Spirit Airlines GOES BUST After Jet Fuel $$ Doubles

0:00 Let's turn now to Spirit Airlines in terms of the impact.

0:02 So, a lot of different claims going around are

0:05 out there about why Spirit Airlines not only went bankrupt,

0:07 but went literally ceasing operations overnight leading

0:11 to some passengers having to be rebooked, emotional, you know,

0:15 under goodbye announcements from pilots in the middle of the air.

0:18 You almost never see this in the United States.

0:20 Usually airlines are going to bankruptcy,

0:22 that's not even all that uncommon, but to find a potential buyer,

0:25 you know, they were potentially going to get a bailout from the government.

0:27 None of that ended up happening and they

0:29 just genuinely went bust overnight with yes,

0:32 some signs in the immediate future, but not really many people expected this.

0:36 So, the Trump administration obviously reacting to this over the weekend.

0:40 Here was Secretary Scott Beston saying, "Actually, it's Biden's fault.

0:44 Let's take a listen."

0:45 The Treasury was supposed to be doing a deal to to save this company.

0:50 Can you tell us what happened?

0:53 Uh sure, Maria.

0:53 So, this is just more of the mess we inherited from the Biden

0:56 administration in 2020 September 2020 to Elizabeth

1:01 Warren who loves to write letters, sent sent a letter to the Justice Department,

1:06 to the Labor to the Transport Department saying

1:09 that they should oppose a merger with Spirit Airlines.

1:13 JetBlue wanted to buy them for $3.8 billion.

1:17 It would have given them much more resiliency and she and the transportation

1:23 secretary Pete Buttigieg was probably

1:25 the worst transportation secretary in history.

1:27 When he came to the office,

1:28 they also they were against the merger and if JetBlue had merged with Spirit,

1:35 we would have all all these jobs that were lost yesterday.

1:39 We had 30 airport 30 regional airports who have lost service and you know,

1:44 I I can tell you what happened here.

1:45 It wasn't Treasury, it was Commerce that was trying to put something together,

1:49 but the the reason we were here was

1:52 because the merger the Biden administration have the merger.

1:56 We shouldn't have been here in the first place.

1:58 So, a lot of this is going around in terms of the blame.

2:01 And I'm actually going to go and jump to the last element guys

2:04 here in the Block B7 from our friend Matt Stoller who wrote this piece,

2:08 "Who Killed Spirit Airlines?" He says, "It wasn't Biden's antitrust enforcers.

2:12 There were many factors.

2:13 Trump's Iran war, JetBlue, the big four airlines,

2:16 and behind all of that deregulation.

2:18 This story has happened hundreds of times." I actually think what he points out,

2:22 and obviously this is mostly about the Iran war.

2:25 I think that's it more than anything.

2:26 But just to address this That's certainly the the final trigger that Right.

2:30 The Iran war is what actually put the bullet in their head,

2:32 but obviously they were dying, bleeding out for many years.

2:35 What happened?

2:35 They had a proposed merger with JetBlue.

2:38 And on paper you're like, "Okay,

2:39 well that seems better." What I wasn't really aware

2:41 though from Matt until I really dug into it was JetBlue's plan was to hike fares

2:47 and to cancel like 40% or something of their route.

2:50 So, not really good for the consumer.

2:52 Now, maybe it'd be better off if they had merged and you know,

2:55 it was still moderately there.

2:57 But however, what I seem to have read now is that many of the airlines

3:02 were actually lobbying the Biden or the Trump

3:05 administration not to bail out Spirit Airlines.

3:08 Why?

3:08 Because Spirit, at the end of the day, listen,

3:10 I don't I hate Spirit Airlines and I wouldn't fly it,

3:13 but I fly more than once a year.

3:15 The vast majority of their customers are one to three times a year flyers who

3:18 are looking for a cheap discount fare to go place from A to B and they

3:22 don't really care if they have to pay five if they're not going to get

3:24 a soda from Washington to Denver for a four and a half hour flight, right?

3:28 That's not Or paying to pick your seat or whatever.

3:30 pick your seat.

3:30 They're they're like, "I don't give a Just give me Get me from point A to point

3:34 B so I can go see my cousin or can go on vacation." It's fine.

3:37 I think that's a very valuable place in the market.

3:39 So, what they happened to do is that Spirit's competitive fares actually

3:43 dragged down basic economy fares for all of the big three carriers.

3:48 So, the big three carriers were desperate actually for the government

3:51 not to bail out Spirit so they could go bust.

