Analysis: Spirit’s Bankruptcy Was The Result Of Unintended Consequences

“To those dedicated customers of Spirit, this one’s for you,” US federal judge William Young wrote in his January 2024 decision that ended the proposed Spirit Airlines-JetBlue Airways merger. It took less than a year for those words to take on quite a different meaning: Spirit on Nov. 18 filed for Chapter 11 bankruptcy protection.

This is not what Young had in mind. He maintained the decision—which sided with the Justice Department (DOJ) conclusion that a merger would violate antitrust law—was aimed at preserving the ULCC market and low air fares in the U.S. But it should have been obvious at the time that the merger rejection would leave a weak, limping Spirit that would be unable to compete in the U.S. airline market.

During the antitrust trial in Boston, Spirit CEO Ted Christie repeatedly told the court that the Florida-based carrier was in serious financial trouble and continued independence would not allow the carrier to be a “relevant” competitor to U.S. majors American Airlines, Delta Air Lines, Southwest Airlines and United Airlines.

“The law of unintended consequences is in full effect,” Christie explained after the judge’s ruling while discussing the airline’s continued financial struggles with analysts.

Even in an industry with a voluminous history of Chapter 11 restructurings and failed companies, Spirit’s filing is surely one of the least surprising U.S. airline bankruptcies. The company has incurred a net loss for 11 straight quarters and carries a heavy debt burden.

Young wrote in his ruling that the merger would “substantially lessen competition” because it would “eliminate one of the airline industry’s few primary competitors that provides unique innovation and price discipline.”

But that innovation—the successful no-frills “bare fares” unbundled pricing model pioneered by the late Ben Baldanza during his 2006-16 tenure as Spirit’s CEO—happened long ago. And it is far from unique in 2024. A significant cause of Spirit's current struggles is the broad adoption of its pricing practices by U.S. major airlines, including offering basic-economy seating.

Young and the DOJ engaged in wishful thinking and approached the proposed JetBlue-Spirit merger through the prism of an outdated view of the U.S. airline market. Even if Spirit can move through the Chapter 11 bankruptcy protection process and emerge as a restructured carrier, it will look far different than the ULCC of the previous decade Young thought he was preserving.

Spirit executives had already been talking about a “reimagination” of the model that would include premium-seating and bundled product tiers. ULCC Frontier Airlines is also moving into premium offerings, while newer entrants Avelo Airlines and Breeze Airways eschewed the no-frills concept from the start.

Spirit’s old and pioneering model is no longer available in the US market, no matter Judge Young’s intentions.