Spirit Airlines' bid to make it into the big leagues of the U.S. aviation sector — a proposed $3.8 billion takeover from JetBlue that Spirit says would have made it more competitive with industry leaders like Delta and United — collapsed in March after it faced a Department of Defense lawsuit. Justice. Months later, CEO Ted Christie III remains bitter.
“Today, almost all of the profits of the entire U.S. airline industry are concentrated in just two companies, while smaller, non-traditional airlines have scrambled to regain profitability in what looks more than ever like a rigged game,” Christie said on an earnings call Monday. “The Big Four (Delta, United, Southwest, and American) are the beneficiaries of this new normal. American consumers are the losers in the long run.”
The spirit began in the early eighties, Passengers traveling by air on charter routes to and from casinos in Las Vegas and Atlantic City. Eventually, it was rebranded as a commercial operator with a fleet of aircraft painted its signature yellow Revenues rose throughout the 2000s Customers flocked to its business model of offering rock-bottom prices with few frills and high fees for extras like checked bags.
But even as Spirit and other smaller companies gain market share, there is a significant gap between them and the larger carriers. Who together control nearly 70% of the US market. Delta, United and American Southwest have held a dominant position It leads the airline industry, which is currently the most consolidated ever in its 100-year history.
As Christie sees it, the government is not doing anything to help, and in fact is actively preventing competition by interfering in mergers like the Spirit-JetBlue deal.
“We continue to feel strongly that there was a serious misreading of the evidence and the law by the federal court that ordered our merger with JetBlue. Aside from the waste of taxpayer money and the harm done to two proud companies by this process, the fact that the Department of Justice sued to block the merger Between two carriers with a combined market share of less than 8% shows how ignorant the government is. “We talk about our dynamic aviation business, especially in the post-Covid era,” Christie said.
The federal government has transferred about $54 billion in funding to commercial airlines during the pandemic, many of which are for the big four operators. Government loans and subsidies aside, Christie noted that the Big Four airlines rely heavily on international routes and banking partnerships to stay afloat.
“If you remove what appears to be a very lucrative transatlantic market and credit card-based revenue from the loyalty programs of the major airlines, if you remove those things, they lose money,” Christie said.
Spirit's stock fell 10% after its earnings announcement, as it expected its margins to fall 2% this year and cited weak revenue from Central and Latin American markets.
“The first quarter was a bit of an emotional rollercoaster,” Chief Financial Officer Scott M. Haralson said.
Christie argued that a merger of Spirit and JetBlue would have posed a legitimate competitive challenge to the dominant airlines.Each company currently controls about 5% of the local marketWhich means their combined share will be about half of each of the big four carriers. Airline consolidation has greatly helped customers in the form of cheaper tickets: airfare prices have fallen by more than 30% on average over the past 25 years, According to federal data. The airline industry also provides approximately 50% additional seat miles– a statistic that takes into account both new routes and frequency of flights – higher than in 2000. But the number of flights postponed, about 20%, He didn't budge for ten years.