’s ruling makes it pretty clear that a merger between a full service carrier and an ultra low cost carrier would be off the table.
However, could a merger between two ultra low cost carriers once again be a possibility? Keep in mind that this whole Spirit merger mania started in early 2022, when Frontier announced plans to acquire Spirit. The two airlines are highly complementary, as they’re both ultra low cost carriers operating Airbus fleets, and they for the most part have different hubs.
However, JetBlue was desperate to get involved, and to prevent that merger. The airline had tried to take over Virgin America back in the day, but Alaska outbid JetBlue, and JetBlue didn’t want that to happen again this time around.
In fairness, a lot has changed in the past two years. Frontier is struggling financially as well, and the carrier’s share price has also plummeted. However, arguably there would be some synergies, and a combined Frontier and Spirit could do a lot more to compete with the major carriers, and possibly be profitable.
Could we see Frontier once again expressing interest in acquiring Spirit? In the immediate future, the challenge is that JetBlue and Spirit will presumably be pursuing an appeal, given that this is a condition of Sprit getting its $470 million reverse breakup fee, and that could take quite some time.
But given the challenges that ultra low cost carriers are facing, it sure seems to me like the best path forward for both carriers might be to merge, and that likely won’t face regulatory scrutiny, since we wouldn’t see a net reduction in seats operated by ultra low cost carriers.
Admittedly the deal would likely be a lot less rich than when first proposed in early 2022. At the time, Frontier was going to acquire Spirit for the equivalent of $25.83 per share, in the form of $4.13 in cash plus 1.9126 Frontier shares. At this point, Frontier’s stock is worth less than half of what it was back then (as is Spirit’s stock). Based on today’s stock price, that same deal would be worth under $13.
Bottom line
JetBlue’s merger with Spirit has been blocked. Assuming an appeal is unsuccessful, I think the most interesting question is what this means for the future of Spirit. The airline hasn’t made money in four years, and there are no signs of that changing.
Yes, an independent Spirit is great for consumers, but an independent airline can’t stay in business if it doesn’t make money. So I think this is an interesting topic to discuss.
How do you see this playing out? How can Spirit become profitable independently? If it can’t, what’s the best path forward for stakeholders?
Labor cost are the issue and that is where they have to begin. They most go to the table to re-negotiate their contracts with their Flight Attendants and Pilots. I wouldn't mess with their pay, but I would look at those cafeteria packages and look for cost savings in those packages. Second, I would change my flight schedule the there and back. This would be an effort to cut down cost on Hotel cost. Cut out routes that aren't profitable.
Spirit has not turned a profit and yet its low fares have been extremely popular.......hmmmmmm, okay then what could be missing? How about customer service? I avoid flying Spirit - and last year, when I decided to fly them, the return flight was cancelled as we sat inside the plane, ready for take off. The best they could offer was a credit for the flight or a rebooking two days later. Of course,I would need...
Spirit has not turned a profit and yet its low fares have been extremely popular.......hmmmmmm, okay then what could be missing? How about customer service? I avoid flying Spirit - and last year, when I decided to fly them, the return flight was cancelled as we sat inside the plane, ready for take off. The best they could offer was a credit for the flight or a rebooking two days later. Of course,I would need to worry about getting a hotel for those two extra nights....not their problem. In the end, I prefer to pay a premium price which brings premium customer service along with the flight segments.
Typical myopic political decision. Does the Judge and Biden DOJ realize these airlines are hemorrhaging cash? Domestic demand has essentially leveled. All the demand is for international and premium seating. All Spirit has internationally is low yield Caribbean and Latin flying. And JetBlue doesn't have enough scale to sustain their very high costs. Both these are are looking at possible bankruptcy in the near future. Just a dumb decision.
I'm flying F9 next month MCO-CLT-MCO for $38rt. Yes, roundtrip! The cheapest fare on AA is $198rt. I recently flew NK MCO-PNS-MCO for $62rt and it was nonstop. Delta and American wanted $220 - $258rt via their hubs. Surely there is an opportunity for the LCC's to price higher than they currently do and still be way-below the big boys.
