I guess we’re used to taxpayer dollars just being lit on fire, but this is next level.
In this post:
Trump reportedly plans rescue deal for Spirit Airlines
The Wall Street Journal reports that the Trump administration is nearing a deal to rescue Spirit Airlines, which is on the verge of liquidation. Spirit had proposed this concept, but it’s wild that this is even being considered.
Under the agreement that’s reportedly being discussed, the government would loan the airline as much as $500 million, and in return, it would receive warrants to take a potential significant stake in the airline.
Let me of course emphasize that this is according to people familiar with the matter, and it remains to be seen what comes of this. However, this concept is supported by comments that Trump made just a couple of days ago, where he said “I don’t mind mergers,” and “I think I’d love somebody to buy Spirit, as an example.” Trump even suggested that “maybe the federal government should help that one out.”
This investment would help keep Spirit in business, as the airline is currently in Chapter 11 bankruptcy for the second time in two years. When the airline emerged from bankruptcy the first time, it only addressed its debt situation, though it did nothing to help with the carrier’s horrible operating margins.
Now in the second round of Chapter 11 bankruptcy, the carrier’s turnaround plan is essentially to shrink into profitability. But even without the recent hike in jet fuel prices, it’s highly questionable how successful that strategy would be. Not only has Spirit not turned a profit since before the pandemic, but the airline has the worst margins in the industry.
This is a terrible idea, and sets an awful precedent
It’s really unfortunate to see the tough financial spot Spirit Airlines is in, and the airline industry in the United States has evolved in such a way that it’s really hard for the smaller carriers to compete. Obviously the current jet fuel situation only makes matters worse.
That being said, no matter how you slice it, this simply sets an awful precedent, and makes no sense:
- Why should Spirit get support from the government, but not all the other airlines in the country that are struggling? What about Frontier, JetBlue, etc.?
- If the government takes a stake in one airline, doesn’t that create a conflict of interest, in competing with airlines that the government doesn’t have a stake in?
- We have to be honest, giving Spirit another $500 million just pushes the inevitable down the road by a few months, as the carrier still isn’t turning an operating profit, even before the spike in jet fuel prices
I get that a president might not like the optics of a “value” airline liquidating while they’re in office, but Spirit’s problems go back to long before the current problems. Trump has already been vocal in blaming Spirit’s issues on Biden, given that JetBlue’s takeover of Spirit was ultimately blocked on anti-trust grounds (as I’ve always said, I strongly disagreed with the Biden administration’s stance there).
But folks, this is just a really bad idea. Regardless of political affiliation, I have a hard time imagining that any OMAAT reader will find this to be a good idea? If you do, please sound off in the comments, and let us know what you think the limits of government ownership of airlines should be. Should the government just invest in all airlines?
If you ask me, this signals one other thing — if there is any interest in merger activity that isn’t between airlines of the “big four,” I think this is about as clear of an indication as we could get that something wouldn’t face too much regulatory scrutiny.
Bottom line
The Trump administration is reportedly nearing an up to $500 million lifeline for Spirit Airlines, which matches comments previously made by Trump, about how he’d like to save the airline. This would reportedly come in the form of a loan, and in return, the airline would receive warrants to take a take in the airline. This is such a bad idea on so many levels… let’s see how this plays out.
What do you make of taxpayers funding Spirit’s continued operations?
This is a desperate political play by Trump who can’t have 14,000 jobs vanish in an election year. That’s all this is about.
I realize my prior comment was a bit long, so let me summarize it here. It is a bad idea for the government to be owning airlines in this manner. But many (from all political parties and all walks of life) think it is a worse idea to cede the US airline industry to Delta and Untied under current conditions, which would abandon the idea of cheap domestic airline tickets (in nominal terms) forever.
You have to look at the bigger picture. First off - let's disregard the Trump angle here or even the specifics of what is being done. I'm no fan of Trump and the cronyism at all, but I think you would see something similar out of Biden, Obama, Bush - hell, bring back Reagan or JFK, Abraham Lincoln or Andrew Jackson at this point. You'd see a similar result.
The US is a huge country...
You have to look at the bigger picture. First off - let's disregard the Trump angle here or even the specifics of what is being done. I'm no fan of Trump and the cronyism at all, but I think you would see something similar out of Biden, Obama, Bush - hell, bring back Reagan or JFK, Abraham Lincoln or Andrew Jackson at this point. You'd see a similar result.
