After Airline Collapse, Duffy Addresses Bailout Question

WASHINGTON, May 2 (Reuters) – Transportation Secretary Sean Duffy said on Saturday he does not think the government needs to bail out low-cost airlines that have sought $2.5 billion in government relief because of high jet fuel prices, following the collapse of Spirit Airlines.

“At this point, I don’t think it’s necessary. They do have access to cash. If they want to come to the U.S. government, we would be a lender of last resort. If they can find dollars in the private markets – I think that’s better for them,” Duffy said at a press conference at Newark airport.

He said the prospect of a Spirit bailout was seen by some other airlines as an opportunity to get money “not necessarily based on need, but based on opportunity.”

On Monday, a group of U.S. budget airlines, including Frontier and Avelo, said it had proposed exchanging warrants that could be converted into equity ​stakes for $2.5 billion in U.S. government assistance.

The Association of Value Airlines confirmed it asked President Donald Trump’s ​administration to create a $2.5 billion liquidity pool, used exclusively to offset incremental fuel ​costs, “as a necessary and targeted measure to stabilize operations and keep airfares ⁠affordable during this period of volatility.”

They have also asked Congress to suspend the 7.5% federal excise tax ​on airline tickets and the $5.30 per segment tax. Waiving the fees would ​offset about one-third of the incremental cost of higher jet fuel.

JET FUEL SURGE DOUBLES COSTS

The pitch highlights one of the unintended consequences of the U.S.-Israeli war ​with Iran: a surge in jet fuel prices that has roughly doubled costs, squeezing margins and pushing ‌weaker airlines ⁠closer to the brink.

The chief executives of ‌several low-cost carriers met with Duffy and Federal Aviation Administration chief Bryan Bedford in Washington last week to discuss the proposal.

The group arrived at the $2.5 billion figure by estimating how much more it expects to spend on jet fuel this year ​compared with earlier forecasts.

Airlines for America, which represents major U.S. passenger airlines, opposed a bailout for budget carriers, saying “government intervention on behalf of those airlines 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. That’s not a level playing field.”

The group added that in the long term, sustaining businesses unable to earn their cost of capital harmed competition and consumers by making it more difficult for other airlines to compete and attract private-sector capital.

The Association of Value Airlines rejected the criticism from Airlines for America, saying government policy had favored major carriers and “the current surge in jet fuel prices is not the result of poor decision-making or a lack of discipline by value airlines. It is an uncontrollable, extraordinary external shock that disproportionately impacts business models built on offering consistently affordable fares to price-sensitive travelers.”

(Reporting by David Shepardson, Editing by William Maclean, Rod Nickel)