Budget airlines pitch US government assistance on $2.5 billion relief plan, WSJ reports
Posted by coasterghost@reddit | aviation | View on Reddit | 92 comments
YMMV25@reddit
I’m no fan of the ULCCs and I’m certainly no fan of governmental support of failing companies. In fact I’d argue zero of the US domestic legacies should exist today and all should have failed a decade or more ago the first time they entered bankruptcy.
However, now that the legacies have been allowed to consolidate into an oligopoly, it is absolutely necessary to support the ULCC sector in its continued existence. If they go away, there is no remaining barrier to prevent the legacies from sending airfares through the roof and extorting the consumer for every dime they can, while continuing to erode the product into what you’d be getting on an LCC in the first place.
Boeing367-80@reddit
Basically all the ULCCs have had lackluster performance even before the runup in oil prices.
Allegiant and Sun Country were performing best, but Allegiant well under historic levels and Allegiant just blew off its foot by buying Sun Country - US ULCC management talent is thin, merging two airlines at the best of times is hard, and this is far from the best of times. So chances are, they'll be lucky to be breakeven over the next few years.
Spirit - circling the drain. Frontier - its business model is not that different from Spirit and it hasn't been profitable since Covid.
Breeze - it's doing around $900 million in annual revenue but despite 50+ new A220s it has yet to reach profitability since its start up in 2001. Its trailing twelve month operating margin has been steadily approaching zero from below but has not yet reached breakeven. They have spent an unbelievable amount of money in terms of accumulated losses (from memory, something like $600 million) to create an airline that is not yet profitable.
Avelo - done even worse than Breeze since its startup a month before Breeze. Five years of financial futility, the only market that seems to clearly work for them is New Haven, Connecticut.
This whole sector is pretty terrible.
YMMV25@reddit
Right, but I don’t care about any of that. I have no vested interest in the financial performance of any of these airlines.
What I do care about is that when a ULCC exits a market shared with a major legacy, airfares on that legacy then double or triple. There are too few remaining legacies to keep fares suppressed without ULCC competitors.
Boeing367-80@reddit
The point is that they were destined for the dustbin anyway. They're bad business models that should not be subsidized.
YMMV25@reddit
They were poorly executed in recent years perhaps, but I wouldn’t say the business model is flawed at its core. Ryanair for example is more profitable than any US airline. Same can be said for Indigo.
In general, I’d agree that none of them should ever have been subsidized, but because we’ve already subsidized the major legacies, in some cases multiple times to the tune of billions more than this, I don’t see any other way to level the playing field back out that doesn’t involve either cabotage or regulation. In fact I’d much prefer the former of those two, but the major legacies have too much political power for that to ever become a reality unfortunately.
Boeing367-80@reddit
Ryanair operates a substantially different business model from any US ULCC. That's the problem.
(Ryanair's network and operating models are substantially different than any US ULCC)
YMMV25@reddit
Because they’re able to do that in the first place. US labor and ownership laws would not allow an airline like FR to exist in the domestic US market to begin with. The model is largely the same, it’s the execution that is different, by obligation.
Apprehensive_Cost937@reddit
What kind of labour and ownership laws would prevent a Ryanair-like ULCC in the USA?
YMMV25@reddit
The biggest advantage Ryanair (or Wizz Air, EasyJet, etc.) has that isn't possible in the US market is the ability to staff flights with crews from numerous different countries. This allows the airline to leverage cheaper labor from throughout the region and avoid having a significant amount of its workforce employed in countries with less favorable labor laws and rates.
US airlines are only able to staff domestic flights with US crew, and are subject to the labor rates and laws (RLA in particular) of the US. They cannot simply open a MEX crew base and staff ATL-LAX flights with cheaper labor, for example.
Likewise, foreign airlines cannot operate domestically within the US as the US is a distinct domestic market. While Inter-Europe flying is somewhat similar to domestic US flying in function, it's technically international and the ECAA allows airlines from any member state to operate freely throughout. This allows an Irish flagged Ryanair aircraft to operate between Italy and Austria for example. In fact, it even allows Ryanair to operate a flight wholly within Italy, which is pure cabotage. There is nothing in place to allow an airline like Aeromexico to operated from LAX to SFO with traffic rights.
Apprehensive_Cost937@reddit
EU is a single market, aviation wise. Flight from Vienna to Rome is international only on paper - the route can be flown by any EU airline, and passengers don't go through immigration or customs, as both countries as part of the Schengen area.
Just like a US airline, registered in Delaware, can have a base in Alabama, and have the crew based there operate a flight from San Francisco to Los Angeles, same goes for European LCCs within the EU.
