Misleading New York Times Essay Blames Your Miles For Killing Spirit Airlines—Author Wanted Miles Banned 34 Years Ago

The New York Times published a particularly weak argument that co-brand credit cards killed Spirit Airlines. It describes the billions that American, Delta and United borrowed against their frequent flyer programs, acting as though Spirit didn’t do the same thing on more than one occasion. And if offers a misleading explanatin fo why the airline failed. The author, Mark Kahan, left Spirit in September 2006, just as the airline was adopting the business model that made it successful. He wasn’t part of the leadership that made the airline successful, or that dealt with its problems at the end. Spirit Borrowed Against Its Loyalty Program, Too Kahan suggests that airline credit cards gave Spirit’s competitors access to too much capital, and that was an unfair advantage. It’s precisely this access to capital that preserved these businesses through the Great Recession and pandemic, Spirit had this access too, and they all got plenty of government cash as well (Spirit received over $750 million in direct cash and subsidized loans from the federal government during Covid). What matters more is that these programs function as collateral, giving the biggest airlines access to inexpensive capital that their smaller rivals can’t match. Kahan lists the big airlines’ loyalty-backed financings, then says Spirit wasn’t important enough to Bank of America to receive the same backstop. The loyalty-backed debt airlines floated during the pandemic wasn’t provided by their cobrand issuers. He doesn’t know, or intentionally doesn’t tell you, that Spirit Airlines did the exact same thing. In September 2020, Spirit issued $850 million in secured debt backed by Free Spirit credit card cash flows, its membership club, associated intellectual property and its brand (such as it was!). In November 2022, those subsidiaries issued another $600 million. After an intervening $340 million repayment, the outstanding balance was $1.11 billion. That’s $1.45 billion in issuance through the financing mechanism the essay presents as not available to Spirit. Fuel Isn’t What Caused Spirit To Fail He writes that Spirit wasn’t able to come back out of bankruptcy because of the increase in fuel prices stemming from the Iran war. a spike that ultimately proved fatal to Spirit’s plans to restructure Higher fuel prices didn’t help, but they aren’t why Spirit failed. In November 2025, already inside its second bankruptcy, Spirit reported $239 million in operating revenue and $311.7 million in operating expenses. That’s a $72.7 million operating loss and a negative 30.4% operating margin, months before the Iran war. Its entire fuel bill that month was $65.8 million. Even free fuel wouldn’t have produced an operating profit. By December, other airlines were preparing for a possible Spirit shutdown – again before the run up in jet fuel. Another $100 million in financing depended on a sale or standalone plan acceptable to lenders. No plan had yet been filed. The fuel spike meant Spirit was burning cash even faster, but they never managed a credible plan to turn around the business. They had lost control of costs. They had a toxic brand. And they no longer had the product customers wanted to buy. You Can’t Make Money As A Low Fare Carrier With High Costs Summing up who Spirit used to be had nothing to do with the airline that was in its second bankruptcy. It has nothing to do with how well an airline is run — Spirit ran circles around bigger rivals on cost discipline for decades Spirit’s operating cost per available seat mile increased from 7.97 cents in 2019 to 11.28 cents in the first nine months of 2025. That’s 41.5%. Labor inflation and engine groundings mattered, and reduced flying spread fixed costs across fewer seats. (But they were losing so much money they actually needed to cut back flying, it’s not clear that being unable to fly as much was hurting them.) The old, successful Spirit Airlines would never have opened an 11-acre headquarters campus while losing money. As I explained before the shutdown, Spirit lacked the product customers increasingly wanted. Low fares still mattered, but at the same fare, a passenger could choose a bigger airline with a broader schedule, better recovery options, and often a better seat, app and onboard experience. Spirit needed a substantial discount to compensate. Rising costs made that harder. Its belated premium ambitions didn’t instantly give it a premium reputation or a competitive route network. Card Revenue Isn’t Free Money Characterizing frequent flyer revenue as free money is