The US is a huge country geographically, and Americans have experienced and enjoyed relatively inexpensive air travel for many years. Delta, United and increasingly Southwest have been out there publicly saying they are less and less interested in selling air tickets that the general public sees as affordable (think a couple hundred bucks) to travel by air across the country (I leave American out if this as I have no idea what their strategy is). Given the size of the country and our small rail system, the only alternative to cross country travel is spending days driving. So the government (regardless of the administration in power) is going to have a strong interest in ensuring the average flyer can purchase a ticket for a few hundred bucks and travel the country without holding an airline credit card, being a corporate traveler, buying a premium seat, whatever. You saw this with Biden when the administration and even various judges (nominated by people from both parties) prioritized making sure that airlines like Spirit remained as independent entities.
Biden/Harris lost reelection in large part because people thought stuff was too expensive, and Trump's approval ratings are terrible in large part because people still think stuff is too expensive. In this environment, the government isn't going to let Spirit fail so Delta and United can charge another $200-$300 on a 3 hour domestic flight. You can talk about pilot and flight attendant wages, fuel prices, fortress hubs and pricing power, etc all you want, the consumer wants lower ticket prices, and a lot of local businesses benefit from lower ticket prices.
Even wiith all of this talk of consolidation and such, there are always going to be airline carriers selling low price tickets to the average consumer. If these particular airlines end up essentially being public transportation, so be t, the government has a huge interest in making sure that consumers can simply buy a ticket and fly. I think Spirit and Frontier should have been allowed to merge, but that was blocked by hedge funds, not the government. In the absence of a Spirit and Frontier merger, the capacity that Spirit and Frontier have is going to have to be preserved in some fashion without being absorbed by Delta and United. You can even look at JetBlue in a similar fashion. Even as a Delta flyer, I want to make sure Spirit/Frontier are still there so they can't charge $1,000 for me to fly from NYC to ATL. They already charge $500 to $600.
When looking at this stuff, you are going to have to work backward from affordable ticket prices. What entity is going to be around that is going to sell domestic flights for $150, $200, $250? Whatever that entity is, it is going to end up being protected and preseved by the government, regardless of the president or party in charge.
There is precedent for government ownership of transportation companies a a means to bail them out Check out Conrail.
...or Amtrak.
Why would United being try acquire Spirit? They have good fleet comparability and while the product would be very different the assets are all solid. The price would undeniably be much lower than NYC.
United would get asssets and they could choose either Fort Laurderdale or Orlando to do a Florida hub.
Then they could grow and make a focus hub in Detorit, Vegas or somewhere else and Spirit already had a focus city at Newark!
We don’t want to go back to super expensive one-way fare, Saturday-night stay requiring round trip discount, 7-day minimum stay, hefty change fee, award redeposit fee, etc. Any ULCC isn’t sustainable for now but if we lose spirit, we’ll have those things back. Just saying
The U.S. government spends over $300 million annually on the Essential Air Service (EAS) program to subsidize flights to approximately 150–180 underserved rural communities. Beyond direct flight subsidies, the FAA provides billions in grants for rural and smaller airport infrastructure, including $500 million annually for nonprimary airports via the Bipartisan Infrastructure Law.
Since we agree that air service, unlike healthcare, is a right not a privilege, what's wrong with having a government-owned airline? As...
The U.S. government spends over $300 million annually on the Essential Air Service (EAS) program to subsidize flights to approximately 150–180 underserved rural communities. Beyond direct flight subsidies, the FAA provides billions in grants for rural and smaller airport infrastructure, including $500 million annually for nonprimary airports via the Bipartisan Infrastructure Law.
Since we agree that air service, unlike healthcare, is a right not a privilege, what's wrong with having a government-owned airline? As long as its routes and fares are regulated. And, the planes are available for deportation charters.
I assume Trump will get naming rights as part of the deal.
JetBlue got one during COVID for $1.9 billion. Great job on them if they’re in need for another
@ Truth -- *All* major US carriers got that during the early stages of coronavirus. That's different than the government taking a stake in a single airline.
They’re in Ch. 11 for a second time in as many years and were burning through money even before the fuel shocks from the war. There is no near term path for them to be a viable business. This loan barely covers what they owe their bankruptcy creditors, much less their projected -20% margin.
So saving jobs and helping an airline is somehow a bad thing?
This liberal blogger is obviously wanting America to fail.
