How to Think About Spirit’s Failure-and the Airline Crisis

Key Points:

• Spirit Airlines will shut down operations despite earlier expectations of a government bailout, joining many U.S. airlines that have disappeared over the past 50 years, impacting employees, customers, and communities.
• The failure of Spirit is often misattributed to the Biden administration’s blocking of a JetBlue merger; however, Spirit’s board rejected the merger due to antitrust concerns, and JetBlue proceeded with a hostile takeover despite legal challenges.
• The airline industry’s repeated consolidations and bailouts stem from inherent structural issues, including economies of scale, network effects, limited airport infrastructure, and barriers to entry that favor large, consolidated carriers.
• Airlines are considered essential infrastructure in the U.S., making their failures economically significant and prompting government interventions that create perverse incentives for bailouts and mergers.
• Solutions proposed include nationalization, a public option airline, regulated competition as practiced before deregulation, or partial regulation imposing service duties and bailout funds, all aimed at creating a more stable and reliable airline industry akin to a public utility.