Over the past week or so, there has been lots of talk of the government bailing out Spirit Airlines, which is on the brink of liquidation. If finalized, this would almost certainly give the government a 90% stake in the budget carrier. There’s now talk of a much broader industry bailout, which I have to imagine might just become a reality.
In this post:
US budget airlines need more cash to cover high fuel costs
The Wall Street Journal reports on a meeting that happened on Tuesday, April 21, 2026, between the CEOs of some US budget airlines, Transportation Secretary Sean Duffy, and FAA Administrator Bryan Bedford. Executives from Frontier and Avelo, among other airlines, were reportedly in attendance.
Under the proposal, the airlines are seeking a roughly $2.5 billion aid package, which is how much more they estimate they will spend on jet fuel this year compared to earlier forecasts, assuming jet fuel prices remain above $4 a gallon. This support would likely come in the form of warrants that could convert into equity stakes in the company.
Discussions are expected to continue in the coming days, and it remains to be seen what comes of this proposal.
This is just an all-around terrible situation for airlines
It goes without saying that the Iran war is having massive unintended consequences for airlines. While the full service carriers are doing a surprisingly decent job raising fares, budget airlines have a harder time doing so, given that they generally go after more price conscious customers.
I’ve been vocal about how I think it’s a bad idea for the government to specifically and exclusively bail out Spirit. That comes down to a few points:
- Spirit was already on the verge of liquidation before this spike in oil prices, as it has been through Chapter 11 bankruptcy twice, and I have a hard time making sense of how the carrier has any realistic prospects
- Even if the airline gets support, it’s not clear how this would help with competition in the long run, since Trump’s stated goal is to just sell the airline to another carrier, so it’s not like it would preserve ultra low cost carrier competition
- I don’t like the idea of essentially nationalizing our aviation industry, and having the government play favorites with airlines
- Lots of airlines are struggling financially, so why should Spirit get support, but not other airlines?
What do I make of this proposal? I’m not sure. On the one hand, we have to acknowledge that the entire low cost and value carrier sector is in massive trouble if oil prices stay where they are. We’ll see huge reductions in capacity, and more liquidations, if nothing is done, and that’s bad for consumers.
On the other hand, essentially nationalizing our airline industry doesn’t make much sense to me either. These loans would convert into equity, but does the government really want equity in airlines that are continuing to lose massive amounts of money, even if oil prices do eventually go down?
Furthermore, as mentioned above, Trump’s goal seems to be to sell these airlines at a profit, but that’s unlikely to be successful, and that also doesn’t preserve capacity among value carriers, since it would almost certainly be the profitable (full service) airlines doing deals.
At the start of the pandemic, we saw airlines get $54 billion in government support via the CARES Act, at a time when all airlines needed help. What’s different about this situation is that airlines like Delta and United are doing fine, while others are struggling. They certainly don’t need support, but how do you otherwise go about doing this fairly?
Folks, I’m stumped. I’m more in favor of the government giving widespread support to airlines, rather than just supporting the single airline in the worst situation. But if the government just ends up owning all unprofitable airlines, well… that seems silly?
Bottom line
Value carriers in the United States are in crisis mode, given that they’ve largely been losing money for years, and a doubling of jet fuel costs is unsustainable for them. So they’ve met with leaders in DC, and proposed $2.5 billion in support, and that could convert into equity.
On the one hand, if these airlines don’t get support, we’re about to see a lot more bankruptcies, and possible liquidation. On the other hand, the government basically owning the entire low cost airline industry also doesn’t strike me as a great idea.
What do you make of this proposal, and how do you see it playing out?
Put Donny onto a LCC airline and fly into the sun.
One is minded to ask …. Would the failure of the LCC’s be healthy or even necessary in the longer term?
Alternatively, with government intervention would this prevent larger economic shocks and therefore justify such intervention?
Then one has to consider other transport industries, if airlines are rescued due to the fuel costs, will the government assist the road haulers, train line operators, shipping companies or energy intensive industries?
Could this home grown financial...
One is minded to ask …. Would the failure of the LCC’s be healthy or even necessary in the longer term?
Alternatively, with government intervention would this prevent larger economic shocks and therefore justify such intervention?
Then one has to consider other transport industries, if airlines are rescued due to the fuel costs, will the government assist the road haulers, train line operators, shipping companies or energy intensive industries?
Could this home grown financial crisis have been avoided if Mr ‘rump had kept his nose out of the Middle East?
One is sure that either Tim Dunn or 1990Bot will put me straight on these questions.
If Donald Trump says it, it's conservative now!
No. We don't need a socialist bailout for airlines, especially ULCCs. Socialism is the worst disease we have on this planet (see my friend Sean Hannity's 2000 book "Live Free or Die", Chapter 4: "Socialism, A History of Failure"; we need to stop the' spread of this cancer.
An interesting submission Jeff. Sean Hannity’s books are often viewed it as clarifying and important by his Conservative followers. While Leftists, Liberals or centrist readers: often see them as partisan and lacking distinction.
Assuming B6 follows suit, merge with the LCCs then spin off the combined entity. That’s the only way this could possibly make any sense.
Take em over. Abolish their unions. Gov officials and contractors must fly them. No taxes on their tickets. Give them coveted slots. Maybe even pass the CCCA? High dollar government cargo contracts.
Of course I don’t believe in any of that (well maybe the unions), but the Feds could get creative and get closer to profitability.
If the LCC model doesn't work with fuel prices over $4/gallon, then the LCC model doesn't work anymore. Sure it's high now because of Iran, but the idea that fuel prices will never be high again isn't realistic either.
Competition is of course good, and I don't want them all to fail, but if they need bailing out every time fuel prices go up then it just doesn't work anymore.