Spirit Airlines Crisis Exposes Cracks in the Budget Airline Model

Rising jet fuel costs tied to the Iran war are testing the viability of budget air travel.

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Published Apr 30, 2026

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The war in Iran is stress-testing budget airlines, highlighting weaknesses in the model itself and raising fresh concerns for investors, travelers and policymakers.

Jet fuel prices have roughly doubled since the U.S. and Israel attacked Iran on Feb. 28, and the pressure on airlines hasn’t been evenly felt. Airlines with more pricing power can just pass higher costs on to customers. Ultra-low-cost carriers — built on rock-bottom fares and razor-thin margins — don’t have that luxury.

Fuel costs continue to spike after the blockade of the Strait of Hormuz — a key chokepoint that handles roughly 20% of global oil supply. The impact is hitting Europe hardest due to its reliance on Middle East jet fuel — in mid-April, the International Energy Agency Executive Director Fatih Birol said Europe may only have six weeks of jet fuel remaining. U.S. airlines are also bracing for higher costs: Last week, the U.S.-based carrier United said it may need to increase airfares by 15% - 20% to offset jet fuel spikes.

The most visible casualty in the budget space is Spirit Airlines. It has filed for bankruptcy twice in the past 18 months, and the fuel surge has piled hundreds of millions in unexpected costs. Spirit is now in talks over a potential $500 million government bailout to stay afloat.

What’s not clear is if this is a Spirit Airlines issue, or a larger warning sign about the limits of the ultra-budget model. Airlines across the board have started cutting routes, shrinking fleets, adding fuel surcharges, and raising fares — with airfare costs already up roughly 15% year-over-year. Meanwhile, investors are reassessing carriers like Frontier (ULCC) and Ryanair (RYAAY). Shares of both are down more than 15% so far in 2026.

For travelers, it raises a practical question: What happens to cheap flights if airlines can't survive fuel spikes?

To break it down, three NerdWallet writers weigh in:

Anna Helhoski, economic news
Craig Joseph, travel
Sam Taube, investing

This conversation has been edited for clarity and length.

Anna Helhoski: Sam, I'm wondering if you can start by walking us through the economics of the situation, how the oil price has been affected by the war in the Middle East this year, and what does that have to do with airlines?

Sam Taube: In the first couple of months of this year, the market price of a barrel of oil, as measured by the Brent crude benchmark, was generally less than $70. And within a couple of weeks of this war starting, it jumped up to more than $100. Even when there's been brief bits of good news about a ceasefire or about the Strait of Hormuz temporarily reopening, it generally hasn't gone below $90, which is still a pretty large increase from where it was before all this went down.

There was a recent report from the Energy Information Administration that said that even after this war ends, it’s going to take a few months for oil flows through the Strait of Hormuz to go back to normal, and so prices are going to stay high for a while. So industries like airlines that are heavily exposed to the price of oil are not going to get quick relief anytime soon.

AH: Let's talk about how this affects airline passengers. So Spirit claims, for the time being, that its flights and loyalty programs are operating as usual, but, Craig, how credible is that claim? Are there historical examples of what happens to airline loyalty programs and their members when an airline gets in deep financial trouble like this?

Craig Joseph: Unfortunately, airlines filing for bankruptcy is nothing new. The three major airlines in the U.S. have declared bankruptcy under Chapter 11 over the last 25 years. All of this leads to industry consolidation, which at the end of the day is bad for consumers, who are left with less choice.

In the case of loyalty programs, those bankruptcies didn’t have much of an impact on the ability to earn or redeem miles or flight vouchers, or benefits offered to passengers with elite status.

In the case of Spirit, it first filed for Chapter 11 in November of 2024 and the court-approved restructuring process actually kept the airline's loyalty program — called Free Spirit — completely intact.

From a loyalty program perspective, you wouldn’t know that the airline was undergoing bankruptcy proceedings if you didn't pay attention to the flight schedule, in which Spirit has removed about a third of their flights while they sell aircraft and do whatever they can to decrease their operational costs.

Most modern airline loyalty programs are structured as individual entities separate from the airline itself. And that's largely so they can't be touched in these bankruptcy restructurings. Those programs basically operate as banks that represent the most profitable part of nearly every airline. So it makes sense that bankruptcy courts would want to keep that intact because it acts as sort of a carrot for creditors or for potential merger partners or for investors to point to and say , OK, this thing has value.

AH: What's the worst case for consumers if Spirit is forced to cease operations?

