The U.S. war on Iran has led to a spike in jet fuel costs, pushing airlines to the brink. American budget carriers may be looking to the government for help.
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According to The Wall Street Journal, several low-cost airlines, including Frontier (ULCC), are lobbying President Donald Trump’s administration for a possible $2.5 billion government bailout. In exchange, they are offering possible future stakes in their companies via warrants, insiders told the outlet.
U.S. Airlines Face Historic Supply Crunch
The move comes as leading American airlines are set to fork out an extra $11 billion on jet fuel this year, according to estimates. Commercial airlines largely stopped hedging against the price of the commodity decades ago.
In addition, American airlines are facing the toughest jet fuel supply conditions, with the U.S. Energy Information Administration recently forecasting about 21 days of supply this year. This would mark the tightest supply environment since 1963.
The situation is due to reduced refinery production following the closure of several such facilities in California in recent months and years.
‘I Like Having a Lot of Airlines’
The update might help to lift the mood of investors in budget airlines such as Southwest Airlines (LUV), Frontier, and Allegiant Travel Company (ALGT), whose shares are down year-to-date. It might also improve confidence in other low-cost carriers such as JetBlue Airways (JBLU) and Sun Country Airlines (SNCY), who are also facing fuel-driven margin pressure.
Meanwhile, the media reports come as earlier ones had indicated that the Trump administration was finalizing a $500 million rescue package for troubled low-cost airline Spirit Airlines (FLYYQ). This would be an uncommon response from the U.S. government, which usually offers sector-wide aid rather than single out one company.
However, the administration appears bullish on extending help to the sector. Last Thursday, President Trump, in a meeting at the Oval Office, stated his administration’s interest in helping to bail out or buy out struggling Spirit Airlines.
“I’d love to be able to save an airline,” Trump said during the meeting. “You know, I like having a lot of airlines, so it’s competitive.”
Following the peak of the COVID-19 pandemic, the U.S. government extended a $54 billion lifeline to the industry.
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