C (4:18)

Hey, great to be here, Scott. Looking forward to this week's episode. It's going to be a fun one.

A (4:23)

Yes, I agree, Charles. And perhaps we should call this the menage a trois edition of Airlines Confidential.

B (4:31)

We just went off the rails. Great to have you guys with us, I think, think.

C (4:38)

Oh, and I thought we hit a new low with the Jennifer Aniston Emirates a few weeks ago, but I think you topped it, Jay. Outstanding.

A (4:50)

Always happy to bring down the curve.

C (4:52)

Hey, well, listen, let's jump in, you know, and guys, one thing I did, I'm always traveling a lot, but the past week had a ton of travel. I was over in Europe, in London for a couple of days. And, you know, must say there was a lot of gloom and doom in the air related to, you know, just fuel pricing and actual real fuel shortages. But it felt like with the news and what has, you know, Scott has alluded to with American Airlines and everything else, that it was a very consequential week. So, I mean, I'm looking forward to unpacking all of this, you know, with you guys. I think we should start with the Scott Kirby news that he was, you know, in discussions with the Trump administration back at the end of February and with President Trump himself about the possibility of United Airlines acquiring American. And of course, this leaked out, you know, early last week. And we've got a whole lot of other important news we can unpack related to Spirit Airlines, which is going to be meeting with the federal government before we air this week about some possible emergency bailout. And anyway, just a lot going on. I'm looking forward to unpacking that. And what else is on your minds?

A (6:08)

Well, there's more, of course. You haven't mentioned the FAA's order to cut flight schedules at Chicago O' Hare this summer. JetBlue was in the news and it secured up to $500 million in financing from Sky Leasing for 22 Airbus A320 and A220 jets. There's tremendous pressure on the airlines right now. And we're in one of those periods where it seems like there is about to be at least a few dominoes falling that are going to reshape the US Airline industry and, you know, guys, really, throughout the world.

B (6:40)

Yeah, yeah, absolutely. And you know, you mentioned Spirit. The other news is that Spirit just late Friday filed its February financial results and it's not good. And it certainly helps explain why they're looking for emergency cash and why the liquidation talks has grown stronger and stronger. But as you say, Charles, let's start with United American. So here's the issue in a nutshell. Over the past five years, American Airlines stock has declined 42%. The company today is worth about $8.5 billion. It's a very different company than it was 37 years ago after multiple mergers. But ironically, it's worth about the same 8 billion that Donald Trump offered in 1989. And by the way, 8 billion in 1989 in today's dollars would be 21 billion. Just for reference. So American has lost 42% of its value over the last five years. United over the same period has seen its stock rise 82%. And I think that's the summation of what's going on. United is now worth $33 billion and is big. Iconic brands across many industries know when your stock is depressed, you're vulnerable. Just ask Southwest Airlines. This is kind of what they went through. American is vulnerable and Kirby's taking advantage of that. Second, just for reference, let's talk about domestic market share because this is going to be the huge issue, even though Scott Kirby is saying this is about international service, not domestic. But everybody's going to look at it from the domestic lens. According to the Bureau of Transportation Statistics, Delta now has the largest domestic market share at 17.8%. This is for the 12 month period ending at the end of January. So very current. That's revenue, passenger miles, passenger traffic, not just the number of passengers, but also how far the airline took them. And these numbers are all going to be slightly light because independent regional airlines like SkyWest are counted separately in BTS statistics. So you got Delta at 17.8%, American at 17.4%. Southwest at 17%, United at 16.7%. The big four, roughly, when you add in regionals, roughly account for 80% of domestic passenger traffic. And that's a number we hear a lot. It's roughly spread equally between Delta and American, slightly larger than the other two. And Southwest and United, which are pretty much the same size domestically. Remember, United is the biggest overall when international is included, by the way, since we will discuss them too. JetBlue has about 4.6% of domestic traffic. Those guys are up 17%, 18, 20%. JetBlue is around 5%, a little bit less than 5%. Frontiers 3.7% and Spirit is 3.4%. And that's shrunken Spirit. Since it's relatively current data though, we know that Spirit plans to keep shrinking more if it continues flying. So to round out the landscape, Alaska is 8% of domestic market share. That's point.

