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Budget airlines are seeking help from the federal government amid the surge in jet fuel prices that prompted Spirit Airlines to cease operations after its bankruptcy exit plan faltered and a possible federal aid package failed to materialize.
Spirit on Saturday announced “with great disappointment” that it started an orderly wind-down of its operations, adding that it was “proud of the impact of our ultra-low-cost model on the industry over the last 34 years,” and that it had hoped to continue to do so.
Prior to Spirit’s announcement, President Donald Trump indicated his administration was negotiating a bailout of up to $500 million for Spirit that would’ve given the federal government warrants equal to about 90% of Spirit’s equity, according to a Wall Street Journal report. However, the parties were unable to reach a deal and Spirit had to halt operations.
Last week, the Journal first reported that a group of budget airlines were also pursuing $2.5 billion in federal assistance through stock warrants that could be converted into equity stakes, the Association of Value of Airlines (AVA) said in a statement. The group represents Frontier Airlines, Allegiant Air, Sun Country and Avelo, while it also represented Spirit prior to the airline halting operations.
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Some of the Journal’s sources told the outlet that the group’s $2.5 billion figure was derived from an estimate of how much the airlines expect to spend on jet fuel this year compared with earlier forecasts, with the estimate assuming jet fuel prices will remain above $4 a gallon on average for the rest of the year.
The AVA issued a statement on Saturday following Spirit’s announcement that it was winding down its operations, saying that displaced travelers may find discounted fares offered by its members and other promotions aimed at helping those in need of alternative travel plans.
It also said that low-cost carriers help support the broader air travel ecosystem by keeping prices in check for consumers.
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“Value airlines are the lynchpin that commands fare discipline across the entire airline industry with sustained competition that expands options for consumers. Make no mistake: if there are fewer value airlines, flying will become less affordable for Americans,” AVA said.
“What happened to Spirit Airlines is a clear warning sign of what can occur when policy choices and regulatory dynamics tilt the competitive landscape toward the largest incumbent carriers.”
“It underscores the need for continued collaboration among all stakeholders to ensure a balanced, competitive environment that supports the long-term viability of value airlines,” the group added.
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AVA took issue with a statement by Airlines for America, a trade group representing larger carriers.
Airlines for America’s statement from Saturday after Spirit halted operations criticized the low-cost carriers seeking government assistance because of “their inability to deal with high fuel prices” and saying it would “punish other airlines that have engaged in self-help in order to deal with increased costs and reward airlines who haven’t made those tough decisions.”
AVA said that some of those “self-help” measures would reduce options and raise costs for the traveling public, adding that budget carriers aren’t at fault for the situation.
“The current surge in jet fuel prices is not the result of poor decision-making or a lack of discipline by value airlines,” AVA said. “It is an uncontrollable, extraordinary external shock that disproportionately impacts business models built on offering consistently affordable fare to price sensitive travelers.”
