JetBlue’s founder and ex-CEO said his former airline is wise to lean into a “premium travel” boom by installing first class seats across its entire fleet. But for ultra-low-cost carriers Spirit and Frontier that are hoping first class cabins could save them, he can only see it ending one way: Reviving their plans from years ago and merging.
“[Spirit] and Frontier thought if they could just go bigger and bigger and bigger and cram more and more seats in and offer lower and lower fares, that no one could ever compete with them,” David Neeleman told Thrifty Traveler this week. And that’s why he says those budget carriers, JetBlue, and even Southwest have struggled to regain their footing during the post-pandemic travel boom: “They held onto their models and they didn’t adapt quick enough.”
There’s perhaps no more successful figure in the notoriously brutal U.S. airline industry than Neeleman. He worked at Southwest early in his career, has founded nearly a half-dozen successful airlines in three different countries, and even has his fingerprints all over a European airline – via a previous ownership stake in TAP Air Portugal. After getting forced out as JetBlue’s CEO in 2007 after a catastrophic meltdown triggered by an East Coast ice storm, he founded Brazilian carrier Azul before going on to start up relative newcomer Breeze Airways, where he’s still CEO today.
When Neeleman talks, most across the industry listen. So we interviewed Neeleman this week about why these low-cost carriers are changing up their business models now, the entire U.S. airline industry’s larger push towards more premium travel, and what the future might hold for his former airline.
This Q&A has been edited for clarity and length.
Has the ultra-low-cost carrier model failed? Or what has gone so catastrophically wrong for Spirit and Frontier – and why?
When I started JetBlue, I was very egalitarian. Everything was a leather seat for everybody, a free TV for everyone, Wi-Fi for everyone – we didn’t have Wi-Fi back then when I started but we got it. At the time, that really resonated with people because other than just a lousy first class seat there was nothing else that they offered, everything was better.
As the big three (American, Delta, United) have gone through bankruptcy and merged, they just took a lot of pages from that book. They put in Wi-Fi, they put in TVs, and then they just turned it up a notch and they just started saying, “Let’s go to 24 first class seats, let’s go to 18, let’s go to 12.” And then they started doing extra legroom sections of the planes. Then they pivoted and said “Let’s create a basic economy in the back and call it kind of our ‘Spirit’ section and charge what Spirit’s charging.”
As it evolved, they started segmenting the market: “We’ll take care of the backpackers in the back, those are the Spirit people.” Twenty-five percent of people want an upgraded experience, so they did that. Then they had an extra big first class section.
Airlines like JetBlue, Southwest, and the ULCCs like Frontier and Spirit got kind of caught because they couldn’t differentiate.
I think that’s why Spirit, Frontier, JetBlue, and Southwest have really struggled. They held onto their models and they didn’t adapt quick enough. And then it becomes difficult when you have to adapt and you have several hundred airplanes – especially with supply chain issues that exist today.
It’s really hard to get first class seats in less than two years. And then you have to take planes out of service and redo them and that just takes a long time.
These low-cost carriers – Frontier, JetBlue, Southwest, Spirit – that are changing their business model, will they find success?
Someone like Southwest, they have $11 billion in cash … those guys are going to be just fine.
JetBlue has already been at the top of the stack. I hope, being the founder of JetBlue, I hope they’ll be fine. I’m rooting for them.
Spirit and Frontier is a different issue. The Big Front Seat (Spirit’s first class product) has been at Spirit for a while. It was already there. It didn’t recline, it was sort of uncomfortable.
And they have another issue because they’re overlapped (flying head-to-head against one or more competing airlines) on like 90% of their routes. We’re (Breeze) overlapped on 10% of our routes.
(Spirit) and Frontier thought if they could just go bigger and bigger and bigger and cram more and more seats in and offer lower and lower fares, that no one could ever compete with them.
Structurally, they just have lower costs, but it’s only just because they’d put more seats in their airplanes. They’d paid the same for their airplanes, their pilot salaries – in Spirit’s case – got close to where the other guys were, their maintenance costs were the same, they paid the same for fuel. It wasn’t that stark of a difference that United couldn’t just go out and get a bigger airplane and dedicated those additional seats at a lower cost than what even Spirit plays for their airplane.
I’ve said this for a while: I think Spirit and Frontier will probably end up merging.
There’s a lot of overlap there, so I think the way that they will not only survive but maybe thrive a little bit is if the [ultra-low-cost carriers] that were growing independently are kind of one. They’ve already announced it once, and up until two weeks before [Spirit’s] bankruptcy filing, they were talking again. I would suspect that maybe Frontier’s move to those two rows of first class probably has something to do with trying to match up with what Spirit’s doing.
JetBlue and Spirit were going to combine, but that died after the Justice Department and a federal court blocked it. Could a Spirit-Frontier merging actually go through under the incoming administration?
I think so. I think it probably would have passed with the current administration, even without one coming in, and there’s a lot of factors there.
But basically, it’s like, “Oh, we stopped the merger with the company and the company filed for bankruptcy.” It’s not really a good look for the Justice Department. I think they’re anxious to approve something. They approved Hawaiian and Alaska – something that would strengthen the (ultra-low-cost carrier) segment of the business.
You were talking about the cost of operating these airlines, is that the core problem with the low-cost/ultra-low-cost carrier models of Spirit and Frontier?
It’s not so much a cost problem as a revenue problem. People want to have options. If you’re flying wingtip to wingtip with somebody who can offer you a basic economy seat for the same price that you’re playing on Spirit and you’ve been flying United forever, they’re going to pick United. That’s just the way it is.
It’s just a matter of capacity and making sure that if United stops offering that or runs out of seats, then Spirit can fill up. But they’re going to fill up on spill, not on primary travelers.
Breeze has been offering first class seats for a while. Are passengers flying these lower-cost carriers actually willing to pay for these seats?
I think 25% of people want an upgraded experience, and they’ll pay for it.
When you get in a Comfort Plus seat or something, it’s just a better experience. They come by and give you a drink, you get extra legroom. It makes traveling a lot more bearable.
What do you think of JetBlue’s decision to install first class seats across its mainland fleet?
I think it’s the right thing for them to do. It’s just getting it done, getting it implemented. When the last plane gets done, it’s going to be probably three or four years from now. It’s going to be a long process to be able to do it. It’s something a certain segment of their customers will really want.
Lead photo courtesy of Spirit Airlines
