It was recently reported that Spirit Airlines might be on the verge of liquidation, and that it could happen within days. The airline is in Chapter 11 bankruptcy (for the second time in two years), and while the company was hoping to emerge from bankruptcy by early summer, that strategy seemed hopeful at best. As you might expect, the current price of jet fuel has probably thrown a wrench in those plans, so there’s another update…
In this post:
Spirit Airlines asks for government bailout to stay in business
The Air Current reports that Spirit has asked the Trump administration for hundreds of millions of dollars in emergency funding to be able to stay in business, to offset the increase in the cost of jet fuel. This is according to “sources familiar with the discussions.”
It’s also reported that executives from several low cost carriers are going to meet with Transportation Secretary Sean Duffy in the coming days, in a meeting that was reportedly requested by the Department of Transportation (DOT), to determine the financial health of smaller airlines.
We’ll see what comes of this. Spirit’s request is one thing, but it’s clear more broadly that the government wants to look at the current situation at airlines, and determine for how long it’s sustainable.
Should airlines get financial support from taxpayers?
In fairness, there is a precedent for taxpayers bailing out airlines, as we saw at the beginning of the coronavirus pandemic. At the time, the CARES Act provided airlines with over $50 billion in funding so that they could stay in business, given the extent to which demand dropped off a cliff.
As I see it, there are two different topics here — Spirit’s situation specifically, and then the overall question of whether airlines should get support.
On the topic of Spirit… I really respect the airline, I think it gets an unfairly bad rap, the airline helps keep the legacies in check, and I’m sad if employees lose their jobs due to liquidation. However, this just seems like an intent to delay the inevitable. Spirit’s financial situation has been very bad for a very long time, and based on what we know, the carrier’s margins are very bad.
I don’t want to be unsympathetic, but I don’t think taxpayer money should go toward keeping one struggling airline alive, essentially just subsidizing airfare for a matter of months.
The topic of broader industry support is also one that I think will be discussed more in the coming weeks. I’m not sure what the legal mechanism is by which this could be done, or how it would even be done, but we’ll see how this all plays out. If oil prices stay very high, even the world’s most profitable airlines will be losing money, and the industry could be radically reshaped in a short period of time.
It’s honestly hard to discuss this topic without being accused of “oh, don’t get political,” even though global politics impacts virtually every aspect of the world, so can’t be ignored. Political disagreements is what caused this current conflict.
I guess part of the issue with discussing this topic honestly is that Trump is acting as if the war is done, everything is back to normal, and nothing is wrong.
The Strait of Hormuz is open and will never close again, he claims. Oil prices aren’t high, he claims. It really feels like so much that’s going on is about market manipulation for the purposes of insider trading, rather than an actual accurate reflection of what’s going on.
I’m sure some people will accuse me of “TDS,” but I don’t believe the current conflict is anywhere close to over. And if you disagree with me, please, by all means go on record and say so. Trump claims he has ended eight wars, and Iran is the ninth war he’s ending… it’s hard to take that narrative seriously.
My point is to say that if this is really the end of the conflict with Iran, and in the coming weeks oil prices go back to where they were a couple of months ago, then most airlines will be fine. Meanwhile if the impacts of this will continue to be felt for many months or even years, then the airline industry could be radically transformed.
Bottom line
Spirit Airlines has reportedly asked the Trump administration for an emergency bailout worth hundreds of millions of dollars, as the airline is on the verge of liquidation. Personally I have a hard time supporting that request, given that this just seems like something that will delay the inevitable. We’ll see if anything comes of this, because otherwise, Spirit’s days may be very numbered.
Meanwhile Transportation Secretary Duffy is reportedly calling a meeting with executives from smaller airlines, to determine their financial health, more broadly. It’s anyone’s guess how long jet fuel prices stay way elevated, and most airlines can only sustain that for so long.
What do you make of Spirit’s bailout request?
Ben,
Maybe you can do a story about the supply-chain and economics of airline/jet fuel? My understanding is that airlines contract out months (if not years) in advance for fuel and have or should have some contingencies for huge spikes in prices and availability. Didn't Delta buy their own refinery years ago to mitigate against just things? Sure, the price of oil, gas, and jet fuel might be going up (other than the huge...
Ben,
Maybe you can do a story about the supply-chain and economics of airline/jet fuel? My understanding is that airlines contract out months (if not years) in advance for fuel and have or should have some contingencies for huge spikes in prices and availability. Didn't Delta buy their own refinery years ago to mitigate against just things? Sure, the price of oil, gas, and jet fuel might be going up (other than the huge drop today) - but was is the real impact on the overall industry and business. It is not like an airplane just pulls up to a local BP/Chevron/Shell/etc station and say "fill'er up, here is my credit card".... although maybe if Spirit had their own credit card they could use it to pay for gas (didnt you have a story about someone putting $1m on jet fuel on an AmEx years ago?) and leverage it against a loyalty program like the Big Boys?