strange. Major airlines see them as free money, which they can use both as a weapon against carriers like Spirit and as a cushion against shocks such as the Iran war. Airlines sell banks miles, benefits and access to customers. They incur costs delivering benefits. It’s a profitable business run on top of being positioned to sell the dream of travel to large numbers of people, whether it’s a European river cruise, an African safari, or exploration of the ruins at Chichen Itza. Borrowing against these programs also meant interest payments, and that’s not free either. I just took apart Frontier CEO Jimmy Dempsey’s version of this argument. You can’t assign the network’s costs to flying and then treat the card revenue that network makes as unrelated money. Frequet flyer programs support more flying. Southwest’s move into Hawaii supported its credit card, because without partners that fly to Europe it gave them something aspirational to offer cardmembers for their points. And that supports lower fares in the Hawaii market, and desperately-needed connectivity within the Hawaiian islands (that Southwest offers in part to squat on major airport gates). Delta is adding Austin service to access cardmember spend there. Pull the plug there and you have fewer flights, fewer seats and higher fares. Spirit’s Demise Isn’t The Reason For Higher Fares He plays sleight of hand to suggest losing Spirit Airlines is driving up fares. Spirit completed its last flight on May 2. By August, U.S. airfares had risen 23.4 percent over the prior year. He’s engaging in the post hoc, ergo propter hoc fallacy. And he’s not even all post hoc. The 23.4% figure includes eight months before Spirit stopped flying. Fares were already rising before the war. Much of that is attributable to jet fuel, that Kahan complains about elsewhere. (Higher fuel costs mean some flights are no longer profitable to operate, airlines pull back on capacity growth and fewer seats on the market means higher prices holding demand constant.) Spirit’s withdrawal reduced competition in some markets. It had already shrunk significantly as pat of its turnaround plan – to the point where its size was almost immaterial in the domestic market. But the real piece of the story that’s missing is that July fares were roughly 20% below the 2016 average after inflation. Updating that calculation for August’s 2.7% airfare increase and 0.4% overall inflation leaves real fares roughly 18% lower. There’s been a run up in airfares during the Iran war, but the long-run trend is sharply down. There was a spike in fares in 2022 coming out of the pandemic, too. There was a surge in consumer demand and airlines weren’t positioned to fully take advantage of that (they’d promised that pandemic subsidies would keep them ready to fly when customers returned but they didn’t really use the money that way). His Credit Card Processor Story Is Misleading Kahan says: That processor withheld $200 million from Spirit in 2024 and another $50 million in 2025. Spirit’s filings describe the $200 million differently: it was a compensating deposit balance that didn’t legally restrict the airline’s use of the cash. Spirit continued reporting it as cash and cash equivalents. A separate $50 million deposited in 2024 was restricted. There was another $50 million restriction in 2025, and later actual holdbacks. Those squeezed liquidity. But Kahan conflates what’s going on here. He also dismisses potential refunds as “a total it would never have paid.” An airline that keeps flying can work down its advance ticket liability, although this was an airline already shrinking in half that wasn’t going to operate all the flights it had sold even if it had continued flying. And an airline that stops flying leaves customers owed refunds. The credit card processor needs to have access to those funds to return them to passengers. A credit card processor’s decision can accelerate a cash crisis. Former American Airlines CEO Doug Parker said that the downing of US Airways 1549 in the Hudson got him out of a meeting with American Express before they could inform him they were going to start credit card holdbacks. He suggested that Captain Sully’s flying saved the airline that day in more ways than one. Airport Access Is A Real Problem. His Remedy Wouldn’t Fix It. He wants the government to ban… borrowing money against airport slots as well as frequent flyer programs? Regulators let the Big Three merge and consolidate over the decades and handed them scarce takeoff and landing slots for nothing. …But they could prevent airlines from pledging airport slots and international route rights to lenders as collateral for