Why the White House couldn’t save Spirit Airlines

This morning, Spirit Airlines announced that they are shutting down permanently. Everything will be liquidated, all the planes sold, and everybody— tens of thousands of people that work there are losing their jobs. It's a confusing outcome considering Spirit's been around for a couple of decades. They have tons of assets and they've gone through bankruptcy twice and survived it both times. But this time, even $500 million as a bailout package from the White House wasn't going to fix things. What caused all this is not what most people think. And that's what this video is about— how Spirit Airlines died. And if you stick around for the entirety of the video, by the end, uh, the whole situation will make a lot more sense. Maybe you'll understand the world of business a little bit better. Thank you to Zapier for partnering with us on this video.

More on them later.

I do turn each one of these videos into a one-page cheat sheet that you can download off my website to learn more about the story and dig deeper in it. Girdley.com/YouTube.

You can download it for free. To understand what just happened, you got to go back a little bit in history to understand the trajectory. And Spirit, while it was around as early as 1983. The version we know now as an ultra low-cost carrier started in 2007. The CEO at the time was a guy named Ben Baldanza, and he wanted to replicate the model that had been so successful for ultra low-cost carrier Ryanair in Europe. You strip away every ounce of cost that you possibly can and then charge à la carte for each thing that people want to add to their experience, whether that's, you know, seat arrangement, snacks, anything. You got to pay extra for it on Spirit. Same thing with Ryanair. But there was a key divergence between the two airlines. Whereas Ryanair came in and went to secondary airports, not the big guys, and negotiated very favorable terms in basically bringing traffic to these secondary airports that were dead otherwise. Spirit went into all these existing airports. Huge rains and floods here the past couple of days in San Antonio, and I was hoping to walk down our greenway and have a nice shot of water in the background, but it's too flooded. Can't even walk in there.

Oh, disappointment.

All right, I'll go the other way.

In the US, local airports are actually huge moneymakers for cities and towns, so they don't let just any airport spring up like they do in Europe. And it turns out those airports are in cahoots with the big major airlines. They've signed long-term agreements with each of them that are, of course, very profitable for the cities that own the airports.

So when Spirit brought the model to the United States, people complained violently about the bare fare model and this Ryanair, you know, pick and choose type stuff.

But it turned out that basically Spirit was 30 to 45% cheaper than Delta on comparable routes.

And this bare fare model would be so popular that actually Spirit would be the one of the more profitable and successful airlines in the United States for a while. But then thing after thing started to turn against them, and the first of those happened in 2008. In 2008, Delta merged with a fellow airline, a peer called Northwest. The Department of Justice, who oversees consolidation industries like this, did nothing and just let the deal happen. United bought Continental and the only thing the Department of Justice made them do was give up a handful of slots at Newark, which was an airport that they controlled outside of New York City. 2011, Southwest bought rival AirTran, who was another low-cost carrier, for $1.4 billion. Despite the fact that AirTran has a stranglehold alongside Delta in Atlanta, Southwest was not required to make any concessions to get the deal done.

2013, American bought rival US Air. Well, or vice versa, really.

US Air kind of took over American because it's such a disaster. But, uh, in the grand scheme of things, the DOJ went and did a little bit more this time and made them divest 138 gates. But they didn't give any to Spirit.

They gave those slots to Southwest and JetBlue.

In 2015, those 4 airlines that the government had just let consolidate controlled 80% of the air travel in the United States. Meanwhile, Spirit had one unfair advantage: a hub at Fort Lauderdale Airport.

They would hit 28% market share at peak in Fort Lauderdale and comprise 5 to 6% of total travel in the United States each year. But none of that really mattered. What mattered was, do you have gates and slots at the big airports that really matter? Boston, JFK, Newark, LaGuardia, where people pay big bucks to get on flights right away. And that's what businesses do. Spirit was getting none of that.

