This summer promises to be a tough one for American travelers. With airfare, gas, and hotel costs rising, 65% of Americans say they’ve been forced to adjust their vacation plans.
This summer also promises to be a tough one for budget airlines. That much was illustrated harshly last month when Spirit Airlines closed its doors after 34 years in business.
Budget airlines like Spirit are a godsend to many travelers, offering ultra-low-cost fares in exchange for no-frills service. You might not get any in-flight peanuts, you might have a cramped seat, but the budget carrier will get you from point A to point B without breaking your bank account.
That was the deal promised by the likes of Spirit and Frontier. These airlines tend to rank low when it comes to customer perks, but they allow low-income and middle-class Americans to take trips they otherwise couldn’t while putting downward pressure on prices.
This is important because, despite recent financial trends, Americans are actually flying more than ever before. A study by Airlines for America found that for the first time ever in 2024, a majority of Americans reported taking at least one flight.
Yet despite record demand, budget airlines are struggling under two pressures that threaten their survival.
The first is the same inflation that everyone else is feeling. Rising fuel costs have proven especially dire for airlines, with the price of airline fuel roughly doubling between March and April. Fuel costs make up about a quarter of all airline expenses, so this trend is an especially punishing one.
Combined with rising labor and operating costs, those pressures can destabilize airlines even as passenger demand grows. While all airlines run thin profit margins, budget airlines run really thin profit margins. This is how they offer such low airfares, but it makes them particularly susceptible to price shocks of the kind that we’re seeing right now.
The second force squeezing budget airlines is more of an unforced error. Government antitrust regulators have stepped in to compound these carriers’ woes.
As costs mounted post-COVID, budget carriers increasingly looked to mergers for survival. Yet antitrust regulators stood in their way.
Frontier Airlines, for example, was in talks with Spirit Airlines about combining into a larger budget carrier. Phil Weiser and other state attorneys generals demanded that the deal be stopped, while federal antitrust regulators subjected it to intense scrutiny.
Ultimately, the deal fell through, and later in 2022, Spirit announced a different merger agreement, this time with JetBlue. The goal was to better compete with the so-called Big Four (Delta, Southwest, American, and United) that together control 80% of the airline industry.
This time, the DOJ sued, claiming that the merger would be anticompetitive, and JetBlue’s acquisition of Spirit was called off. Not long afterward, Spirit went bankrupt. In May, it collapsed.
The DOJ’s lawsuit didn’t just seal Spirit’s fate; it cast a freeze over budget airlines generally.
The picture has only gotten bleaker. Analysts suggest airfares could surge by as much as 14% with Spirit shut down, while JetBlue is estimated to have a 75% chance of going bankrupt this year. Frontier’s struggles are likewise well documented.
Three years ago, the American Economic Liberties Project, an oft-cited anti-merger advocacy organization, said that a JetBlue-Spirit merger would “hurt travelers, working people, and local communities.” However, with Spirit now ceasing to operate, ceding even more marketplace control to the Big Four airlines, it's unclear how those claims can still be considered accurate.
If fuel prices spike again and regulators continue to block mergers, the very opposite effect regulators are seeking to prevent will assuredly happen, meaning that instead of having five to eight competitive airlines, we will be down to four or fewer. That would be bad news in what’s already shaping up to be a more stressful-than-usual travel season.
It’s not too late for policymakers to change course. For the sake of the millions of American families who want to afford a summer vacation, regulators must review potential mergers in capital-intensive industries more broadly by factoring in the likely sustainability of the companies seeking to merge.
Editor's Note: Do you enjoy PJ Media's conservative reporting that takes on the radical left and woke media? Support our work so that we can continue to bring you the truth.
Join PJ Media VIP and use promo code FIGHT to receive 60% off your membership.
Join the conversation as a VIP Member