Kevin Hassett: Energy shocks will "affect profits for the airlines for the next quarter or so"

0:00 It has been another one of those weeks where some very

0:03 big news stories now feel very much in the rearview mirror.

0:07 One such story is that Congress finally, by voice vote no less,

0:11 after 76 days, ended the partial

0:15 shutdown of the Department of Homeland Security.

0:18 So now TSA agents and the Coast Guard are fully funded.

0:22 Still unfunded though, are the two immigration agencies, ICE and CBP.

0:28 But the story that's not going away is the impact

0:31 the war with Iran is having on the global economy.

0:34 Rising fuel costs were a factor

0:36 in the shutdown of low-cost carrier Spirit Airlines yesterday,

0:40 and the sudden shutdown left thousands stranded

0:43 and some 14,000 plus employees without jobs, according to the pilots union.

0:49 We begin this morning with the director of the White House Economic Council,

0:54 Kevin Hassett, joins us from Los Angeles.

0:57 Good early morning to you.

0:59 Hi.

1:00 Yeah, good morning.

1:01 Well, Director, President Trump sent a letter

1:03 to Congress on Friday saying a few things.

1:07 One, that the conflict with Iran, the ceasefire has been extended.

1:12 He also said the hostilities have been terminated.

1:15 He also said the threat posed by Iran remains

1:18 significant and the force posture will continue to be updated.

1:22 Then overnight, we saw the president said Iran has not yet

1:26 paid a big enough price for what they've done to humanity.

1:30 What exactly is the message to the market?

1:34 Mhm.

1:35 Right.

1:36 Well, I think the market has been pretty consistent.

1:39 The the fact is that what the president

1:41 is seeing is that the blockade is working.

1:44 It's putting an enormous amount of pressure on Iran,

1:46 and Iran's threats to put mines in the straits have even made it

1:52 so that humanitarian aid that of course we would let through to Iran,

1:56 that there are a lot of those ship captains that are wary of going

1:59 to Iranian ports because they're worried about

2:01 where the Iranians have put the mines.

2:03 And so, you know, I go down into the sit room many

2:06 times a week and get briefed on what's going on in Iran,

2:09 and they're an economy that's really on the precipice of extreme calamity.

2:13 They are having a hyperinflation.

2:16 Um they're starting to have hunger.

2:19 The bottom line is that the pressure

2:21 on the great American people because of these people who

2:24 are like really intent on American and Israeli

2:27 destruction with their nuclear weapons are still in power.

2:31 One last thing, Margaret, I don't know if you you noticed,

2:33 but but the UN human rights folks came out this week condemning Iran because

2:39 they're killing people who are trying

2:40 to stand up to this regime that's potentially,

2:44 you know, causing starvation and even famine.

2:46 So, you said the blockade is still on.

2:49 A blockade is an act of war.

2:51 Are we at war with Iran?

2:53 Iran shut down the straits.

2:56 Iran shut down the straits.

2:57 And the only ones they were letting through were Iranian ships,

3:01 and and President Trump didn't think that was acceptable.

3:04 So we are still at war with Iran.

3:08 Uh you know, what I I don't know what the definition of war is

3:12 when we're not shooting and we're negotiating

3:14 and they're under a lot of pressure.

3:15 There's no reason, I I think right now

3:18 to do anything other than what we're doing.

3:20 The the fact is that that that regime has destroyed the country.

3:23 Let me put it in perspective.

3:25 In 1978, before the Ayatollah came in, then the per capita

3:29 GDP in Iran was about the same as for Japan and Italy.

3:32 Now it's about the same as for Honduras.

3:36 Right.

3:35 run that country into the ground, and that's before the straits were closed.

3:39 And so it's really really a country that's on the rocks.

3:42 Sure, and we're negotiating with them.

3:43 But so we're going into week 10.

3:46 Um I'm wondering what economic modeling you have done here because the president

3:50 had originally said the war was going to last 4 to 6 weeks.

3:53 We are now at the national average gas price of $4.45 a gallon.

4:00 Can we end the conflict without taking back the Strait of Hormuz?

4:06 Um well, what's going on right now is that we're doing an all

4:10 of the above approach to get energy

4:12 to Americans and increase energy production around the world.

4:16 And I think if you look out into the future,

4:18 what people are saying, no, so as an example, we waived the Jones Act.

4:22 The price in the US is $10 a barrel less than

4:24 it is on the the world and and in the world exchanges.

4:28 And all the West Coast was buying world price of oil,

4:31 but now they're buying US price of oil.

