Why Spirit Airlines and Other Budget Carriers Are Struggling

About a month ago, Aran Darling booked a cheap red-eye flight from Los Angeles to New York for a work event.

Darling and his significant other, Izzy de la Meme, own a small business named Froot Stand. They buy avocados, tangerines, passion fruit, and other more exotic fruits from growers around Ventura, California, and sell them around the country. A big client had invited him to a food event in Manhattan, and it offered a chance to network and grow their business.

Darling felt good about the flight he chose. But, as the days passed, he began seeing some alarming headlines. The carrier he chose was Spirit Airlines.

News reports were saying that Spirit, after filing for bankruptcy for the second time in recent years, was experiencing serious financial turbulence and might have to be grounded. Any day, it seemed, the airline could go into liquidation.

Darling anxiously checked online to see whether his flight was canceled and shared his dilemma with Froot Stand's followers on Instagram. On the day of his flight, it was a running joke with LAX staffers that Spirit was about to go under.

Spirit isn't exactly a beloved airline. Consumer surveys have suggested it's one of the most hated airlines in the industry. The airline has gone all-in on a business model in which they strip any semblance of luxury from the flying experience in a quest to lower base fares. This strategy, known as unbundling, involves charging extra for perks like carry-on bags, seat selection, and food.

For a time, this strategy worked. Spirit seemed to be jetting ahead of legacy airlines. However, these days, the Dollar General airline strategy isn't working. High fuel prices in the wake of the conflict in Iran are part of the story, but industry experts point to other factors. Legacy airlines copied the budget airline playbook to win back customers and outmaneuvered them by making their loyalty programs more enticing.

These loyalty programs have become a powerful, anti-competitive weapon against smaller carriers. Meanwhile, Spirit and other budget airlines have been getting squeezed by higher costs and a broader economic trend in which cash-strapped customers are cutting back on spending.

Since the 2010s, the dynamic has flipped. Legacy carriers like Delta and United introduced basic economy fares to compete on price, while leveraging their market dominance and sprawling networks to offer desirable loyalty rewards. Smaller budget airlines have struggled to match these programs, and partnering with other airlines has proven expensive and difficult.

In the 2020s, the cost of everything exploded, including energy prices following Russia's invasion of Ukraine. Additionally, a tight labor market spiked costs for pilots and personnel, which hit budget airlines harder. As costs rose, budget airlines were less able to offer the dirt-cheap fares their customers expected.

On the demand side, high inflation and interest rates have caused price-sensitive travelers to pull back. Research shows that even middle-income travelers are cutting back on leisure travel.

At the time of writing, the Trump Administration is considering a $500 million rescue program for Spirit Airlines, with the government potentially taking an ownership stake. This follows the Biden Administration's successful effort to block a merger between Spirit and JetBlue. Experts remain divided on whether that merger would have saved the carrier, but agree that the loss of Spirit would likely lead to higher fares for consumers.