3:53 This is another reason why JetBlue really wanted to acquire Spirit

3:57 and hike the rates was because they're competing against each other.

4:01 So, this is actually a good example of multi-factorial policy.

4:05 Number one is that we had a policy where we had a discount airline,

4:09 which we potentially would have bailed out.

4:10 I think we should have bailed them out.

4:11 I I look, I know many people are going to be upset about that, but I

4:15 think cheaper airfare is a vital and important

4:18 thing to a functioning first world nation.

4:20 I I just really do.

4:21 That's why they have Ryanair and all those cheap you know,

4:24 cheap options in Europe and honestly,

4:26 it's it's really nice for a lot of the people who live there.

4:28 You can jet you know, literally across the continent.

4:31 Here, we've never had that.

4:32 We're a huge country.

4:32 I accept that, but a couple hundred dollars as opposed to six $700 is really,

4:37 really important to especially middle-class people and or families,

4:40 you know, if you're trying to get somewhere.

4:42 So, you have this general policy where we potentially would have done a bailout.

4:46 We ultimately didn't do it for a variety of reasons.

4:48 I mostly think it's cuz the big three airlines said, "Hey,

4:50 please don't do it." And then the Iran war doubled their jet fuel cost overnight

4:55 and basically just put two bullets in their head and they just had to die.

4:59 It's it's it's honestly a tragic story.

5:01 It's a direct consequence of Iran,

5:02 but of a lot of other government policy over the years.

5:05 Yeah, and to your point,

5:06 so the the the big airlines really despised them and have

5:11 been trying to do everything they can to destroy them.

5:15 Mhm.

5:14 And Matt has some reporting that's not totally confirmed,

5:17 but that he had from an insider about the way they would do that.

5:22 And so effectively, he said consumers of low-fare airlines

5:25 tend to book a few weeks before their trip.

5:27 So a few weeks before a Spirit flight from say New York to Orlando,

5:30 one or more of the big carriers would radically discount

5:34 their price on just 20 seats on a similar route.

5:37 So they would poach those last 20 customers from Spirit.

5:41 Now they could afford to effectively sell those seats

5:45 at a loss and what that means is for Spirit,

5:48 it would take what would have otherwise been

5:49 a profitable profitable flight and put it in the red.

5:53 And so, there is a if you look at their their profitability over time,

5:58 somewhere around 2016,

6:00 it seems like the big carriers figure out this strategy

6:02 to effectively try to come in and destroy them.

6:05 And so then now you have them on weak financial footing, looking for a bailout,

6:10 really being pushed over the cliff by the Iran war and the jet fuel prices.

6:14 And then who's there to come in and do that final shove over the cliff?

6:18 The major carriers who want them to be dead.

6:21 You in terms of this JetBlue merger potential merger

6:23 because this is what all the talking points are about.

6:25 Oh, Biden's anti-trust and even Neera Tanden,

6:28 it's not just the Republicans, by the way,

6:29 Neera Tanden and other corporate type of Democrats coming in using the same

6:33 argument to argue against future anti-trust enforcement

6:37 were you to have another Democratic administration.

6:39 The other problem with it, number one, it was sort of on its face illegal.

6:43 Even Spirit Airlines created a presentation

6:45 for their shareholders where they're like,

6:47 this is probably illegal and will probably be blocked.

6:49 They were contemplating a separate deal where

6:51 they would merge with another low-cost carrier, Frontier,

6:55 which seemed to make more sense and would

6:57 have preserved their business model and preserve

6:59 the downward pressure that they had on prices

7:02 and the positive impact they have for consumers,

7:04 you know, on the on the routes that they fly.

7:06 So, but the shareholders ignored that advice,

7:09 went ahead with it, you know, hope for the best.

7:11 Ultimately, predictably, it was struck down as illegal.

7:14 There's one other aspect of it, too, though,

7:16 which is that JetBlue was really loaded up with debt at that time as well.

7:20 And so, they would have been taking on, obviously,

7:21 an even more extraordinary amount of debt just to buy Spirit.

7:26 So, it's not even clear that JetBlue would have been able to manage

7:29 then their their debt service and they would have survived into the future,

7:33 but it certainly would have meant that, you know,

7:35 Spirit would have been killed earlier.

7:36 It would have been killed at the time of that merger versus being killed now

7:40 by the jet fuel price surge and by the four

7:43 big carriers who wanted to see them gone.

7:46 Let's put B4 up here on the screen cuz it's one thing to say jet fuel,

7:48 it's another here to see the numbers.