4:33 So we've made an enormous number of strides to reduce the short-term disruption.

4:37 Well, the Bank of America came out with a report this week

4:39 that says the gas price spike has cost consumers $19 billion.

4:44 They say gas prices have canceled out nearly

4:47 half of the increase in expected tax refunds.

4:50 Goldman Sachs concurs saying the drag will offset the benefits

4:54 from that tax bill the White House had championed.

4:56 Do you agree with that analysis?

5:00 No, that analysis is incorrect.

5:01 Like think about it this way,

5:03 153 trillion 3 million people have filed taxes already,

5:07 and the average tax refund is $3,600.

5:10 53 million people have benefited from no tax on tips,

5:14 no tax on overtime, no tax on social security.

5:17 For the no tax on tips and social security,

5:20 that exempts between 7 and 8,000 dollars from taxation for those people.

5:25 And for the no tax on overtime, it's like closer to 5,000.

5:29 And so, these are really really big numbers.

5:31 And if people look at their gas bills, of course they're higher.

5:34 And we're we're doing everything we can

5:36 to make the temporary increase as small as possible.

5:39 But that, you know, and then finally there's the economic growth component.

5:42 Real incomes are growing,

5:43 and real incomes when they adjust for inflation include the price of energy.

5:47 Real incomes shrunk for almost 8 years under Obama.

5:50 They shrunk under Biden,

5:51 and then they're rising now despite the short-term increase in gas prices.

5:55 Well, we did see a an increase in the PCE, but just to clarify,

5:59 the tax law that the president

6:00 signed doesn't eliminate taxes on social security.

6:03 It gives seniors an enhanced standard deduction through the end of 2028.

6:07 But um let me ask you about the news on Spirit Airlines.

6:11 makes it so most people aren't covered.

6:13 Yeah, I want to talk about Spirit.

6:14 I just going to say that makes it so most people don't face the tax on tips.

6:17 So you're you're right as a technical matter,

6:19 but it has the effect that we we discussed.

6:21 So Spirit Airlines ceased operations, as we said at the top of the program.

6:25 Um I know the White House was trying to craft an 11th hour rescue plan.

6:30 What happened and do you have a sense of the broader economic impact?

6:36 Oh, sure.

6:36 You know, it's something that I was very much involved in.

6:39 We were aware that because the merger between JetBlue

6:43 and Spirit was canceled unwisely by the Biden administration,

6:47 that Spirit sadly was on the ropes.

6:50 When we looked at their books,

6:52 that basically the creditors were going to liquidate them and, you know,

6:55 try to sell their assets so that they could get

6:57 some of the the money back that they had lent them.

7:00 And there were some authorities that were explored to see if we could help them,

7:05 you know, get a lifeline.

7:06 And in the end, the legal legal guys

7:08 decided that those authorities wouldn't apply in this situation.

7:12 Meanwhile, while that was being investigated,

7:14 Secretary Duffy and I talked to the other airlines

7:17 to make sure that they were helping people who were stranded

7:20 by Spirit get home and to get home basically at much

7:23 lower prices than the normal fares that they would charge.

7:26 So, the company In fact, American and United and Southwest have all said

7:32 that they're going to help the passengers of Spirit get home.

7:34 So you mentioned past financial troubles.

7:37 Unquestionably, Spirit did have them for many years,

7:40 but they did have that restructuring deal with bondholders back in March.

7:44 In the statement Spirit released explaining why

7:47 they were shutting down, they said, quote,

7:49 "The sudden and sustained rise in fuel prices

7:51 in recent weeks ultimately has left us with no

7:54 alternative." Are other industries also at risk of collapse

7:59 or other major companies due to this energy shock?

8:03 Well, don't don't forget that that Spirit Airlines was chapter 11

8:08 twice because they basically didn't have a business model that was working.

8:14 That's right.

8:14 And the other airlines are still operating.

8:16 I just flew out here to discuss these matters at the Milken conference in LA,

8:20 and you know, on United Airlines.

8:22 And and the you know, the other airlines are operating.

8:24 What they've done because they have thought ahead way

8:28 more than the management of Spirit is hedge their jet

8:32 fuel purchases and so on, so that energy short-term

8:36 energy shocks don't have a big effect on their business.

8:39 Certainly it'll affect profits for the airlines for a quarter or so,

8:41 but they're very very healthy right now.

8:45 Kevin Hassett, we'll let you get back to work.

8:47 Thank you for joining us.