How a Blocked Merger and a Fuel Crisis Pushed Spirit Airlines Toward Government Ownership

Ronald Reagan famously quipped that the nine most terrifying words in the English language are: “I’m from the government, and I’m here to help.”

The former president’s comment felt especially relevant last week as news broke that the Trump administration was negotiating a $500 million rescue package for Spirit Airlines, in a deal that could give Washington the option to control as much as 90% of the twice-bankrupt low-cost carrier (LCC).

It’s a remarkable development, and one I believe investors should be aware of. Not because Spirit itself is a compelling investment—at this point, it’s anything but—but because the story includes all the important details reshaping the commercial airline industry today, from the evolution of the low-cost model to the rising value of loyalty programs.

Low-Cost Carriers Still Dominate Globally

Despite the turbulence, the global LCC market remains an enormous force. Four of the world’s 10 largest airlines—Ryanair, Southwest, IndiGo and easyJet—operate on a low-cost model. The broader budget travel market is projected to exceed $315 billion by 2028, according to Statista.

What’s changed, especially since the pandemic, is a surge in demand for premium travel experiences. An increasing number of consumers seek upgrades like wider seats, increased reclining and improved meal options. Combined with the skyrocketing value of frequent flyer programs, this has given legacy carriers like Delta, United and American an advantage that simply didn’t exist in previous downturns.

In past pullbacks, budget airlines led by Southwest typically outperformed the broader market. This time around, the opposite appears to be happening.

Consider that in the first quarter of 2025, Southwest, Frontier and JetBlue all posted sharp declines in their operating margins as international tourism to the U.S. weakened. Delta and United, meanwhile, held firm.

Last year, United CEO Scott Kirby went so far as to declare the ultra-low-cost carrier (ULCC) model “dead.” Frontier’s CEO Barry Biffle disagreed, calling Kirby’s comments “cute” and pointing to Frontier’s cost-per-available-seat-mile advantage. Biffle argued the real problem is oversupply, not the discount model itself.

Budget Airlines Are Ancillary Revenue Machines

I believe Biffle has a point. The price-sensitive traveler hasn’t disappeared, and the industry has proven remarkably resilient.

Budget carriers have become sophisticated revenue machines, with ancillary income from baggage fees, seat upgrades, onboard food and cobranded credit card partnerships accounting for a growing share of total revenue. According to IdeaWorks, Frontier generated 62% of its total revenue from ancillary sources in 2024, up from 56% the prior year. Five airlines worldwide now earn more than half their revenue from these non-ticket, add-on services.

Globally, airlines generated an estimated $157 billion in ancillary revenue in 2025, up from $148.4 billion in 2024 and more than double the $67.4 billion recorded in 2016.

Delta’s SkyMiles Now Worth More Than Most Public Companies

One of the most underappreciated stories in the industry is just how valuable frequent flyer programs have become. According to the On Point Loyalty 2026 Report, Delta’s SkyMiles program is now valued at a record $31.7 billion, more than many publicly traded companies. American’s AAdvantage clocks in at $26.7 billion, United’s MileagePlus at $25.3 billion and Southwest’s Rapid Rewards at $8.9 billion.

Once considered a secondary marketing tool, these programs are now critical financial assets. During the pandemic, airlines leveraged the predictable cash flows of their loyalty programs to secure record-breaking financing when traditional funding sources dried up. The average program valuation reached $2.4 billion in 2026, up from $2.0 billion in 2023.

It seems to me that this is a key reason the full-service carriers have pulled ahead. Their loyalty programs create consistent revenue streams and deep customer moats that some budget carriers struggle to achieve.

Washington Blocked the Spirit Deal… And Now Wants to Bail It Out

Spirit Airlines, headquartered near Mar-a-Lago in Dania Beach, Florida, has lost roughly $2.1 billion over the past four years, including $900 million last year. Its restructuring plan assumed jet fuel prices of around $2.20 per gallon for 2026, but the Iran conflict and the closure of the Strait of Hormuz has sent prices soaring. That alone could push operating margins into negative territory, with extra costs exceeding cash reserves.

There’s a bitter irony at the center of the story. If you recall, JetBlue agreed to acquire Spirit in 2022 for $3.8 billion, a deal that could have provided Spirit a viable path forward. But the Biden Justice Department sued to block the merger, arguing it would reduce competition and raise fares, and a federal judge agreed.

Now, the same government that blocked a private-market deal is considering taking an equity position in the very company its earlier intervention helped destabilize.

As the Cato Institute’s Tad DeHaven warned last week, the growing list of government equity deals “has opened up a Pandora’s box.” The administration has already taken stakes in Intel, accepted a golden share in U.S. Steel and invested in critical minerals companies. A stake in Spirit would extend that pattern into commercial aviation for the first time outside of a broad industry crisis.

JPMorgan analyst Jamie Baker raised a practical concern in a recent client note: if Spirit receives a cash infusion, competitors like JetBlue and Frontier may expect the same, creating a chain reaction.

Some of the hardest political pushback has come from members of Trump’s party. Senator Ted Cruz (R-TX) called the bailout proposal “an absolutely TERRIBE idea,” while Senator Tom Cotton (R-AR) questioned whether taxpayer dollars should be used to prop up a company whose own creditors have lost confidence in its profitability.

Commerce Secretary Howard Lutnick reportedly pitched the deal to President Trump as a political win ahead of the midterms, emphasizing Spirit’s 14,000 jobs. But Transportation Secretary Sean Duffy pushed back, warning that voters could view it negatively as a bailout of a failing company. 

What Smart Airline Investors Should Focus On

The challenges facing LCCs are real, but they’re concentrated among the most leveraged and least-adapted players. As I’ve said before, airlines that have invested in their product, diversified their revenue streams and built popular loyalty programs are better positioned for what comes next.

What concerns me as an investor is not the market itself, but the prospect of government overreach distorting it. As you know, free markets work best when companies are allowed to compete and fail on their own terms, without Washington picking winners and losers.

Interestingly, Spirit is a cautionary tale on both sides of the equation: an antitrust action that blocked a willing buyer, followed by a potential taxpayer-funded rescue that could keep a “zombie airline” flying.

The airline industry has weathered wars, recessions, pandemics and fuel shocks before. It’ll weather this one too. The key for investors is to focus on the companies with pricing power, operational discipline and the financial assets to thrive under any conditions.

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Originally Posted April 27, 2026 – How a Blocked Merger and a Fuel Crisis Pushed Spirit Airlines Toward Government Ownership

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Holdings may change daily. Holdings are reported as of the most recent quarter-end. The following securities mentioned in the article were held by one or more accounts managed by U.S. Global Investors as of (03/31/2026): Ryanair Holdings PLC, Southwest Airlines Co., easyJet PLC, Delta Air Lines Inc., United Airlines Holdings Inc., American Airlines Group Inc., Frontier Group Holdings Inc., JetBlue Airways Corp., Allegiant Travel Co., Pegasus Hava Tasimaciligi AS.