Bailing out airlines like Spirit Airlines doesn’t protect travelers—it protects failure.
Airline shutdowns are disruptive, frustrating, and thankfully rare.
There have been a number of stories portending the end for ultra-low cost carrier Spirit Airlines. The airline says it’s “business as usual” but it’s also reportedly nearing a deal for a $500 million lifeline from the federal government. The bailout would give the federal government a stake in the struggling airline, which hasn’t been profitable since 2019.
A federal bailout isn’t unheard of. The government provided loan guarantees to airlines after 9/11 and during the Covid-19 pandemic, but it provided them to all airlines who chose to apply. This would be the first time the government has moved to preserve a single airline by acquiring what amounts to an ownership stake.
How Often Do Airlines Fail?
In the United States, it’s rare for a large national carrier to simply close up shop and stop flying. Aside from a few small regional airlines or charter operators, it hasn’t happened since 2008, when three airlines shuttered in the same week. That week, at the end of March into early April, saw the demise of ATA Airlines, Aloha Airlines, and the low-cost operator SkyBus.
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Bankrupt airlines also called it quits in the immediate aftermath of 9/11, and during the recession that followed the Gulf War. In 1991, travelers saw the demise of both Eastern Airlines and Pan American World Airways—two storied names dating back to the earliest days of commercial aviation in the United States.
Failing and shutting down in bankruptcy, however, is certainly more of the exception than the rule. Other storied airline names that no longer exist include America West Airlines, Western Airlines, National Airlines, US Airways, Northwest Airlines, Trans World Airlines, Continental Airlines, Pacific Southwest Airlines, Air Cal, Piedmont, Republic, and numerous others. Those airlines all merged into other airlines that still exist today.
The Government’s Proposal for Spirit Airlines
The Trump administration has looked at bailout options that could give the federal government a higher priority claim on many of the airline’s assets than that of many existing creditors, and could give the government—and by extension the taxpayers—ownership of the airline as it emerges from bankruptcy.
White House spokesperson Kush Desai said Spirit “would be on a much firmer financial footing had the Biden administration not recklessly blocked the airline’s merger with JetBlue.” The proposed merger was blocked in 2024 by a federal judge who agreed with the Department of Justice’s case that the merger would be anti-competitive, resulting in higher fares and less choice for consumers. Within months, Spirit filed for bankruptcy, which it emerged from in early 2025, filing for another bankruptcy just months later. Spirit’s woes, however, can hardly be pinned on the Biden administration—it hasn’t been profitable since 2019 while many other airlines have returned to profitability following the Covid-19 pandemic.
The Effect of Airline Shutdowns Compared to Mergers
If airline shutdowns are a decapitation, mergers can often be death by a thousand cuts. A shutdown puts thousands of employees immediately out of work and strands passengers holding confirmed reservations, but the industry has a tendency to absorb the shock.
When ATA Airlines ceased operations in 2008, the airline largely operated in markets with a lot of capacity, and other airlines were largely able to take on stranded passengers in the leisure markets where it was popular. Many of the airline’s large Boeing 757-300 aircraft are still flying today on similar routes, operated by United or Delta. In the aftermath of the shutdown, Alaska Airlines grew its footprint in Hawai‘i to provide seats for the remaining passenger demand.
Mergers can be similarly disruptive. American Airlines famously added unionized employees from Trans World Airlines to the bottom of their own seniority lists when the two airlines merged in April 2001. After 9/11, American furloughed the entire TWA workforce from the bottom of the seniority lists and shut down the St. Louis hub it had acquired, effectively producing the same result as if TWA had simply shuttered.
In response, Missouri’s senators authored an amendment to an FAA reauthorization bill in 2007 which required airlines to more equitably merge seniority lists in future mergers. For the furloughed former TWA employees, the last of them weren’t called back to their jobs at American until 11 years later.
Airline shutdowns can also put assets on the open market, allowing airlines to pick them up in more manageable packages, allowing them to acquire the things they find value in, without the added baggage of the things that they don’t, which often come in a merger. Airport facilities and landing slots at restricted airports were attractive assets at both Virgin America and AirTran Airways.
Both airlines were ultimately acquired by airlines with incompatible fleets (Alaska Airlines flew Virgin America’s Airbus fleet for only a few years before disposing of it, Southwest immediately leased AirTran’s Boeing 717 fleet to Delta Air Lines without ever flying the aircraft on their own network). Had those airlines failed instead of merging, their assets would likely have been snapped up more equitably.
The aircraft fleets that were parked by airlines such as Eastern, Pan Am, and Braniff shutting down also drove down pricing on the used aircraft and lease markets. Employees of shut down airlines also have a tendency to start new airlines. Sun Country Airlines, Frontier Airlines, America West Airlines, Kiwi International, and ValuJet (which later merged with AirTran Airways) were all formed employee groups from airlines that had shut down.
A good amount of qualified airline workers on the job market, a ready supply of cheap aircraft to buy or lease, and airports suddenly looking for new tenants ultimately made starting new airlines on shoestring budgets even easier. As soon as the competition was eliminated, market forces ushered in new competitors to keep the entrenched carriers on their toes, fighting to attract consumers by innovating on product and pricing competitively.
In 2000, the four largest U.S. airlines—then United, American, Delta, and Northwest—carried just over 60% of U.S. domestic airline traffic. Today, the four largest U.S. airlines—now United, American, Delta, and Southwest—approach an 80% share of the domestic travel market.
The airline industry was heavily regulated until 1978, with fares, schedules, and service fixed by the government. The rationale for regulation had long been that with aviation as a nascent industry, the government needed to protect it by ensuring that uncontrolled competition didn’t ultimately make the market unsustainable for all carriers. By 1978, the government’s perspective had changed, reasoning that controlling the markets had kept fares high and service limited.
The airline industry as a whole is nearly three times as large as it was when it was first deregulated. Domestic real airfares, adjusted for inflation, have dropped between 40% and 50%. Deregulation transformed flying from an activity only a handful of Americans had done in the 1970s to one few Americans haven’t done by 2026.
The Airline Deregulation Act was signed into law because a Democratic-majority House and Democratic-majority Senate believed, along with a Democratic president, that the best determiner of success in the U.S. airline industry was the free market. In spite of the macroeconomic forces, if an airline in a deregulated marketplace fails to turn a profit for seven years it’s not because of any government decision to intervene or not intervene—it’s because the airline’s management has misjudged the marketplace and managed their business less effectively than their profitable competitors.
The ultra-low cost carrier model was once flying high, returning enviable profits. But other airlines adapted and learned to effectively tailor their products to siphon consumers away from airlines following that model, and it’s their failure to effectively adapt that has borne their current predicament.
A failed carrier doesn’t need government intervention in response. They government already decided what should happen in that case decades ago.