The budget airline model in the U.S. is running out of runway

With Spirit Airlines gone from the skies, travelers now have fewer lower-cost options waiting in the wings during the busy summer season. Americans may need to get used to it, as the changes taking place in how we fly could become permanent.

For many years, airline efforts to create loyalty programs that keep customers sticking around could not compete with the one deciding factor for customers when purchasing a ticket: price. But the era of the low-cost carrier and ultra-low-cost carrier may now be irretrievably broken. 

"For decades, Americans have been voting with their wallets, showing that what they care about above all else is a cheaper fare," said Kyle Potter, editor of Thrifty Traveler, a travel website and flight deal aggregator. Potter said the insatiable thirst for low fares is what created low-cost carriers like Spirit, Frontier, and others. "I think Spirit's demise last month signals the start of a new era — maybe, a return to the so-called 'Golden Age' of travel ... and one that many everyday flyers may not like," Potter said. 

Recent results from leading carriers back-up Potter's view. Delta Air Lines' 2025 annual revenue hit an all-time high of $58.3 billion, yet the airline actually sold $1.1 billion less in economy tickets than the year prior. Premium ticket sales made up the difference, and 60% of Delta's total revenue now comes from higher-margin lines like premium cabins, loyalty programs, and cargo.

Delta CEO Ed Bastian described a classic bifurcation (the so-called "K-shape") of the airline market, with strength in the consumer sector is at the higher end of the curve, while the lower-end consumer is struggling. "Fares are driven by demand and the demand set that is growing the fastest is the premium sector," he told CNBC earlier this year. "There is a limit to how much supply we can put in … our customer is willing to spend what it takes to sit up front," he added.

United Airlines' results tell a similar story, with $3.5 billion in adjusted net profit for 2025 — up 6% — and premium seat revenue jumping 11% for the full year. It expected record profits this year before war broke out in the Middle East, but has since said that demand remains strong, buoyed by customers who are less price-sensitive.

"Costs like jet fuel — but, perhaps more importantly, paying pilots — are too high to justify the lower fares. Airlines need scale in order to truly compete," Potter said.

It's a chicken-or-egg scenario for would-be Spirits. 

Jet fuel has put a big squeeze on all carriers in 2026, and hit smaller ones that don't have the scale harder.  U.S. carriers spent 56.4% more on jet fuel in March than in February, according to data from the Department of Transportation released last month. They spent a total of $5.06 billion on fuel in March, up from $3.23 billion in February, and 30% more than what they paid in March 2025. 

The situation with the Strait of Hormuz can cause jet fuel prices to rise or fall rapidly. An apparent deal reached between the U.S. and Iran to reopen the strait pushed prices lower this week, and prices have been trending down since their April peak. But for many LCC carriers the damage to their bottom line this year has already been done, and Iranian officials said on Saturday that the strait had been closed again.

"You need scale in order to compete, but to compete, you need scale," Potter said, noting that the Big Three airlines — American, Delta and United especially — have used their scale and their lucrative loyalty and credit card programs to muscle out smaller carriers.

That leaves the existing LCCs to scrounge around for airports that aren't as coveted by the big airlines. If you want to fly to Boise or depart Traverse City, you might score a cheap seat (of course, cheap can be a very subjective term). They are also making efforts to increase their own scale. Allegiant completed its acquisition of Sun Country in May, which its CEO said was a deal made to create a "more differentiated and durable airline."

But Potter says there is only so much room for growth in scale. "Allegiant, Breeze, and Avelo have found a lane by flying between smaller second- and third-tier cities where the big guys just aren't really bothered. If one of them tries to grow to be nationally relevant, you can bet the Big Three will bring the hammer down," Potter said. 

Airlines have been scrambling since Spirit's demise to realign to the landscape. Southwest, the Dallas-based carrier long known for its no-assigned-seats model (that model ended early this year), pulled out of O'Hare International Airport this month and is consolidating all its flights at Midway.

JetBlue, the New York-based airline that markets itself as a premium low-cost carrier, is ceasing service to the Manchester, New Hampshire market (which the airline billed as Manchester-Boston) on July 7. It is also planning to double down on its Ft. Lauderdale exposure, while reducing flights at New York City's LaGuardia and New Jersey's Newark airport, CNBC reported this week.

Scott Schaefer, chair of the Economics Department at the University of Utah's David Eccles School of Business, said the remaining low-cost carriers will have trouble filling Spirit's void. 

"The challenge is that in a high-fuel-cost environment, the number of routes that can be profitable is smaller than it was prior to the Iran war. This means that Allegiant and Breeze won't be filling all the holes left by Spirit anytime soon," Schaefer said. 

The void being filled is not a very large one, either, Schaefer said, noting that only 2 percent of the flying public chose Spirit. 

Breeze says it's building a better business model

For its part, Salt Lake City-based Breeze Airways, a startup carrier founded in 2021 by JetBlue founder David Neeleman, said it isn't operating under the same low-cost carrier structure as Spirit. 

"Breeze is often miscategorized as a ULCC or budget carrier either because of our low fares or because many people still don't know us, but our model is fundamentally different," a Breeze spokeswoman said. 

She said that instead of competing on the same routes as other carriers, Breeze prioritizes routes that are underserved or unserved from secondary airports and flies them nonstop — giving travelers convenient, direct access to destinations they'd otherwise have to drive hours to reach or connect through congested hubs. 

A recent check of Breeze fares showed, for example, a round-trip flight from Albany to Tampa in July at $400 for a base rate, but additional tiers were available at higher cost, with the highest topping out at $575, which includes a first-class seat, two checked bags, and free Wi-Fi. 

