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.
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?