A (10:15)

Which includes, which, which includes Hawaiian as well.

B (10:18)

Which includes Hawaiian. Correct.

C (10:20)

And hey Scott, just before we go any further, maybe just to recap what you said, because this is a really important stage setting, you know, exercise, I mean, really since the last wave of consolidation, which not coincidentally was kicked off, you know, also in a period of extremely high oil prices in 2008, we've been for the last decade or more in this, this current state of the big four at roughly equal market shares at 80% combined. And then everyone else in the industry, the Spirits, Frontiers, Allegiance of Ellos and so on, making up the final 20%. And that's been able, it's been competitive. But importantly and as we've talked about so much you talk about week to week, not all the carriers, in fact most carriers post Covid have not been profitable, you know, but you know, in spite of this sort of stable competitive situation and you know, there's other element to throw in here too. I guess historically the just the notion of two of the big four combining for 40% market share or something approaching that to me is just absurd. I mean, you know, I think it's crazy that we're talking about this, to be honest, as being real. And I'll just say, I mean I don't think this is ever going to happen or past must have been kind of unpacked the reasons why. But anyway, to me it's just, it's just crazy that to even think about, you know, just how upsetting that would be for the competitive balance and everything else. And then one other thing that I mentioned about a month ago on the podcast, but maybe it's worth repeating is that Scott Kirby said this at the JP Morgan conference, that airfares in the industry just broadly in 2025 are 2% lower than they were in 2019. And that stands in contrast to everything else in the US being 25% more expensive. And so airfare continues to be a great bargain and a great value for consumers in spite of the fact that so of the airlines are not profitable, you know, in this sort of setup and state. So I think that's kind of where we are and I think anyway, just worth reminding ourselves where we are before we dive in and kind of keep peeling this onion.

B (12:29)

Yeah, no, exactly right. We'll talk about it more. And I agree with you, Charles. And you know, as many people said, this is preposterous, but we live in a very unique time when you have a government that likes big splashes and likes to shake things up and loves big deals. And I think there are, as we're going to see as we talk this through, there are areas where they don't overlap a whole lot. And you could see some, you know, there would be plenty of carve outs and things if it ever did happen to try and preserve competition in various markets. But, you know, and there are also some structural reasons, you know, American has essentially a poison pill in place. We'll talk, I think we're going to talk about that. But here's the thing that I think this is the reason why we're, this is really worth talking about. My point three is Scott Kirby is strategic and calculating and smart and ambitious. There are many layers to this onion and we're going to peel some back on this podcast, but they all work in Scott Kirby's favor. He accomplishes a lot just by floating this idea with the president. And if you were tempted to laugh this off when you first heard it and think this is ridiculous, that it could never happen, you may be correct. But I think you also miss the point because even if this never happens, there are things that do happen for United and Scott Kirby. So Bloomberg reported last week, this is how this all started, that Scott had raised the possibility of United acquiring American in February with the president. Now, interesting that this news didn't come out in February. It's coming out now, right? I think that's significant. Scott Kirby wants United to essentially be the US Global flag carrier. He's not using those words, but that's, I think what, what the intent here is to enjoy the kind of international domination and strength that flag carriers historically got and some have now or at least share that Kind of flag carrier status with Delta. Emirates, now the fourth largest airline in the world, at least before the groundings from the Iran war, essentially has that cloud, right? That status. Emirates sends a 380s to US cities and sucks up passengers. And that grates at airline executives like Scott Kirby. Lufthansa Singapore Korean Air member Korean Air acquired Asiana one carrier. So Scott says this is about international, not about domestic. What he doesn't say is that the way for United to get bigger internationally is to reduce competition among U.S. airlines. Right. There aren't a whole lot of places in the world United can't fly to if it wants to, but doesn't have the market strength to do it profitably. So remember, and I guess this is sort of point four, but this is really important. Scott has said many times he believes there is only room in the US for two premium airlines, not three. And so he sees a moment in history when maybe, just maybe the stars are aligning. United is strong, American is weak. The industry is in flux. You have the very unique once in a lifetime government situation where there's an administration with absolute fierce support for big mergers that it sees as advantageous and a president with a huge fascination in airlines and I think no love for American Airlines in particular. And by the way, Scott Kirby has been currying favor with that president for some time now. Remember when Scott was out in front of the White House siding with Republicans over the government shutdown last fall?