Neeleman has previously stated a goal of completing an initial public offering by 2027,  but there are no updates on when that might happen.

"We haven't made any official announcements," the Breeze spokeswoman said, adding that there are many challenges with trying to IPO now. "There are many factors that impact when and whether the timing is right – especially in the current environment – so for now, our focus is on growing smartly and delivering a safe and reliable operation for our guests."

Breeze says it still has plenty of runway to grow, with its network strategy built around connecting communities that have been historically underserved by other carriers including Akron-Canton, Ohio; Kingsport, Tennessee; Evansville, Indiana; and Bend, Oregon, as just a few of the off-the-beaten-path places Breeze serves. 

"The demand in those markets continues to prove out," the spokeswoman said, pointing to the company's 95% airport retention rate as evidence of market need. "We're not growing for the sake of growing; we're adding service where the data supports it and where our nonstop model creates real value for travelers," she said. "We've consistently seen our service stimulate new traffic in markets that other carriers passed over, which only reinforces the case for our model in communities like these," she added. 

Michael Taylor, senior managing director of travel, hospitality, retail, and customer service at JD Power, the global consumer insights and data analytics firm, said Spirit's strongest markets were Fort Lauderdale, Orlando, and Las Vegas. While JetBlue will try to take up the Fort Lauderdale demand left unfulfilled by Spirit's demise, Southwest looks to be in the best position to fulfill demand in Orlando and Las Vegas, he said. 

Europe remains the better geography for low-cost carriers

While Taylor said ULCCs will continue to try to find a foothold in the U.S., Europe is more likely to remain the stronghold for the model. 

"One factor why ULCCs don't fare as well in the U.S. versus Europe is the sheer distance that U.S. flights require. ULCCs make more money by turning around planes as fast as they can," Taylor said, noting that task is made more difficult when flights are more than four hours, as many are within the U.S. 

"Three hours or less can cover a lot of European countries and make ULCCs a better financial bet among those countries that are physically closer than many U.S. city pairs," Taylor said. 

Right now, Europe's budget carriers are feeling the pinch. European jet fuel climbed to a record $1,900 per metric ton, according to Argus, more than double pre-Iran crisis levels. EasyJet absorbed £25 million in additional fuel costs in March alone and posted a headline loss of between £540 million and £560 million for the six months ending March 31. 

"If [the blockade] does continue over … there will be airline casualties in Europe this winter," LCC Ryanair CEO Michael O'Leary told CNBC in May.

Rob Mather, vice president of aerospace and defense at consulting firm IFS, where he works with the commercial aviation sector, said Spirit's collapse shouldn't be read as an indictment of the LCC and ULCC model overall. Mather pointed out that Spirit's struggles long pre-dated the spike in jet fuel prices. 

"It's really the companies that are not doing well already that face immediate consequences from the pressure, rather than the LCC and ULCC model per se," Mather said. 

But Mather said even if the Strait of Hormuz returns to pre-war normalcy soon, there are some hints that maybe lowest price isn't the deciding factor that it once was for travelers, and thereby, the carriers.

"The LCC and ULCC models have been facing different pressures already, not related to the current conflict in the Middle East," he said. "Post-2020, there's been a meaningful change in who is flying and what they value. Millennials now make up a larger share of travelers, and they're more willing to pay a modest premium for full-service airlines," Mather said.

A 2024 OAG Traveler Survey showed that 27% of millennials would pay about $100 more to fly with a full-service carrier versus a low-cost carrier, compared to approximately 17–18% of Gen Xers and baby boomers.

Mather said only time will tell whether this trend is a blip in consumer behavior or an enduring course change, but he stressed that the preference isn't primarily about premium seating, but "about the overall experience and support, including automatic rebooking, included baggage, and stronger customer service."

This trend has been reinforced by post-pandemic disruption, he said, where reliability and support became more valuable, and by inflation, which has narrowed the price gap between low-cost and full-service airlines once add-ons are included.

But many customers still want a selection of LLCs. James Jeansonne, who works in marketing at a company in Columbus, Ohio, laments the loss of Spirit. Jeansonne says he is a frequent traveler, and as a single dad, he takes several international and domestic trips a year with his kids or solo. 

"We need a budget friendly, low-cost airfare. The price and travel experience is becoming only available for the top 1%. It's important for families and all travelers to have experiences outside of their backyard,"  Jeansonne said. 

Roxana Colorado, a frequent business traveler and business owner in Tampa, has gravitated towards Frontier Airlines now that Spirit is gone. 

"I do think there is room in the American airline system for low-cost carriers," Colorado said. And she added that the need for it is clear to her. "Small business owners, families, students, caregivers, and people trying to stay connected across cities may not always need a premium experience. Sometimes they need a realistic price," Colorado said. 

Travel experts say customers may need to create their own low-fare experience by taking matters into their own hands. 

"We encourage travelers to think about the full cost of their trip and cut where they can so they can spend money on what they value. Bring your own snacks rather than spending on overpriced airport food, so you have the budget to pick the seat you want," said Audrey Kohout, co-CEO of Luggage Forward, a Boston-based luggage shipping service that helps travelers avoid checked bag fees. 

Now is a good time to start. With the loss of Spirit, the rise in jet fuel costs, and the summer travel in the U.S., the cost of travel is "likely to be pushed to its limits," Kohout said. 

—CNBC's Sawdah Bhaimiya contributed to this report.