I see comments take the break up $$ r t mobile. They get 70million. That nothing with the 4billion in debt. There employees are part time, most do nit get benefits. Jblu was making all them full-timd and guaranteed wages for two years.
So spirir has to work on contracts because unions were about to strike but agreed to jblu. DOJ royally screwed this up. When the big 4 pick up the fire sale...
I see comments take the break up $$ r t mobile. They get 70million. That nothing with the 4billion in debt. There employees are part time, most do nit get benefits. Jblu was making all them full-timd and guaranteed wages for two years.
So spirir has to work on contracts because unions were about to strike but agreed to jblu. DOJ royally screwed this up. When the big 4 pick up the fire sale at the end of the day and people lose jobs hopefully the small period of low fares was worth all that damage.
I think it's important to start by addressing the elephant in the room: there is no magical fairy dust that flows out of airline mergers. The reason airline mergers lead to more profit is because they reduce competition and lead to increased pricing power. This is quite specifically what the law was written to prevent. Of course, an airline bankruptcy would have the same effect of reducing competition. However, I think it's important to differentiate...
I think it's important to start by addressing the elephant in the room: there is no magical fairy dust that flows out of airline mergers. The reason airline mergers lead to more profit is because they reduce competition and lead to increased pricing power. This is quite specifically what the law was written to prevent. Of course, an airline bankruptcy would have the same effect of reducing competition. However, I think it's important to differentiate between what the CEO says to support the airline's case against DoJ versus reality. Spirit management have had no true incentive to become profitable during the court case, as this damages their legal argument. Now that they've lost, they will focus fully on what they can do. I think there is still extra revenue to squeeze from fees. More Big Front Seats, push the buy-on-board menu with marketing and discounts for pre-orders, look at the route network and make sure there's an emphasis on cheap airports.
(1) I think the question is "CAN Spirit Airlines Become Profitable?" I think reliability has hurt them (especially in cases where routes are quite thin - a cancellation or "extended delay" can really cause issues), but there are a /lot/ of headwinds in that corner of the market, especially with most/all airlines offering Basic Economy packages that are pretty similar.
(2) I actually wonder if a Spirit-Frontier merger might not be set up for some...
(1) I think the question is "CAN Spirit Airlines Become Profitable?" I think reliability has hurt them (especially in cases where routes are quite thin - a cancellation or "extended delay" can really cause issues), but there are a /lot/ of headwinds in that corner of the market, especially with most/all airlines offering Basic Economy packages that are pretty similar.
(2) I actually wonder if a Spirit-Frontier merger might not be set up for some degree of disaster. Like, what happens if they merge and then go into bankruptcy?
FWIW I think a very plausible outcome from this would be that Frontier and Spirit do merge...but there's some asset sale/breakup with JetBlue being the other beneficiary (or even a three-way hack-up, bringing Allegiant into the mix?). By way of an analogy, the CSX/NS takeover of Conrail (where CSX essentially acquired the New York Central half and NS acquired the Pennsylvania half) probably fits.
B6 could benefit from this situation
Should NK file chapter 7 or 11, its leasing agents will offer NEO jets to the highest bidder. Also, experienced pilots will be looking to jump ship. The Big 4 will have first dibs on picking the bones, but B6 could garner several complementary airframes and experienced pilots.
This will go down as a classic Harvard business school case study on how not to run an airline.
@Ben - What do you think jetBlue should do now with this ruling? How will it survive? Do you think we might see an Alaska and jetBlue merger? Or maybe jetBlue and Hawaiian? The latter might actually make sense, more so than Alaska and Hawaiian merging? Do you think that a possibility?
JetBlue is important to US aviation and DOJ should be looking to enable them not block the Spirit merger.
They service more unique markets like providing premium transcon between SEA/JFK and LAX/MIA, which are not consistently seen across the big 3 carriers.
Yes, JetBlue are not the disruptors they set out to be. However, they did successfully launch an innovative TPAC experience and are providing genuine value to the aviation space. I often choose...
JetBlue is important to US aviation and DOJ should be looking to enable them not block the Spirit merger.
They service more unique markets like providing premium transcon between SEA/JFK and LAX/MIA, which are not consistently seen across the big 3 carriers.
