US airline fuel shock: Rising costs hit carriers and travellers — This is America

[0:09] This is America, and this is Los Angeles International Airport, where there's now one less option [0:16] for travelers who want to fly domestically in the United States. [0:20] Soaring jet fuel costs, the final nail in the coffin for Spirit Airlines, a major player [0:26] in a vast country that relies heavily on its transportation networks. [0:30] So is the collapse of Spirit a warning sign to its competitors? [0:35] And are travelers worldwide about to pay an even bigger cost? [0:39] To begin today's discussion, here's Cyril Vanier in our Washington studio. [0:43] And John Hendren in Los Angeles, thank you. [0:46] Air travel in the U.S. is a very competitive industry, and it is not rare for airlines to [0:50] file for bankruptcy. [0:52] But for a significant American carrier to actually shut down with the airline totally disappearing [0:56] overnight, that we have not seen in a quarter of a century. [1:01] And it just happened to Spirit Airlines, a pioneer of ultra-low-cost travel. [1:05] The company was struggling financially, and the energy shock triggered by the Iran war [1:10] was the last straw. [1:11] Spirit could no longer pay its bills. [1:15] Spirit Airlines is ceasing operations overnight after bailout talks with the White House broke [1:20] down. [1:21] There was no more runway for Spirit Airlines. [1:23] It had been struggling with skyrocketing fuel costs and mountains of debt. [1:27] It was leaving flyers scrambling for options. [1:30] 17,000 workers are now out of a job. [1:32] And the airline is placing the blame on those soaring fuel prices amid the war with Iran. [1:38] The price of jet fuel has exploded as a result of the Iran war, plus 80 percent since February. [1:45] That means costs are way up for airlines, and ultimately air travel becomes more expensive [1:50] for passengers. [1:52] Some people are having to rethink their vacation plans, just as we head into the summer holiday [1:55] season and into a major global and travel event, the FIFA World Cup, much of which is [2:01] hosted by the United States. [2:03] So how are airlines and travelers going to cope? [2:06] John Hendren reports from LAX in Los Angeles. [2:09] And Richard Gaysford is at Reagan National, just outside of Washington, D.C. [2:12] Now that is one of 28,000 domestic commercial flights that crisscrosses America every day, [2:23] carrying some 2.7 million people. [2:26] Because of the size of the country, of course, if you're going on a work trip, holiday or wanting [2:31] to see family and friends, air travel is about the only way of doing it for long journeys. [2:36] We'll take a look at the skies and you'll see hundreds of planes above America at any one [2:41] point in the day, all burning jet fuel. [2:45] And that has risen in cost by almost 80% since war broke out in the Middle East at the end [2:51] of February. [2:52] Well, that is a massive rise for the airlines to swallow. [2:56] And aviation fuel is one of the biggest single operating costs that they have to deal with. [3:02] American Airlines says it will add $4 billion to its costs this year. [3:07] United says it will have to cut 5% of its schedule later this year if fuel prices don't come down. [3:14] Southwest Airlines says fuel creates a $1 billion headwind for it. [3:19] And the fuel price really was the final straw for Spirit Airlines. [3:24] Its collapse has left passengers stranded right across the country. [3:28] Well, with more on that, let's go coast to coast now. [3:32] And my colleague John Hendren in Los Angeles, who's about five hours away from me by plane. [3:38] Richard, the Iran war's energy aftershocks have hit especially hard here at the airport in Los Angeles. [3:46] A major airline hub and the premier gateway for international travel from America's west coast. [3:52] Airlines have already started raising baggage fees and fares, and that's left many travelers with price shock. [3:59] My flight today was more expensive than it would have been a year ago because of the gas and the fuels. [4:04] The higher prices come as travelers are gearing up for the busy summer travel season. [4:10] Surveys show 72% of Americans plan to travel over the summer, many by air. [4:17] Starting in June, another 180,000 travelers will come to L.A. alone for the World Cup. [4:22] Those travelers will face a multi-pronged problem. [4:25] Rising fuel costs mean all routes are less profitable, so prices go up. [4:30] Some airlines had been keeping rates low on routes that Spirit flew. [4:34] Now they don't have to, and airlines have been canceling flights on routes that are less profitable. [4:40] It all adds up to less competition and higher prices. [4:44] We talked to a number of L.A. travelers about how they felt about the rising cost of flying. [4:50] It's definitely like an added stress, especially