00:00Spirit Airlines has become the first airline to fall victim to the Iran war, which has
00:04caused jet fuel prices to double. The American budget carrier has ceased operations after
00:09failing to secure creditor support for a government bailout.
00:13This is a personal blow to President Trump, who'd proposed half a billion dollars of taxpayers'
00:18money to save Spirit, despite opposition from some of his closest advisers and many Republicans
00:23in Congress. Spirit serves more than 40 cities in the US, along with international destinations
00:28in Central and South America, and has its main hub at Fort Lauderdale, Hollywood International
00:33Airport in Florida. Reports say thousands of jobs will go. Well, let's get more on this with Paul
00:38Charles, an aviation consultant and founder and CEO of the PC agency who advises airlines
00:43on managing crises. Well, Paul, welcome to you. And this is an absolute crisis for this
00:48airline, which has now gone under. Tell us more about them. And I guess this was expected,
00:53given its financial circumstances. Yes, this is the first major airline
00:58casualty in the US in 25 years, and the first major visible casualty of the Iran war. The writing
01:06was on the wall, really, for Spirit in the last few months. It's been through bankruptcy over the
01:11last couple of years. But earlier this year was really trying to shrink down in size to save its costs.
01:17And eventually, just 24 hours ago, it became very clear that Spirit would be unable to get
01:24financial support or backing enough money from the US government in particular to be able to carry
01:30on trading. And once those rumours start, I'm afraid people stop buying tickets and the airline faces an
01:36even more precarious future. Yeah. And to what extent is its bankruptcy and its failings now,
01:42it's going into administration, to do with the jet fuel crisis? It's hugely related to the jet fuel
01:48crisis. If you're any airline, let alone Spirit, 35% of your fixed costs come from jet fuel. So in
01:57the
01:57majority of cases, especially in the US, you don't buy jet fuel in advance, like many European airlines
02:03do, at a fixed price. You're buying them on the day at whatever price is available. And the price of
02:09jet fuel
02:09has soared in recent weeks, pretty well doubled to $5 or so. And that's simply unsustainable for
02:17most airlines. Spirit was already in financial dire straits. And therefore, the higher cost,
02:24if you're paying double on 35% of your fixed costs, it's simply unsustainable.
02:29And this crisis and the jet fuel price increased very much down to the war in Iran and the closure
02:35of the Strait of Hormuz via which that jet fuel travels. So where is the industry now in terms of
02:41looking forward to managing those costs and also trying to mitigate for the fact that jet fuel isn't
02:48coming through? Well, in the short term, of course, there are tens of thousands of passengers affected
02:54today. Some 60,000 to 80,000 people who will be waking up this morning here in America and they
03:00won't have a flight to be able to take. So in the short term, many tens of thousands of people
03:05affected,
03:06other carriers trying to obviously sell them tickets at a cheaper price. But other carriers are also in the
03:13spotlight. The jet fuel price is so high and so significant a part of daily operations that other
03:20carriers themselves are looking at ways to reduce costs and mitigate that higher price. There's no
03:26sign of the Iran conflict, as we know, changing hugely in the next few days. Therefore, jet fuel will
03:33still be a bit of a commodity in terms of getting hold of it, even if more is produced here
03:38in the US to
03:39compensate. So airlines all over the world are struggling. They're not going to be profitable at
03:44the moment. They are looking for ways to cut their costs. There are some big guys with huge pockets,
03:50huge amounts of cash. But I think you'll find some smaller carriers will go under and will be facing
03:56more of these circumstances in the next few days with smaller players.
04:01And what about larger players going into the summer season as people try and plan their travel? Are we
04:07going to see, do you think, lots of flights being cut, cancelled?
04:12We're already seeing cancellations by some of the major carriers. They are trimming their fleets,
04:18they're trimming their flight schedules. Lufthansa is a good example, which has pretty well cut 20,000
04:23flights for the foreseeable future. In the UK, British Airways and Virgin Atlantic are changing
04:29their operations. Now, of course, they have deeper cash piles, especially British Airways, which is part
04:35of the huge IAG group. So they're more protected. But at the moment, the best thing for any passengers
04:41to do is to keep booking, especially with the bigger players. Paul, thank you so much for joining us and
04:47your excellent insights as always. Thank you.
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