Yes, JetBlue are not the disruptors they set out to be. However, they did successfully launch an innovative TPAC experience and are providing genuine value to the aviation space. I often choose JetBlue over big 3 carriers simply because they do offer a better experience most of the time.
Both Spirit and JetBlue are struggling financially, very myopic of the government to prioritize short-term interests, when if both Spirit and JetBlue collapse, consumers will be worse off.
The DOJ's job isn't to "enable" corporations whose poor strategy left them with few choices. And at this point, it clearly views letting the market pick over their corpses (if it comes to that) would be less disruptive to the public good than allowing them to combine, for the purposes of limiting capacity and raising fares (Oh, I'm sorry, "compete.")
"However, they did successfully launch an innovative TPAC experience".
I presume you meant TCON or TATL? They don't go across the Pacific...
Spirit has no choice but to raise prices, and maybe a competent management team if it wants to survive in the jungle.
Try sex appeal? Hire attractive FA and have skimpy uniforms? Have those FAs work in sections that don't have basic economy. If there are unattractive FAs, have them work in areas of the plane with basic economy fares
Wow Derek, you managed to drag your knuckles off the floor to type this!
Both Asia (Jetstar, Air Asia) and Europe (easyJet) have viable ULCCs. Spirit should copy Ryanair or another successful ULCC's methods. Spirit should expand from Canada to Central America to the Caribbean and not just focus on the US.
Spirit needs to look to T-Mobile. They were doomed after a failed ATT merger but then took the breakup money and developed a unique value proposition. Spirit could do this also. They have decent wifi, gates at most major, airports, and a newer fleet. They should lean into the big front seat product. It is really the best deal out there. You are basically getting a first class seat without a bad meal and free...
Spirit needs to look to T-Mobile. They were doomed after a failed ATT merger but then took the breakup money and developed a unique value proposition. Spirit could do this also. They have decent wifi, gates at most major, airports, and a newer fleet. They should lean into the big front seat product. It is really the best deal out there. You are basically getting a first class seat without a bad meal and free drinks. If they can fix the reliability, add additional big front seats, sell a real bundle that includes a bag, a drink or two, and the big front seat at a cost that is in line with what Delta charges for comfort plus they could be a real option for business travelers and anyone who wants more space and does not want to pay for first but wants a first class seat. Just like T-Mobile became the "uncarrier" Spirit could become the "unairline". Really the big front seat is the only thing they have going for them that is unique so might as well lean into it.
This reminds me of the Will
Roger's story of a man complaining about paying a dime for a cup of coffee. "It was available for a nickel across the street before they went out of business."
The unwillingness of antitrust to assess the financial condition of the parties is in itself a limitation of the market-share concept. It is almost as if the government believes that driving an airline out of business by expansion...
This reminds me of the Will
Roger's story of a man complaining about paying a dime for a cup of coffee. "It was available for a nickel across the street before they went out of business."
The unwillingness of antitrust to assess the financial condition of the parties is in itself a limitation of the market-share concept. It is almost as if the government believes that driving an airline out of business by expansion is good, but combining airlines to let them survive is bad.
UCC is a concept that has lost its luster. Incumbent carriers have learned market segmentation and putting the UCC business in the back of the plane. They can carry it for breakeven and deprive the UCC of the revenue.
The barriers to entry into the airline business is rising. This favors the incumbents. Unless Spirit merges with Frontier, or JetBlue merges with Frontier, the only other option is a purchase of the carrier(s) in bankruptcy for the debt like American was purchased by US Airways. Fares will rise. They have to.
The leases on the UCC planes are worth too much in today's market to see a long reorganization, especially Airbuses given Boeing's plight. If any of these airlines fail, they will be picked clean of assets in record time.
The Pandemic and it's 1.2 million Americans dead (like my in-laws) plus the many suffering from long-term consequences (like my cousin who has no energy to do anything anymore) reminded us of one thing: life's too precious and short to be subjected to the tortures of airlines like Spirit.
If they fail, all the better.
A lot of families depend on this company.
Did you show such concern over the demise of Pan Am, Eastern, Midway, TWA among others?
Amen!
