The demise of Spirit Airlines might have only indirect effects on corporate travel management, but it also could herald changes in airline competition, consolidation and strategy that could have more direct effects, according to executives at a recent CAPA conference.
Spirit ended operations on May 2, and while the ultra-low-cost carrier didn't target corporate business and was rarely a factor in corporate programs, the business travel industry nevertheless should consider the reasons the carrier failed and the possible response among airlines, according to panelists speaking at CAPA's Airline Leader Summit Americas late last month in Charleston, S.C.
Legacy carriers learned to compete with Spirit, according to David Neeleman, chairman and CEO of Breeze Airways and founder of JetBlue, hastening the ULCC's demise.
Spirit's margin "was so bad, that even if they had free fuel, they would have lost money," he said, adding that, according to a bankruptcy court filing, "for every dollar they took in, they had $1.61 in expenses… Even if your fuel is free, you're still losing money. That's not a business model."
Legacy carriers reacted to Spirit's no-frills offering by matching or undercutting their fares on some available inventory, Neeleman said, and offering far more frequency. "What they said is, 'We don't know a single person on earth that would fly Spirit if they could fly American, United, Delta.' "
American Airlines vice chair and chief strategy officer Steve Johnson agreed that legacy carriers had learned to compete effectively with ULCCs, but added Spirit had specific headwinds with which to contend, most notably its failed acquisition by JetBlue. Johnson criticized the Biden-era U.S. Department of Justice's decision to successfully contest the transaction in court.
"The problem was that the government decided to bring the case in a courthouse where they did have a high degree of confidence that they were going to get the outcome that they needed," Johnson said. "The government's role in aviation is to create an environment where there's a real sense of competition and real competition throughout the industry, not to focus on individual carriers or individual mergers to try to determine in a narrow perspective about the competitive impact of that."
Biden's DOJ also successfully challenged American's Northeast Alliance partnership with JetBlue, a move Johnson also criticized: That was a fabulously pro-competitive, really successful joint venture that worked for JetBlue's customers, worked for our customers, created a viable competitor in New York that didn't really exist before," he said.
As for Spirit, though JetBlue paid it a $69 million breakup fee after the deal failed, Johnson said "almost 90 percent was paid directly to the Spirit shareholders, so Spirit didn't actually get that break-up fee."
While Serko VP of strategic business development Johnny Thorsen said the "Spirit shutdown has not really impacted corporate travel, especially not in the last-minute travel segment," he suggested the loss of a competitor illustrates buyers' changing strategies.
Buyers "are nervous about lack of competition on a number of key routes," Thorsen said, and some are turning to tech to mitigate it.
"What's happening on the buyer side right now that's quite interesting is, they're trying to upgrade technology to become much better at buying in the dynamic market," Thorsen said. "The idea of having this negotiated fare that stays for six to 12 months out … buyers are embracing AI to find the base fare at any given point in time."
When asked if consolidated larger airlines weaken corporates' buying power, Thorsen said yes, "but at the same time, buyers' travel is dictated by the business they are in, and they have to accept the fact that airlines will operate the city pair that makes money unless there's government funding behind it."
Distribution Advances
Buyers also must contend with new aspects of airline distribution, including New Distribution Capability and personalized amenity bundles, and Thorsen said some discontent percolates among buyers.
"What's now interesting to see if other airlines come out with new product bundles, service models ... and those services are not really available in the corporate channel," Thorsen said. "Once again, we're seeing buyers frustrated by support for these new products."
American in recent years famously reversed course from an aggressive distribution strategy, and Johnson said the carrier would look to customers to guide the carrier's next steps.
Such a strategy would have two prongs, he said. "The first is the one where there's this divergence between what we can provide for the system, which is primarily the way that the travel management companies access our inventory and [the second is] what we can provide through modern channels, NDC and particularly our websites," he said. The latter is a "much more flexible, much more robust way of engaging with customers, and customers are going to continue to demand that be available."