Why does any of this imply they should become a regulated utility? This seems like a textbook case of the free market pushing prices down to cost. Having alternative revenue streams pushed that minimal price down; but even without that, there is no reason to think the market would have done anything other than push prices to the lowest level possible in that environment as well.

This is like saying that movie theaters make money on popcorn, so they should just start selling popcorn and exit the movie business entirely. The reason those loyalty programs work is because of the flights.

For a much deeper dive on this, see https://www.complexsystemspodcast.com/episodes/gary-leff-fre...

(there's a well-formatted text transcript)

And then you have RyanAir in Europe with no credit card or loyalty program offerings. They did have a loyalty subscription program, but it cost more than it generated.

Best not to generalize.

They make a lot of money from loyalty programs and credit cards, but the legacy airlines do make money on flying alone. The margin they make on that is razor thin, but they do make money from the core product.

Spirit was designed to be ultra low cost, which attracts flyers that are much more price sensitive. Higher Jet A costs means higher ticket prices, which means lost customers, which means lost revenue. Pulling a JetBlue and adding higher tier product offerings to attract the business travelers that _actually_ makes money for airlines would've required an overhaul of their entire business, which they couldn't afford to do.

I agree that Spirit will be chopped up by whoever buys them. It happened to Braniff, PanAm, and a whole bunch of other airlines that weren't thrown a lifeline.

(JetBlue tried to acquire Spirit to prevent this outcome, but the acquisition didn't pass antitrust. Everyone knew that that acquisiton failing was a death sentence to Spirit, but it was what it was.)

Or they could actually charge ticket prices that cover the cost of doing business and stop treating their passengers like a it's a time-share sales pitch the whole way.

> "Flights don't make money. Airlines actually make all of their money through loyalty programs and credit card payments."

If that's the case then how RyanAir survived and is thriving?

Airlines were heavily regulated in the US and essentially operated as government contractors until 1978 [1]

[1] https://en.wikipedia.org/wiki/Civil_Aeronautics_Board

Both Southwest, but also Ryanair are profitable. Totally possible to make money off flights.

But you have to follow the same model: use cheaper airports, a single modern aircraft type to simplify operations, high turnaround speed, charge a lot for extras.

Ryanair moves the most passengers of any airline in the world and doesn't have any cobranded credit cards or loyalty program.

> Flights don't make money

Member-owned co-ops don't need to make money. Structuring an airline as a member-owned co-op is not a fundamentally-stupid idea.

> Fundamental problem: Flights don't make money. Airlines actually make all of their money through loyalty programs and credit card payments. They basically should have turned into regulated utilities long ago, but loyalty program revenue saved them.

I don't get it. Why should they have been turned into utilities? Just because the current iteration loses money?

Please be aware that airline pricing is endogenous. That means, it's not set from the outside, but a reaction to market conditions and feeds back into market conditions. Eg airlines might be on the edge of profitability at time X, but when at time Y fuel prices drop a bit (or rise a bit) that doesn't mean that airline will suddenly all make lots of money (or all go bankrupt): the pricing of their product will adjust.

That doesn't only go for fuel prices, but also for loyalty programme revenue. If such revenue is available and competition is fierce, then prices will go down until airline can just about stay afloat after taking that extra revenue into account.

> Private equity will likely sell the company for parts.

You say that like it's a bad thing.

If airlines stopped offering flights then their loyalty programs would not be useful.

Even in this "airlines as point program companies" view of the world, flights don't make money in the same way that electricity going into data centers don't make money. It's a place where you have major costs and you want to try and gamify it, but at the end of the day it's pretty necessary for successful operations!

Consider why airline points even work as a model in the first place! Airlines have blackout dates and don't offer every seat in a plane for points because _they can make money selling a seat for more than what the points are worth to them_.

The company is not forced to sell immediately to whoever offers it money, they can sell themselves off for parts.

I heavily doubt PE firms are interested here as there is no potential for growth or a multiple. Spirit's assets are mainly their fleet, there are like 4 maybe 5 people who could buy, of these 2-3 are facing similar financial crises.

In the US I think nobody except United can afford to make a move, more likely some Asian airlines will move; many have grown and have route demand they can't service due to lack of aircraft. If you fly to Asia often you'll note that much of the time Asian airlines have to operate an aircraft from a US airline.

Does this imply that most people who sign up for frequent flier programs end up losing money in the long run, rather than benefitting from them?

> They basically should have turned into regulated utilities long ago

They used to be. Read up on "Civil Aeronautics Board".

Famous Richard Branson quote:

"If you want to be a millionaire, start with a billion dollars and launch a new airline."

Bullshit. Very few airlines even have points systems.

Sounds like the industry is extremely efficient. Why would we want to turn this into regulated utilities?

Sadly only expensive because the unions bleed the companies dry.