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Fall isn’t in the air yet here in South Central Texas, but the season is often associated with something else: stronger performance in airline stocks.

Looking back over the past 20 years, airline equities have tended to outperform in the final three months of the year, with the NYSE Arca Global Airlines Index gaining over 3% on average in October; this is followed by an even stronger showing in November and a 3% increase in December on average. According to the Bank of America, the industry has historically outperformed the S&P 500 in three of the last six months of the year—namely September, October and November.

Knowing this, now might be an ideal time to consider increasing your exposure to the global airlines industry. To learn more, send an email to info@usfunds.com with the subject line AIRLINES.

Restructuring and Consolidation Continue to Reshape U.S. Aviation

You might have seen the news this week that Spirit Airlines has filed for bankruptcy for the second time in less than a year.

To some, this is proof that the ultra-low-cost carrier (ULCC) model, which Spirit helped pioneer, is on its way out.

But for those of us who’ve been following the airline industry for years, this is simply the latest chapter in a familiar story of resilience and consolidation.

Between 2002 and 2007, several household airline names entered bankruptcy protection. Those included US Airways, which restructured twice in the span of three years; United Airlines, which spent four years reorganizing under court supervision; and Northwest Airlines and Delta Air Lines, which filed in 2005 and emerged two years later.

These restructurings were painful but necessary. Airlines shed excess debt, renegotiated labor contracts and modernized fleets.

They also introduced new revenue streams. Ancillary fees—those charges for checked bags, seat upgrades and snacks—went from being ridiculed to becoming a crucial profit center.

By the time the financial crisis hit, airlines were leaner and better equipped to withstand shocks. US Airways merged with America West in 2005, and Delta absorbed Northwest in 2008. These combinations have given rise to the competitive landscape we know today, dominated by four major carriers, hotly pursued by Alaska Airlines, which finalized its acquisition of Hawaiian Airlines last year and now controls a little over 6% of the domestic market.

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Can the ULCC Model Survive?

I’m not trying to sugarcoat Spirit’s situation. The airline emerged from Chapter 11 just this past March after restructuring roughly $1.6 billion in debt, only to find itself back in court by August.

It’s worth remembering that Spirit was once the poster child for the ULCC model. Its no-frills approach—non-reclining seats, fees for carry-ons and à-la-carte pricing—allowed it to offer rock-bottom fares that attracted price-sensitive travelers. Ancillary revenue became its lifeblood, with nearly 59% of its total revenue in 2024 coming from add-ons, according to IdeaWorks data. That put Spirit near the very top of the global rankings.

The Nickel-and-Diming Backlash

But the ULCC formula has come under pressure in the U.S. Some consumers have grown weary of “nickel-and-diming,” and legacy carriers have learned to compete aggressively with their own stripped-down basic economy fares. Bill Franke, Frontier’s chairman and one of the architects of the ULCC playbook, recently admitted that “the original ultra-low-cost model is gone for good in the U.S.”

That doesn’t mean the model has no future. It still thrives in Europe, Latin America and Asia, where competitors like Ryanair, Wizz Air and Volaris are profitable and expanding. But in the U.S., where customer expectations are higher and competitors more entrenched, some ULCCs face an uphill battle.

Air Travel Demand Reaches New Heights

At the same time, it’s important not to lose sight of the fact that demand for air travel is booming.

This summer, the Transportation Security Administration (TSA) screened record numbers of passengers. Over the Labor Day weekend alone, nearly 10.4 million travelers passed through airport security, a 3.3% jump from last year. Eight of the 10 busiest days in TSA’s two-decade history occurred just this summer.

Globally, passenger traffic grew 4% year-over-year in July, according to the International Air Transport Association (IATA). International routes were particularly strong, rising 5.3%. And here in the U.S., travel exports—foreign visitors spending on U.S. goods and services—hit an all-time high of $126.9 billion in the first six months of 2025.

Corporate Bankruptcies Surge to Post-Crisis Highs

Of course, we can’t ignore the macroeconomic backdrop. Spirit’s downfall is partly the result of higher interest rates. After years of cheap credit, the Federal Reserve hiked aggressively beginning in 2022, pushing borrowing costs above 5%. Corporate bankruptcies spiked, reaching their highest level since 2010.

Airlines, like other capital-intensive industries, rely heavily on debt financing. Elevated rates increase debt service costs, squeezing margins.

But remember: the majors are better positioned today than they were in the early 2000s. Balance sheets are stronger, cash reserves are larger and fleets are more efficient.

What’s more, the Fed cut its benchmark rate by a full percentage point late last year and has kept it steady in 2025. That policy shift, combined with cooling inflation, should ease some of the pressure on corporate borrowers going forward.

Airlines Add Capacity Ahead of Busy Winter Travel

I don’t believe Spirit’s bankruptcy should be taken as a bellwether for the entire industry, which is consolidating and streamlining.

The upcoming winter travel season looks set to be one of the busiest on record. United, Frontier and others are already adding capacity to key leisure markets like Orlando, Las Vegas and Fort Lauderdale.

For long-term investors, that’s an attractive setup.

Spirit is in trouble, yes, but the industry as a whole is in a far different position than it was 20 years ago. I’ve seen this movie before, and I think I know how it ends: with stronger airlines and better opportunities for investors who stay the course.

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