7:50 So Patrick DeHaan over at GasBuddy compiled this list.

7:54 Just take check this out.

7:55 This is from May 2nd or so only 2 days ago.

7:58 Just imagine what airlines are contending with.

8:00 Here is the cost to fill a Boeing 777 today.

8:03 Chicago, $213,000.

8:08 Dallas, $180,000.

8:10 Minneapolis, $180,000.

8:12 New York City, $180,000.

8:14 Los Angeles, $217,000.

8:17 Seattle, $225,000.

8:20 So yeah, that's a lot of money.

8:25 [laughter]

8:24 We're talking about 200 grand in some cases to fill up the whole plane.

8:28 Now look, I get it.

8:29 It's a big aircraft like you know,

8:30 he he probably picked a bigger one just to show

8:33 exactly what you're dealing with at a at a macro level.

8:36 And I know it does take a full tank of gas to get somewhere going,

8:39 but I mean come on, $200,000 just to fill up an airplane.

8:41 Like that's that's a lot of money.

8:42 And that's double literally what it cost as of a month ago.

8:45 So that's going to show up somewhere.

8:47 There is no denying this.

8:49 The Iran war is what killed Spirit.

8:51 Now they were again, they were bleeding out already,

8:53 but it was the jet fuel crisis.

8:55 Let's go ahead and put B3 up there on the screen.

8:58 They actually detail this in Al Jazeera.

9:00 They've begun their wind down all over the jet fuel

9:04 doubling in prices that will cost now thousands of jobs,

9:07 but I think more importantly is that this airline,

9:12 so for example, in the week between May 1st and May 15th,

9:15 they had 809,000 seats which would have flown on 4,000 4,119 domestic flights.

9:24 So that is almost 800,000 or sorry,

9:27 400,000 seats because of the status of the when they're

9:30 going bankrupt that will just not be here this week.

9:33 400,000 seats on an airplane.

9:35 That is going to show up somewhere,

9:37 and the likelihood is it will show up in now American and Delta and United,

9:44 they can charge whatever they want,

9:46 and they've got the jet fuel stuff on top of that.

9:48 So, good, you know, good luck to anybody who wants to fly right now.

9:52 I don't think it's out of the question

9:54 to see $800,000 fares even for intra East Coast,

9:57 like in the middle of the summer.

9:59 And in terms of international, yeah, good luck.

10:01 Like I was looking at Dubai this morning.

10:04 Even in the couple weeks since the ceasefire,

10:07 air traffic out of Dubai or passenger

10:09 traffic in Dubai International Airport is down 20%.

10:13 Now, look, some of that demand will be destroyed.

10:16 Let's say 10%, but those other 10,

10:19 if they're still going to fly somewhere, they might have to go through Europe.

10:22 So, if you're trying to connect if you're going to Asia

10:24 and you're connecting through Europe or through a diff or a direct flight,

10:27 you know, one of those very competitive flights from here in the US,

10:30 I think it will be like thousands of dollars.

10:33 Like I I think the idea of an economy ticket being one to two thousand,

10:38 which I still think was, you know, high compared to where things were before,

10:40 I think you could potentially start to see, you know, real economy seats,

10:44 not premium economy seats, be like 3 to 3,500,

10:46 $4,000 in the middle of peak summer if stuff like this continues

10:50 and you have airlines adding on additional

10:53 jet fuel surcharges like Japan Airlines,

10:55 350 per ticket for any one-way flight North America and Europe.

11:00 And then so round trip, that's another 700 bucks.

11:03 Heathrow, I'm sure by the end of the next few

11:05 months will also have of They already have a very, very high landing tax.

11:08 I think it could go up, you know, even more, several hundred bucks.

11:11 So, this is just going to be unsustainable.

11:13 Like you're just not going to be able to fly anymore Yeah.

11:15 At a certain point.

11:16 And looking internationally, Air India,

11:17 they cut all of their international flights through July.

11:20 All of them.

11:21 [snorts] Oh my god.

11:22 Yeah, they cut all of their This is a very specific niche thing,

11:25 but there are a lot of families living in the Bay Area, and you know,

11:28 people like me who grew up as a first generation immigrants who all

11:32 would go to India over the summer and book on shittier, no offense.

11:36 Actually, no offense.

11:37 On shitty airlines like Air India.

11:38 Air India is the worst airline ever.

11:40 Okay, fine.

11:41 Let's just say it.

11:41 It's dog All right?

11:42 It's It's dog cockroaches on the plane.

11:45 [laughter] I'm not kidding.

