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00:00This is a company that filed for Chapter 11 twice, I think, over the course of the last year.
00:04What were they trying to engineer here, and how much was a countervailing force what's been happening in the Middle
00:09East
00:09and the knock-on effect of fuel prices going up as much as they have?
00:13Yeah, really, Spirit had been having problems for a while.
00:18Frontier had approached them and looked to purchase Spirit,
00:21and that deal came apart as JetBlue stepped in the way to take the airline.
00:25JetBlue won that competition.
00:28And after that came apart due to antitrust issues, Spirit really appeared to be a bit listless,
00:37and the business started to deteriorate.
00:40The U.S. industry really looks to us like it has too much capacity.
00:45So, you know, fares were a challenge.
00:47You don't bring enough revenue in.
00:48Obviously, you can't make profit.
00:50And this was all happening really before fuel prices spiked due to the war.
00:55And when fuel prices spiked due to the war, especially here in winter season, which is low-demand season,
01:01you know, we really didn't think Spirit had long to live, and that's ultimately what happened.
01:06I think it's probably a good reason or the best reason why I don't know that a bailout was really
01:12appropriate here,
01:14because, again, it looked like the market already had too much capacity before the war,
01:19and Spirit was already having problems before fuel spiked.
01:23We're going to get into the politics of that bailout conversation in just a moment, George.
01:26But let me ask you a little bit more about that potential merger between JetBlue and Spirit.
01:30So that was struck down by a judge.
01:32I think there's a lot of criticism, particularly on the right, of that happening.
01:36Walk us through the rationale for that.
01:38Why didn't that deal come to fruition?
01:40Why wasn't it consummated?
01:41Yeah, it was on competitive issues, and really, we saw both carriers as being too small to affect the whole
01:48market.
01:49There probably needs to be some consolidation or could have been some consolidation in the U.S. airline market.
01:56Again, I think we're seeing it now.
01:58Fairs have been under pressure a bit.
01:59With the spike in fuel, it's going to be even more challenging.
02:03I think even more capacity has to come out of the marketplace.
02:05But it was struck down for anti-competitive reasons, which we really couldn't understand.
02:12Neither one of them seemed to be large enough to really affect the U.S. domestic business.
02:17Jeff Mason, known to us as White House correspondent.
02:21You were telling me as you were sitting down, you used to cover airlines.
02:24Former airlines correspondent.
02:25Things I'm learning about Jeff this morning.
02:27First job.
02:28In that vein, we do have sound from the president just last night talking about this in Florida.
02:44It's one of those things, and we'll do it or we won't.
02:46We'll have something for you today or tomorrow.
02:48We helped out Intel, and we ended up making $40 billion.
02:53So we're looking at spirit different, a different kind of a thing.
02:57But we're looking at spirit, and if we can help them, we will.
02:59But we have to come first.
03:02We're first.
03:03It's America first.
03:04So why did the president want to get involved here, and what made it fall apart?
03:08A couple of different things.
03:09I mean, number one, the president likes good deals, as you heard him just say, and that sounds
03:12like that's one of the primary reasons why it fell apart.
03:15Number two, just sort of interestingly, Spirit Airlines has a lot of business in Florida,
03:20not too far from where he has his estate in Mar-a-Lago and West Palm Beach.
03:24That may have played a role.
03:25I don't have reporting to support that, but that just seems like a logical conclusion.
03:29Number three, you saw with Intel that the president likes to intervene in companies that are failing.
03:35That deal did turn out really well.
03:36The United States coffers have brought in a bunch of money from that.
03:40So that seems to have been, had an influence or at least set an example for him as well.
03:44I'm also wondering if his interest had anything to do with the affordability crisis and the
03:48fact that as we roll into these midterms and everything is just more expensive, taking
03:52away really the cheapest option to go on vacation at a time when there is no cheap option to go
03:56on vacation is just something the president thought might be a good idea to preserve.
03:59The irony of that, though, is that his war against Iran with Israel is what's basically
04:04put Spirit over the edge.
