Valuetainment - “Expect Increased Prices” - Spirit Airlines Devastated by Judge’s Decision

00:00:00.000 You ever phone on Spirit before?

00:00:01.540 You know, you're kind of like, I have, but I don't want to tell anybody.

00:00:03.640 You know the airline that you go on, you pay 55 bucks, and you're like, oh, this is nothing.

00:00:06.980 Checking them back, 55 bucks, 55 bucks.

00:00:08.840 Can I get a new Wi-Fi?

00:00:09.800 $7, $12.

00:00:10.880 Can I get some food?

00:00:12.140 $15.

00:00:12.720 Wait a minute.

00:00:13.120 It's the same as the other guys.

00:00:14.340 But still, market-wise, Spirit is known for being the cheapest out there.

00:00:18.420 To the point where the industry average margins are 2.6% plus profit, 2.6%, the last two years.

00:00:25.800 Spirit, minus 8.5% this last year, year before.

00:00:30.100 Minus 11%.

00:00:31.400 They're not making any money.

00:00:32.800 So recently, they wanted to do a merger with JetBlue.

00:00:37.000 And guess who stopped the merger from taking place?

00:00:39.940 The U.S. government.

00:00:41.000 You might be asking why?

00:00:42.440 Here's why.

00:00:43.100 So Spirit Airlines faces uncertainty after an antitrust ruling blocked its sale to JetBlue

00:00:50.220 for $3.8 billion.

00:00:51.740 A federal judge in Boston concurred with the Justice Department citing consumer harm through

00:00:56.620 reduced choices and increased fares.

00:00:59.200 So the judge sounds like he's coming from a noble place.

00:01:01.680 We don't want Spirit to go away because let's help him, right?

00:01:04.320 From the moment he says this, the judge, this is on the 16th, here's what happens to the

00:01:08.020 Spirit stock.

00:01:08.720 It plummeted by over half since the ruling, prompting consideration of debt refinancing.

00:01:14.080 Its shares closed Thursday at $5.70, down more than 60% from the previous week.

00:01:20.200 And by the way, they have a loan due in September of 2025.

00:01:22.920 This is a $1.1 billion loan at 8%, which by the way, this whole thing, that corporate

00:01:27.440 debt, corporate debt, corporate debt is coming up.

00:01:29.900 So they were going to buy him for $3.8 billion.

00:01:32.100 You know what Spirit's market cap is today, give or take?

00:01:36.220 $680 million.

00:01:37.820 You know what they were worth November of 2014?

00:01:40.440 Over $6 billion.

00:01:41.280 The judge is thinking they're helping them, but you may have forced this company to bankruptcy.

00:01:46.560 Who does that help?

00:01:47.380 We're going to talk about that today.

00:01:48.800 And if you value out of this video, give it a thumbs up and subscribe to the channel.

00:01:51.500 By the way, another reason why capitalism works and it doesn't when the government gets involved

00:01:55.400 in situations like this.

00:01:56.520 You know how many airlines we have?

00:01:57.960 You're worried about Spirit and JetBlue working together.

00:02:00.580 You effectively hurt the company.

00:02:02.340 You judge you.

00:02:03.380 You did that.

00:02:04.260 You hurt this company.

00:02:05.220 Let them do their part.

00:02:06.340 But watch this.

00:02:07.200 What situation they're in?

00:02:08.520 JetBlue, Spirit's financial situation is very messy.

00:02:12.160 Their debt surged to $6.6 billion from only $3.6 billion in 2019.

00:02:18.600 This is pre-COVID.

00:02:19.560 And keep in mind, when the airlines all of a sudden had the flat year, if you look at

00:02:22.540 the chart to see how many flights was taking place in a year, you'll see the sudden drop

00:02:26.820 off in 2020.

00:02:27.980 They all got crushed.

00:02:29.400 You see the page with number of passengers carried through Spirit Airlines from 2003 to

00:02:33.440 2002.

00:02:34.240 Look at the 2020 year.

00:02:35.600 But everybody looks like that, right?

00:02:37.340 But generally, they went from 2003 only having 4 million people to 2019, 33 million.

00:02:42.660 Even 2022, they went back up to 38 million.

00:02:45.240 But in that year, 2020, the government came in and said, let's bail out these airline companies.

00:02:49.220 Watch this.

00:02:49.760 We looked at the map, what these airlines did, top-line revenue, and how much they got bailed

00:02:55.420 out by the U.S. government.

00:02:56.700 And then we did the calculation of what the percentage of money they got compared to their

00:03:00.820 top-line revenue.

00:03:01.820 Here's what it looked like.

00:03:02.740 At the top, Southwest Airlines got roughly 13%.

00:03:05.800 So, for example, if Southwest Airlines' top-line revenue is give or take $23, $24 billion, Southwest

00:03:11.380 Airlines got roughly $3.3 billion from the U.S. government, give or take 13%, right?

00:03:17.340 You see how we did the formula?

00:03:18.460 Then second place is American Airlines, 12%.

00:03:21.160 Then third place is JetBlue, also 12%, tied with American Airlines.

