WASHINGTON – US Transportation Secretary Sean Duffy said on May 2 he does not think the government needs to bail out low-cost airlines that have sought US$2.5 billion (S$3.2 billion) in government relief because of high jet fuel prices.
“I would say that at this point, I don’t think it’s necessary. They do have access to cash.
“If they want to come to the US 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,” Mr Duffy said at a press conference at Newark airport after the collapse of US budget carrier Spirit Airlines.
He said the prospect of a Spirit bailout was seen as an opportunity by some other airlines to get money “not necessarily based on need, but based on opportunity”.
On April 27, a group of US budget airlines, including Frontier and Avelo, said it had proposed exchanging warrants that could be converted into equity stakes for US$2.5 billion in US government assistance.
The Association of Value Airlines confirmed it asked President Donald Trump’s administration to create a US$2.5 billion liquidity pool, used exclusively to offset incremental fuel costs “as a necessary and targeted measure to stabilise operations and keep airfares affordable during this period of volatility”.
They have also asked Congress to suspend the 7.5 per cent federal excise tax on airline tickets and US$5.30 per segment tax. Waiving the fees would offset about one-third of the incremental cost of higher jet fuel.
The pitch highlights one of the unintended consequences of the US-Israeli war on 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 Mr Duffy and Federal Aviation Administration chief Bryan Bedford in Washington last week to discuss the proposal.
The group arrived at the US$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 US 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. Reuters