There should be no bailouts for any or all airlines without meaningful worker and consumer protections (like EU261) included as a stipulation.
Of course this government is looked into a bailout. Conservatives love oligopolies and they love to privatize profits and socialize losses so this is right up their alley.
laissez faire, that’s how capitalism works. Harsh but, if you can’t build a better mousetrap, you will not succeed. The pilots and mechanics will find a better, more secure work place, because they have licenses that are a ticket to a good life and great earnings. The rest of the unskilled workers are in a growing economy and should be okay, if they persist. Screw the lenders, they rolled the dice and lost. No one...
laissez faire, that’s how capitalism works. Harsh but, if you can’t build a better mousetrap, you will not succeed. The pilots and mechanics will find a better, more secure work place, because they have licenses that are a ticket to a good life and great earnings. The rest of the unskilled workers are in a growing economy and should be okay, if they persist. Screw the lenders, they rolled the dice and lost. No one should bail them out. Airfares in this country are too low, Spirits than demise will help balance the scales. Hey there’s always F9 and Allegiant for the cheap fares. @Ben, I don’t think you necessarily suffer from TDS, at least your blog is even handed.
you do realize that AA's profit margin over the past 10 years is far worse than NK's?
your logic is sound until it is applied to your employer
How far back do you want to go back with this idea, Tim? 10 years may help you out but 20 won't since your beloved delta was completely bankrupt and so was NW.
Pretty obvious that a 10 year look back on profitability is useless (though in absolute terms, AA was far more profitable than nK over that term) since the business plan between the two airlines is clearly proven -- NK lost.
The real problem with this will be the likes of Delta lining up with their hands out, too. Where does this end? Companies should borrow at market rates or file bankruptcy, not get government handouts. Maybe Jared can start an airline and get a bailout while their at it.
Delta didn't need covid money; neither did Southwest - both pulled down $10 billion lines of credit within days after covid shutting down the economy.
But you can't hand out subsidies to one group of airlines (low cost carriers) and not everyone else, including DL which has lower fuel costs because of its refinery.
and Ben is right. Crude and refined products are nowhere close to flowing normally - even before considering that reserves...
Delta didn't need covid money; neither did Southwest - both pulled down $10 billion lines of credit within days after covid shutting down the economy.
But you can't hand out subsidies to one group of airlines (low cost carriers) and not everyone else, including DL which has lower fuel costs because of its refinery.
and Ben is right. Crude and refined products are nowhere close to flowing normally - even before considering that reserves of oil and jet fuel worldwide are well below normal if not close to "the fumes"
Duffy is doing his job of taking the pulse of the industry but it is hard to believe that the government will intervene in the airline industry because of high fuel costs; demand is still strong and there are scores of industries that are being impacted by high fuel costs and for related products
"Delta didn't need covid money;"
Hello there delusion lol
Delta had negative revenue like everyone else. Let's not rewrite facts, Tim.
Delta would've been in Chapter 11 or Chapter 7 by June, at best. Others before it but Delta was Chapter 7 by June without bailout money.
Your rewrite of written history is amusing but just stupid, per usual.
Stop making sh*t up
To quote one of the less great James Bond movies "Why can't you just be a good boy and die?"
Just let the airline fold, if all they do is keep the market in check by selling financially non viable fares, then they deserve to fail. They can go to Ireland and visit Ryanair, it is very possible to be highly profitable and selling 20 euro base fares. It is not the fares per se, it is their overall setup and operations.
And Ryanair is even burdened by EC/UK261.
sorry i'll only take commentary seriously from shrewd political observer Dave Stafford. A highly trained, educated analyst.
You misspelled "analist".
When they run out of arguments, they just assert "TDS".
It's a lazy, weak retort that reveals that MAGA is intellectually as well as morally bankrupt.
100%
The irony is that it is his supporters who are the most deranged of all.
There is no way on God's Green Earth that any of my tax dollars should go toward keeping Short Bus Airlines alive. If it shut tomorrow, nothing of value would be lost.
Ditto
Oof, why prolong the agony? I know that winding-up will put a lot of employees and suppliers in a difficult or even precarious position, but it's best to put a bullet in a crippled horse than to let it hobble about in distress.
Jobs, people, lives… that’s why keep going on.
It's nothing more than delaying the inevitable at this point.
I don’t blame Ben for the Trump commentary, but in the interest of exposing both sides: this is what you get after ivory tower Lina Khan decided to block the frontier merger. The woman never worked a day of her life in the private sector and is clueless. tyvm!
No. Lina Khan was correct, and we need more, not less, anti-trust enforcement. Healthy competition, not monopolies.
While it will be sad to see Spirit go I don't think taxpayers should be bailing them out
No and no again. Their demise will free resources for the rest of the industry.
I’m just here for the comments