YMMV25@reddit
On that point we’re saying the same thing.
Boeing367-80@reddit
Thus could not be more wrong.
YMMV25@reddit
Lol, sorry it doesn’t fit with your flawed narrative.
Boeing367-80@reddit
Provide a source or outline your experience in the industry.
YMMV25@reddit
You’re the one trying to disprove things. Why don’t you tell the class the specific reasons why the ULCC model has not work in the US in the last ~decade and does work in Europe and Asia. I’ll even give you bonus points if you can ID the timeline in which the ULCC model started to experience turbulence in the US and even more if you can tell us what the nail in the coffin was.
Boeing367-80@reddit
Ok, so you have no source nor do you have any relevant experience.
YMMV25@reddit
I'm not going to cobble together my resume or a bibliography for you. If you're like to provide any actual data to support your flawed opinion, I'd be happy to review it for you.
calamanthon@reddit
The answer you're looking for is antitrust legislation.
YMMV25@reddit
Antitrust legislation only attempts to suppress price fixing. It does not do anything to prevent fares from skyrocketing when a lower priced competitor ceases to exist.
calamanthon@reddit
There is extensive precedence related to the Sherman Act which says the government can act to prevent oligopoly.
See American Tobacco Co. v. United States (after American Tobacco Co was broken up, the four entities were found to have achieved a collectively dominant position, which still amounted to monopolization of the market contrary to the Sherman Act §2)
See United States v. Alcoa (a monopoly can be deemed to exist depending on the size of the market. It was generally irrelevant how the monopoly was achieved since the fact of being dominant on the market was negative for competition.)
See FTC v. Sperry & Hutchinson Trading Stamp Co. (FTC is entitled to bring enforcement action against businesses that act unfairly. The FTC could prevent the restrictive practice as unfair, even though there was no specific antitrust violation.)
These are just a few examples but generally speaking, what you're worried about can be solved via existing legislation and not by expensive bailouts, which are really just temporary band-aids.
YMMV25@reddit
Yes, it can act. But there’s nothing to state that it will in every one of these scenarios that could come up. And even if it did, these are legal issues which could take years to settle. It’s not even close to the same thing as having an existing competition in the market to suppress pricing in the first place.
Timmy98789@reddit
2001 for Breeze? 2021 more like it.
Boeing367-80@reddit
Correct. Fixed
Al_787@reddit
The way to get out of this is not subsidizing LCCs. It is to untangle the cluster fuck that is major airlines being allowed to monopolize airport infrastructures
YMMV25@reddit
That’s one element of the problem, yes. But that doesn’t address the other numerous barriers to entry for potential new entrants. The domestic market has become so anti-competitive that there should be no expectation of new entrants ever being able to establish and exist organically at a competitive level.
If the ULCCs go away, the only ways to keep the market in check are to either allow foreign competition domestically or return to a regulated pricing structure.
Al_787@reddit
That’s a major entry barrier, would be a great start already. Look at Southeast Asia, low-cost carriers are created and grown and failed all the time without anyone nanny-ing them. How come the great capitalist power struggle when it comes to this?
The problem is not deregulation, it’s because we deregulate just at where the monopolies want us to be.
YMMV25@reddit
Southeast Asia consists of multiple countries and operators from various countries both within and outside that region serving points throughout the region.
For example, Emirates, an airline based in Dubai, can serve BKK-HKG, a ~1000mi leg between two major cities in Southeast Asia. The same cannot happen within the domestic US market on a similar route such as ATL-BOS because it is protected from cabotage, and this protection means the only airlines that can fly such a route are those established in the US. The problem then becomes the hostile environment which any new entrants would face in the US market. The consolidated major US airlines have become so oversized and so powerful that any new US startup would be immediately steam-rolled if they tried to enter one of these existing markets.
Adjutant_Reflex_@reddit
Your “solution” leverages foreign labor at significantly lower wages with a bit of government subsidies sprinkled in for good measure.
It would just be a repeat of what happened to the US MRO industry that’s been gutted by outsourcing to cheap MRO bases in Mexico, Brazil, Changhi, Xiamen etc.
YMMV25@reddit
At some level, yes. Foreign labor at lower wages doing a better job I'd add.
Adjutant_Reflex_@reddit
What an absolutely ridiculous take.
Spoken like someone who thinks they know what they’re talking about.
YMMV25@reddit
I might not be a take that you like, but it's far from a ridiculous take.
Adjutant_Reflex_@reddit
Generally nuking a high-paying domestic industry to pave the way for cheap foreign labor to, quite literally, take our jobs is seen as ridiculous.
Doubly so when it’s in pursuit of propping up some of the most despised airlines that chase a business model that is almost universally a failure.
