It might not be the most important story in the world right now, as our species takes its first halting steps into a brave new world of technological power whose contours are still to us mysterious and weighted with fearful portent, but lately I’ve been spending a good bit of time reading about the death of Spirit Airlines. Spirit, for those lucky enough to have never flown on one of its planes—I have a few memories of terrible Spirit flights from New York to Miami in my teenage years—is, or rather was, one of the ten or so largest airlines in the United States, and, after its more popular rival Southwest, the most prominent of the budget airlines. (JetBlue is somewhat larger, but can’t be considered a “true” budget airline.) And, for the last few years, Spirit had been hurtling toward insolvency.
Spirit had last turned a profit in 2019; things turned disastrously bad with the COVID pandemic in 2020—as was the case for every other airline—but whereas larger flyers generally recovered, things went from bad to worse for Spirit. Corporate leadership pursued a merger with JetBlue, but this was blocked by a federal judge. And so in November 2024, Spirit filed for Chapter 11 bankruptcy protection; then it filed again, less than a year later, in August 2025. But these filings did little to save Spirit. There was talk of liquidating the company. The Trump administration raised the prospect of a capital injection that would leave the federal government with a 90 percent stake in the airline (the first time in American history that the federal government has owned a passenger airline outright), but the talks collapsed, and so in early May 2026 Spirit announced that it was shutting down for good.
The collapse of Spirit was unique in that in its death throes it managed to solicit a bailout offer from the U.S. government; but it was not unique among its fellow airlines in going broke. Airlines are a bad business: a really, really bad business. The International Air Transport Association, the trade body of the global airline industry, has documented for years that airlines as a sector destroy investor value in the aggregate. The IATA’s 2026 outlook, looking forward to a quite strong year—this was before the Iran war broke out and oil prices surged—projected an average return on invested capital of 6.8 percent, against a weighted average cost of capital of 8.2 percent. As the IATA’s report said, “the airline industry collectively does not generate earnings that cover its cost of capital.” This has been the case for a long time. From its deregulation in 1978 to the end of 2025, the airline industry has cumulatively lost money: its net profit over those 47 years sits at negative $37 billion.
Given these grim economics, you won’t be surprised to hear that airlines have a bad habit of going insolvent. This includes many of the most famous names in the history of aviation. Pan Am, long the unofficial flag carrier of the United States, ceased operations in 1991; Eastern Air Lines liquidated the same year; TWA, the carrier of Howard Hughes, was absorbed into American Airlines after a third bankruptcy filing in 2001; Braniff died in 1982. And those are only the most famous names; countless aviation startups have come and gone. (Have you ever heard of Trump Shuttle?) Even airlines with the backing of a national government go bankrupt all the time: Alitalia, Italy’s flag carrier, reported only a single year of profit since its founding in 1946 and was saved countless times by the Italian government before ultimately ceasing operations in 2021. Even those airlines that survive for long periods of time are perpetually in financial distress. Between 1978 and 2005, more than 160 airlines filed for bankruptcy; virtually every major U.S. carrier other than Southwest has been to bankruptcy court at least once. In September 2005, every one of the four largest American airlines—United, Delta, Northwest, and US Airways—was operating simultaneously under Chapter 11 protection.
This is very strange. There’s not really a conventional economic explanation for an industry whose long-term equilibrium is losing money: an industry that, on a purely economic level, should not exist. Warren Buffett once called the airline industry a “bottomless pit” for investor capital. “Indeed,” he wrote, “if a farsighted capitalist had been present at Kitty Hawk, he would have done his successors a huge favor by shooting Orville down.”
So why is the airline business so remarkably bad?
One answer is that airlines are particularly vulnerable to shocks. There are so many potential risks with air travel that practically anything going wrong will have some effect. The September 11th attacks, for example, had a huge effect on air travel; so did the surging oil prices of the 2000s, the financial crisis of 2008 and the resulting recession, the 2020 pandemic, and now the volatility in oil prices surrounding the Iran war. Whenever a major shock occurs you tend to see a huge wave of airline bankruptcies.
But airlines obviously aren’t the only type of business in the world that’s vulnerable to shocks. Hotels, for instance, are heavily exposed to recessions, terrorism, and pandemics; their costs are heavily front-loaded into the property, just as an airline’s costs are loaded into the plane; and yet the hotel industry doesn’t go through synchronized waves of bankruptcy each time a shock hits. Shocks might explain why airlines tip over the edge into restructuring or liquidation; but they don’t really explain why they’re so vulnerable in the first place, or why the airline sector—uniquely among all major industries—is unable to generate profit in the aggregate.
And we don’t see the same structural unprofitability in any of the other companies of the aviation ecosystem: engine and avionics manufacturers, for example, do totally fine; so do the service suppliers that sell into airlines.
Maybe, then, the answer is that airlines specifically are just poorly managed. This was the dominant view in the 2000s and 2010s: legacy full-service carriers were chronic money-losers; budget airlines, like Southwest and Ryanair, were much more profitable; and so in the future air travel would bifurcate into budget aviation for the masses and Emirates-style luxury travel for the few. But the budget airlines don’t look so good anymore. Spirit was a flagship budget airline and has now been liquidated; JetBlue and Frontier, two budget or semi-budget competitors, are also at risk of bankruptcy; even Southwest, the most durable and iconic of the low-cost carriers, has been unable to make a profit since the pandemic and is now fending off an activist challenge from the hedge fund Elliott Management. So the budget strategy clearly wasn’t a solution to the airline industry’s problems.
