How the Spirit Airlines collapse will raise airfare across the industry: Details inside

Spirit Airlines officially ceased operations over the weekend following the collapse of last-minute bailout talks with the Trump administration. 

The administration had proposed an eleventh-hour $500 million loan in exchange for a 90% government stake, but the deal failed due to resistance from key creditors and criticism from free-market conservatives. The shutdown marks the end of the pioneer of the ultra-low-cost carrier model in the US.

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“The bad news for consumers is it takes another low-cost carrier, potentially, out of certain markets. That’s always bad news because even if you were never to fly Spirit, you benefited if they were flying to your market,” Clint Henderson, travel expert at The Points Guy, said in an interview with The Hill.

“In the markets where Spirit is operating, it could have a pretty big impact on pricing, so consumers will pay more,” Henderson said.

“I will say, Spirit has shrunk so much that it’s not a huge player anymore in the American airline industry,” he added. “So, the impact will be somewhat muted by that because they’ve cut so many flights already. But any time we lose a low-cost carrier is bad news for consumers.”

Spirit will automatically refund tickets purchased via credit or debit cards. Passengers who paid with cash, vouchers, or loyalty points must seek reimbursement through bankruptcy court, as they are now considered company creditors. 

The airline will not reimburse passengers for incidental costs resulting from the cancellations.

Jet fuel prices nearly doubled following the start of the war in Iran, which cut off 20% of the world’s oil supply. As the second-highest cost for airlines, the fuel spike overwhelmed Spirit’s low-cost business model, one that relied on bargain-hunting customers sensitive to fare increases.

Experts predict a short-term spike in airfares and reduced competition on Spirit’s former routes. While other airlines may eventually fill the gap, travelers face immediate “pricing power” from remaining carriers. 

Despite revolutionizing budget travel, Spirit was unable to compete with major airlines' “basic economy” options and suffered from long-term unprofitability that predated the current fuel crisis.

"Despite the Company’s efforts, the recent material increases in oil prices and other pressures on the business have significantly impacted Spirit’s financial outlook. With no additional funding available to the Company, Spirit had no choice but to begin this wind-down,” Spirit said in a press release announcing plans to shut down.

At present, the prime difficulty is that the company lacked profitability even when jet fuel prices were low; consequently, the sudden fuel prices sent them over a cliff. He further clarified that even if fuel prices decrease, the company must still have the right business model to survive in the longer term.