YMMV25@reddit
This would be a separate issue from propping up the ULCC sector. If foreign competition existed domestically, there would be no need for the ULCC sector to exist any longer as foreign airlines would be able to suppress fares as (or likely even more) effectively.
Al_787@reddit
And what exactly are those “hostile environment”? Oh, they can’t get a gate because the big boys monopolized all of them even when they’re left empty? Something that you’re most definitely not allowed to do mostly anywhere else?
YMMV25@reddit
I’m not disagreeing with you that that would be a challenge. But the whole issue of raising the capital to even amass a fleet of aircraft and a base of employees large enough to compete on this level would mean any new entrant would never even make it to the issue of leasing gates at major airports.
mattyGOAT1996@reddit
Stop bailing out low budget carriers
DeliciousEconAviator@reddit
Gonna be interesting to watch free market republicans choose winners and losers. Socialists for businesses, capitalists for citizens. It’s almost like the businesses are the real constituents, or… I mean donors.
Nice_Classroom_6459@reddit
So corporations get:
And now a fuel price bailout.
When do I get my handout? My student loans have literally tripled in cost.
TenderfootGungi@reddit
They could have hedged fuel costs. Let them fail.
Adjutant_Reflex_@reddit
They’re just latching onto the crisis du jour to deflect from their poor financials pre-war. It’s not about fuel hedging.
Striking_Revenue9082@reddit
So glad our weren’t blocked the jet blue merger! The costumer really benefited!
Dirk_Beefslab@reddit
Isn’t this the welfare that our overlords told us to fear?
TheGreatestOrator@reddit
Well no because it’s warrants…which is selling equity in the companies
calamanthon@reddit
It's right there at the bottom of the article:
"During the pandemic, the U.S. Treasury received warrants in major airlines in exchange for aid under a $54 billion support program. It ultimately collected just $556.7 million from selling them, with many proving to have little value."
TheGreatestOrator@reddit
What relevance does that have? Are you saying that losing money on any investments means it wasn’t an investment?
calamanthon@reddit
No, my friend. If the government repeats an investment that gave them -90% return last time, if they repeat the same "investment", then it's equivalent to a handout / welfare for the existing investors.
TheGreatestOrator@reddit
That’s not how that works. Welfare is a free handout. Was it welfare when the government made money after doing the same thing for banks in 2007?
calamanthon@reddit
Yes! Both of those examples are corporate welfare, great job. Corporate Welfare includes bailouts (yes, just like the 2008 Wall Street Bailout!) and includes Public-Private Partnerships (yes, that's the COVID PPP loans!)
Here is a piece by the conservative Cato Institute explaining Modern Corporate Welfare. Specifically relating to airlines, "Company bailouts. In addition to annual corporate welfare spending of $181 billion, the federal government occasionally passes one-time bailouts, as it has done for failing financial firms, automobile companies, and airlines."
You may be confusing this with Social Welfare, which is welfare directly to the citizen and takes different forms.
So yes, both of your examples are examples of Corporate Welfare. You can be pedantic about the definition if you want but this type of direct investment into individual corporations by the government is corporate welfare. Have a great day!
TheGreatestOrator@reddit
Honey, a bailout isn’t welfare. The banks were an example where the U.S. government profited off of the loans they gave…
calamanthon@reddit
It's not the result that matters, its the action. I recommend that you read the definitions and explanations from the economists above! It's really not that much reading. Cheers :)
TheGreatestOrator@reddit
Honey, literally none of those support what you’re claiming…
I’m sorry you’re triggered by this
knight_prince_ace@reddit
You expect people to read...AN ARTICLE? HOW DARE YOU
/s
TheGreatestOrator@reddit
That doesn’t have any relevance. Losing money on an investment doesn’t change the fact that you got something for it
TheHeroChronic@reddit
is thousands being unemployed a better alternative?
Seantwist9@reddit
nope, welfare is a good thing. if only conservatives applied it to people too
TheGreatestOrator@reddit
As welfare is a free handout
Dawgfan2436@reddit
JetBlue tried to buy them. A judge said it would damage consumer choice. Now JetBlue and Spirit will be wards of the state.
Average-NPC@reddit
Yes because merging 2 failing Airlines makes for a profitable airline right clearly we didn’t learn from Penn Central
Seaguard5@reddit
Maybe they should just be allowed to fail
mb194dc@reddit
Exactly, whoever is left buys the planes etc out of the others bankruptcy.
That's how capitalism is meant to work. Not bailout the failing.