This article scratches the surface on why this ruling is actually a competitive disaster. By setting the bar for substantial harm so low as to only look at a tiny slice of the flying public, the judge has inadvertently defended the existing oligopoly in the industry and has likely fired the starting gun on the ultimate demise of the ULCC sector as a whole. Everyone agrees that an independent Sprit operating its existing business model...
This article scratches the surface on why this ruling is actually a competitive disaster. By setting the bar for substantial harm so low as to only look at a tiny slice of the flying public, the judge has inadvertently defended the existing oligopoly in the industry and has likely fired the starting gun on the ultimate demise of the ULCC sector as a whole. Everyone agrees that an independent Sprit operating its existing business model isn't viable long term. Sure the short term bankruptcy risks are overstated but in the long run there's just no way for them to compete with the big 4 moving downmarket offering unbundled basic economy fares on a glut of new capacity entering service over the next 2-5 years. Even a merged entity with Frontier can't compete long term with carriers able to pay way more for pilots because they sell premium products on the same planes and fiercely defend their control of major hub markets. Spirit's only hope of a sustainable future in this landscape is to ditch the ULCC fares and defend the core markets where they're strong just to survive long enough for another merger/takeover attempt when the regulatory landscape turns more favorable. Jet Blue is now itself not able to compete with the big 4 and will also find itself having to survive and retrench its expansion plans. UA alone is adding more capacity than their entire fleet in the next 5 years or so. The fares will be higher for all the people the ruling thinks it's protecting whether its on a Spirit flight or on one of the big 4. The DOJ can only truly defend ULCC customers by making the ULCC model viable in the long term. That would require legal blocks on the big 4 expanding to offer basic economy fares and a forced transition away from single airline hubs. It misses the wood from the trees and the irony is that if Spirit had raised fares a few years back, changed to a full service model and then tried this merger, it would have likely passed the legal bar set by the judge with the appropriate divestments.
I for one don't agree that Spirit operating an ULCC business model isn't viable - they are just not very good at it.
Just look at Ryan Air, they just mad a 1.4B profit! Every single one kid their business processes is optimized for the ULCC model.
They have fantastic revenue management - known for their €10 fares, but during high season, incl. Ancillary fees, revenue as high as full-service carriers.
Super...
I for one don't agree that Spirit operating an ULCC business model isn't viable - they are just not very good at it.
Just look at Ryan Air, they just mad a 1.4B profit! Every single one kid their business processes is optimized for the ULCC model.
They have fantastic revenue management - known for their €10 fares, but during high season, incl. Ancillary fees, revenue as high as full-service carriers.
Super fast turnarounds.
Single model fleet
Best boarding process, optimized for anc. revenue & boarding time! You purchase carry-on + priority boarding as a bundle, max number of bundles per flight is defined by overhead bin space. After priority boarding is done, everything goes under the seat. Simple, fast, max revenue...
Planes fly anywhere they can go, not just Hub & spoke, across countries & different by season
Staff is low cost locations
...and on and on...
I avoid flying them if I can, but I admire they relentless focus on optimizing their operations according to their business model...
Ryanair can base planes in countries with very low labor costs (like Eastern Europe) and fly them to countries with higher costs (like Switzerland, Germany etc). Same for Air Asia in Asia.
If most Spirit bases are in the US, they do not have this luxury. Good luck getting pilots in the US to agree to the low pay Ryanair and Air Asia would pay their pilots.
The EU and Canada are less wealthy than the US. The percent of the population willing to put up with travleing on a ULCC is much higher in the EU and in Canada. There is a niche for ULCC's in the US, but it is much smaller than in the EU.
They can start selling lap dances and create a partnership with Worldstar.
@Henry...if Spirit increases prices...they will have no customers. This is now a Michael Scott Paper Company issue and JetBlue was Dunder Mifflin coming in for the save. Now everyone loses EVERYONE loses. I have NO IDEA what the Biden Admin is trying to protect. It is not up to he airlines to serve unprofitable customers.
I purchased a Spirit ticket earlier today. It cost $54.60. Needless to say I was thrilled at the price. I would have been just as happy if the fare had double. I think there is plenty of room for Spirit to increase prices and still undercut other carriers. That would be a good start on a return to a profitable future.
