Spirit Airlines and the future of cheap flights

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Show your support for a public radio that is by the people for the people at Donate.npr.org and thanks. This is Planet Money from NPR. About a month ago, Aaron Darling booked a ticket with Spirit Airlines for a work event in New York City. And if you've been following the news about Spirit, you know that Aaron was not feeling great about that decision. I just started checking the flight set of 72 hours, and I did that for like 72 hours straight.

Because after filing for bankruptcy for a second time, Spirit is having even more financial issues.

Now, it looked like it was about to go into liquidation, and could maybe disappear forever. And I would even call them and be like, "Hey, is there something?" Because I got a little worried that whoever was like in charge of updating the flight status. Maybe they were even like, you know, let go. When the day of his flight finally came, his departure was sort of a running joke with the staff at the airport.

They were like, "Oh, you're flying with Spirit." And I was like, "Can I lift it up?" and I'm like, "Uh, I mean, I guess, one of the last." Aaron did make it to his destination, but Spirit's fate is a little more up in the air. Hello and welcome to Planet Money. I'm Emma Peasley. Spirit used to be the king of ultra-low-coach carriers.

They're notorious for low-fares and charging for basically everything else. And while maybe they weren't the most beloved airline, for a time, they were the fastest growing. Now the question is, since Spirit made it through a week. Today on the show, what happened to Spirit? First, the rise. We'll go back to 2014 when the budget airline was flying high.

We'll talk with then CEO Ben Baldanza about his radical vision for cheap air travel, and we'll take an uncomfortable trip of our own. Then, the no-side. A legacy airlines beat Spirit up their own game and sent many budget airlines into a tail fin. Just last week, the federal government said it may step in to bail out the budget airline.

“I think we just buy it. We'd be getting it virtually debt-free.”

They have some good aircraft that have good assets. And when the price is in the well goes down, sell it for a profit. I'd love to be able to save those jobs. Back in 2014, Zoe Chase and Jacob Goldstein, notice Spirit was the fastest growing airline in America and also one of the most hated. So they decided to book a ticket. Good morning, Zoe. Good morning, Jacob.

We're at LaGuardia Airport in New York. It's very early in the morning. Yes it is. We are going to fly on Spirit Airlines to Fort Lauderdale, Florida. And it costs us $68 to fly from here to Fort Lauderdale. $68 in the United States. But, but, but, we're to begin. There are so many buts everywhere you turn, there are fees. 30 bucks to pick our seats. If you want water on the plane, it costs $3.

And then you got the bag fees. When you're at one personal item, you can't have to. Just the messenger bag in the bag bag. It's the best going to be $50. It's $50. To carry on it. What if I check it? It's $25. Spirit Airlines is a subway car in the sky. There are ads on the overhead bins

of never seen that before. And there are also more seats on the plane,

which means they're closer together. There's less legwear. Higher knees. I mean, they definitely reach the seat in front of me.

“I believe you are perfectly sized for this situation.”

If the guy in front of me were to put his seat back, I'd be screwed. The good news is, on Spirit Airlines, you cannot put your seat back. Chris Treasio across the aisle for us, leans over and whispers into my ear. This sucks. Tell me. I had an answer if they charged the go to the bathroom.

They charged for coffee. This is the first time we've used Spirit, and it's going to be the last time we used Spirit. In lots of people feel this way about Spirit Airlines. Nothing was free.

