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…
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?