I really think Spirit is toast. With no Plan B to become profitable, and so many one and done customers having already tried Spirit, I just don't see any way out. With this decision markets and suppliers will be getting very nervous. Suppliers will be asking for collateral and COD terms which will drive a liquidity crisis at Spirit in a very short timeframe.
A merger between Spirit and Frontier? “They’ll lose money on every flight, but they’ll make it up on volume!” :)
The best chance for Spirit’s survival, and the best outcome for American consumers, is a Frontier-Spirit merger. A robust coast-to-coast ULCC could arguably set airfares in a number of competitive markets vis-a-vis the legacies, a pivot towards a semi-premium option (expanding the number “Big Front Seat” rows in their combined fleet) could attract more new customers, and Frontier’s multi-hub pivot along with redundancies could improve on-time performance, also attracting new customers. The Go Wild Pass...
The best chance for Spirit’s survival, and the best outcome for American consumers, is a Frontier-Spirit merger. A robust coast-to-coast ULCC could arguably set airfares in a number of competitive markets vis-a-vis the legacies, a pivot towards a semi-premium option (expanding the number “Big Front Seat” rows in their combined fleet) could attract more new customers, and Frontier’s multi-hub pivot along with redundancies could improve on-time performance, also attracting new customers. The Go Wild Pass has a loyal following and a network expansion with more redundancies will potentially make it more attractive to more customers. I wouldn’t be surprised if there’s an announcement in the next 2 weeks - these 2 need each other.
The best chance for Spirit’s survival, and the best outcome for American consumers, is a Frontier-Spirit merger. A robust coast-to-coast ULCC could arguably set airfares in a number of competitive markets vis-a-vis the legacies, a pivot towards a semi-premium option (expanding the number “Big Front Seat” rows in their combined fleet) could attract more new customers, and Frontier’s multi-hub pivot could improve on-time performance, also attracting new customers. The Go Wild Pass has a loyal...
The best chance for Spirit’s survival, and the best outcome for American consumers, is a Frontier-Spirit merger. A robust coast-to-coast ULCC could arguably set airfares in a number of competitive markets vis-a-vis the legacies, a pivot towards a semi-premium option (expanding the number “Big Front Seat” rows in their combined fleet) could attract more new customers, and Frontier’s multi-hub pivot could improve on-time performance, also attracting new customers. The Go Wild Pass has a loyal following and a network expansion with more redundancies will potentially make it more attractive to more customers. I wouldn’t be surprised if there’s an announcement in the next 2 weeks - these 2 need each other.
Dan M nailed this for me. My wife and I usually fly First on AA, even on short 2-3 hour flights. I just prefer the comfort. An occasional SWA flight from the east coast to Florida.
If Spirit merged with Frontier with mini-hubs and expanded the Big Front Seats, I will absolutely give them a try. If they can get me to where I am going (no cancellations), with the Big Front Seat, they would...
Dan M nailed this for me. My wife and I usually fly First on AA, even on short 2-3 hour flights. I just prefer the comfort. An occasional SWA flight from the east coast to Florida.
If Spirit merged with Frontier with mini-hubs and expanded the Big Front Seats, I will absolutely give them a try. If they can get me to where I am going (no cancellations), with the Big Front Seat, they would get a lot of my money.
Change the Spirit livery if there is a merger - that livery is tied to too many negative memes and the like.
I think it goes without saying that the majority of Spirit's customer base are leisurely focused and cost sensitive. The same group that has been impacted the inflation that has been a global issue since the pandemic. I suspect many of these good people are not traveling the way they used to (pre pandemic) and this has to have some impact on Spirit's revenue stream.
Without a deep dive into Spirit's financials I wonder if labor costs are the only or primary cause of no profitability the last 4 years, and what was so different in the years prior? If Spirit can hang in there and improve its profitability, I think a US economic slowdown could work in Spirit's favor because I do not see how the majors can continue to maximize their non-economy revenue. Unless I'm upgraded, I seldom...