And remember Baldanza, the guy who had started the entire airline to try to copy Ryanair? Ironically, he'd seen all this coming, but he couldn't do anything about it. One funny thing about nature is people talk about how beautiful the country is sometimes, and then I'm reminded there's some parts of it that just aren't as nice as you think. Anyway, back to Baldanza, and I'll switch to the sad part of this. He would die from ALS, Lou Gehrig's disease, in November 2024. And by then he'd been pushed out of the company and seeing what was kind of going on from a sad perspective of the sidelines. But the next thing that happened to Spirit was that in 2016, it was still growing, still profitable, and still something. But then the legacy carriers, they figured out the trick. Spirit's entire business model counted on one thing in economics, and it's a psychological trick. Which is people are willing to sacrifice pain now that they're going to experience in the future.

So what Spirit played on was, hey, when they show you a fare, you can compare that to Delta and you'll pay, you know, less now because you think, well, I'll save money.

I'll just have a less kind of, well, pleasant flight in the future. But then when people get to the airport, they're willing to spend up and pay up to get in a nicer seat because it's all very imminent right in front of them.

And Spirit played on this model. More than 50% of their revenue would come from fees, not tickets. In its prime, Spirit was getting $55 in revenue per passenger per flight from non-ticketed items, everything from food to baggage fees. One analyst referred to Spirit as a flying yellow vending machine in the sky.

I like that line. But in March 2012, Delta started to come after this end of the market. They started to launch what were their kind of version of the base case bare fares after doing that basic economy in test markets where you just get nothing except for a seat and safe travel. Uh, basically Delta rolled that out to their entire fleet in 2015. By February 2017, United and American would roll it out system-wide as well. Only they had turned what was Spirit's unfair advantage, this bare bones pricing model, into Spirit's biggest weakness.

You see, if you're Spirit with a whole plane with just this bare fare model, you got to fill up all of your seats in that plane at the same price and the same low fares. Delta, American, and United, by just carving out a portion of their plane as these basic economy flights, or or basic economy options could pick and choose how many of those dirt cheap fares they would offer each route and then charge other people more who decide to sit in regular economy or further up in the first class area. Before this innovation, Spirit was on average 30 to 45% cheaper than legacy carriers. After all was said and done, they were sometimes not even cheaper at all. And when they were, on average it was 10 to 20% lower. Meanwhile, United, Delta, Southwest, all these guys have big loyalty programs, big credit card programs, and even bigger networks with more convenient flights.

Business strategists talk about where Spirit suddenly was as being stuck in the middle. You're not great at any one thing. And whereas once you had a defensible competitive advantage, that goes away and suddenly you're not best at anything. And oftentimes, and you can see it on this channel over and over again, when that happens to businesses, well, trouble eventually comes up. And that's what we'll see soon.

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Before the pandemic in 2019 and early 2020, load factors, the percentage of the planes that were full for Spirit, were over 80%, 85% or more in some cases. But post-pandemic, that would slip down to 70%, meaning nearly 30% of each flight was empty and not generating any revenue despite them having to pay for those seats.

When a business has on-hand capital, that is called working capital.

It's what they use to kind of run the business in a steady state.

Some businesses are amazing.

They have what are called negative cash conversion cycles, which means you get paid way in advance of delivering that service. And airlines are to some extent like that. You or I pays way ahead for our flights, and Spirit or other airlines, they just sit on that money. Sometimes they earn interest on it by depositing in overnight accounts that pay them for just sitting on cash. The airline business is so difficult. At 85%, an airline like Spirit is making money. If they just lose a few percentage points of, of load factor and go down to, say, 70% or 75%, suddenly they're burning cash. But next, an interesting point in the story would rear its head, and that was that competitors started to come in trying to buy Spirit. Why would they be interested in a money-losing airline?

The why to that question will come back here shortly. But in February 2022, what happened next was kind of fascinating. Frontier Airlines, another low-cost carrier, made a $6.6 billion offer to buy Spirit.