C (16:31)

I do remember that, Scott. I remember as well that United Airlines and Kirby sponsored the President's inaugural and so on. I think it was a million dollar donation and so on. And you know, I must say you gotta feel for Robert Isom and the team at American. And however this news leaked, and you know how it, how it came out, it broke almost immediately before American Airlines Long planned 100 year anniversary events and parties with employees and so forth. And that is not, that is not dissimilar to, you know, I believe one hour before their Q4 earnings call back in, in January, United announced right in advance of that a large flight increase at o'. Hare. You know, and so, so you just get the sense of this cat and mouse game being played out and, and certainly targeting. And yeah, one, you know, given the

A (17:28)

narrative that, that Scott just described, it makes me wonder how long has this been planned? You know, is this something that at the point that the Trump administration entered office, I wonder if, if United began to plot this and the timing, why now would be the answer to that would be. Well, the airline industry is in terrible shape. And so it's prime for this type of activity. But I wonder how long Kirby has been plotting this. This is perhaps something that has been engaged in United's headquarters for more than a year.

B (18:10)

Yeah, no, it's a great point, great point. And what I feel most certain about is this was not some off the cuff remark made to the president or to the secretary.

A (18:21)

No, that's why, that's why I'm thinking that if that conversation occurred in February, obviously there was some testing that was going on to see if it would be laughed out of hand, but you know, obviously it wasn't so.

B (18:33)

Right.

A (18:33)

You know, there. Here we are today.

B (18:36)

Yeah, yeah, yeah, yeah, yeah.

C (18:38)

Just absolutely. And even, you know, Scott had said at conferences and has talked about the international trade and the foreign carriers, you know, serving the US and the imbalance of, of trade and seats and so forth, many, many months before. But certainly. And look, I mean, as Scott laid out, the American share price is depressed and has not been performing well. American also, I think had net income last year of $111 million. So I mean, effectively a rounding error, break even result. And so they're not performing well and the share price reflects that. And so, so yeah, I mean, I suspect you're right, Jay.

A (19:13)

There's another element. There's another element here too and that is, you know, this focus on international. I wonder if that was a result of the meeting with Trump in terms of, you know, flying the flag, you know, and tapping into American pride, obviously not the airline, but as a country, the pride of having a carrier that's going to be dominant all over the world. You know, that. I wonder if that's part of the messaging as well.

B (19:39)

Sure. Well, that's exactly how you can appeal to president.

A (19:42)

Absolutely, absolutely.

B (19:44)

Make American Airlines would make US Airlines great again.

A (19:49)

Yes, indeed.

C (19:50)

Well, hey, listen, we should be clear that American did over the weekend, I believe in the last couple of days, you know, put out a very clear statement saying it's not for sale and not engaged in any talks with United. And Scott, you mentioned this a few minutes ago. American does have a poison pill in place of sorts. In 2021 it adopted a plan to protect $16.5 billion in net loss carryforwards or NOLs, which are basically losses that have been accumulated in American accumulated these during COVID and they can be used to offset future income tax payments on corporate profits. And the IRS doesn't let you carry these losses forward if there's a change of control at the company. So companies with Big losses like American in this case, adopted a plan for a change in control. That specifically states if any entity acquires a 5% ownership stake in American, the company will then issue rights to all shareholders to purchase more stock for nothing, so that anyone trying to take over the company gets diluted and can never get control. So clearly that will have to be addressed if any of this happens. And, and we'll just be one more element to watch.

