SACHA PFEIFFER, HOST:
Spirit Airlines has been facing serious economic troubles that have put it on the brink of collapse. President Trump recently suggested he was open to bailing out the airline. It's been a dramatic descent for Spirit, which not long ago was flying high. Greg Rosalsky from our Planet Money team reports on why Spirit Airlines is experiencing so much turbulence.
GREG ROSALSKY, BYLINE: About a decade ago, Spirit Airlines was the fastest growing airline in America, despite also being one of the most disliked. It shook up the industry with a business model that may seem familiar now, but it was pretty novel back then. They charged a low ticket price upfront and then tacked on fees for stuff that used to be taken for granted, like food and drinks, carry-ons, even a printed-out boarding pass. And they were proud of this. In 2014, then-CEO of Spirit, the late Ben Baldanza, spoke with Planet Money. Other airlines, he said, might be like Macy's, Nordstrom or Target, but Spirit Airlines...
(SOUNDBITE OF ARCHIVED NPR CONTENT)
BEN BALDANZA: We're Dollar General. That's what we are. We're not even Walmart. (Laughter) All right? We're Dollar General. And we like being Dollar General because we save people lots of money.
ROSALSKY: For a time, that strategy worked. Sure, flying now felt more like riding on a crowded city bus, but it was cheaper. Now however, something is clearly wrong with the Dollar General airline strategy. It's not just Spirit. Other budget airlines are struggling too. One reason - higher fuel costs, but the story is bigger than that. In the 2010s, the big legacy carriers like Delta, United and American - they copied the budget airlines strategy, and they introduced basic economy, offering a passenger experience that is also like riding on a bus. Severin Borenstein, an economist at UC Berkeley, says the big legacy carriers also leveraged their market dominance to lock in customers.
SEVERIN BORENSTEIN: The majors have gotten much more sophisticated in their use of loyalty programs.
ROSALSKY: Loyalty programs like co-branded credit cards, corporate partnerships and enhanced frequent flyer programs - and he points out, these programs are more valuable the more places a carrier flies, which puts smaller airlines at a disadvantage.
BORENSTEIN: We see customers concentrating their business with one carrier more than ever.
ROSALSKY: For a time, Spirit survived by appealing to its core customers, price-conscious fliers who don't travel enough to really care about loyalty programs. Then in the 2020s, the cost of nearly everything surged - energy, materials, labor. That includes pilots. Henry Harteveldt is a longtime industry analyst. He says the budget airlines were hit hard by inflation because their main selling point was the low price.
HENRY HARTEVELDT: When your costs go up, your fares have to go up. And if your costs go up too much, you're less able to offer the dirt-cheap fares that your customers expect you to offer.
ROSALSKY: And that brings us to the final straw. The core customers for budget airlines are struggling in this economy, and they're spending less. All sorts of businesses that cater to low- and middle-income Americans are getting hit. For example, Dollar General - they've struggled as their core customers spend less. Something similar seems to be happening with the Dollar General of the skies. Greg Rosalsky, NPR News.
PFEIFFER: Greg first wrote about the revenge of the legacy carriers for the Planet Money newsletter. You can subscribe at npr.org/planetmoneynewsletter.
(SOUNDBITE OF MUSIC) Transcript provided by NPR, Copyright NPR.
NPR transcripts are created on a rush deadline by an NPR contractor. This text may not be in its final form and may be updated or revised in the future. Accuracy and availability may vary. The authoritative record of NPR’s programming is the audio record.