04:05The high fuel prices taking away what is a tight margin, especially for a low-cost airline
04:10in terms of profitability.
04:12I do want to go through our executive producer, Carolyn Kremen, bought a ticket overnight.
04:17She booked the ticket at 5.30 p.m.
04:20At 6.38 p.m., she got an email asking if she wanted to upgrade.
04:24At 12.38 a.m., she got a notice saying the flight had been disrupted with an option to
04:30refund or rebook.
04:31At 5.45 a.m. this morning, while we were already in the office, it finally came through.
04:37We regret to inform you that all Spirit flights have been canceled effective immediately.
04:42George, I want to ask you, I mean, Spirit has said it will refund, but it's not going
04:47to cover hotels, or if you were stuck in a layover and you've got to rebook yourself,
04:52you're kind of on your own.
04:53What happens?
04:54Is there any liability or chance to recover damages for these stranded passengers?
04:58I think you'll be lucky to get your refund in any kind of short order.
05:03And yes, I think everything else, you're never going to see any reimbursement for the inconvenience
05:09that occurred to you.
05:10It is probably good to note that.
05:13We looked last night at what Spirit had on the schedule for 2Q and 3Q, which is usually
05:20about as far out as the airline's schedule.
05:23They're less than 2% of the U.S. and Caribbean marketplace.
05:27So it's not going to be, it's a big effect that happened to you, not going to be a huge
05:32effect on the market.
05:33I'm going to assume Carolyn didn't use her debit card, so maybe the credit card company
05:35will step in here.
05:36But George, let me ask you a bit about how other carriers are going to react.
05:40In light of this, we heard from Sean Duffy, the transportation secretary, some encouragement
05:44that other carriers are going to maybe reduce their fares for these passengers who are stranded.
05:48What customarily happens in a moment like this, bearing in mind we haven't seen an airline
05:52fail here in many years?
05:54Yeah, I mean, I think the other carriers are going to operate in their financial best interest,
05:59right?
06:00And so I think they'll want to pick up customers.
06:04They'd like to pick up a loyal customer.
06:06That's not typically what you get out of these low-cost carriers like Frontier and Spirit,
06:11right?
06:11This is not those, you know, those well-heeled folks that are filling the loyalty program
06:17at Delta.
06:18So they may provide small incentives to try to bring them over.
06:22But my guess is they're going to act largely in their financial interest.
06:26It's a very challenging market right now, right?
06:28Fairs have moved, sorry, fuel has moved twice.
06:31It's doubled, and the airlines have to recoup that in order to stay profitable.
06:35None of them will be as profitable in 2Q, if you believe their guidance, as they were
06:40in the last 2Q.
06:41So they're really scraping to try to find ways to boost fares, boost revenues.
06:46And I think they'll use the opportunity to increase fares.
06:50Looking at this sector, looking at these ultra-low-cost carriers, there was this meeting in Washington,
06:55I think, about a week and a half ago with the Transportation Secretary.
06:57So you had the CEOs of Allegiant and Frontier and Sun Country going to Washington to make
07:02their case.
07:03What does that say to you about the health of this sector broadly?
07:07Yes, Spirit's a unique case.
07:08It was dealing with issues for a much longer time, as we've been discussing here, George.
07:12But some of the pressures that were brought to bear on Spirit are shared by a lot of these
07:16other carriers.
07:17Yeah, it's a very challenged business in the U.S.
07:20And so first, ultra-low-cost is sort of equated to like a Ryanair-type airline in Europe.
07:26It doesn't seem to have taken off as well in the U.S.
07:29And lately, the dynamic in the market is very challenging, right?
07:32Because if you look at the big full-service carriers, you look at United and Delta especially,
07:37the way they're running their business right now is they, one, they have these big premium
07:42programs where they give their loyal customers, you know, they have a credit card, they buy
07:47their dinners, and they buy their groceries on that card, and the airline sells miles to
07:52the credit card company and generates a bunch of revenue on that, right?
07:56Delta makes with some $4 billion or so a year on that.
