• Thu. Aug 4th, 2022

In the low-cost airline industry, a race to the bottom |

ByKimberly A. Brochu

Jul 18, 2022

From the editorial board of the Chicago Tribune:

In the golden age of commercial aviation, passengers savored gourmet meals and stretched out in spacious comfort. Fast forward to the current state of flights, embodied by Spirit Airlines, a super low-cost carrier known for its poor service that is nonetheless being sued by two rivals.

On July 27, Spirit shareholders are expected to settle a months-long bidding war between Frontier, which struck a deal in February to acquire the airline, and JetBlue, which in April dangled a softer bid for the unlikely price.

The bidding war comes amid tough times in commercial aviation. The industry has mostly failed to cope with a predictable surge in pent-up travel demand, despite pocketing tens of billions of dollars in public money during the pandemic – supposedly to stay in force and ready.

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Chicagoans were partly shielded from widespread industry dysfunction thanks to more than 40,000 workers at O’Hare International Airport, who rose to the occasion even as other busy hubs melted away. beginning of the summer travel season.

The heat is not only affecting airlines and airports, but also the government. Transportation Secretary Pete Buttigieg has babbled about how federal authorities have the traveling public’s back as cancellations and delays continue to pile up.

It is hardly reassuring that Buttigieg unveiled an expanded “passenger bill of rights,” a summary of existing laws reflecting how travelers with disabilities are particularly vulnerable to poor service. Complaints against airlines are up 300% from pre-pandemic levels. Every day, it seems, there’s another story of airlines canceling flights after keeping passengers waiting for hours and then refusing to cough up refunds.

If it looks like carriers are in a race to the bottom, that pretty much sums up Spirit Airlines’ business model.

Spirit has identified a niche among leisure travelers willing to endure any inconvenience for the lowest possible ticket price. The company understood that people booking online would opt for the lowest fare, even if they were charged extra for carry-on baggage, printed boarding passes, advance seat selection, bottled water and pretty much anything travelers would expect from an airline. vaguely interested in their goodwill.

Spirit was adept at paying these costs. For each flight segment taken by a typical passenger, the airline’s non-ticket revenue has grown from an average of $5 in 2006 to $59 in 2021, according to its public filings.

Other carriers have largely followed suit, introducing discounted “economy base” fares to match Spirit’s deceptively low online ticket prices. They’ve also obviously taken note of how Spirit gets away with murder from a customer service perspective, in some cases matching policies that make a joke of passenger “rights.”

Although COVID and soaring fuel prices have hurt financial results for all airlines in recent years, Spirit has grown from humble beginnings into a solid revenue generator, which is rare in the airline industry. It has expanded its footprint from coast to coast, as well as international routes from the United States to the Caribbean and Latin America.

When fellow ultra-low-cost carrier Frontier announced plans to acquire Spirit, this page was supportive. While the mergers have reduced the number of competing carriers to the detriment of consumers, this proposed deal seemed likely to create a new player at scale to better compete with United, American, Delta and Southwest, which, along with their suburban affiliates, control 80% of the domestic market.

However, the merger threatened to leave JetBlue isolated in its northeastern U.S. stronghold, prompting it to launch a takeover bid for Spirit that’s higher in value but also more likely to trigger the dogs of the Justice Department’s antitrust guard that could frustrate the deal.

If Spirit shareholders accept the higher offer from JetBlue, a friendlier carrier, we expect government lawyers to take a hard line. JetBlue has previously fought the Justice Department over its Northeast Alliance, a joint venture with American. He proactively offered to divest Spirit routes in Boston and New York to preserve what remains of competition. That may not be enough.

We hope that from this messy start a strong #5 carrier will emerge to keep the Big Four honest and hopefully end the proliferation of Spirit-style anti-passenger policies – before the bags airsickness only start at $6.50 and emergency oxygen for $12.99.