Competition drives lower fares.

Because, of course, it does. When more than one airline flies a route, you get lower fares. It’s how competition works in the airline business (any business, really), and it’s all fairly intuitive

But if competition drives lower fares, what happens when competition exits?

Spirit Airlines shut down last week. Overnight (literally at 3:00 am EDT), Spirit Airlines' bright yellow planes stopped flying. The airline was a fierce competitor known for its low fares. Since you can no longer book what was the lowest fare in many markets, it makes sense that average fares would increase, right?

And you would be right - much more than you might think.

Yes, Spirit very often had the lowest fares in the markets it served, and those fares are no longer an option. But that’s not the problem.

The problem is that other airlines lowered their fares substantially when competing against Spirit. Spirit Airlines didn’t just offer lower fares; it pressured other airlines to lower their fares. That pressure is now gone.

Looking at the four quarters ended June 2025, we broke down each individual market operated by Spirit Airlines, then looked at the other airline’s fares on those markets. How did airlines react to Spirit’s presence in a market?

They lowered fares. A lot.

We looked only at passengers flying nonstop itineraries on domestic markets and categorized each by the type of competition on the route. Monopoly routes typically drove the highest fares, while competition lowered fares as much as 37% - unless that competition included Spirit Airlines.

At most airlines, the presence of Spirit was met with even more aggressive discounting by competing airlines. Take American Airlines, for instance. The network airline reduced fares by an average of 29% when operating routes with direct competition compared to monopoly routes. But when facing Spirit, American dropped fares 40%. If it were Spirit and another competitor together, they went down 49%.

Delta Air Lines saw the most aggressive competitive response, lowering fares by 37% in response to competition. Against Spirit, that 37% discount became 46%.

And these are average fares, not just the lowest offered (technically, we are looking at average stage-length-adjusted yields to keep things apples-to-apples). For American and Delta, this includes all fares booked, including business class, premium economy, etc. All fares on these airlines were roughly half of what they would have been without competition — because of Spirit Airlines.

But not all airlines had the same reaction to Spirit. Southwest appeared to approach Spirit as just any other competitor, offering slightly higher yields when competing against Spirit as opposed to another competitor. And yet, add Spirit alongside a second competitor, and Southwest dropped fares further.

Of interest to us is JetBlue, particularly due to the large Fort Lauderdale overlap. JetBlue was familiar with competing against Spirit. The airline tripled its discount when competing against the yellow airplanes, though to a lower overall level than the big three. This is likely due to JetBlue’s low-cost status and its own low(ish) fares, similar to Southwest.

Frontier is the only airline that breaks the trend, offering higher prices on markets with competition than without. Why? Because Frontier is a green version of Spirit (without the insolvency). Frontier is also driving much of the competition from other airlines, seeking out competitive routes where the passengers are. (Even so, a yellow flag arises for us when we consider Frontier’s apparent lack of pricing power on monopoly routes, further supporting our theory that the aircraft are a bit too big.)

Spirit wasn’t the largest airline in the U.S. by any stretch. On how many markets did Spirit drive these lower fares? About 13% of the nonstop markets. But when you consider Spirit was in many of the largest domestic markets in the country, Spirit drove lower fares, and markets were 20% of passengers flew. When flying domestically, there was a 1-in-5 chance that your fare was lower because of Spirit - even if you never flew the airline.

We’ve avoided the need to stage-length-adjust by charting the markets by distance. As a baseline, they react as you would expect. Shorter flights drive higher yields, while prices per mile fall away as the distance grows.

Add in the fares with competition from Spirit, and you see a clear new trend: They’re lower. As a reminder, we’re not looking at Spirit’s yields; we’re looking at the yields the competing airlines are getting in markets with Spirit competition, compared to those without.

This analysis is limited to domestic markets due to data availability. Spirit also operated a strong Latin American network, and while we do not have public fare data, the same dynamic likely held.

The “Yeah, but Spirit charged ancillary fees,” objection may have popped into your head. Yes, they did, but consider what we’re actually looking at here. These aren’t Spirit’s fares; These are the fares other airlines charged when competing against Spirit. It could be argued that without Spirit’s extra charges, airlines would be forced to discount even further. (Of course, this is not to assume that other airlines didn’t have fees of their own. If you don’t have status and want to pick a seat or to check a bag even on the most “premium” of airlines, you’re paying for it.)

Another interesting dynamic we noticed was that the discount when competing against Spirit used to be greater - driving as much as a 59% average discount at American in 2019. Those numbers have fallen in recent years, not because airlines have stopped discounting in response to Spirit, but because Spirit started raising its fares. Spirit very often still offered the lowest fare in the market.

But, didn’t we expect fares to fall with high fuel? We did, and it looks like they did a smidge, reacting to lower demand due to the uncertainty. But remember that fares don’t react to costs; they react to supply. And this is the first material reduction in capacity to hit the market. We were waiting for capacity reductions, and despite announcements of cuts, the airlines haven’t implemented them. Spirit just did in a big way.

Which brings us to the obvious objection: Spirit Airlines lost a lot of money this way, at least since the pandemic. How sustainable was this, really?

And this is the appropriate pushback. Yes, Spirit drove lower fares everywhere, but it couldn’t sustain itself in doing so, at least not in the post-COVID world. The stock market loves this. The remaining airlines love this. Not only are Spirit’s low fares gone, but the response to Spirit’s fares will also be gone.

But it still means your fares will rise. In a farewell nod to the lost airline’s drive to offer low fares, we offer a new term for the higher fares: “The Yellow Tax.”

The conclusion to be derived from this is simple - Spirit drove low fares at other airlines just by existing.

Now it no longer exists.

Notably absent from the stock charts this week is Spirit Airlines, up over 150% after the U.S. government signaled a bailout for the airline.

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