A (21:08)

So is it, is, is it not just a little crazy? Is that. Would that in a weird way be their largest asset?

C (21:18)

Well, it is worth a lot. Absolutely.

A (21:21)

You know, it's just, it's just strange. Only in the airline business would we have a asset that is, you know, a huge asset of 16 and a half billion. It actually represents a loss.

B (21:31)

Oh, I remember back in the day with Continental, that, that was, that was a huge issue. They were, they were like not gonn paying taxes for 15 years or something. And when you're earning $111 million a year, you're not actually using those credits too much.

C (21:46)

No flashbacks to our longtime CFO Jeff Misner at Continental from those days, in fact. And not only Continental, I mean, certainly. And you know, one, one element in this, you know, all too, that comes to my mind is it's just, it's yet another reminder. And I think even if this has been plotted for more than a year, as we think about, to me, just this current oil price spike is another reminder. And we Learned it in 9, 11, we've learned it in Covid, other Gulf wars and so on. You can never have enough cash on your balance sheet. The industry is always going to be cyclical and certainly you're seeing it now with the weakest players really being exposed and challenged.

B (22:30)

Yeah, no, and I think we'll talk more about that with JetBlue, because I think that's relevant. But Charles, I want to note that yes, American is not talking to Kirby, but Americans unions sure as heck want to talk to him and have already been trying to reach out. I understand he's not met with them yet, but this is already causing havoc inside American and that's another layer of this onion that I think is worth peeling. It's a big point. This just became a huge distraction for American. Its board needs to take this seriously. There's going to be meetings. They may have to hire advisors. They got plans. All distracting, most likely from the progress American is making rebuilding its business. I know in the statement they said this is not going to distract us from, from the work we're doing. But this is what happens, right? And the unions. And this is where the distraction comes in. The unions were already upset set with Robert Isom, and his job just got a little more difficult. His employees see Scott Kirby as a savior. Come pull us out of this mess, Scott. You know, I'm kind of reminded of when Doug Parker and Scott Kirby made an offer in 2006 to acquire Delta. When they were at US Airways, Delta employees rallied against that proposed takeover. Remember, it was keep Delta, my Delta.

C (24:00)

They had buttons on uniforms and everything.

B (24:03)

Oh, yeah, no big.

A (24:04)

Big.

B (24:04)

Right. And. But, you know, at the end of the day, CEO Jerry Grinstein fought it off, but it also moved Delta to a new CEO, Richard Anderson. And Richard and Doug talked about this, you know, on the podcast when, when they were on that. That offer for US Airways probably led to Richard becoming the CEO of Delta. And so here you don't have the American employees rallying to keep American. My American. At least you don't think. But I do think it puts more pressure on Robert Isom.

C (24:42)

But even beyond the parallel of 2006 and Delta, I think of 2013 and this same American Airlines workforce welcomed with open arms Doug Parker and Scott Kirby to come into American then from US Airways and Tempe. And so. And Doug, who are, you know.

B (25:03)

Yeah, yeah. I mean, Doug started meeting them with them before the deal was done and. Right. And so it's really important.