00:03:25.420 Delta got 10%, but guess how much Spirit got when they were bailing out all these airline

00:03:29.240 companies?

00:03:29.760 Ready?

00:03:30.100 Only 6.4%.

00:03:31.440 So, meaning they could have gotten another $150 million, but they didn't get it.

00:03:34.800 So, only save the too-big-to-fail.

00:03:37.600 Let Spirit go out of business.

00:03:39.120 While closely to 40 million people use Spirit every single year.

00:03:43.800 I remember not having money and leaning on airlines like this, and it's necessary for

00:03:47.940 low- and middle-income families to go visit their families, but the government is potentially

00:03:52.200 causing a company-like Spirit that we all make fun of, and we've all secretly used, or

00:03:56.800 currently used, to go away as an option for you as the consumer.

00:04:00.140 Now, let me continue.

00:04:01.060 They recently reduced their debt by selling and leasing back 25 of their Jets for $465 million.

00:04:07.360 Meanwhile, on top of that, the airline is currently struggling because of the problems they have

00:04:10.600 with the Pratt & Whitney engines on some of its planes, Spirit grounded 26 of its nearly

00:04:15.040 200 Jets after the supplier disclosed manufacturing defects.

00:04:18.920 Meanwhile, Spirit's labor costs are rising as the airline and its pilots last year agreed

00:04:23.140 on a new contract.

00:04:24.300 Ready?

00:04:24.720 That will boost pilots' pay by an average of 34% over its two-year term.

00:04:29.740 And just in the third quarter, Spirit lost nearly $158 million, a period that included

00:04:34.660 much of the peak summer travel season, with the company citing softer demand and discounted

00:04:39.900 fares.

00:04:40.220 Now, meanwhile, here's what you've got to be thinking about, because industry experts

00:04:43.040 are saying the following.

00:04:43.940 They're saying, number one, either Spirit is going to be acquired by another airline,

00:04:48.100 which, by the way, if you're one of the big airlines, you're thanking that judge.

00:04:52.320 And you're saying, hey, judge, thank you.

00:04:54.660 You just saved us a billion dollars, or half a billion dollars, or maybe $2 billion.

00:04:58.400 And option number two, what industry experts are saying is going to happen, ready?

00:05:01.680 Bankruptcy.

00:05:02.160 Because what are you going to do if you keep losing money every single year, and everything

00:05:04.920 going up, and planes are being shut down?

00:05:06.740 And on top of that, guess what else is going on with Boeing?

00:05:09.060 Boeing, or Airbus, if you want to order some planes.

00:05:10.840 You ready for this?

00:05:11.520 Watch this.

00:05:12.200 They have a backlog of orders that stretches out as far as five years.

00:05:17.340 If you call Boeing right now saying, hey, I need 20 Boeing jets, you know what it'll

00:05:20.840 tell you?

00:05:21.320 We've got a five-year log.

00:05:22.380 Think about that.

00:05:23.340 So even if they wanted to invest and grow, they're not going to get those planes for nearly

00:05:27.440 five years.

00:05:28.500 Why should you care about this?

00:05:29.540 Because you know how you and I win?

00:05:31.000 The more competition there is, the better it is for you and I.

00:05:33.660 Starbucks, coffee beans, you go to 7-Eleven, maybe you go to the donut place, whatever it's

00:05:38.320 called, maybe you go to this other place, you have options.

00:05:40.400 So they've got to compete to have the best coffee for you.

00:05:42.540 Cars, you've got options.

00:05:43.780 You've got a lot of things that are options.

00:05:45.160 But notice with banks, the bigger guys are gradually buying the smaller guys.

00:05:49.320 We're getting fewer and fewer banks.

00:05:50.880 Notice also when it comes down to these military contractors, used to be 50-something, now you're

00:05:55.700 really dealing with five of them that you're buying stuff from.

00:05:58.260 And then watch what's going on with airlines.

00:05:59.500 This is from 1995 to today.

00:06:02.240 In 1995, you had 85 carriers you were dealing with, with 11 being major carriers.

00:06:07.280 But look what's increasing and look what's decreasing.

00:06:10.120 Other air carriers have decreased from 85 to 44, but notice the major air carriers have

00:06:15.860 increased from 11 to 19.

00:06:17.600 Why?

00:06:17.900 Because the 11 are buying up everybody else and the other guys that used to be 85 down 1.00

00:06:21.760 to 44, they're going out of business because with the help of great lobbyists, fantastic,

00:06:26.520 right?

00:06:26.700 These lobbyists you hire and guess what you want to do with lobbyists?

00:06:29.380 It's not that any of these guys would ever do something like this.

00:06:31.620 I'm sure this industry is filled with many noble people.

00:06:33.880 But you help by making the barrier, the entry, you know, for the other smaller guys to compete.

00:06:38.940 Just enough business a little bit to be happy about it.

00:06:41.400 Then boom, crisis happens.

00:06:42.640 They go out of business.

00:06:43.340 We buy them on discount.

00:06:44.300 We buy them on discount.

00:06:45.160 We buy them on discount.

