Valuetainment - February 05, 2024


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


Episode Stats


Length

10 minutes

Words per minute

209.57446

Word count

2,167

Sentence count

166

Harmful content

Hate speech

1

sentences flagged


Summary

Summaries generated with gmurro/bart-large-finetuned-filtered-spotify-podcast-summ .

Spirit Airlines faces uncertainty after an antitrust ruling blocks its sale to JetBlue for $3.8B. What does this mean for the future of Spirit and JetBlue? And who does the U.S. Government get to do their part?

Transcript

Transcript generated with Whisper (turbo).
Hate speech classifications generated with facebook/roberta-hate-speech-dynabench-r4-target .
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.