After Spirit Airlines’ shutdown, what’s next for America’s budget airlines?

[0:00] Welcome back everyone. We've reported on Spirit Airlines shut down over the weekend which has led [0:04] to questions about the state of low-cost airlines in this country. Many have also been dealing with [0:09] high costs and competition from larger airlines that have also offered more budget-friendly [0:14] options. We should note that there is a split among low-cost carriers like Southwest and Jet [0:19] Blue and ultra-low-cost carriers like Spirit, Frontier, and Allegiant. We'll have the CEO of [0:25] budget airline Avello in just a moment but first let's look at the state of low-cost airlines by [0:31] the numbers. Low-cost carriers combined for 35.5% of the market share in February. That's according [0:36] to reports citing data from Sirium. The largest of them, Southwest Airlines, ranks third in scheduled [0:42] seats among U.S. airlines according to data this month from the travel data company OAG. That places [0:48] Southwest among a group of four airlines along with American, Delta, and United accounting for 76% [0:55] of the market according to OAG. Spirit, meanwhile, was down 56% compared to one year ago in the same [1:02] analysis. Experts have pointed to rising fuel costs as one of the latest issues leading to Spirit's [1:07] shutdown. The price in recent days reached $4.13 per gallon according to Argus. Other lower-cost airlines [1:15] had struggled with those prices. A group of them, including Spirit, recently requested $2.5 billion [1:20] in financial relief from the Trump administration. A number of airlines, including competitors, [1:25] came out with offers to help crew and passengers stranded because of Spirit's closure. Additionally, [1:30] JetBlue announced plans to add 11 destinations from Spirit's largest hub in Fort Lauderdale. [1:36] And Frontier Airlines announced plans to add more routes this summer across 18 former Spirit markets. [1:42] Joining us now is Andrew Levy, the founder and CEO of Avello Airlines, a low-cost American carrier [1:49] that launched back in 2021 and services dozens of airports and routes across the East Coast, [1:54] Midwest, South, and Caribbean. Andrew, thanks so much for joining us. The Spirit Airlines was [1:59] already struggling before the war in the Middle East, sent jet fuel prices soaring. How is the war [2:03] impacting your business? Well, look, I mean, we were off to a great start this year. The first two [2:10] months of the year were great. March was looking to be probably our best month ever. And then, of course, [2:16] you know, we've seen what's happened. Fuel prices have skyrocketed. I'd love to be paying $4.13 like you [2:23] just showed on that graphic. We're paying more like $5 a gallon right now. And so, yeah, look, [2:29] it's tough. When a third of your cost structure doubles overnight, it takes time to pass that [2:35] through to the consumer. And so it's a tough environment right now. And as you can imagine, [2:40] as a result of that, some Americans have been rethinking their spending. Have you noticed any changes [2:45] in reservations and bookings for the summer or fall? You know, no, I would say not really. But I [2:53] would say that customers appear to be booking closer into the day to travel. And I think that [2:58] that's to be expected. And I think that's partly why. I think people are a little more uncertain. [3:03] They're less willing to make longer term plans. So we're seeing a good demand environment in the very [3:08] near term. But we're certainly not seeing a lot of long range bookings. So, you know, we'll see how the [3:14] summer progresses. The spring was very good. We're in an off-peak period now after Easter until we start [3:19] up with the summer demand peak travel season. And we'll see how things go. But for now, it's okay. [3:26] But it's, you know, the hard part is when, like I said, a third of your last year, we paid about $30 [3:32] a customer segment for fuel. And that's now $60. So $30 needs to be recovered from the consumer. [3:38] And it's not that easy. It would be great if we could snap our fingers and just pass on a $30 [3:43] fare increase and people would pay it willingly. That's just not how the real world works. So it's [3:47] a process that takes time. And it's particularly difficult for the smaller airlines like mine. [3:53] Avello and other budget airlines recently asked the Trump administration for as much as $2.5 [3:57] billion in financial support. Transportation Secretary Sean Duffy has said it's not necessary for the [4:03] government to bail out budget airlines at this time. Can Avello survive without federal help? [4:09] You know, I would say that it depends on how long fuel prices stay up at this level. So we'll see, [4:15] right? If fuel prices stay at $5 indefinitely, you know, look, it's going to be tough for every [4:21] airline. You know, the curve right now is backward aided, meaning that, you know, the market believes [4:26] prices are coming down in the future. But we'll see if that's actually