Sad
This loan barely covers what they owe their creditors in bankruptcy, much less their continued losses. This does nothing to make them a viable business and ensure those jobs long terms, it’s just throwing more coal onto a fire.
SeaTac-I bet you liberals had no problem with the 11 billion dollar bailout for Chrysler that Obama did. Democrats are a bunch of hypocrites.
The Chrysler bailout started with $4 billion from the Bush Administration.
@ Mel -- This wouldn't be "saving jobs," it's just pushing the issues down the road by a few months...
Are we saving all jobs now? And all airlines?
Since we know nothing will be done to increase government revenue to fund this, then what currently available government programs are we going to cancel to pay for this?
Ben, while this doesn't apply to you, some of us use Spirt quite often on certain routes where the competition airfare is over 1,000 % higher. In that case, we want spirit to stick around as long as possible.
to be fair, your low fares are subsidized by people that have lost a lot of money believing Spirit's failed turnaround promises
@ Jackson -- 100% we want Spirit to stick around, in the sense that ultra low cost carriers add a lot of value competitively. The issue is if the airline can't make money, there's only so much you can do to artificially keep the airline in business. The business model doesn't work.
cmon ben, you're either too lazy to google the precedent that was already set with airline bailouts like this, or you hate trump so much that you're just taking cheap shots.
Exactly!
@9C
...I'll bite. What precedent? Are you insinuating that the Covid bailouts, something that impacted all airlines during a global pandemic, are similar in nature to rescuing a carrier like Spirit that hasn't turned any kind of profit in years? Not to mention that they emerged from their first Chapter 11 bankruptcy under complete incompetency where they lost even more insane amounts of money under false pretenses to investors and a bankruptcy judge.
@9C
I'll bite. What precedent? Are you insinuating that the Covid bailouts, something that impacted all airlines during a global pandemic, are similar in nature to rescuing a carrier like Spirit that hasn't turned any kind of profit in years? Not to mention that they emerged from their first Chapter 11 bankruptcy under complete incompetency where they lost even more insane amounts of money under false pretenses to investors and a bankruptcy judge.
Scott Kirby was right about Spirit -- it wasn't much of a business plan to plan on consumers being dumb enough to buy your tickets then get penalized by mandatory add-ons over and over again. Eventually the smoke and mirrors game of "cheap fare but you'll end up paying 4x that by the time you land"
@ 9C -- Which precedent?
Of all the crappy things Trump can do/has done, at least this one has an obvious (crappy) precident. But I truly am in awe that 20+ years after the last bailout, which I thought we all pretty much had concluded as a country was a bunch of BS, they can still get away with this.
Oh we liberals are the socialists? PLLLEEEEAASSSEEEE.....
Chump change compared to the war and corruption of this administration.
Expect United, WN, Delta to slash fares in every market they compete with Spirit so they can burn through that $500 million.
Iran, Russia and China are laughing at us.
Without Spirit, my $30 airfare from TPA-FLL becomes $300 on Southwest. I’m all for keeping them around, if it keeps our airfares low and competitive.
If you can’t pay the $300 then you have made bad choices in life. It’s that simple. My grandchildren will be subsidizing the Pentagon for the next 20 years. Enough is enough.
Your $30 TPA-MIA fare is one of the reasons why Spirit is in the shape it is. The fare is not sustainable. Flooding them with tax payer money, or anyone else’s money, will only further delay the inevitable. Any way you slice and dice it, the Spirit business model is not sustainable. And Spirit is either unwilling or unable to come up with something better.
Sorry, I meant TPA-FLL.
@ Alex -- I don't think that's quite accurate. If airfare between TPA and FLL becomes $300 and if the demand is there, other airlines will enter the market, since there's obvious money to be made there.
Donald Trump is going to own a piece of this airline now. You don't get the $30 airfare anymore. You might get gold-colored seatbelt buckles, though.
I can’t disagree with Lucky’s take on the topic. But for perspective, saving this company and its jobs etc, sounds like it will cost about the same as 12 hours of the war itself. If subsidizing this failed carrier is lightning money on fire, the war has been a money inferno.
That's a fair way to look at it
Maybe they wooed him with an offer to rename the airline Spirit of Trump.
Alow the self promoting deal maker to find private funding.
If Spirit had a viable business model that was upended by the fuel price spike that would be one thing.
But they really appear to have a non viable business model.
This is a bad idea for the government, consumers, taxpayers and the I.
industry.