No water. No peanuts. I've never flown in their line,

even when you were up in the air for one hour where you didn't get a cookie, a cracker, and a cup of ice water. It's a mess. They charged for everything, and it's a total zoo in the terminal, and everybody's scrambling, and no one's nice. But our plane is basically full of people. And across the country, Spirit is adding planes. They're adding new routes. In fact, Spirit is the fastest growing airline in America.

its headquarters. It's this generic office park, right? You open the door from the sidewalk,

“and there's just a dingy little room. There's no receptionist. The only thing there is a chair,”

a little table, and a phone. You pick up the phone and you call whoever you're there to see, and we were there to see Ben Baldanza, the CEO of Spirit Airlines. And a lot of CEOs are boring interviews. They use a lot of jargon. They talk in a very bland way. Ben Baldanza is not like this. Well, if we were a retailer, we would, you know, some maybe some high service airlines in the world would think of themselves as a Nordstroms,

or something, and maybe I bet if you were going to talk to the guys at JetBlue, they'd say, maybe we're target or maybe even trying to become a little better than target. We're dollar general. That's where. We're not even Walmart. We're dollar general. And we like being dollar general, because we save people lots of money. You can see the dollar general thing in Baldanza's office. It's an ordinary office on the ground floor. He's wearing a short sleeve shirt,

and there's some big windows, so he leaves the lights off to save money. I'll turn the lights out for you.

“Look, one bulb in those three goes on. That's the only thing that turns out when I turn”

the lights out in the office. One bulb in those three, there's no reason for me to waste that money. And to compare your company to the dollar store, that's kind of an unusual comparison for a CEO

to make, especially in the airline industry. Airlines have always tried to sell themselves to us as

the nicest, the most comfortable, the most legroom, like this ad from United, for instance. More room in economy plus, more comfort, more of what you need. Ben Baldanza spent most of his career making that pitch. I spent over 20 years in what people think of as the traditional airline business. I worked for American, Northwest, Continental Airlines, US Airways, an airline down in Central America, and

all those airlines were the same in the sense that their their purpose in life was to try to attract a higher fair customer. I would go to bed at night thinking, how can I get you to pay more for your ticket? Well, don't just outlook change, not long after he got hired by Spirit back in 2005. Spirit used to be just one more mediocre bargain airline in a crowd of mediocre bargain airlines. Spirit was competing on price, yeah, but they were also trying to do the other stuff.

And it wasn't really working. So in 2006, Ben Baldanza and Spirit Airlines made a decision. They were going to try to do in America what airlines like Ryan, Air, and Air Asia were doing in other parts of the world. They were going to build an airline that just competed on price. Rather than an airline that was going to compete for our customers on any other basis, any sort of physical product or experience or, you know, zaget score or anything like that, right?

It's going to be cheap. So once you made the decision, other decisions become a lot easier. So to keep our fairs lower, we charge separately for check bags and for large carry on bags and to print your boarding pass with a human being and to eat or drink on board and to pick your specific seed assignment. We fly our planes more hours per day. We put more seats in every year plane. I mean, it's very easy to side to put more seats on the airplane when you want to have

a little price. When you buy a ticket on most airlines, here's what you're paying for.

A ride to wherever you're going and a few other things, a bottle of water, a coke, space in the overhead bin, if you want it. And you're paying for those things, whether you use them or not. When you buy a ticket on spirit, all you're paying for is the ride. That's part of the reason that spirit is so cheap. There's an airline out there. I'm sure you know their name that that spends a lot of money telling you that their bags are free. But their average tickets are

50 to 60 dollars higher than ours. It's expensive to carry bags. You hire people to load the bags. You you pay for bag belts in the airports and the rental space to do that. Everyone's

“in a while, you lose a bag or you break a bag. It's you have to have insurance to cover that.”

It is not free in a carry bag. So you either charge the people who use it or you charge everybody, whether they use it or don't. And we think it's fair to charge customers for what they

use and not charge them for what they don't use. So basically the flight attendant coming down

the aisle with the cart with water and soda and coffee. That is not like spirit airline serving me as a valued customer. That's just like a little 7/11 rolling down the aisle. That's exactly right. Spirit serving you as a valued customer is letting you fly to New York for 69 dollars. Whenever everybody else is charging one 50 or letting you get to Nicaragua for 99 dollars, whenever everybody else is charging 250. That spirit serving you as a valued customer. In addition,

we'll let the 7/11 be available to you while you're in the airplane. And if you want to buy great and if you don't that's okay too. I think spirit is the first place where I've seen ads inside the airplane. I saw an ad on the overhead bin for casino and an ad on some of the

aprons too. And in that great because people pay us to put that ad there and your fair could be lower. Well, Don's is keys for spirit airlines make sense. Pay for what you use, don't pay for what you don't use and spirit is really cheap. But lots of people just expect an airline to be a certain way. And when they get on spirit and find out they're basically on a flying bus, they don't like it. In fact, spirit airlines came in dead last on a survey consumer reports published last year.