SideshowRobbert@reddit
There is zero systemic risk of spirit fails. Zero. The industry would be fine. No idea why a bailout is needed. Didn’t the right hate government bailouts? Weren’t they all about self determination? What happened to disliking the welfare state?
There are tons of regional airlines who know how to manage their fleet and other resources. There is no problem letting spirit go down.
SlapThatAce@reddit
I thought U.S was against Socialism?
Al_787@reddit
Corporate socialism!
bikepackerWill@reddit
I simply don’t understand why everybody working is expected to save up a rainy-day fund for when an unexpected problem occurs, yet businesses don’t appear to do the same?
Every cent of a windfall just gets handed out in dividends and bonuses and then, when said unexpected problem occurs, they inevitably cry to the government in the hopes of getting some tax dollars.
bold_frost_1478@reddit
Isn’t “reinvestment” supposed to include building reserves though? Airlines clearly reinvest plenty, just rarely into being shock‑resistant instead of growth.
AI_Masterrace@reddit
Just print a hundred trillion and end it today already geez
Brossar1an@reddit
We're at the point where socialism is such a dirty word that even employing someone is seen as an act of charity.
moderngamer327@reddit
Because the government disincentivizes it. Profit is taxed but reinvestment is not. So not only do you have less total money for your business due to taxes you will also lose to competitors who chose to reinvest instead
bikepackerWill@reddit
Maybe we need to redefine bonuses and dividends as a form of “reinvestment” when it’s still an outflow from the business’s books.
PM_ME_SAD_STUFF_PLZ@reddit
Well, it's the government's fault that the merger with Jet Blue died.
Dudetry@reddit
i don’t know why you’re being downvoted, it’s true. nobody can compete against the big 3. they were destined to fail after that merger deal got blocked.
Al_787@reddit
The solution to ending monopolies is to address the regulatory conditions on why such monopolies exist in the first place, not to further flout anti-trust laws or handout corporate welfare that’s absolutely not gonna get burned through in 12 months
moderngamer327@reddit
Having 4 major airline carriers is hardly a monopoly. Some industries just can’t have as much natural competition as others
PM_ME_SAD_STUFF_PLZ@reddit
Spirit -Jet Blue would not be "flouting" anti-trust laws lol.
Al_787@reddit
This is a country with the rule of law. They had had their day in court, they lost. Bitch about it all you want but the law has spoken.
PM_ME_SAD_STUFF_PLZ@reddit
No, they decided that it would be cheaper to abandon the deal than it would be to appeal. Antitrust remedies live and die on appeal.
Dudetry@reddit
you really don’t think some industries are naturally suited for just a few companies to run in? do you on the best way to become a millionaire? be a billionaire and buy an airline. they have RAZOR thin profit margins.
Al_787@reddit
No, if you would so much go to Asia once, you can immediately observe the insane conditions that airlines enjoy. Ever wonder why there isn’t a “Korean Air terminal” in Incheon?
But of course you would stay here and continue to operate within the parameters that the overlords programmed for you.
Dudetry@reddit
you’re so unserious and unworthy of debate. anytime someone responds with ad hominem attacks, just makes their argument invalid. clearly you’re not looking for a serious debate/conversation.
Al_787@reddit
Sorry, got enough of unpaid corporate shilling for my entire life. Tired of it
ThatSpecialAgent@reddit
Nothing like privatizing the gains and socializing the losses.
pementomento@reddit
Jesus fucking Christ just let these weak companies die, enough corporate welfare for zombie institutions.
Ok_Library_1031@reddit
Now I guess that's why they're called budget airlines lol
agree-with-me@reddit
My laundromat could use some updates to the machines and decor to be really competitive. I could use a relief plan like that and create a few jobs.
What say you, Uncle Sam?
Wait? Aren't I supposed to be a capitalist and clutch my pearls at the thought of any sort of welfare? Isn't that reserved for takers that hide in their trailer and smoke weed all day?
Bad_Karma19@reddit
That's no from me dawg.
cyber-anal@reddit
Subsidized loses, privatized profits.
Any_Vacation8988@reddit
There is a reason spirit is failing as a business. Giving them billions in taxpayer money won’t change that.
merckx3697@reddit
Hard pass.
furnace1766@reddit
There are two issues here.
Issue 1: The airlines were allowed to over consolidate at the top.
Issue 2: I’m not sure that in “good times” that the ULCC model is terribly profitable or scalable. In turbulent times, I don’t think they are. The model is based on dirt cheap routes with heavy fees and limited volume. That makes for angrier customers, especially when irregular ops hit.
bschmidt25@reddit
More pigs at the trough. We don’t need more crony capitalism.
manniesalado@reddit
Donnie Bailout at bat.
post-explainer@reddit
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