Goodbye, Spirit Airlines.

Science/Business | David Wu | September 20th, 2022.

Sitting in the cramped cabin with barely any legroom, Spirit Airlines passengers are entitled to the “bare fare”— jaw-droppingly low ticket prices. Since its founding in 1983, Spirit Airlines has operated an aviation model known as an ultra-low-cost carrier. In a nutshell, such a business approach in the skies increases the quantity of passenger demand through extremely low airfare. Therefore, budget airlines such as Spirit would offer little to no services and catering on board to maintain profitability with such little revenue, effectively neutralizing fixed and variable costs considerably. Because of this unique business model, Spirit expanded quickly. By Q2 of the 2022 fiscal year, Spirit ranked seventh in the United States aviation market, comprising about 4.9 percent of the market share as calculated by Revenue Passenger Mile (RPM). However, in August 2022, Jetblue Airlines acquired Spirit Airlines. For some, the 50-dollar ticket prices will be missed; for others, the pretzels and drinks will make up for the price increase.

This purchase came after a long battle with Frontier Airlines, another ultra-low-cost carrier, where Jetblue won the deal to purchase Spirit for 3.8 Billion USD (2022 nominal prices). Although the two corporations reached agreements, completing the transaction will take until well beyond 2024, abiding by federal and enterprise regulations. Analyzing the merger thoroughly, one could find it highly rational for both airlines.

Jetblue had a clear incentive to obtain Spirit: pilots. There is a decreasing supply of pilots in the employment market due to the rising costs of aviation schools. Pilots are an airline's most critical human capital: with more pilots, airlines substitute fatigued pilots to maintain or expand flight route networks. Spirit and Jetblue operate identical aircraft models: the Airbus A320 series. By purchasing Spirit Airlines, Jetblue expands human and physical capital without additional costs to train pilots for incorporating plane fleets.  

Spirit, however, has a more financial reason to accept the deal. The COVID-19 pandemic hit the aviation industry harder than any other travel industry, of which Spirit airlines suffered the most. Ultra-low-cost carriers have few customers without significant demand from the middle class during the pandemic. In the last months of 2021, Spirit endured an 87.2 million USD loss. Additionally, the airline canceled nearly 50 percent of its flights amid operational challenges in the summer times. By merging with a larger airline, Spirit gives its employees and brand a chance to persist elsewhere before bankruptcy.

As much as people hate the lack of legroom and service on Spirit Airlines, one could not help but appreciate the airline’s ability to extend air travel to a broader demographic group with such low travel prices. Jetblue has pledged to incorporate its well-liked business model into Spirit Airlines, bringing cushioned seats and crackers onboard Spirit’s A320s. However, many obstacles are ahead before we see Spirit planes in Jetblue colors. Antitrust laws in the United States dislike business acquisitions that form monopolies. Employee training and culture adaptation may take years. Complete fusion will extend to the mid-late 2020s, but the prospects of an improving aviation world in the post-COVID era is a spectacle.