But Spirit was not the only airline kind of out on an island without any kind of specialty to it. There was another island, another one besides Frontier. That airline was JetBlue, and they stepped in after finding out about the deal between Frontier and Spirit and outbid Frontier to buy Spirit. The DOJ, after being asleep at the wheel and not doing anything about airline consolidation decades before, decided to step up and they sued to block the merger. January 16th, 2024, a federal judge sided with the DOJ. And block the merger. The DOJ's argument was that they needed to preserve Spirit's presence in the market to keep fares lower for consumers. And it turns out it was true. In, in, you know, in routes where Spirit was competing against United, Delta, American, fares were indeed lower. But the government's argument fundamentally was, hey, we need to keep Spirit independent so prices can stay lower. There was a problem with that, as we'll see here shortly. While the Department of Justice had sailed through the mergers of Southwest and AirTran, United and Continental, all these guys, without just doing anything other than an olé. Here was the DOJ stepping up, trying to preserve an airline's existence that was bleeding over $1 billion a year. You heard that right. That's how much money Spirit was losing then. The routes that a combined JetBlue and Spirit would have run would have been something to create the 5th biggest carrier in the United States, something that could compete with the legacy guys. Irony is all those routes that Spirit once flew are not going to get picked up by JetBlue or Frontier. They'll go to the legacy carriers, making them even stronger so they can charge even higher prices. 2020 2025, Frontier would try again to merge, but the capital structure was too difficult to get a deal done, and, uh, the deal fell apart. So I talked before about how Spirit had exited bankruptcy twice despite not really having much of a future as a standalone business. They were bleeding cash, and everybody could see that.

Spirit flew 214 Airbus A320s at its peak, average age 6.5 years. One of those, the A320neos, had had a significant problem. The engines that had come with them had, had significant manufacturing defects. That, plus an increase in salaries, plus an increase in fuel cost, had meant that over the 2010s, the pricing advantage and cost advantage that Spirit had once had had started to erode away. By 2015, it would be about 6 cents per mile for Spirit to run their planes. Delta at that time was around 10 cents. But 10 years later, by 2025, they'd be almost the same.

And here's a fact we'll come back to later on in the story because it proves to be really important about what's happening to Spirit now, which is there are only two major airplane aircraft makers in the world, Airbus and Boeing. One's in Europe and one's in the United States. There's also a Chinese one, but nobody's buying that stuff right now.

They will someday, but not now. You want to go buy a new Airbus or a new 737 MAX?

You can wait until the 2030s for delivery of the plane.

And as COVID ended, most people don't realize that the airlines had furloughed a lot of people, meaning that they had to spend enormous amounts of money to try to bring back and staff up their airlines. And Spirit was no exception. Between the unreliable planes, fuel costs at the time, and having to hire really expensive people, suddenly the ultra-low-cost carrier Spirit wasn't that much better off in terms of cost. Spirit declared bankruptcy in November 2024 and then again in 2025. The same process repeated itself two times, which was the debt holders took the place of the equity holders. Stockholders got wiped out and suddenly now the lenders were in control of the business. Debt in this particular way can be a way to end up eventually owning the assets of a business. So I talked about before, Spirit has gates and airplanes, two things that are in short supply in America.

2024 and 2025 occurred. Spirit was downsizing its fleet from topping out at over 214 to down into the low hundreds. And in the years since fiscal year 2020, they've lost over $5 billion in cash, real money. Brings us to what most people are blaming the demise of Spirit on. In April 2026, fuel has gone through the roof. Jet fuel especially, which is kerosene by the way— most people don't know that— has caused the price of fuel to spike. Fuel for Spirit is 35 to 40% of their total operating costs versus 25 to 30% for the legacy carriers. So while you hear some people blame the fuel spike for killing Spirit, all it really did was move it up by 6 to 12 months.

So you can tell what was going to happen next by who actually owns the debt. There are these big funds called credit funds. They raise money from wealthy individuals, institutions, and endowments, and then they loan it out at high interest rates. Some of these funds are in the loan-to-own business, which means they try to construct deals where heads up, they win, tails, you lose. They look at a deal like Spirit and say, well, if, say, Spirit becomes a profitable company, then we'll get paid back at a high interest rate. But if Spirit decides to go bankrupt, there's enough assets there to make sure we get paid back.