for people in the entertainment industry in L.A. [4:55] And those prices just keep going up, right? [4:57] Yeah, they keep going up. [4:58] It's a burden on everybody right now. [5:00] Those surging oil prices and spiking airfares are increasingly raising concerns in the aviation industry ahead of the World Cup [5:08] and just as the U.S. is preparing to celebrate its 250th anniversary. [5:13] Richard? [5:14] Well, thanks, John. [5:15] There is no doubt that the airline industry is constantly adapting and changing here in America, with some really big names consigned to the history books. [5:24] 24 hours a day, seven days a week, continental jets are in the air over five continents. [5:29] Well, flying has certainly changed. [5:32] Last year, we had a big shock with COVID. [5:34] And this summer, there will be real pressure on airlines because of all those rising costs. [5:39] Passengers are likely to pay the price as travel becomes more expensive. [5:42] And as the airlines reduce the number of flights to fill up planes and make operations more efficient, [5:48] it is worth noting that passengers in the U.S. don't have the same consumer protection rights as those flying in Europe. [5:56] And that might come as something of a shock to visitors here this summer. [6:00] One more thing before I bring in our panel. [6:03] How much does it cost now to fly in the U.S., given that the ultra-low-cost option Spirit Airlines is gone? [6:09] So let's say Richard wanted to visit John in L.A. just for argument's sake. [6:13] We compared the cost of a return flight from D.C. to L.A. a month from now. [6:17] Southwest Airlines, a low-cost carrier, is offering return flights for $237. [6:22] That is with a two-hour stopover, however, while a nonstop flight on American Airlines would cost you more than $400. [6:31] So there are significances and significant differences in price. [6:35] Although, just a caveat, low-cost carriers often charge extra for baggage and onboard meals. [6:40] We're joined now by Andrew Applebaum. [6:42] He's an attorney for Flyers Rights. [6:44] That's the largest airline passenger advocacy organization in the U.S. [6:47] And by Edward Russell, an aviation and transport journalist. [6:50] Edward, let's start with you. [6:51] Spirit Airlines was a pioneer in the ultra-low-cost market. [6:57] Why did it die? [6:59] It died because of the cost shock from the rise in fuel prices following the invasion of the war with Iran in February. [7:07] But the airlines have been struggling for years. [7:09] They built their costs, their structure on debt over the years, fast growth. [7:14] And about 2023, 2024, when growth slowed down in the U.S., the problem was that structure stopped being sustainable. [7:21] And they had to start paying their debt. [7:23] They tried to merge with JetBlue. [7:25] That failed. [7:26] That was blocked by the Biden administration. [7:28] But the debt problem still remained. [7:30] And so we saw them enter two bankruptcies. [7:32] And finally, costs caught up with them. [7:34] Yeah, that's important to point out. [7:36] They had already filed for bankruptcy. [7:37] They were making a loss. [7:38] They were just struggling for survival. [7:40] Yes. [7:41] And one of our reporters said that was the Iran energy shock. [7:44] That was the nail in the coffin. [7:46] Absolutely. [7:47] I read the statement by their CFO filed with the court yesterday. [7:51] And he said fuel was really the reason that pushed them over it. [7:54] They had a plan that they planned to exit bankruptcy with. [7:57] But that was filed before fuel went up by double digits. [8:01] And it just wasn't viable in that case anymore. [8:04] They just were not bringing enough revenue to cover their costs, especially their debt. [8:07] Yeah, they couldn't pay their bills. [8:08] Andrew Applebaum, are you working with any of the customers, the travelers, [8:12] that were affected by the immediate sudden shutdown of Spirit Airlines? [8:17] Yes, we're helping passengers. [8:18] We have a hotline and we receive lots of complaints from passengers. [8:23] And the number one complaint is usually flight delays and missed connections. [8:26] But now we're hearing about the cancellations. [8:29] And in the U.S., it's unlike Europe or Canada or Brazil, [8:33] where there is domestic delay compensation in those countries. [8:37] In the U.S., there is none. [8:38] And so when the airline, when Spirit here cancels your flight, [8:41] goes out of business, all you're entitled to is a refund. [8:45] You're not entitled to any type of compensation or duty of care. [8:48] So their options are refund, that's it? [8:51] Correct. [8:53] In the U.S., for domestic travel, the only option is a refund. [8:57] And we're probably going to see that more and more airlines canceling flights due to the high fuel prices. [9:03] Edward Russell, more broadly, if the ultra-low-cost carrier