private borrowing. They could also prevent the biggest carriers from using loyalty programs as collateral. Smaller airlines who don’t have the same leverage should still be able to — including JetBlue, which is at risk of being driven into the arms of a bigger player, such as United. Airport access is a legitimate complaint. I’ve made it repeatedly. Slots and gate arrangements can keep limit competition. Congestion pricing would be far better. Slot restrictions are in place at Washington’s National airport, New York LaGuardia and New York JFK. Spirit had LaGuardia slots! They also had access at Chicago O’Hare, and sold their gates to American and to United. How on earth banning borrowing against a frequent flyer program would have helped Spirit, when it would have blocked their access to over a billion dollars is unclear. And how JetBlue’s further borrowing, when they’re already swimming in $9 billion debt, will help them turn around their finances is… nonobvious. Banning Loyalty Programs Takes Away Something Customers Value Kahan also wants to ban frequent flyer programs entirely, citing Ganesh Sitaraman? He proposes regulating the airlines like public utilities — perhaps even imposing price controls — and outlawing loyalty programs of any kind. Kahan rejects Elizabeth Warren advisor Sitaraman’s call for a return to pre-1978 airline regulation (when the government directed where airlines could fly and purposely kept airfares high – Spirit Airlines itself would have been illegal). Indeed, as I’ve argued about Sitaraman, eliminating competition doesn’t cure a lack of competition. Nor does banning rewards create better service. Passengers can value cheap basic economy, extra legroom, first class, lounges or international award travel. Offering different products at different prices far better than a single government-directed model. Spirit’s card was less compelling partly because the reward for flying Spirit was more flying Spirit. Banning a better reward doesn’t improve Spirit’s seats, schedule, or service. Making Competitors’ Financing More Expensive Doesn’t Make Flying Cheaper The suggestion that larger airlines shouldn’t be able to borrow against frequent flyer programs is just saying that their cost of financing should be higher. They wouldn’t be allowed to pledge their best assets when they borrow, so they’d have to access less secure or unsecured debt financing, paying higher interest rates. Rather than supporting competition and lower fares, it restricts the growth of major carriers and removes seats from the market. That drives up prices. And banning the ability of airlines to raise debt backed by loyalty program revenues simply pushes them back to their prior (Great Recession) strategy of relying more heavily on cobrand card-issuing banks, which previously lent money backed by future point purchases (alternatively described as pre-purchasing miles at a discount, often a billion dollars at a time). That makes the airlines even more dependent on their bank partners, not less. The essay ends by invoking Southwest’s old role in holding down prices. Southwest had a Chase card partnership dating to 1996. It did a deal with Chase for liquidity during the pandemic as well. And the existence of these programs doesn’t explain why Spirit’s business stopped working. The Real Axe He’s Grinding Kahan is an aviation lawyer with clients. That’s not identified in the Times piece, they only note his past association with Spirit and a teaching position. It’s not clear whether any of those clients have an interest in these issues. What’s striking, though, is that he was Assistant Director of Fares, Rates, and Tariffs at the Civil Aeronautics Board in the late 1970s, and he argued for the banning of frequent flyer programs in 1992. The axe he has here isn’t new and doesn’t actually appear related to Spirit Airlines. He wrote 34 years ago that the benefits of these programs are “dwarfed by their discriminatory and anticompetitive consequences.” And he argued that the IRS should tax frequent flyer miles, rather than waiting for Congress to act. Kahan argued that what was needed was ‘more Southwests’ but Southwest wasn’t even allowed to fly beyond the borders of Texas in the regulated era. And he argued that frequent flyer programs led to higher fares – but fares have plummeted about 28% in real terms (inclusive of fees) since he wrote that. In other words he’s been wrong about the direction of the airline industry, what delivers low fares, and frequent flyer programs for decades. And he’s wrong when he tries to use the demise of Spirit Airlines to resurrect that hobby horse. (HT: Paul H.) Topics on this page