what happens. But there's no [4:31] question. When you see that kind of magnitude of an increase in costs, it has a big effect, [4:36] particularly on smaller airlines. The low cost airlines, there's really five. And now I guess [4:42] there's really going to be four of us. I mean, unfortunately, with Spirits closure, that leaves [4:46] five of us. Two of them are combining right now, Allegiant and Sun Country. And our average fare amongst [4:54] us last year was $118. Just to give you a point of reference, the six largest airlines in the country, [5:00] which includes the Legacies, Southwest, JetBlue, and Alaska, their average fare was $240. They were [5:06] literally twice as expensive as what the, quote unquote, budget carriers offer to consumers. So we [5:12] bring a lot of value to the consumer. We appeal to the mass market. We appeal to people who are watching [5:19] their dollars, who are living on a budget. And our ability to service these customers at affordable [5:25] fares makes a lot of difference to their quality of life, which to a certain extent really has become [5:33] a reliance on being able to fly around the country at affordable rates. So I think this is bigger. It's [5:39] certainly an effect for Avella. We're in a good place right now. But like I said, we'll see how long [5:44] it takes for us to pass these costs on to consumers. And we'll see how long fuel prices stay at these [5:49] levels. But it is a very difficult challenge. It's particularly difficult for companies like mine and some [5:54] of my smaller company brethren out there that offer low fares to consumers. Would you say that the budget [6:00] airline model is dead or dying in the United States? No, I'd say that there's a number of different flavors of [6:09] budget models. You know, what we do is very different than the other competitors out there. Our complete [6:15] focus is on bringing convenient, everyday low fares to secondary airports of large metro areas. [6:22] Those include New Haven, Connecticut, Philadelphia, Wilmington. I think that's close to where you're [6:27] from. Concord right outside of Charlotte, North Carolina and Lakeland, Florida. And soon in the [6:33] fourth quarter this year, we're going to be opening up service at McKinney, Texas, which is up in the [6:38] northeast corner of the Dallas Metroplex. So our focus is on delivering a unique product to consumers who [6:44] can take advantage of these great, easy to use small airports offering everyday low fares. And look, [6:50] it's resonating with consumers. People like what we do because it's a great value to people. [6:57] Look, I think that there's been a couple versions of the budget airline business model. I think [7:03] Spirit is a great example where they've run into a lot of challenges and they ran into a lot of [7:08] challenges. Part of the reason they're not around. Fuel is undoubtedly what caused them to go out of [7:13] business now. But certainly they'd been in bankruptcy twice over the past few years and they [7:18] were in, they had a business model that competed directly with the legacy airlines, the network [7:24] carriers, and they've become very strong. Aided quite honestly in some of the largest government [7:28] intervention in the free markets that has ever occurred in our industry, at least since [7:33] deregulation in 1978. So I, you know, I saw an interview recently with the leader of the [7:38] airlines for America, which represents only the largest airlines, those who charge $240 [7:44] per passenger segment. And, and I think it's rich that they're suggesting that we should let the [7:50] free markets prevail when quite honestly, it's been the consolidation that's occurred, that's created [7:55] these giant behemoth airlines out there. Like you noted, four of them controlling 76% of the marketplace [8:01] and the single largest government intervention that we've ever seen during COVID, which gave [8:07] over $70 billion to these same airlines in the form of grants, loans. And that doesn't even include [8:13] all the loans that they were able to get thanks to the fed and the government to support them during [8:18] this period of time, which enabled them to, to leverage up their loyalty programs to, to the point [8:24] where they're almost too big to fail at this point. These, these are kind of the banks of the airline [8:28] industry. Now they are literally too big to fail. And there's a lot of other consequences that have [8:33] come up from that government intervention. What we're asking for, for me and the rest of my group [8:38] members of the association of value airlines is a little bit of help from the government to [8:42] recognize that what we do has a huge consumer benefit to the United States and to help us out [8:48] during this period where we're transitioning our fare structure to deal with the fact that fuel prices [8:52] have doubled in the space of the last 60 days. Andrew Levy, a fellow airline CEO. We thank [8:58] you so much for the time. Appreciate the conversation. Thank you, Lindsay. [9:02] Thank you.