A (25:11)

Yeah, it's just. It's just crazy awkward. I mean, there's a phrase that comes to mind, and I don't know if you know the exact legal definition, but tortoise interference, and that is, you know, the, you know, being able to be sued for interfering too much in someone else's business. And gosh, you know, Americans, labor unions meeting with the CEO of their primary competitor, it just seems wrong on so many levels. But, you know, there are so many aspects to this beyond what we traditionally think of with mergers. United CEO Kirby says that this is about US Airlines being more competitive internationally against carriers like Emirates or whoever. And yet what would a United American tie up do to the international alliance structure? What happens to One World without American? What does a carrier like Japan Airlines do, assuming United sticks with Ana? Go to Sky Team, I guess. Does British Airways join the Star Alliance? And you know, what happens with all of the joint ventures with American United that they have with various carriers that have antitrust immunity and I assume are incredibly financially productive. Another big issue, loyalty programs. Americans Advantage has more than 128 million members. United minus plus has more than 110 million members. There's a lot of overlap. One person belonging to both programs, but combining those two into one would make it really hard for other loyalty programs to compete. And what do you do about credit cards with the program? Citibank finally has American Airlines to itself as a co branding partner. Chase has United and Southwest and, and others. Would United keep two cards, credit cards tied to one loyalty program? It seems to me that someone has proposed this marriage and we have all these family members who hate each other and you know, so it's going to be an interesting scene at the, at the reception or, or in the church if this ever occurs.

C (27:20)

Jay, you're, there's so much to unpack. And again, I mean, I come back and just think that it's farcical that we're even, even having this discussion or debate. And I know why. But listen, going back to the international aspect, you know, firstly, I mean, you know, I think in terms of One World and Star alliance, my own guess, if this were to happen again, I don't think it's ever going to happen. You do have Alaska Airlines who are a One World Mission. And so, you know, even if American were to go away and, and the combined United, you know, remained in Star, there still would be a US Carrier presence and Alaska would need to, you know, have to fill out, you know, more of an east coast presence or perhaps bring in a JetBlue or someone else or a Southwest East Coast. Yeah, yeah, absolutely. But, you know, and I know we've had the CEOs of the various alliances on the podcast over the past year. My own personal perspective on this is that the alliances are certainly important, but they've gotten one. The lines have blurred around exclusivity and carriers partner outside of the alliances all the time. I mean, a couple of examples come to mind. Qatar Airways in One World owns an ownership stake in Virgin Australia and compete directly against Qantas, a One World member, you know, for traffic flows over, you know, Europe, you know, down to Australia or another example, of course would be United Emirates in their partnership. And that breaks, you know, a lot of the rules of, you know, outside of Star. And even in the past week, WestJet announced interline agreements quite prominently with two star carriers, both COPA and Air India. You know, so this is still happening and really you hit on it, Jay, that what happens to the joint ventures. And I would, that's the big nut.

A (29:07)

And that's a huge issue.

C (29:09)

The JVS are really where the money is made. The coordination and the real power of These partnerships. And my assumption would be, if this were to happen, that United and Kirby would actually review each of these and from a transatlantic point of view, look at the BA and the IAG relationship that American has and compare that to the Lufthansa agreement, which one makes more sense and probably choose one over the other and that, you know, do the same thing in the Pacific and the same for Latin America. And so that. That could be quite disruptive, shall we say, if he were to change sides and flip partners. But it wouldn't surprise me if the economics were better with one partner group or another, that he'd make a change. And it would certainly provide some leverage because a lot of those JVs have been in place for a long time and maybe cut a new deal and better deal that would be more favorable to.

A (29:57)

Well, let's, let's, let's toss something out there and perhaps quickly dismiss it. Sure. This conversation so far has assumed that United would absorb American and the American brand would disappear. Is there any type of possibility that what he's talking about is a holding company model, not unlike Ieg, in which United would own two carriers?

C (30:23)

I hadn't thought about it.

A (30:26)

That would solve the alliance issues. I suspect that there's antitrust.

B (30:31)

Yeah, but from an antitrust perspective, I mean, look, they're no longer competitors there. Two airlines under the same company. What's painted on the side of the airplane doesn't.

A (30:44)

Yeah, but it would perhaps preserve these joint ventures, although that would be an interesting question as well, in terms of would it. Would there be, you know, with the antitrust protection, be removed from these joint ventures if there was a single holding company? But, you know, this model has appeared elsewhere in the world.