Let me just start by reading. I'm sure you've read this but I'm going to read from it. So this is a consumer reports a big survey from last year. Thousands of flyers, consumer reports says bottom ranked spirit airlines received one of the lowest overall scores for any company we've ever rated. How does that square with the great story you just told me? They're elitist and I will tell

you why. That survey never asked customers about the price of their ticket. And since they don't

“ask about the price, it's absolute bunk. If you want to tell me that an airline that has more”

legroom and serves you more on board and has nicer lighting on the airplane is a better airline than ours. But forget to say they charge $400 and we charge $99. Why doesn't the consumer reports put out a survey saying that a Mercedes S class is better than a Ford focus? It's true. Why don't they put up this survey? The Mercedes S guys is better than a Ford focus. So why doesn't everybody buy a Mercedes S classes? I got one more line on consumer reports. Okay. Also,

this survey has a thing that's just called the reader score. This score is not check these boxes. It's just how do you feel about this airline? Do you feel good or do you feel bad? And spirit is the worst on that one too? Here's the reality. If you go into the dollar store and you're expecting to buy a nice three-piece suit, you're going to be really disappointed. No one should come to spirit and complain we don't have legroom. We're not a store that sells legroom.

We don't want anybody to be surprised that we charge for water on board and we charge for large carry-ons and things like that. We don't want to be anybody to be surprised at. But some people still are. And that's a failure of our company when they don't understand that reality. In our trip, we talked to a lot of people who did not understand that reality. They seem surprised

and angry and they said they were never going to fly spirit again. And also, we talked to some

people who were totally unbored with spirit's program. Yes, it sucks that the seats don't

“recline and you have to pay to use the overhead bin. But it's cheap. And I plan to head and I'm happy”

with this trade-off. So clearly, there are those two kinds of spirit customers. But I wondered is there a third kind? So is it possible that there are people who know what they're getting into? Who fly spirit? But who sort of hate it? Like, I want to get the deal, but like, I know, I hate getting, you know, nickel and dine, three bucks from water, like the conflicted spirit flyer. Are there people who are like hate flying spirit? I think there are people who have

absolutely like that. And I've met some. In fact, I was at a meeting a little while ago. And the person leading the meeting looked around the table. There were about 10 people from the company that I said, is any of any of any of you flown spirit? And one guy said, yes, I fly them all the time. And she said, what do you think of them? He said, I hate them. And she said, well, why do you find him? He said, well, they're so cheap. Back on her flight home, Barbara Dingis, our flight attendant

says she sees the heat flyers all the time. They say they'll never fly spirit again. But I guarantee

they'll be back. Why are our flights all full? Because those people come back. They're getting

“mad because they had to, you know, get, they're cut a card out or whatever. I think that they're”

going to get everything for a trust me. I, I, I, I know enough to know that people complain. They get off. I remember faces like a back on. Economists make this distinction between stated preferences and revealed preferences. State of preferences are what people say they want. And then revealed preferences are what people actually choose when they go out and buy something. In spirit, hits both of those things. When you ask people on a pole or whatever, what's most

important to them when they pick an airline, they say above all else, a low fear. That's stated preference. And then more and more people are actually going out and buying tickets on spirit airlines. That's the revealed preference. And yet, and yet, so many people just hate it. Human desire is, is weird. Sometimes we don't want what we think we want or we do want it and then we kind of hate ourselves for wanting it. We pick the cheap option and then we feel

kind of dirty about it. We say we'll never do it again. Even though we know, deep down,

a period where the airline changed the whole industry, pressuring carriers to lower fairs.