These guys had been buying Spirit debt up at 30 to 40 cents on the dollar because they've done the math. And the math is they buy it at that level and then they play the game right with the right lawyers inside bankruptcy court. And the airline goes down and the planes and the gates sell to the highest bidder. They'll end up making money. This playbook has played out other times on this channel. Party City, Yellow Freight, Rite Aid, all doing the same game. Interestingly enough, a study I read a couple of years ago said that the highest paid per hour specialist attorneys, the guys who work on these types of cases, they are bankruptcy litigators and they're the guys that get paid the most per hour. Because look, if you're Citadel and you have a half a billion dollars sitting in debt on Spirit, what's a few extra thousand dollars per hour to get the very best bankruptcy attorney representing you in the courtroom? So that's why on October 10th, 2025, the bankruptcy court approved a thing called debtor in possession financing for $425 $35 million, where basically the debtors put forth this money to keep the company going, but they basically control the whole thing. This particular loan was going to be collateralized by the A320neos. Remember, if you want to buy a new one from the factory, you're going to wait 5 or 6 years. So if you buy a used one now, you might be paying $35, $40, or $45 million on the market price. I told you that Airbus had had a problem with the engines, the GTF engines. Because they're so broken and tough to get a good one, just the engine themself, if you buy it on the open market, is worth $20 million per engine. There's two of them happening in the market. February 2026, a 3- and a 4-year-old A320neo were taken out into the desert and stripped down and sold as parts. They were worth more as parts than they were as a working airline airplane. Do the math, and Spirit has 105 of these planes worth $35 to $40 million each. That's $4 to $5 billion worth of aircraft.

We haven't even started talking about the gates yet.

Analysts estimate that the Fort Lauderdale gates that Spirit has are worth $300 to $500 million in an open auction. So you see these hedge funds, private equity, if you want to call them that, they're all the same kind of vein of stuff, put in this just under half a billion dollars to try to recover $3, $5 or more billion worth of assets. Good math if you can do it. So on May 1st, 2026, the White House stepped in because notice I haven't talked at all about the people's jobs that are going to be lost. When this airline is sold for parts. White House's offer was reportedly $500 million for 90% of Spirit's equity, and they would keep the business going. The government wanted to be in the very first position ahead of these debtor in possession guys, which would make them super duper senior or whatever it is, the very first senior kind of creditor, meaning the government would get paid first if there was any sort of liquidation. Bondholders looked at this proposal, which was, okay, we'll get put out of first position. The government will own 90% of the airline and we'll own 10%. Or Plan B, we could do what we always wanted to do, which was invest $500 million or so as debtor-in-possession financiers and then have the chance to split up $5 billion in assets when we strip the thing for parts. So of course, these creditors and hedge funds said hell no to the deal, and that's why no deal has happened. Interestingly enough, it's fascinating that the government thought that the hedge funds would even consider it. You got me. Scott Kirby, who is the CEO of United, one of their largest competitors, said that the consumer has spoken and Spirit Airlines is fundamentally broken and the government should let it die. Yeah, Scott is an unbiased source, of course. And that's why yesterday, Friday afternoon or early Saturday morning, the last Spirit flights landed and 7,500 people lost their jobs. Spirit, like many companies, you can predict their failure by just looking at what's going on in terms of headwinds and tailwinds. And here, the funeral for Spirit had started 15 years ago when the airline consolidation happened. We're just finally getting to it now. It's been that kind of wind down. If you watch the Sears video and their merger with Kmart on my channel, it's eerily similar. There was a quote in that one where Eddie Lampert supposedly ran the world's longest wind down over a couple of decades and made himself rich in the, in the process. As business owners or even as employees in companies, it's important to watch what's happening with trends. Do you have headwinds or tailwinds? Because eventually See it in the case of Spirit and many others. When there's too many headwinds, eventually what was a great business can turn into a bad one really quickly. The really smart investors and entrepreneurs know to get out at the top right before things start getting bad. And the good news is, if you're running a business, you're the very first person to know when things start getting tough and then you can make a sale. All right. That's it for the death of Spirit Airlines. If you enjoyed this video, let me know. It is a beautiful day in San Antonio. And if you write nice things in the comments below, I keep doing more of these videos. Appreciate you.