C (31:04)

Well, it has, but, but Jay and I think it's a fascinating question, and not to slam the door completely, but generally, when you look at the IAG structure of Lufthansa and their babies, baby carriers and others, generally it's because of either traffic rights or matters of national pride. I mean, these are all airlines representing different countries and different labor agreements and contracts and so forth. And so there are real, really important cultural, legal, you know, practical reasons to keep these brands. You think about, you know, Iberia with British Airways and Aer Lingus. They need to operate separately and they have their own brands and identities. And the same is true, you know, for the other partners. So that's generally, I think, you know, in most of the cases I can think of here, off the top of my head, the reason why these holding company structures haven't Forced mergers and a new name across the group.

B (31:56)

Yes, but here's the big question to me about antitrust, and that is it has to be enforced by the Justice Department. And the Justice Department right now doesn't have an Attorney General and is clearly doing the work that the President wants them to do or not do. And so do you have a situation where all of these antitrust questions, you know, you, you could say, oh, my goodness, United, any kind of combination, whether it's under a holding company or, or with two brands or one brand or whatever, you would have to reevaluate all those antitrust agreements. Well, would the, the current Justice Department do that? Seems to me the risk to United would be, yeah, maybe the current administration lets you do whatever the heck you want, but the next one may come in and say, whoa, we got an antitrust problem here, and a lot of it could get undone. So who knows?

C (32:55)

Who knows, indeed.

A (32:57)

Well, and let's not forget how important domestic travel is to all of this. Even though Kirby wants to focus on international, this combination would not have a lot of overlap in the west or the south for that matter. Chicago, obviously, is a problem. Washington, D.C. where United has a hub at Dulles and American has a hub at DCA is a problem. One airline with 40% of the market, would that really ever be allowed?

C (33:26)

So, Yeah, I mean, 40% of the national market, it may be a little bit less if they're carve outs. But you know, one other thing, too, you said, Jay, is not a lot of overlap in the south, but, I mean, it's not clear how, how Houston and Dallas would coexist and, you know, two hugely important hubs and local markets, but they compete directly with each other. So I'm not sure what the combined company would do in that, in that case.

B (33:48)

So anyway, yeah, they do and they don't. I mean, certainly people in Dallas don't think of themselves as having anything to do with Houston.

A (33:56)

I just assumed that United would give, would give Dallas back to Delta.

B (34:02)

There you go.

C (34:03)

There you go.

B (34:04)

I, you know, I do think there are ways that, you know, they could at least, you know, sort of, I don't know, put some frosting on this to, to address. Like, I think you could see United saying, hey, we'll sell all of Americans Chicago gates to whoever wants them. Right now, I don't think Delta wants a Chicago hub when it's got Detroit and Minneapolis nearby. But there are a lot of corporate and premium travelers in Chicago, so who knows? Or maybe, you know, Frontier sees an opportunity into building a Chicago hub or, and that would be great for United, right? You could tell, you could tell regulators that you preserved low fare competition by helping Frontier get stronger. And then, you know, United crush them over the next five or ten years. In Washington, you could, you could sell American's DCA operation to Delta, which once had a lot of that.

C (35:01)

And that is, that is very lucrative.

B (35:03)

Absolutely. Yeah. Very lucrative. Delta would probably love it. And lawmakers who really count on DCA as their most used airport, they'd be really happy. And by the way, and this is another one of those issues that I think plays in here, United could offer to push real hard for renaming Dulles Airport Trump International. And, and you know, if that happened, I think the fix is in and the deal is done.

A (35:35)

Let's talk about Chicago for a second because, you know, that is, that's at the center of the center of the country and the center of the problem because, you know, obviously that's the only city where both carriers share a hub. And so the combination there would be pretty spectacular. And who would go in, I mean, who would, you know, America has been beaten up by United over the course of time. Who's going to raise their hand and say, hey, I'm happy to jump into that ring and go a few rounds with United. You know, Delta obviously, for reasons of geography, wouldn't have an interest. And so Frontier, you know, perhaps, but you know, you would need to have a war chest and that there's something that Frontier does not have at present. And who's left? Southwest.