07:59Then they use premium, front cabin, extra leg room, all kinds of crazy things to boost revenue.
08:07And remember, in the back of all of their airplanes, I tell people, is a little Spirit Airlines
08:12or a little Frontier.
08:14They sell those fares.
08:15They can tighten those down a bit to be very competitive against Spirit and Frontier, cover
08:21the marginal cost of flying that airplane plus a little bit.
08:25If they fill the airplane 90%, 100%, they get great efficiencies.
08:29They've subsidized a bit of the back of the airplane.
08:32And they're taking Spirit and Frontier, sort of, you know, they're hurting them in the
08:37marketplace.
08:37So in the U.S., because we don't see this dynamic in Europe and other parts of the world, they
08:43don't have the credit card fees that they can count on in other parts of the world.
08:47In the U.S., I think this model is getting very challenging.
08:51And so I think that we're going to have to see a slim down in those low-cost carriers in
08:57the U.S., I think, in order to keep them viable.
09:00Jeff, I want to ask you about Sean Duffy and the Transportation Department under this
09:05administration versus the last administration.
09:07We saw Pete Buttigieg very aggressive with airlines, with passenger rights, with things
09:12like that.
09:13Has this administration pushed back as much with airlines?
09:16They seem to generally not like regulations.
09:19So where do we stand with all that?
09:20I think that's true, although I think it's also not consistent with what one would normally
09:24have thought of as conservative political values to be intervening in the marketplace
09:28at all.
09:29And that's one reason why you saw Ted Cruz being pretty critical of this potential government
09:34bailout and kind of strange bedfellows with Elizabeth Warren, who is not conservative, who
09:40is also saying, what is the U.S. going to get out of this bailout?
09:44So certainly, I don't think they would want to compare themselves to the Biden administration.
09:48That said, there's been some criticism, as George was mentioning from the right, about
09:52the fact that it was the Biden administration that knocked down Spirits' proposed merger
09:57on antitrust, for antitrust reasons.
10:01Another thing, as long as we're talking airlines, if I can geek out a little bit about airlines
10:07and Ryanair.
10:07We'll allow it.
10:08I appreciate that.
10:09George was talking about Ryanair, and I covered the rise of Ryanair in Europe in the early
10:152000s.
10:15And it is a totally different model.
10:18Europe, people jump from one country to another, the tourists, particularly in Germany, jump
10:24over to Italy, jump over here.
10:26The UK, too, when I was there in 2005, I was a really broke student.
10:28I got like a 40-pound ticket to Italy.
10:31I was going to say, you probably could have gotten one for five pounds.
10:33I mean, that was the model for Ryanair.
10:36And they just get butts in seats.
10:38That's what they say.
10:39Just fill those airplanes with people who are paying low fares, but increasing traffic and
10:45getting a lot of people into the plane.
10:47And that's just a different model in the U.S.
10:49Jeff, let me ask you to pick up on something you said just a moment ago, which is the president's
10:52appetite for making deals like this one.
10:55My sense is it would have been a $500 million investment, and $500 million investment, excuse
11:00me, and then there would have been these warrants for ownership of the airline if they came through
11:04the bankruptcy.
11:05That evolved a bit over the course of the last few weeks.
11:07But we've seen it with Intel.
11:09We've seen it with other companies.
11:10This is a thing that he is proud to have pioneered and continue to do, it seems.
11:13It's part of his political DNA to be a businessman.
11:17That's where he came from.
11:18He came from the world of business, not from the world of politics.
11:21But the airline business, which George can tell you a lot more about, is a lot tougher
11:25than Intel.
11:27And to own 90% of a low-cost airline that was already struggling would have certainly
11:32been a tough business venture for the government, and that sounds like that.
11:35And Trump knows the airline business, I guess, so he was in it.
11:38He's seen an airline fail as well, I should say.
11:40Trump Air was a concern for a time.
11:42He's also seen a university fail and a bunch of other ventures fail.
11:45He's got some experience in failure in the business world as well.
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