“So, how did it all go so wrong for spirit and other budget airlines? The story is so much”

more than high fuel prices. After the break, the revenge of legacy carriers and the new talk of a government bailout.

Okay, welcome, Greg Resolsky, our resident newsletter writer. Emma, always a pleasure.

So, you've been talking to airline industry experts and you have some answers for us. I do. Emma, I hope your trade table is stored in an upright and locked position and that your seat belt is fastened because we're about to go on a journey. It's time for lift all. Please take it off. Okay, so let's start with reviewing the trajectory of spirit airlines through a few headlines that we've seen in the past week or so. So, I'm going to read a couple for you.

Spirit airlines looked like it was in the clear, but rising fuel costs are threatening its bankruptcy exit.

“Not the best headline. I want to be honest. Spirit floats government stake to avoid possible”

liquidation. Spirit airlines close to 500 million bailout from Trump administration.

I'm perked up. I'm clicking on that one. Spirit airlines could be used to transport troops. Military cargo, if Trump admin takes over bankrupt carrier. Didn't see that one. And then this Clever Wall Street Journal editorial, a disputing airline bailout. Love a good pun in the headline. Yeah, if you want more puns, check out Greg's newsletter. Yeah, so this is all pretty incredible. Right? I mean, the federal government is now

basically flirting with the idea of getting into the airline business. And maybe taking like an ownership stake in it. I mean, the Trump administration did do something similar with U.S. steel last year. And yeah, they could maybe sell the stake later and maybe

“make a profit and this will all work. But still, this is not the typical way that like U.S.”

Capitalism works. And as of now, the bailout idea kind of stands like this. Spirit has said it wants a bailout. Last week, President Trump suggested he might be open to it at the right price. More recently, the transportation secretary suggested he thinks that Congress would have to get involved. Okay. So bailout, TBD. Yeah. So let's talk about how Spirit went from the fastest growing to your liquidation. You broke all this down in your newsletter. And you make the point that it's not

just Spirit that's struggling. It's a lot of budget airlines. That's right. You could call it the revenge of the legacy carriers. Yeah. So we're going to focus on these three factors for how big legacy carriers got their revenge. So first, they copy Spirit to steal the customers back. Then they sweeten their loyalty programs to keep the customers. And then third, the economy sort of does the rest of the work for them. Budget travelers get pushed out of the market. So let's start with

factor one, this copycat strategy. Okay. So the legacy airlines that look at Spirit and other budget airlines. And clearly they're eating their lunch. They're charging lower ticket prices upfront. And that seems to be working. So Delta, an American and United, they also start throwing creature comforts out the window for passengers not willing to pay for them. And this way, they could also charge a lower upfront ticket price and compete for budget travelers. Yeah. They kind of take this to the next

level, right? When they released this program called Basic Economy, which I book a lot. I'm a basic economy kind of guy. Okay. Do I love it? No. Do I when I walk by the the first class section? Do I give a little side eye? Do you wish you'd made other decisions when you booked? In truth, no. My revealed preference, it's definitely cheaper fairs. And there are a lot of people out there like me. Okay. So cheaper fairs, less legroom, character building, more fees. And now these spirit

customers can basically get the same deals on legacy airlines. So that's factor one. Next is these loyalty programs. Yeah. And this is where it got particularly interesting for me because I spoke with this guy. He's an economist and named Severan Borenstein. He's an economist at the UC Berkeley High School of Business. And he told me that basically the big legacy carriers, they've been leveraging their market dominance like their market position and they've been making it much harder for

smaller budget airlines to compete. And they've done this by making their loyalty programs like

more enticing, more powerful. Think like, you know, co-branded credit cards, corporate partnerships,

enhanced frequent flyer programs. In many cases, it was not changing the total offering at all,

scale really matters. And that's something that the big legacy airlines have. They have scale. And