disappears, [9:07] if Spirit Airline disappears, does that mean that the cheapest flight options are all gone? [9:12] Absolutely. [9:13] You know, already, Frontier Airlines says they're seeing a 3 to 5 percentage point increase in markets [9:18] where they competed with Spirit Airlines. [9:20] That's just from their shutdown over the weekend. [9:22] And that doesn't take into account the rises that we've seen from fuel prices. [9:25] There's been at least five broad airfare increases in the U.S. since the end of February. [9:30] And Spirit's exit from the market is only going to continue to push that up. [9:34] Andrew, based on the work that you do with passengers, I mean, what's going to be the fallout [9:41] if the cheapest option is to travel across the country to go see family, if that's off the table? [9:46] Even ignoring the increased fuel costs, we're going to see higher ticket prices. [9:50] Whenever Spirit was present in a market, airfares dropped sometimes as much as 30%. [9:56] This is called the Spirit Effect. It used to be called the Southwest Effect. [10:00] And so whenever Spirit was in the market, the big four carriers would drop their prices. [10:05] And even if Spirit threatened to enter a market, the other airlines would have to drop their prices. [10:10] So passengers are going to see higher ticket prices because of Spirit's exit and because of fuel. [10:16] But Spirit have been around for 30 plus years, right? Some 35 years roughly. [10:20] So does that mean that for 35 years they've been depressing or they've been rather keeping airfares low on the routes that they operate? [10:29] That is correct. And Spirit and Frontier and Allegiant often operate routes that the big four carriers do not operate. [10:37] So it's a combination of decreasing prices on the major routes and then also being sometimes the only options on some other routes. [10:47] Okay. I want to run our viewers by some of the financials that we found. [10:51] First quarter profit and loss for some of the major aircraft carriers in the U.S. [10:55] That soaring cost of jet fuel makes things a lot more expensive for all airlines, not just Spirit Airlines, especially when it comes to their bottom line. [11:03] So look at the first quarter results for some of the major airlines in the U.S. [11:06] United Airlines posted a profit of almost 700 million dollars, but more than half of that came from selling and leasing aircraft. [11:14] Southwest Airlines, 227 million dollar profit. But aside from those two, all the other major operators posted losses. [11:22] Starting with Delta Airlines, 289 million dollar loss. Frontier, minus 272 million dollars. JetBlue, minus 319 million dollars. [11:32] And American Airlines, one of the largest in the country, posted a loss of 382 million dollars. [11:40] So, Edward, how vulnerable are other airlines? That's a good question. [11:46] I think the disappearance of Spirit actually helps a lot of the other airlines because it takes a competitor out of the market. [11:52] You know, as you said, airfares will go up because of Spirit's exit from the market as well as fuel. [11:57] So it really helps other airlines, especially the ones that are struggling and the ones that we are watching include JetBlue and Frontier. [12:04] Those are two. They're going to benefit from having a major competitor leave the market for them. [12:10] Do you did you see it that way as well? This is ultimately good for consumers? [12:15] This is not going to be good for consumers at all. It might be good for the other ultra low cost carriers. [12:22] But we're seeing a lot of increase in luxury travel, which really hurts the ultra low cost carriers. [12:28] And oftentimes the big four airlines are making a lot of their revenue off of credit card reward programs, [12:34] something that the Spirit and Frontier can't really benefit from. So this ultimately will hurt consumers. [12:40] What does it say about the business model for the ultra low cost? [12:43] Now, I was familiar with the low cost, but the ultra low cost is what is a turbocharged version of that low cost business model? [12:52] I describe it as the Ryanair model. You know, you buy a ticket for, what, five pounds or something and then, you know, you don't get anything with that. [12:58] It's the same idea. The model is under pressure in the U.S. [13:01] We saw significant cost convergence between the major airlines, American United, Delta and the budget, the ultra low cost carriers during the pandemic. [13:10] And because of that, they don't have the same competitive advantage that they had before in terms of much lower costs. [13:17] There's things they can save in other ways, but they still are struggling. [13:21] And as Andrew noted, I mean, passengers increasingly are preferring more premium travel experiences. [13:27] We've seen Frontier as Spirit before it died, adding more extra legroom