B (36:24)

You know, maybe, maybe Southwest gives up Midway and moves to the north side. They already sponsor the Cubs.

A (36:37)

Chicago has to be dealt with as a result of this because I don't know what their combined market share would be, what it would it, what would it be? Around 80 or it would be probably.

C (36:47)

Yeah, in the 70 to 80 range. Absolutely.

A (36:50)

So, you know, that has to be addressed. And so I don't know how you address that. You start giving away a whole ton of gates to bring, you know, united down to 60. But who's going to take the gates? Well, maybe, you know, maybe the collective array of what carriers will be remaining in the United States after we get through 20, 26. You know, maybe, you know, someone takes five, someone takes another five, I don't know. But it, that's, that's a problem.

B (37:18)

Yeah, maybe, Maybe Alaska and JetBlue combine and say, well, we need a hub

A (37:23)

in Chicago, but then we bump up

C (37:26)

against aren't available today, Jay. So I think ultimately it would have to be a carve out, it would have to be, you know, one of the concessions of a merger agreement. And I think Delta would, would certainly probably want to take a few to serve the local market because it is so important for the corporate traveler and so forth, as, as Scott was saying. And hey, don't forget, Frontier's two largest markets right now are Denver and Atlanta. And they're operating, you know, in, in the backyard of a couple of big powerful hubs themselves and you know, presumably happy with that, with that structure. So I think if they were handed some gates, I, I presume they'd take them and make against that, that monolithic larger carrier. But I think they would take them just because those gates have been so highly sought after for so many years.

B (38:14)

And you're right, Denver and Atlanta, Frontier has shown it's not afraid of operating underneath a big hub carrier. I want to throw out a couple other numbers about domestic and then get back to some of the international issues. But I did think interesting. Last year, two thirds of Americans ASMs came from domestic flights. And at United, only 54% of the airline's capacity is domestic. So American is more of a domestic airline than United is. United is 46% international, American only 33% international. That's not to say American's international network doesn't fill holes for United. American is stronger in Latin America and United is stronger in Asia. American is much stronger than United in London, which is really important, especially with the joint venture with British Airways. United, of course, focused on Frankfurt and its partnership with Lufthansa. I do think European regulators would have severe indigestion over this as to what this would do to European airlines and competition across the Atlantic, which would probably

A (39:25)

delight the Trump administration to be antagonistic,

C (39:30)

I will say, on the European side. You know, you bring up a great point, Scott, that, you know, most recently, you know, Air Canada announced the acquisition of air Transat in 2019 and that was approved by the Canadian regulators and it was, it was proceeding apace. And the only reason that merger did not happen post Covid was because the European Competition Bureau would not clear it, you know, which I found, you know, very ironic given that it passed muster on the Canadian side. So you can be sure even if this were to be approved on the US side, the Europeans would have a, you know, a major problem with it based on their past track record reviewing these kinds of transactions.

B (40:17)

All right, so bottom line, what do you guys think is really going on here?

A (40:22)

Well, there's something we haven't talked yet. On this podcast, and it probably is. Again, I feel like I'm raising issues that are impossibilities. But, you know, what is the chance of a foreign airline group coming in and making an investment in someone who is in a carrier? Okay. Does this put America into play? In a way? Does it put other carriers into play? And would a foreign airline group find it interesting to participate in the US Market and obviously subject to, you know, the restrictions that are placed at present? I don't see the Trump administration opening the door for foreign airlines to have a majority ownership share, because that just seems not the way that this administration is going. But, you know, if these airlines are going, if foreign airlines are going to lose a joint venture partner or lose an alliance partner, can they buy one

B (41:24)

much the way Delta has bought alliance partners? Right.