11:46 the worst airline in the world.

11:48 Sorry, don't sue me.

11:49 All right?

11:49 It's It's I had a bad experience.

11:51 It's my own personal Multiple bad experiences.

11:54 but anyway, it's not good for

11:56 They're cutting all of their international flights.

11:57 So, apparently, they're flying domestically still within India,

12:00 but all of their international flights through July are completely cut.

12:04 But, you know, going back to what you're talking about

12:06 in in terms of the impact here domestically from Spirit's closure.

12:10 There was literally something called the Spirit effect.

12:13 When they would begin flying a certain route,

12:16 every other carrier knew they had to reduce their price.

12:19 And so, with them gone, now their hand is free.

12:23 And you know, Stoller makes a a bigger point

12:25 that you really should read his whole analysis cuz it's typically,

12:29 you know, as as usual, it's very excellent and in-depth and very thoughtful.

12:33 Which is that ever since the airline industry was deregulated,

12:37 you've had all of the this combination of consolidations and mergers,

12:41 and then just so many bankruptcies.

12:45 Because it really is the type of service,

12:48 and he compares it to the mail service where

12:49 it's like you pay the same amount for a stamp, and for some places,

12:53 that is you're sort of paying above

12:55 cost and you're subsidizing service to rural areas.

12:59 It's a similar dynamic with air travel where if you want there to be reliable,

13:05 affordable access throughout the country,

13:08 you're going to have to manage that from the, you know,

13:11 from the the federal level and make sure that those routes,

13:14 even the ones that are not the most profitable,

13:16 that those continue to be serviced.

13:19 And so, you know, undergirding this whole story,

13:22 you know, going back now decades,

13:24 when the decision was made to deregulate airlines,

13:27 that's when you get to this scenario of having, you know,

13:29 a handful of choices and the big airlines

13:32 with their with their hubs and the way they're able to operate

13:36 and the way they're able to go after new entrants

13:38 like Spirit that were trying to undercut them on price,

13:41 that's how you end up in this situation where,

13:44 you know, it's air travel is miserable,

13:46 where you don't have access in certain parts of the country,

13:49 where low-cost carriers and others who are

13:51 trying to innovate are quickly pushed out.

13:54 Um last thing here we can put uh B5 up on the screen.

13:57 It just shows you that this fuel price

13:59 crunch is not just going to affect airlines here.

14:03 We already talked about Air India.

14:04 Sagar was talking about Ryanair.

14:06 Actually, the UK is now loosening some

14:08 of their rules and saying basically like, "Okay,

14:10 if you have a flight that's going somewhere that's half

14:13 empty and you have another one later in the day,

14:15 you're allowed to push those passengers to that other

14:19 flight." Which is something they weren't allowed to do before,

14:21 but in any case, you know, this is the early days.

14:23 Uh this is the early days of the impact from the war.

14:27 This is just like COVID where, you know, you drop a giant boulder in the water

14:32 and then the ripples just spread and spread and spread.

14:35 And this is one of the first very noticeable ripples.

14:38 And, you know, is it is it the end of the world?

14:41 No.

14:42 Uh if you were hoping to go to a wedding

14:44 or a funeral or visit your relatives or God forbid go on vacation,

14:47 certainly not a happy thing, um but it's not necessarily life-threatening,

14:51 but this is just the first of many many impacts

14:55 already seeing ripple through on our economy and the global economy.

14:58 Yeah, exactly.

14:58 I mean, look, what made COVID inflation miserable is nobody died

15:02 because food prices went up by 20% or Okay, very few people

15:06 People probably did, actually.

15:07 Yeah.

15:07 very few people died because food prices went up by 20%.

15:11 It still sucked.

15:12 I mean, that's the that's the whole part.

15:14 Ha- What has been happening in this country since 2020?

15:17 Every year it gets worse.

15:19 Housing, food, things become more expensive.

15:23 It's just like everything has more friction.

15:25 Has it really gotten better?

15:26 I I just I don't think it more crime.

15:29 It's just like everything is shitty.

15:30 And you know, there's the what is the theory it's like and shitification.

15:33 I'm sure you've heard that before.

15:35 With corporate corp you know,

15:36 dealing with a corporation, health insurance, right?

15:39 It's just nothing is simple.

15:41 And yes, maybe that is romanticizing a different time, but I don't know.

15:45 I just I just feel like things are getting much worse and worse and worse.

15:49 And I don't see anything particularly getting better.

15:52 Speaking of that, let's go to Israel.

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