00:06:45.820 Boom, boom.

00:06:46.640 Boom, boom.

00:06:47.300 Boom, boom.

00:06:47.700 And then all of a sudden you're one of the behemoth companies out there, gigantic, that they

00:06:51.660 can't do anything to allow you to go out of business because you are too big to fail.

00:06:56.740 I want to show you two other events that took place that hurt the airline industry.

00:07:00.080 One of them being the labor unions.

00:07:02.260 What they did in 2023, two major events happened.

00:07:04.820 One of them was September 29th, 2023, which United pilots won 40% raise as union ratifies

00:07:10.620 new contract, which means whatever they do, that's pretty much the precedent, the standard

00:07:14.620 for everybody else to follow.

00:07:15.860 So other airline captains are going to come out and pilots are going to say, hey, United

00:07:19.040 did this.

00:07:19.500 You got to do this for us as well.

00:07:20.860 Smaller guys are forced to do so.

00:07:22.520 Sometimes they can't.

00:07:23.420 American Airlines pilots also approved a new contract, giving more than 15,000 pilots immediate

00:07:28.060 21% raise and total compensation increase of more than 46% over the course of a four-year

00:07:34.220 contract.

00:07:34.880 And then Southwest Airlines pilots also got about a 50% pay raise over a five-year period

00:07:40.360 in their new contract.

00:07:41.940 And by the way, the reason why I'm giving you those numbers first is because when you

00:07:44.760 think about their operational expenses, 31% of it is labor.

00:07:48.320 31% of labor counts for their operational expenses.

00:07:51.800 Fuel is 22%.

00:07:53.000 You may have said fuel would have been higher.

00:07:54.720 No.

00:07:55.140 Look at the difference between oil and the kind of money they used to make.

00:07:58.320 So look at prices of oil, what it was like from 2010, the highs of 160 to 2020, as low

00:08:05.480 as $25 if you see those charts.

00:08:07.780 Now go look at the profits on EBITDA from 2010 to 2020 and focus mainly on purple because

00:08:14.900 purple is North America.

00:08:16.400 You see how North America in 2015, they're making margins of 15%, EBIT of 15%, 2016, roughly

00:08:23.080 13%, 27%.

00:08:24.520 They're making money, right?

00:08:25.820 2019 is still good.

00:08:27.940 Then watch what happens 2020 post-COVID, drop, okay?

00:08:32.540 Minus 30% for North America.

00:08:36.920 2021, drop.

00:08:38.720 2022, back up.

00:08:40.940 2023, slightly back up at around 2.6%, but not for companies like Spirit.

00:08:45.880 They haven't had a chance to recover from what happened during the pandemic and the oil prices

00:08:50.460 constantly changing.

00:08:51.840 Now here's what drives a lot of people nuts.

00:08:53.320 You know, there are the PPP loans.

00:08:54.440 They give them roughly $25 billion to all these airline companies.

00:08:57.360 During the time, 400,000 people were fired, but at the same time, what did they do with

00:09:01.360 90% of money that was given to them?

00:09:03.360 You know what these airline industry, these companies did?

00:09:06.180 They used 96% of money we gave them to buy back shares.

00:09:09.600 Wonderful.

00:09:10.520 What's the moral of the story?

00:09:11.980 Industry, airline industry's margins are this thin, very small.

00:09:16.200 These airlines that don't charge a lot for their tickets, they're not making money.

00:09:20.280 You want these businesses to stay in business.

00:09:22.240 Every time I go to Barnes & Noble, I buy $1,000 worth of stuff at Barnes & Noble, and I ask

00:09:26.540 the cashier, he sees me every time, and he knows what question I'm going to ask.

00:09:29.000 How are your numbers looking?

00:09:30.560 Are you guys making money?

00:09:31.620 Why?

00:09:31.780 Because I want Barnes & Noble to stay in business.

00:09:35.180 You probably want Spirit to stay in business, but to do so, they're going to have to increase

00:09:39.960 their prices a little bit, and the U.S. government's got to kind of stay out of the way, because

00:09:44.180 what monopoly law here?

00:09:46.200 You got all these other airlines.

00:09:47.520 Why are you worried about Spirit?

00:09:49.040 You could allow these guys to do business together, them and JetBlue, but you keep getting

00:09:53.320 in their way.

00:09:54.320 And the judge, whether it's intentional or not, they're either going to make them go out of

00:09:58.200 business or be bought on sale, even more discounted than what Frontier and JetBlue offered them.

00:10:03.880 If you got value out of this video, give it a thumbs up and subscribe to the channel.

00:10:07.060 If you don't know the story of what unions do to America, maybe you are also part of a

00:10:11.360 union, you want to learn more, click here to watch the video.

00:10:14.700 You're either going to get very upset or you're going to say, oh my God, it's crazy what these

00:10:17.480 guys are doing, how much power they got.

00:10:18.680 Anyway, take care, everybody.

00:10:19.680 Bye-bye, bye-bye, bye-bye.

Valuetainment - February 05, 2024

“Expect Increased Prices” - Spirit Airlines Devastated by Judge’s Decision

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