“when an airline flies everywhere you want to go, the rewards are more useful. The perks are”

easier to redeem. And the status feels worth chasing. And this is a pretty big problem for spirit and other budget airlines, right? Because they're smaller. It's hard for them to compete with these big loyalty programs. Exactly. And separate actually goes a step further. And he mixes argument to actually these loyalty programs. They're a big problem for a healthy competitive market. Because it means airlines aren't just competing on the price or the experience of getting

from point A to point B. Now you have all these like weird loyalty incentives for consumers to

like ignore competitors. Loyalty programs play a huge role in allowing airlines like Delta,

and American, and United to leverage their network size in ways that have nothing to do with actually

“offering higher quality service. So first, the legacy carriers, lower fairs, they create basic”

economy. Then they lock in customers with beefed up loyalty programs where size is a bit advantage. But spirit lives on with its core customers, these budget travelers who don't fly enough to care about loyalty points. Yeah, they still had them. At least until everything got much more expensive. But then the cost of everything just starts exploding. Like since the pandemic we're talking higher energy costs, higher material costs, higher labor costs. There's a pilot shortage.

Like there's a whole bunch of issues in the industry. And my sources told me that the budget airlines have just had a much harder time absorbing these costs. I spoke with Henry Hart Develt, he's a long time industry analyst. And he's like, yeah, the bread and butter of budget airlines is budget, he could prices. But when your cost goes up, your fares have to go up. And if your cost goes up too much, you're less able to offer the dirt cheap fares that your customers expect you to offer.

Okay, so so far everything has been on the supply side to airlines themselves. But what about the demand side? Yeah, the demand side, the price sensitive consumers themselves. They've been

“struggling. I don't think this is a secret either. Like high inflation, higher interest rates,”

a cooling labor market, this longer and trend of growing inequality, all this has been reshaping American spending patterns. And it's been hurting businesses that cater to low and middle income Americans. For example, dollar general has struggled as their core consumer spend less. And something similar has been happening with spirit. Budget airlines historically appealed to customers with limited income. And in our research, we have seen travelers who earn up to $150,000 a year

saying they've cut back on their lesser travel. They are traveling less often. They are in some cases for going air travel. Okay, so flying optional obviously gas and groceries, not so much. So to sum it up, we've got legacy airlines competing on price with things like basic economy, supercharged loyalty programs, and the disappearing customer base. That all brings us to today. Where we are now talking about a potential government rescue program for spirit airlines or maybe

having another airline buy them. Yeah, and this would be a pretty big reversal from a few years ago when the department of justice under President Biden fought to block spirit from merging with Jet Blue and then one in federal court. There's been some debate about that decision, especially now that spirit is facing trouble. Where there's less debate though, if spirit were to die, that would likely put less pressure on the big airlines. So yeah, spirit may be hated, but a

world without it would probably be bad for a lot of passengers. Even those who don't like flying with them. This episode began as a news letter by Greg and he writes a weekly, deep original essay

about something going on in the economy. They're always going viral, you could check them out at

npr.org/planetmoneynewsletter. We'll also have a link in the show notes. And if you want more airline history, we have another episode that tells a story of the original budget airline long before spirit, we'll have a link to that in the show notes as well. If you picked up a copy of the plan of money book, thank you so much. If you haven't, since stores now, and we're so proud of it, it's called Planet Money, a guide to the economic forces that shape your life. Then airport

bookstores and mix a great reader of a plan. This episode of Planet Money was produced by M.

Keely. I'm Emma Peasley. And I'm Greg Rosalski. This is MBR. Thanks for listening.

“As always, we want to hear from you. You can email us at npr.org/planetmoneynewsletter.”

As always, we want to hear from you. You can email us at [email protected]/planetmoneynewsletter.

You can find us on Facebook from Spirit Airlines Flight 710 somewhere between Fort Lauderdale and New York.

I'm Jacob Goldstein. And I'm Zoe Chase. Thanks for listening.