seats, somewhat, you know, first class light products. [13:36] But it's just not kept up with the demand that American United and Delta are really seeing and benefit benefiting from. [13:42] What are you expecting to hear on your end? Because you're on the receiving end, right? On the consumer end of this. [13:48] Right. We're hearing a lot of complaints about stranded passengers. [13:52] But what we're likely going to see is airfares on routes that Spirit operated will increase as well as routes that they weren't on. [14:01] And so across the board, Spirit was great for competition and forced prices down. [14:08] Unfortunately, they had a transparency problem while Spirit was great for consumers as a whole. [14:14] Some consumers had a horrible experience with their hidden fees and drip pricing. [14:20] We call those gotcha fees. [14:22] And there's been bipartisan condemnation of these practices, including the bounty program where gate agents were incentivized to charge extra for carry on bags and personal items that were oversized. [14:36] And so for a lot of travels, a lot of travelers love Spirit, but it was a bad experience for other travelers. [14:42] And so while the big four airlines were capturing their customers with their credit card rewards programs, Spirit, unfortunately, was nickel and diamond in their customers. [14:53] I wonder what the place of government is in in something like this, whether they should be, in your view, saving, not saving, helping, not helping those airlines. [15:03] A trade group that represents smaller airlines, the Association of Value Airlines is the name, is pushing for two and a half billion dollar assistance package from the government specifically for those airlines. [15:14] But the U.S. Transportation Secretary, Sean Duffy, says that if other airlines are struggling, as Spirit was, then they should look for private financing first. [15:22] Now, you've heard that other airlines have talked about requesting a two point five billion dollar bailout. [15:30] I am in continual contact and my team is in contact with all the CEOs of the airlines. [15:36] I would say that at this point, I don't think it's necessary. [15:39] They do have access to cash. [15:41] If they want to come to the U.S. government, we would be a lender of last resort. [15:47] After today, we are going to see a stronger competitive market in our airline industry. [15:52] And we're going to continue to look at pricing. [15:55] We're going to continue to look at our energy supply, our jet fuel supply. [16:00] So Edward Russell, I beg your pardon, Sean Duffy there saying that it's going to make the market more competitive. [16:08] But more importantly, the private companies, airlines shouldn't come to the government for money. [16:12] Do you think in your view, you've covered this. [16:14] Do you think government should help if you have several airlines that are struggling financially? [16:19] I don't think so at all. [16:20] I think if it's an industry wide solution, as we saw during covid with the with the aid that went to the entire industry, I think that that's a good idea in select cases like the covid pandemic. [16:31] I don't think that we should see government support of just one or two airlines. [16:34] I personally, if there's a package that had the value airlines associations package, that doesn't apply to the major carriers who carry 80 percent of the traffic in this in the country. [16:45] So I really think that any government assistance should be broad based and cover the entire industry versus selective to a certain segment of the market. [16:53] And worth reminding for our international viewers, I know this is a little bit outside of your remit as an attorney, but just your view on this politically bailing out companies in general in this country, not does not always give you broad political consensus. [17:06] That is correct. And during the coronavirus pandemic, the government bailed out all of the airlines and those that bailout money had conditions such as a ban on stock buybacks, a cap on executive compensation and a guarantee of employment. [17:24] But once the timeframe ended on that, you saw the stocks buybacks resume, you saw executive compensation go up and then you saw some layoffs. [17:32] So I think the government does need to encourage competition, reduce some barriers to entry. [17:38] You've got a slot and gate access is a big issue for the lower for the smaller airlines. [17:43] And so when we're looking at this, I think bailing out would make some sense because it's a industry wide problem. [17:53] Gas prices. Some are able to weather the storm more than others. [17:57] But the U.S. economy relies on air travel to function. [18:00] Edward Russell, a couple of years ago, Spirit Airlines wanted to merge with JetBlue, [18:06] and they felt that that was the key to their financial and economic