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Chapter 1: What are the main criticisms of Spirit Airlines?
Spirit Airlines had many detractors. They're the hidden fees airline. They're the number one in complaints. Like, they literally just left people stranded. Suck it on your extra fees. Spirit also had many defenders.
Spirit Airlines doesn't have customer service. You don't pay for customer service.
Spirit always got me to where I needed to be. I'd give them their gas money, and they'd drop me off in Cabo.
Chapter 2: How did Spirit Airlines transition to an ultra-low-cost carrier?
And then, over the weekend, it shut down, stranding passengers. I just woke up to the text message that Spirit has literally shut down, so now I have to figure out a way to get home.
I hope the people who have created this inconvenience for people like myself, they should ask God for forgiveness.
Breaking pilots' hearts mid-flight. I don't remember any of the bad times, just the good ones. Coming up on Today Explained from Fox, lessons from the life and death of America's most beloved, most hated, most bootleg budget airline.
This is Today Explained.
John Ostrower, editor-in-chief of Air Current. Spirit Airlines, RIP, what happened? Well, Spirit reached the end of this long road on the early hours of May 2nd.
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Chapter 3: What factors contributed to Spirit Airlines' bankruptcy?
So this is an airline that used to be a regular-style carrier, and it transitioned itself into an ultra-low-cost carrier. Look, it kind of adjusts the seat pricing, bare bones, very austere. We've been able to be profitable, and we've been able to make money because we keep our costs very low, because we do things in ways that help that happen.
People may grumble about the extra fees or the sardine-style seating, They are buying almost every available ticket on a growing number of flights.
And that's what makes Spirit soar. And actually, they rode a really healthy wave of growth right up until the pre-pandemic period. And then things really went south. I think it happened fairly steadily through these troubles. But look, how do you go bankrupt?
Chapter 4: What led to the bidding war for Spirit Airlines?
It kind of happened slowly and then all at once. And certainly the spike in fuel did not help that at all. So here we are. And they went bankrupt a few years back. Yes.
Spirit Airlines filed for bankruptcy with a plan to hand over control to bondholders after failing to agree on a merger with rivals.
Spirit has entered into an agreement with its bondholders expected to reduce total debt and provide increased financial flexibility. Together with available cash, that is expected to support the airline through the Chapter 11 process. They went bankrupt again last year.
Spirit Airlines announced today it's voluntarily filed for bankruptcy, marking the second time that the airline has done this in a year.
Chapter 5: Why did the merger between JetBlue and Spirit Airlines face legal challenges?
Right now, Spirit Airlines is warning shareholders that it may not survive if it can't come up with enough cash to pay its upcoming debt obligations.
They look to reorganize themselves in a more comprehensive way. They got to a point where they were really running out of options with their lenders and their creditors. And look, they went to the White House and said, hey, can you help us? And the White House said, well, we'll see what we can do.
USA first, America first, including with airlines. We're looking at Spirit and we can help them.
We will. But like here we are on the opposite side of the end of operations and now they're liquidation. And obviously the answer was that the deal did not come together.
Chapter 6: How did the pandemic impact Spirit Airlines' business model?
How did things go so wrong for Spirit? What happened? So the short answer is, or I should say the long answer is, the pandemic changed the world. And it allowed the major U.S. airlines to more rapidly adapt and absorb the parts of their model that were most successful. And so a few things happen. Number one, I think you have to start with sort of how did Spirit grow as quickly as they did?
And the big answer is cheap money, low interest rates, right? You know, they were able to get their planes for low capital costs, and that allowed them to build capacity quickly. And the airline business is a scale game, especially in the US, where you've got huge carriers that you have to go up against.
Chapter 7: What are the implications of government bailouts for private companies?
And so when the pandemic happens and inflation skyrockets after the pandemic and interest rates go up, airplanes become a lot more expensive. Capital becomes a lot more expensive. And oh, by the way, with inflation, you have really taken a hit to the bottom 30 percent of the market. Most price sensitive travelers really need cheap tickets. That's how they travel. That's how they want to travel.
And, you know, whether it's for vacation or for business that, you know, people Price sensitive makes sense, right? There is still a big portion of the industry that does pick on ticket price. Okay, we know that part of it.
Chapter 8: What lessons can be learned from the rise and fall of Spirit Airlines?
Here's the wrinkle here that I think is not well appreciated. During from like the period of like 2012 to 2020, the major airlines tried to take their business model, Spirit's business model, which was these basic economy tickets. By the end of last decade, they were pretty well adopted. Get ready for middle seats. No space at your feet, but hey, at least it's cheap.
This is Basic Economy on Delta, American and United. So know the downsides, which include no advanced seat assignment, last aboard the plane, only one carry-on bag, and you may not be allowed to use the overhead bin. And no earning Delta SkyMiles, LayAdvantage, or United Mileage Plus points.
That you would walk up to an airline and say, okay, I just want to get from point A to point B. I don't want to pay for bags. I don't want to pay for early boarding. All the things that come along that you can get charged for at an airline. But again, just the seat, point A to point B with a ton of restrictions. They could match
their pricing or get close, but also be able to offer more frequency because they're bigger, better networks because they're bigger, better amenities because they're bigger. Again, this is very much the big airlines using their scale against the small carriers.
So what has in aggregate happened, the big airlines actually have now a larger ultra low cost basic economy footprint than the entire basic economy ultra low cost footprint airlines do in America. I remember Spirit trying to merge with another low cost carrier a few years back. It seemed like kind of a bid to save itself. What happened there? Yeah.
So there was a bidding war for Spirit because I think there was a clear picture that Spirit was on a trajectory that was unsustainable. And at first, Frontier Airlines stepped in to try and merge with Spirit. That is probably the closest analog in terms of business model in America and that that would have created a much larger combined carrier. JetBlue swooped in for a bidding war.
Frontier and Spirit joining forces. The two largest low-cost airlines in the U.S. are hoping to merge.
JetBlue, according to the New York Times, has made a bid to buy Spirit Airways for a deal that would be the purchase price would be $3.6 billion.
And JetBlue ultimately won the bidding war because when you've got shareholders, they want the best deal. Regardless of whether or not that deal makes sense, they want the best deal that serves their interests. And so JetBlue won. Well, the U.S. government and the Biden administration sued to block the merger.
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