Spirit Airlines abruptly ceased operations in the U.S. over the weekend, a development that will ripple across the industry by easing price pressure and giving rival carriers more room to raise fares, particularly once short-term disruptions subside, Northeastern University experts say.<\/p>\n
For years, Spirit was the leading \u201cultra-low-cost carrier<\/a>,\u201d a pricing model that strips fares down to the bare bones and charges separately for nearly all amenities, such as seat selection, carry-on bags and even printing boarding passes \u2014 a practice in the airline industry also known as \u201cunbundling<\/a>.\u201d\u00a0<\/p>\n Spirit\u2019s pricing and service model was one that \u201cmany people wanted,\u201d said John Kwoka<\/a>, Neal F. Finnegan distinguished professor of economics at Northeastern, who attributed the airline\u2019s demise to \u201cpoor management, risky expansion, some bad luck with engines\u201d and increasing competition from legacy carriers that have adopted low-fare options to accommodate price-sensitive travelers.<\/p>\n Spirit\u2019s demise comes as airlines are facing many challenges, including higher fuel costs, a shortage of pilots and air traffic controllers, and the continuing effort to recover from the loss of tens of billions of dollars due to the COVID-19 pandemic. The collapse of Spirit, one of the sector\u2019s notable price disruptors, is shifting the balance toward larger airlines, raising concerns that the industry could become more consolidated \u2014 and more expensive \u2014 for consumers, experts say.<\/p>\n \u201cThe legacy carriers will pick up some of Spirit\u2019s routes, but not at the same price, and in addition, they will begin to limit or raise the price of their own rock bottom fare options now that they do not have to face Spirit,\u201d Kwoka said. \u201cThis is exactly what has happened before when low-cost carriers exited, got bought, or folded.\u201d\u00a0<\/p>\n Similar patterns have followed the disappearance of low-cost carriers in the past. After AirTran Airways was absorbed by Southwest Airlines in 2011<\/a>, and earlier when ATA Airlines<\/a> and Independence Air shut down<\/a>, key sources of fare competition vanished, experts say, leaving larger airlines with more room to raise prices or scale back their cheapest options.<\/p>\n \u201cI think common sense says that with reduced ultra-low-cost carrier competition, fares can go up,\u201d said airline expert Ravi Sarathy<\/a>, a professor of international business and strategy at Northeastern\u2019s D\u2019Amore-McKim School of Business. <\/p>\n \u201cAnd whether the surviving airlines \u2014 both Frontier and JetBlue, as well as the majors, American, Delta, United, Southwest \u2014 raise fares really depends upon how much they are willing to be seen in the public eye and in the government\u2019s eye as trying to help the public in the short term,\u201d Sarathy explained.<\/p>\n In the near term, travelers may face fewer flights and higher prices as competitors scramble to absorb routes and aircraft, Sarathy said. Over the longer term, the loss of a major ultra-low-cost carrier could accelerate consolidation, spurring deals among other budget airlines to avoid being squeezed out, or invite new entrants backed by private equity to fill the gap, he said.\u00a0<\/p>\n Either way, with fuel costs elevated as a result of the ongoing closure of the Strait of Hormuz<\/a> and competition diminished, Sarathy and Kwoka suggest the trajectory for the industry points toward a more expensive, more concentrated market, which is \u201cbad for the consumer,\u201d Kwoka said.\u00a0<\/p>\n \u201cBut again, Spirit has been at the margin already,\u201d Kwoka said. \u201cWhat one really wants is that it be easier for another [ultra-low-cost carrier] to replace it \u2014 Frontier, maybe \u2014 but policy does not get to make those choices. JetBlue would not have been a perfect replacement, but maybe better than what is about to happen.\u201d<\/p>\n Sarathy and Kwoka note that Spirit Airlines had long been in decline, including a failed previous attempt to stabilize the airline through a proposed merger with JetBlue Airways<\/a>. JetBlue\u2019s proposed acquisition of Spirit unraveled after the U.S. Department of Justice moved to block the deal on antitrust grounds in 2023. Officials argued then that the deal would eliminate a key low-cost competitor and likely drive up fares for budget-conscious travelers.\u00a0<\/p>\n A federal judge ultimately sided with regulators in January 2024, finding that absorbing Spirit into JetBlue\u2019s higher-cost model would reduce price competition in an already concentrated airline industry. JetBlue abandoned the bid a few months later, leaving Spirit to continue its financial struggles without a merger lifeline<\/a>. Now that the airline is out of business, critics<\/a> point to the blocked deal as a missed opportunity that might have stabilized the carrier.<\/p>\n \u201cThe Joe Biden-Pete Buttigieg administration and DOJ tanked that deal,\u201d Transportation Secretary Sean Duffy said<\/a> on ABC\u2019s \u201cThis Week.\u201d \u201cImmediately after that, they filed for bankruptcy.\u201d<\/p>\n When might consumers begin to see higher fares?<\/p>\n \u201cLet\u2019s say in the short term there won\u2019t be an immediate impact, but certainly if you look three to six months out, fares would go up,\u201d Sarathy said. \u201cUnless a new airline is formed from the remnants of Spirit to try to take over their position in the market, their competitor position that they occupied as the ultra-low-cost carrier.\u201d<\/p>\n That dynamic reflects a broader shift in U.S. aviation. For years, ultra-low-cost carriers like Spirit helped push fares down and expand access to air travel, according to the Eno Center for Transportation<\/a>, a Washington, D.C.-based nonprofit research organization focused on transportation policy and analysis.\u00a0<\/p>\n Data<\/a> collected by the Eno Center for Transportation has shown that over time, passengers have benefited from lower average ticket prices and more direct flight options as competition intensified. Domestic airfares in the U.S. have fallen by roughly 40% since the late 1970s, while the share of passengers flying nonstop has increased significantly over the past two decades after factoring in inflation, according to the center.\u00a0<\/p>\n A last-ditch effort<\/a> by the Trump administration to rescue Spirit with a proposed $500 million bailout ultimately collapsed amid resistance from creditors and investors. The plan would have given the federal government priority over Spirit\u2019s assets, and potentially a controlling stake in the airline. Private lenders ultimately opposed those terms because they risked leaving them with little to recover in a bankruptcy.\u00a0<\/p>\n Sarathy said the structure of the deal was its undoing, noting that while it was \u201ca reasonable stance\u201d for the government to seek first-lender status to protect taxpayer money, existing creditors were unlikely to accept being pushed behind the government in line, making an agreement difficult to reach.<\/p>\n Tanner Stening is an assistant news editor at Northeastern Global News. Email him at t.stening@northeastern.edu. Follow him on X\/Twitter @tstening90<\/a>.<\/p>\n