survival. [18:11] And at the time, the Biden administration blocked this. [18:14] So let me take us back to 2023. [18:16] Then Secretary of Transportation Pete Buttigieg spoke about the Department of Justice's efforts to block that merger [18:22] between Spirit and JetBlue. [18:25] Wherever the circumstances meet with our responsibilities and our authorities, [18:28] we're going to act to ensure a more competitive transportation sector. [18:32] And since the law gives us particular responsibilities and authorities with aviation, [18:36] we're going to be especially attentive in the aviation sector. [18:39] And that spirit of responsibility is what is guiding us in our support for the Justice Department's lawsuit [18:46] against the proposed JetBlue Spirit merger. [18:49] Something that confuses me a little bit personally is you have the Secretary of Transportation in 2023 [19:00] saying we want to block the merger because that's the best thing for competition and for the market. [19:05] And now you're hearing just now in 2026 the new Secretary of Transportation saying, [19:10] well, with one airline disappearing, that actually makes the markets more competitive. [19:14] It seems that just everybody has a different idea of what it means for the airline market to be competitive. [19:19] We think the Department of Transportation was correct in blocking the JetBlue Spirit merger. [19:26] The Spirit Board of Directors admitted that the JetBlue offer would be anti-competitive. [19:32] And JetBlue itself admitted that it would be raising prices, cutting routes, cutting the number of seats. [19:39] And so we found that that was a good use of DOJ authority because ultimately JetBlue was going to kill spirit themselves. [19:47] What is, is there a warning here for the global aviation industry, Edward? [19:52] I mean, because so many airlines around the world are going to feel the impact of the soaring price of jet fuel, right? [19:58] We said plus 80% in the U.S. since late February. [20:01] That is the second expenditure after labor for most airlines, maybe every airline, right? [20:10] First for a lot. [20:11] First for a lot. [20:13] So can there be, are you concerned that there might be more spirit airline style collapses around the world? [20:20] I mean, it's absolutely a fear. [20:22] I mean, whenever you have a cost shock like we're seeing in the airline industry today, there's the risk of collapse. [20:27] That said, you know, I can't speak to other governments and their policies towards their airlines, [20:32] but other governments may be more amenable to supporting their national carriers and the national interest. [20:37] There's few countries that have as competitive of an airline market as the U.S. do with multiple national airlines. [20:43] Most countries have one or two airlines. [20:46] So it becomes a much, the question of supporting one of them becomes a much more, well, this could impact half of our air travel. [20:54] So I think it's going to be on a country to country basis whether that happens. [20:58] But there's always the risk, especially when costs skyrocket like this. [21:01] I think that's I mean, that's a very good point. [21:03] Actually, there is something specific about the U.S. market, isn't there? [21:06] That there are so many airlines in play, which is not the case in, you know, everywhere else in the world. [21:12] That's right. [21:13] But the U.S. market is dominated by four carriers. [21:16] They often have 75 to 80% of the traffic. [21:19] So I think there's a little bit of a difference of geography. [21:21] The U.S. is a lot bigger. [21:24] And so there still is a demand for the ultra low cost carriers. [21:28] But passengers will have one fewer choice now. [21:30] Now, if the bigger part in the energy shock is caused by the closure of the Strait of Hormuz, caused by the Iran war, that has not been solved. [21:39] And we don't see a fix for that around the corner. [21:41] The Strait of Hormuz continues to be blocked. [21:43] Energy continues to be blocked from getting to market. [21:46] If that continues much longer, what impact do you expect to see back in the U.S. market here? [21:54] I don't expect many direct impacts in the U.S. [21:58] We refine most of our jet fuel here based on crude that's, you know, pulled out of mind here in North America. [22:08] But where I am watching is especially Europe and Asia, markets that depend on crude that comes from the Gulf. [22:14] You know, I just wrote today in The Washington Post that, you know, there is a real risk in Europe of jet fuel shortages. [22:20] The European Commission could move as soon as within three weeks to start making sure that there is jet fuel to meet demand. [22:27] What that will hit first are short haul flights where airlines can find alternatives. [22:32] Your transatlantic flight is probably going to fly. [22:35] But it's that flight from, oh, I don't