Trump Sovereign Investment Spirit
There are those who believe Trump is steering us toward a new era of “state capitalism.” It feels, perhaps, like a breath of fresh air.
Recently, Spirit Airlines, after 34 years, has ceased operations, marking the end of its run as a prominent ultra-low-cost airline in the U.S. Some critics viewed this outcome with a mix of relief and anticipation, even if it seemed inevitable.
This closure wasn’t due to a lack of efforts from Spirit’s management or its creditors. Reports indicate that the administration proposed up to $500 million in aid. But the terms included requirements for significant capital and strict repayment protocols. Trump sought standards that align with what investors would deem acceptable, as opposed to those favored by political allies.
The creditors weighed their options and ultimately opted for liquidation, believing they could profit more by reclaiming aircraft and gates rather than enduring losses from a restructuring. Unlike the Obama administration’s approach during the auto bailouts, this administration didn’t renegotiate contracts or impose terms on bondholders. If negotiations fell through, the market was expected to take its course.
Concerns Over Subsidizing Low-Cost Airlines
There are compelling reasons supporting the decision to let Spirit go. The airline, which relied heavily on subsidies and government support, created a competitive disadvantage for other airlines targeting the leisure market sustainably. Injecting public funds into failing airlines doesn’t restore healthy competition; rather, it distorts it. Airlines that receive subsidies exit the market, diminishing the competitiveness of those trying to operate without federal support, which opens the door for more bailouts.
This pattern nearly devastated the airline industry in the 2000s as various carriers lingered in bankruptcy. The Trump administration took steps to avoid repeating that cycle.
Moreover, Spirit wasn’t exactly the embodiment of economic nationalism. All its aircraft were manufactured by Airbus, a European state-owned firm. None of its planes showcased American manufacturing, unlike its competitor Boeing. While some Spirit planes were assembled domestically, most parts were imported, leaving U.S. taxpayers indirectly supporting non-American companies.
Of course, Spirit’s preference for Airbus wasn’t necessarily driven by a pro-European agenda; those planes were simply cheaper, partly due to European government subsidies. The dynamic between Boeing and Airbus creates healthy competition, but the argument for market discipline clashes with relief for end consumers.
The Biden Justice Department also shares part of the blame, having blocked JetBlue’s $3.8 billion acquisition of Spirit, arguing that its low-cost model was too valuable to consumers. Sadly, the loyal customers the court aimed to protect now find themselves without Spirit’s lower fares, nor the benefits that the JetBlue-Spirit merger could have brought. Antitrust actions meant to foster competition ended up harming it.
Market Impacts of Spirit’s Collapse
Yet, the fallout from Spirit’s demise might not be as severe as it sounds. The approximately 100 Airbus A320 aircraft Spirit leased aren’t vanishing. Competitors are poised to quickly acquire these planes at low costs, which are ideal for the same discount routes Spirit previously serviced. Airlines like JetBlue, Frontier, and Breeze are already in the mix to take over Spirit’s routes and facilities. Many of Spirit’s 17,000 employees may find employment again with these expanding competitors. The planes will get new paint jobs, and there will still be a demand for personnel to manage ticket sales, flights, maintenance, and customer service.
In essence, the alarming predictions regarding soaring airfares warrant skepticism. As of March, fares were marginally above those of spring 2019 and significantly lower than their post-pandemic peak in 2022, according to the Bureau of Labor Statistics. Traditional media framing of rising fuel costs due to geopolitical tensions contributing to an “affordability crisis” may be exaggerated. When put into historical perspective, airfares were higher during Obama’s presidency. If Spirit’s aircraft transition to new operators at lower costs, competitive pressure on fares might actually increase.
Andrew Mellon often faces criticism from historians for suggesting to President Hoover the “mobilization of labor, stocks, farmers, and real estate.” We’re not advocating for a revival of Melonism, but there’s a certain wisdom in recognizing that sometimes liquidation is indeed the appropriate course of action.