CJ: Liquidation is the worst thing that could happen to consumers right now. Because the loyalty program is structured independently of the airline, it would still exist, but there would be nowhere to redeem your miles or flight vouchers or credits and things that have value only on Spirit Airlines. So effectively, the loyalty program would become worthless with nowhere to redeem miles and flight vouchers.

AH: Let's dig into what this economic situation could mean for other budget airlines. Sam, how's the stock market treating other budget carriers lately?

ST: They're not doing well. Shares of Frontier, which is another big ultra-budget carrier, are down near 20% as of this conversation, and Ryanair, which is one of Europe's biggest budget carriers, is down almost 25% this year. This increase in costs really squeezes airline profit margins, and a regular airline that isn't in this budget category probably has more room to absorb that by increasing ticket prices. But the whole point of budget airlines is that they're supposed to be cheap. And so the prospect of passing on higher fuel costs to consumers in the form of ticket prices really threatens their entire value proposition, and it's a real threat to this business model.

There was a report in the Wall Street Journal last week that a consortium of domestic budget airlines, including Frontier, is preemptively seeking a bailout. So although Spirit's competitors may not be quite in as dire of a situation as Spirit is, they're definitely hurting as well.

AH: From an investing perspective, what does this crisis mean for shareholders of budget airlines or those considering trading these stocks?

ST: It's hard to say. These other airlines, as we said, don't seem to be in quite as deep trouble as Spirit, at least not yet. There's a possibility that they could make a comeback, and if they do, then in retrospect people might see this period as a time when these stocks were on sale. You could make an argument that they might be a value play.

But on the other hand, there are past examples of distressed airline stocks that have done so poorly that they got delisted from the stock exchange and in those cases investors lost more or less everything.

Spirit Airlines used to trade on the New York Stock Exchange under the ticker symbol SAVE. But during its first bankruptcy in 2024, Spirit stock did so poorly that it fell under the minimum price to stay listed on the New York Stock Exchange. It was delisted at the end of that year, and it now trades off-exchange as a penny stock.

This kind of situation illustrates the risk of investing heavily in individual stocks and it’s why a lot of advisors recommend building an investment portfolio primarily out of things like index funds and other diversified investments. One common rule of thumb here is to limit individual stocks to 10% or less of your overall portfolio.

AH: Craig, what might this industry-wide strain mean for passengers? Have you heard any rumblings about service cutbacks or perks cutbacks from any other budget airlines?

CJ: Cutbacks are happening across the board. It's not just budget airlines, it's the entire industry. And you can probably guess that increased operational costs due to high fuel prices lead to increased prices for consumers.

International airlines like Air France and Japan Airlines have already announced an increase in fuel surcharges on their tickets. Most of the domestic airlines, including budget carriers like Frontier and JetBlue, have dramatically increased their checked bag fees.

Since jet fuel is one of the largest expenses for an airline, I can only envision a world in which sustained high fuel prices lead to increased route cutting, potential consolidation and to less choice for consumers. And unfortunately, scarcity usually leads to higher prices.

AH: Craig, what can flyers do to stay ahead of this situation? There's been some concern that there won't be enough jet fuel to meet demand in Europe several weeks from now if the Iran war continues, and we're already seeing some summer flight cancellations. Personally, I have a flight already booked on Ryanair from Amsterdam to Dublin in June. What are my options?

CJ: So the best thing that you can do is remain flexible. If you've already locked in your ticket, there's not a whole lot that you do. If you're looking at a flight and a budget carrier like Ryanair is your best option, then the best thing you can really do is book with the right credit card that offers you travel protections through its card benefits.

If you are looking to decrease costs, you can use an airline card that gives you perks like free checked bags or airline incidental credits. You can also look for refundable airfare. If you don't have a problem with booking multiple tickets, you could do that just to have an extra option. It might cost a little bit more out of pocket upfront, but as long as it's refundable, generally you’ll get your money back if you cancel within 24 hours before takeoff.

Take your Ryanair flight, for example. There should be a few different airlines that compete on that route, and you can protect yourself by booking a refundable flight on a non-budget carrier just in case. It may not save you money in the long run, but it would give you another option and not leave you freaking out at the airport if Ryanair cancels the route the day before your flight.

AH: Yeah, I'd like to avoid freaking out just in general, but especially while traveling alone. Is there anything else that consumers should know about to kind of stay ahead?

CJ: I advocate for focusing on what you can control. Plan for the worst and hope for the best. From a personal finance standpoint, airline miles are there to be used. It's monopoly money. It's not redeemable for cash. Flight prices are going up. Use your miles. Use your points. Use them to stick cash back in your pocket because that has a lot more flexibility than the airline and credit card currencies.

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