Without a deep dive into Spirit's financials I wonder if labor costs are the only or primary cause of no profitability the last 4 years, and what was so different in the years prior? If Spirit can hang in there and improve its profitability, I think a US economic slowdown could work in Spirit's favor because I do not see how the majors can continue to maximize their non-economy revenue. Unless I'm upgraded, I seldom pay for a Comfort Plus or Business class seat so if the majors' economy seats remain more expensive than Spirit's (without the bag fee nonsense), then a ULC like Spirit might have a better future.
100% agree with what many have already said - something has to give. Staff are getting big raises, fuel prices are very high, the dollar has devalued quite significantly, not to mention the broad economy isn't great with not much hope for improvement near-term.
Spirit may need to go. I'd argue JetBlue also needs to go - much to my dismay.
The dollar is very strong historically speaking, the hard economic numbers are pretty good and a recession is looking less and less likely. But same difference. If spirit can't make money now, they won't when the economic situation is worse.
Sure. Do you think consumer spending will be better or worse a year from now?
Spirit is getting ready to open its new, smaller HQ in Dania Beach, moving from Miramar, FL. Spirit changed its original plan of 500K sq ft (2 - 9 story buildings) to just one 180K sq ft HQ and a 100K sq ft training center. They are planning to save costs after the move.
A unique feature is a 200 unit 7-story apartment building - a block away - just for employees. This is...
Spirit is getting ready to open its new, smaller HQ in Dania Beach, moving from Miramar, FL. Spirit changed its original plan of 500K sq ft (2 - 9 story buildings) to just one 180K sq ft HQ and a 100K sq ft training center. They are planning to save costs after the move.
A unique feature is a 200 unit 7-story apartment building - a block away - just for employees. This is nearly completed as well.
The new building are across the street from the Marriott Fort Lauderdale Airport Hotel (and adjacent AC Hotel) in the Dania Pointe complex. Just stayed at the Marriott and several times before - watched the buildings being built.
Airfares inevitably have to increase across the board for US airlines to sustain their labor wage increases. This will most likely happen the same way it has in the past which is consolidation or bankruptcy, but either way there will be less competition. Legacy airlines have more ability to tread water through things like reducing elite benefits and so we should expect something like NK or B6 to not exist in their current form in the future.
It would be interesting to see Spirit announce they are changing their business model to be more like legacy airlines since ULCC hasn't been profitable. What would the government's argument against the merger be then?
Why are the US LCCs doing so much worse than their European equivalents? Is it just the higher labour costs in the US? European LCCs are doing well in an arguably more challenging and competitive market with constant ATC strikes/significantly higher taxes etc. And what has suddenly changed? Frontier still has 200+ aircraft on order so clearly it saw huge room in the market before.
To that end, what would Frontier and Spirit merging...
Why are the US LCCs doing so much worse than their European equivalents? Is it just the higher labour costs in the US? European LCCs are doing well in an arguably more challenging and competitive market with constant ATC strikes/significantly higher taxes etc. And what has suddenly changed? Frontier still has 200+ aircraft on order so clearly it saw huge room in the market before.
To that end, what would Frontier and Spirit merging actually change? Sure, there might be some savings, but on the whole they wouldn't be significantly better off? Seems like a short sighted decision to block this merger.
The US is one country, Europe is more than 27 countries...
The US legacies are on almost all the routes in the US, The EU legacies leave lots of routes to the LCC like BA in the UK or Air France leaving Orly airport in one year...
I don't think that is the issue - the EU is operating like one market. And the EU flag carriers all operate hub models, just like the majors in the US. They could fly across countries, but they don't.
But the ULCC in Europe fly direct, often hitting 3 or more countries in one shift. They often are the only non-stop to popular destinations.
That's kind of what I think Breeze is trying...
I don't think that is the issue - the EU is operating like one market. And the EU flag carriers all operate hub models, just like the majors in the US. They could fly across countries, but they don't.
But the ULCC in Europe fly direct, often hitting 3 or more countries in one shift. They often are the only non-stop to popular destinations.
That's kind of what I think Breeze is trying to do as well.
You can go to many popular destinations in EU, City or beach, non-stop from small or even tiny airports, all ULCC. Try going to Hawaii or Orlando non-stop from small airports across the US..
