GoKawiilThe bright yellow livery of Spirit Airlines may soon disappear from the skies. The country’s seventh-largest airline has been in financial trouble for years: It hasn’t turned a profit since 2019 and filed for bankruptcy twice in the last two years. Despite all that, its leaders predicted that the airline could exit bankruptcy and return to profitability as early as 2027. It just needed time and a little stability to do so.
That time may have run out. On Monday, April 20th, Spirit approached the government to ask for a federal bailout. The sudden rise in fuel prices caused by the war in Iran will add an estimated $360 million in unexpected costs to its balance sheet this year. Spirit’s executives appear to believe that the airline may run out of cash soon unless it gets outside help.
In public, the Trump administration appears skeptical that a bailout is the right solution. In a Tuesday interview with Reuters, Transportation Secretary Sean Duffy questioned whether a bailout would simply “put good money after bad” and “forestall the inevitable.” Trump himself also appeared to favor a merger rather than a bailout. “I don’t mind mergers. I’d love somebody to buy Spirit,” he said on Tuesday’s episode of Squawk Box. “It’s 14,000 jobs.”
Trump appears skeptical that a bailout is needed
Behind closed doors, however, their strategy is very different. On Wednesday morning The Wall Street Journal reported that the government was proposing a $500 million loan to Spirit in exchange for a “potential significant stake” in the airline.
Senators from both parties criticized the proposal. “The government doesn’t know a damn thing about running a failed budget airline,” Sen. Ted Cruz (R-TX) posted on X. “This is an absolutely TERRIBLE idea.”
“What do the American people get out of this taxpayer bailout?” asked Sen. Elizabeth Warren (D-MA). “Will the failed airline executives be held accountable?” Warren has a point. The fuel crisis is affecting the whole airline industry. Why is Spirit the only airline that has been pushed to the brink?
The answer is a mix of bad economics, bad strategy, and plain bad luck. As an ultra-low-cost carrier (ULCC), Spirit can’t take the approach of other airlines such as United and Delta that are raising fares and adding fees. Delta alone projects $2 billion in additional fuel expenses this year that it has to offset by increasing its prices across the board.
Spirit’s business model targets price-sensitive flyers who care only about the lowest possible fare. Its prices are routinely 40 percent lower than those of legacy airlines. Raising them might earn a little bit of extra money per seat, but it would certainly price out the more than 100 million passengers who fly ULCCs every year just for the low costs.
This was a profitable strategy for much of the airline’s history.
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