know, Frankfurt to Prague that might get canceled in favor of a train or a bus or something. [22:41] So that's where I'm watching. [22:43] Are you gearing up perhaps for more airline trouble that could impact consumers in the U.S., [22:48] especially as we said earlier in the show, this is just before travel season and it's just before the World Cup? [22:53] That's right. Summer is a very busy travel season. [22:56] Even if the fuel crisis was solved overnight, we'd be seeing these high prices for at least three to six months. [23:01] Chances are it's going to get a lot worse, the fuel prices. [23:05] And so in a year's time, it's hard to predict where the airlines will be and what support they might need. [23:12] Edward, you were saying that a lot of the jet fuel that comes from here isn't actually the energy that is brought over from the Middle East, but it's still related. [23:20] Even if the Strait of Hormuz were to reopen tomorrow, all the industry slash energy experts I've spoken to over the last two months all have one thing in common. [23:30] They say the energy shock would not end tomorrow if the Strait of Hormuz were to reopen tomorrow. [23:35] Absolutely. It takes, I've heard in various numbers, six to eight weeks for refined products to get out of the Gulf, get onto a ship, ship to Europe or Asia, wherever they're going to go. [23:45] I mean, this summer we are going to see higher airfares persist, like Andrew noted. [23:50] And I think the real risks are- [23:52] Because of that? Because of jet fuel? [23:54] Absolutely. Because of that. That's the biggest cost right now that pretty much every airline in the world is facing. [24:02] The risk is whether if that spigot doesn't turn back on in terms of jet fuel that we start seeing shortages, more flight cancellations, that will contribute to higher fares in the flights that do go. [24:14] But I think that's where the real risk is. And like I said, I mean, there could be further airline collapses, but we're going to have to see what happens there. [24:22] All right, gentlemen, thank you very much. I want to thank our guests for joining us in the studio today in our Washington, D.C. studio. [24:28] That's Andrew Applebaum, attorney for Flyers Rights. That's the largest airline passenger advocacy organization in the United States. [24:35] And Edward Russell, aviation and transport journalist. Thank you very much to both of you. [24:40] Now, the collapse of Spirit rippled across American social media as passengers turned up to canceled flights with a bankrupted airline. [24:48] Politicians also took advantage of the moment to trade punches across the aisle on Capitol Hill. [24:52] Alex Baird has this roundup. [24:55] Well, it all started with the next post. Spirit officially announcing game over immediately. [25:02] Even customer service no longer available. [25:05] Thousands of Americans struck by just how fast this all happened. [25:09] Like Spirit cut off the engines mid-flight. [25:12] The fallout dominating the chatter across American social media. [25:16] Spirit going on up to the Spirit in the sky. [25:19] The sheer number of videos like these showing just how wide the impact has been. [25:23] Not surprising for an airline with around 30 million passengers last year. [25:28] Some blaming the U.S. president and the war with Iran for bankrupting the airline with surging fuel prices. [25:34] But the perception on the other side. [25:36] Don't look at Trump. [25:37] Look back to Biden. [25:38] The Treasury Secretary pointing the finger at that decision we've mentioned throughout the show. [25:43] To block the merger with JetBlue. [25:45] With thousands of jobs now gone and dozens of regional airports losing services. [25:50] Conservative media personality Glenn Beck saying that progressives like Senator Elizabeth Warren thought they were protecting consumers. [25:57] But have actually done the opposite. [26:00] So let me ask Elizabeth Warren today. [26:03] Who's the winner here? [26:05] Because it was a big Biden win. [26:07] Right? [26:09] Who won? [26:10] Warren defending her actions under the last government saying Trump's fuel price spike was the nail in spirit's coffin. [26:16] Not her attempt to block two airlines becoming one. [26:20] Republicans desperate to shift the blame while American families suffer. [26:25] Alex Baird there. [26:27] And that's all from us here in our Washington studio. [26:29] Back to John Hendren in Los Angeles and to Al Jazeera's global headquarters in Doha. [26:33] Thanks, Cyril. [26:36] On the next edition of This Is America, we'll be talking about how the U.S. national debt is now larger than the economy for the first time since World War II. [26:45] And we'll ask, is that trajectory unstoppable? [26:49] That's Wednesday at 1830 GMT or 1130 AM Pacific if you're here on America's West Coast. [26:56] Until then, from the whole team, bye for now.