Why the Airline Industry Isn’t a ‘Rigged Game’

Spirit isn’t doing well. The financially ailing airline never quite recovered from the pandemic, losing millions each quarter.

After losing out on a $3.8 billion merger deal with JetBlue, long-time CEO Ted Christie has been rather vocal on back-to-back earnings calls. During its fourth quarter 2023 call, Christie chastised the airline’s naysayers, calling claims against its continued well-being a “misguided narrative.”

Then, in May, he raised some eyebrows during the first quarter 2024 call, adding that the airline industry is “rigged” against his ultra-low-cost carrier (ULCC).

“Today, nearly all the profits of the entire U.S. airline industry are concentrated in just two companies, while the smaller non-legacy carriers scrambled to restore profitability in what seems ever more like a rigged game,” he said.

The airline business is far from “rigged” against carriers like Spirit. Its competitors – including Allegiant and Frontier – all posted better operating margins last quarter. Perhaps Spirit just isn’t winning anymore at a game it largely pioneered in the U.S.

Instead of blaming his airline’s problems on a “rigged” industry, perhaps Christie should call it spade-to-spade: a perfect storm.

Coming out of the pandemic, Spirit has been battered from all sides, including issues with Pratt & Whitney engines, major air traffic control delays in its home state, and of course betting a bit too hard on not one, but two failed merger attempts.

The Pratt & Whitney Problem

Airlines around the globe continue to experience issues with Pratt & Whitney’s Geared Turbofan Engines (GTF), resulting in the grounding of over 500 relatively new aircraft. According to Cirium Fleet Analyzer data, 34% of A320neo family aircraft powered by the engine type remain out of service as of May 2024.

Spirit operates the most GTF-powered Airbus A320neo series aircraft of any U.S. operator. It is second only to IndiGo in the world with 103 of the type.

Roughly 18% of Spirit’s A320/A321neo fleet remains out of service due to the powerplant issues. Altogether this represents nearly 9% of the carrier’s total fleet with that number expected to balloon up to 20% by the end of this year.

A Spirit A320neo (Photo: AirlineGeeks | William Derrickson)

While Pratt & Whitney is compensating the airline for the out-of-service aircraft, the inability to leverage several brand-new aircraft has severely stunted Spirit’s growth in recent years. A common theme on the company’s earnings calls, Spirit CFO Scott Haralson recently said, “The impact on our business associated with these Pratt engine issues cannot be understated.”

A Not-So-Sunny Sunshine State

Florida has long been home to Spirit, and the airline recently dug its roots deeper with the opening of a new $250 million headquarters campus in Dania Beach. Its largest hub is right up the street in Fort Lauderdale which sees up to 200 peak daily flights.

Orlando – Spirit’s third largest hub – sees nearly 150 peak daily flights, according to data from aviation analytics company Cirium.

Perhaps unsurprisingly, over 160,000 scheduled Spirit flights touched the state of Florida last year, making it the carrier’s largest state for operations. The airline was the fourth-largest carrier in the state by number of flights.

This volume of flight operations coupled with ongoing air traffic control-related challenges at Jacksonville Center create a less-than-stellar situation for the carrier. In 2023, both Fort Lauderdale and Orlando airports were ranked last out of the country’s major airports in terms of on-time arrivals, per Department of Transportation (DOT) data.

The number of on-time arrivals at the two airports hovered in the low 70% range with up to 9% related to ‘National Aviation System (NAS) Delays,’ which the Federal Aviation Administration (FAA) defines as “a broad set of conditions, such as non-extreme weather conditions, airport operations, heavy traffic volume, and air traffic control.”

At both airports, NAS arrival delays outpaced reported air carrier disruptions. For example, in Fort Lauderdale, 46% of last year’s NAS delays were attributed to air traffic volume, exceeding even weather delays by 5%.

All in all, stacking much of an airline’s operations into the Florida basket is a rough spot these days. According to site 123 ATC– which is widely regarded as an accurate source for U.S. air traffic control stats – both Jacksonville and Miami enroute centers have some of the lowest staffing levels in the country.

Irregular operations of any sort drive up costs for an airline over time and the continuing ATC issues in Florida aren’t showing signs of meaningful improvement in the near future. For Spirit, operational unpredictability in its largest operating state complicates the airline’s ability to plan and distribute capacity.

The airline’s Chief Commercial Officer acknowledged these ATC issues during the company’s recent earnings call. “Operationally, from a network design perspective, we are still being impacted by Jacksonville Center ATC issues,” he said.

Klein added that the carrier has added “self-imposed limitations” on growth in Florida to aid operational performance.

A Merger Flop

Earlier this year, a federal judge ruled that a merger between Spirit and JetBlue would be uncompetitive. The $3.8 billion merger deal was ultimately blocked and the two airlines have yet to file an appeal.

Before the JetBlue deal, fellow ULCC Frontier was also looking to merge with Spirit. This $2.2 billion deal ultimately failed because of a lack of shareholder support.

Spirit leadership has reiterated that the airline can stand on its own. But of course, failed mergers don’t come without consequences.

The Florida-based ULCC undoubtedly poured resources into both potential deals, including attorneys, analysts, and much more. Plus, when executives shift their focus to the M&A side, it’s rather easy to lose sight of the day-to-day operations.

To put even more icing on the cake, Spirit’s $460 million pilot agreement – signed in 2022 – was negotiated under the assumption that a merger would go through with JetBlue. Now that this hasn’t happened, both the carrier and the Air Lines Pilots Association (ALPA) will go back to the bargaining table.

A Path Forward

Spirit has faced some turbulence, but it isn’t completely alone. Allegiant and Frontier have also struggled on the financial front in recent quarters.

There are many top-level industry officials – including United CEO Scott Kirby – who say the ULCC model is dead. Coming out of the pandemic, skyrocketing costs – particularly for labor – have diluted the very business model that these airlines spearheaded.

Generally speaking, the ULCC model continues to work well in other parts of the world, take Ryanair or Wizz Air for instance. But the labor premium is generally far lower outside the U.S. and overall costs haven’t spiked nearly as much.

To some degree, the jury is still out on whether consumer interest in the ULCC model has also fallen by the wayside. Either way, Spirit has a lot of work to do in order to reposition itself in a vastly different post-pandemic operating environment.

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Ryan Ewing

Ryan founded AirlineGeeks.com back in February 2013 and has amassed considerable experience in the aviation sector. His work has been featured in several publications and news outlets, including CNN, WJLA, CNET, and Business Insider. During his time in the industry, he's worked in roles pertaining to airport/airline operations while holding a B.S. in Air Transportation Management from Arizona State University along with an MBA. Ryan has experience in several facets of the industry from behind the yoke of a Cessna 172 to interviewing airline industry executives. Ryan works for AirlineGeeks' owner FLYING Media, spearheading coverage in the commercial aviation space.

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