So explanations that cite shocks or bad management either explain too much or too little. If it’s just vulnerability to shocks, why don’t other industries have such huge bankruptcy waves? And if it’s bad management, why has no airline in the long history of aviation figured out a replicable solution to running the business profitably?
I’d like to suggest that the problem with the airline industry is much deeper than people seem to think. Losing money in the aggregate is a feature, not a bug, of a competitive airline industry. The airline sector, for reasons that go into the essential nature of the industry, cannot reach a profitable competitive equilibrium. This is not because airlines are vulnerable to shocks or because they’re poorly managed. The airline industry itself can either be profitable, or it can be competitive: but it can’t really be both.
To understand why, we have to learn a little bit about game theory.
[ed. Interesting thesis. I'd never have imagined the industry as being systemically unprofitable given ticket prices and all the add-on charges. Or, at least wildly profitable during certain periods to compensate for the occasional downdrafts.]
Given these grim economics, you won’t be surprised to hear that airlines have a bad habit of going insolvent. This includes many of the most famous names in the history of aviation. Pan Am, long the unofficial flag carrier of the United States, ceased operations in 1991; Eastern Air Lines liquidated the same year; TWA, the carrier of Howard Hughes, was absorbed into American Airlines after a third bankruptcy filing in 2001; Braniff died in 1982. And those are only the most famous names; countless aviation startups have come and gone. (Have you ever heard of Trump Shuttle?) Even airlines with the backing of a national government go bankrupt all the time: Alitalia, Italy’s flag carrier, reported only a single year of profit since its founding in 1946 and was saved countless times by the Italian government before ultimately ceasing operations in 2021. Even those airlines that survive for long periods of time are perpetually in financial distress. Between 1978 and 2005, more than 160 airlines filed for bankruptcy; virtually every major U.S. carrier other than Southwest has been to bankruptcy court at least once. In September 2005, every one of the four largest American airlines—United, Delta, Northwest, and US Airways—was operating simultaneously under Chapter 11 protection.
This is very strange. There’s not really a conventional economic explanation for an industry whose long-term equilibrium is losing money: an industry that, on a purely economic level, should not exist. Warren Buffett once called the airline industry a “bottomless pit” for investor capital. “Indeed,” he wrote, “if a farsighted capitalist had been present at Kitty Hawk, he would have done his successors a huge favor by shooting Orville down.”
So why is the airline business so remarkably bad?
One answer is that airlines are particularly vulnerable to shocks. There are so many potential risks with air travel that practically anything going wrong will have some effect. The September 11th attacks, for example, had a huge effect on air travel; so did the surging oil prices of the 2000s, the financial crisis of 2008 and the resulting recession, the 2020 pandemic, and now the volatility in oil prices surrounding the Iran war. Whenever a major shock occurs you tend to see a huge wave of airline bankruptcies.
But airlines obviously aren’t the only type of business in the world that’s vulnerable to shocks. Hotels, for instance, are heavily exposed to recessions, terrorism, and pandemics; their costs are heavily front-loaded into the property, just as an airline’s costs are loaded into the plane; and yet the hotel industry doesn’t go through synchronized waves of bankruptcy each time a shock hits. Shocks might explain why airlines tip over the edge into restructuring or liquidation; but they don’t really explain why they’re so vulnerable in the first place, or why the airline sector—uniquely among all major industries—is unable to generate profit in the aggregate.
And we don’t see the same structural unprofitability in any of the other companies of the aviation ecosystem: engine and avionics manufacturers, for example, do totally fine; so do the service suppliers that sell into airlines.
Maybe, then, the answer is that airlines specifically are just poorly managed. This was the dominant view in the 2000s and 2010s: legacy full-service carriers were chronic money-losers; budget airlines, like Southwest and Ryanair, were much more profitable; and so in the future air travel would bifurcate into budget aviation for the masses and Emirates-style luxury travel for the few. But the budget airlines don’t look so good anymore. Spirit was a flagship budget airline and has now been liquidated; JetBlue and Frontier, two budget or semi-budget competitors, are also at risk of bankruptcy; even Southwest, the most durable and iconic of the low-cost carriers, has been unable to make a profit since the pandemic and is now fending off an activist challenge from the hedge fund Elliott Management. So the budget strategy clearly wasn’t a solution to the airline industry’s problems.
So explanations that cite shocks or bad management either explain too much or too little. If it’s just vulnerability to shocks, why don’t other industries have such huge bankruptcy waves? And if it’s bad management, why has no airline in the long history of aviation figured out a replicable solution to running the business profitably?
I’d like to suggest that the problem with the airline industry is much deeper than people seem to think. Losing money in the aggregate is a feature, not a bug, of a competitive airline industry. The airline sector, for reasons that go into the essential nature of the industry, cannot reach a profitable competitive equilibrium. This is not because airlines are vulnerable to shocks or because they’re poorly managed. The airline industry itself can either be profitable, or it can be competitive: but it can’t really be both.
To understand why, we have to learn a little bit about game theory.
by David Oks, Substack | Read more:
Image: Mike Kelley from “Life Cycles” series[ed. Interesting thesis. I'd never have imagined the industry as being systemically unprofitable given ticket prices and all the add-on charges. Or, at least wildly profitable during certain periods to compensate for the occasional downdrafts.]