Let's see how David Neeleman does with Breeze...
The main difference is the abundance of smaller or regional airports in Europe compared to the US which makes for cheaper options more available. Also the leisure market is arguably better as they have a better balance of destinations people want to visit year round for cheap weekend getaways. Also a lot of "low cost" destinations in the East and South does make travel for students, pensioners, and lower & middle class more affordable. Europe...
The main difference is the abundance of smaller or regional airports in Europe compared to the US which makes for cheaper options more available. Also the leisure market is arguably better as they have a better balance of destinations people want to visit year round for cheap weekend getaways. Also a lot of "low cost" destinations in the East and South does make travel for students, pensioners, and lower & middle class more affordable. Europe is also a bit more compact in terms of flight times. You can reach most destinations within one or two hour flights. Alongside the rail and bus network in many countries being complimentary as well.
Yea, the 27 countries vs. 1 country is the main reason. While US legacy carriers can fly between any city pair in the US, EU carriers typically won't/can't fly between cities outside of their home country. See DL flying MCO-MIA not having a hub at either or AA flying AUS-TPA; you won't see LH or AF flying city pairs outside their home country that is not 5th freedom.
I mean, when you get like 6 weeks paid vacation a year you have a lot more leisure travelers using LCCs in Europe. Our LCC cater to those on lower economic ladder and are squeezed by inflation and way more sensitive to slight economic issues
Good analysis overall, Lucky, but I have to disagree with your assertion that a F9-NK deal would go through because "we wouldn’t see a net reduction in seats operated by ultra low cost carriers." A key reason why NK and F9 aren't doing well is overcapacity in the big leisure markets, so it's inevitable that if the two merge, they would cut capacity (especially now, with both carriers being impacted by the Pratt engine issues...
Good analysis overall, Lucky, but I have to disagree with your assertion that a F9-NK deal would go through because "we wouldn’t see a net reduction in seats operated by ultra low cost carriers." A key reason why NK and F9 aren't doing well is overcapacity in the big leisure markets, so it's inevitable that if the two merge, they would cut capacity (especially now, with both carriers being impacted by the Pratt engine issues and having fewer aircraft available). The main reason for merging is to lower capacity and increase fares. Look at PHL-MCO, for example: both carriers have three daily flights each, and if they merged, they would more likely have something like four flights instead of six.
@ Dolphin -- Fair, and with a strict interpretation of the Clayton Act (which seems to be what's happening here), perhaps there would be issues with that. But then one does have to wonder how these airlines are supposed to be independently viable...
They could be viable with better management. NK was consistently among the most profitable (by margin) airlines in the world before covid then made a bunch of poor management choices (misguided and haphazard network and pricing strategy, very badly run operation, bad customer service though still marginally better than F9, I could go on) that sent them into a death spiral. You can't blame external factors like covid - NK was actually lucky with leisure...
They could be viable with better management. NK was consistently among the most profitable (by margin) airlines in the world before covid then made a bunch of poor management choices (misguided and haphazard network and pricing strategy, very badly run operation, bad customer service though still marginally better than F9, I could go on) that sent them into a death spiral. You can't blame external factors like covid - NK was actually lucky with leisure travel and Florida doing well during covid, yet squandered that opportunity again through poor choices compared to airlines like UA who were dealt a losing hand yet managed to become profitable again. Allowing anticompetitive mergers as a remedy for poor management is definitely not the answer...
Maybe a merger with Frontier but ultimately fares and/or ancillary fees have to go up. And given the financial pressure their core customer base is under that's going to be tough. If they could have raised fares and kept planes packed they would have done it a long time ago. Remember legacies are making their money from partner income, particularly credit cards, not flying. Possibly that's a strategy for Spirit as I see no other...
Maybe a merger with Frontier but ultimately fares and/or ancillary fees have to go up. And given the financial pressure their core customer base is under that's going to be tough. If they could have raised fares and kept planes packed they would have done it a long time ago. Remember legacies are making their money from partner income, particularly credit cards, not flying. Possibly that's a strategy for Spirit as I see no other way. Otherwise simple math is going to rule. $59 fares are not sustainable.