C (41:28)

Yeah. Well, I can't see the administration changing the foreign ownership limits. And certainly, I mean, you know, most US Airlines, you know, the old legacy ones, have had foreign investments. I mean, JetBlue had an inbound from Lufthansa. BA has invested in United States way back in America more recently. Gosh. I mean, Delta's intertwined with a number of their partners and on and on. So, I mean, you know, certainly that's a way to make these relationships stronger and tighter. You know, I don't know. I mean, you know, when I think about what's really going on here, I still just can't. I just can't imagine this combination actually happening. And I think this is. Yeah. I mean, there's a different strategy in play here, which, which we haven't really dug into or talked about the, you know, the JetBlue angle too much. But, you know, I mean, I. In my mind, that's the real play is to, you know, but push as hard, you know, make. Make this, the argument as strong as you can for American to then settle on the alternative, you know, your sort of backup plan, which is. Which is, I think, what's maybe more palatable and perhaps more realistic.

A (42:42)

If the intent is to create chaos at American on behalf of Mr. Kirby,

C (42:47)

I think that's a helpful side benefit.

A (42:49)

Job completed.

B (42:50)

Yeah, yeah, yeah. No, and, you know, the JetBlue angle, I, you know, I think of it like, you know, a pitcher that throws high in the. In the strike zone. Right, because you want to move the batter's eye higher, and then you, You. You throw one right down the middle for a strike, and the hitter can't hit it because it looks. It looks low. Look, I think Scott's really serious about American But I think, you know, option B works, too, just not as dramatically. And so if he says, you know, if the administration says it's just too much and then, well, what about JetBlue? Well, now that looks like small potatoes. So, sure, take JetBlue. We thought you wanted to take American. Yes, yes. So, yeah, I do think there's an element here of, you know, Scott, seeing a lot of weakness all over the industry. Right. And this is an issue. Delta's had a brain drain and maybe kind of resting on its laurels. American's got the problems we've talked about. Southwest has its distractions. It's kind of the perfect time for a perfect storm, not just because of the regulators in office. So there's that. And by the way, as we look back on the JetBlue scenario, I did think it was interesting that Wall street seemed to be buying into that, too. Right. The day the story broke, American shares were up about 9%, but JetBlue was up more than 15% for the week. JetBlue was up 28% and American was up 16%. United was up a bit more than 7%. So investors seem to think, okay, if we're Gonna, you know, JetBlue would be the prime merger candidate here, not American. And yes, Jay, the. The. Another peel of the onion is that. Can't forget that American kicked out Scott Kirby, and there, you know, maybe some satisfaction in poking a big stick into the wasp's nest there and making it harder for America to catch up to United. Right. I mean, what America's trying to do and the more dysfunction there, that's to United's advantage.

A (45:07)

I miss the quaint era in which corporate announcements.

B (45:12)

When was this, Jay?

A (45:13)

When was the quaint. Well, this is, you know, when I was born in 1890. No, the quaint era in which this type of announcement was really vetted in a number of different ways. And I suspect that. But, yes, there obviously was hopefully vast internal debate about if this is the right move for United to make. But we also live in an ERA in which CEOs or leaders can just say crazy stuff and fly, you know, just to fly an idea. And what worries me about this is that, you know, this is a major publicly held company. And, you know, and this strikes me as a negotiation that should have occurred first privately in Memphis between Dallas and Head and Chicago offices on the ramp, you know, or in some type of lounge at Memphis airport instead of, you know, it's being broadcast and they're. They're trying this idea in the public marketplace. And it just feels messy in terms of how it affects employees at both the companies, how it affects investors. Is this a real idea or is it just kind of a smokescreen to get at something else? Of course, this method of doing business is entertaining for us to talk about, but I think it's just very disruptive. And I just question the ethics of this. There, I said it.

C (46:50)

There you go. And Jay, in my mind, I have no doubt that Scott Kirby is serious about wanting to acquire American. In my mind, as I've said a couple of times now, I don't think it'll ever happen. I think just that the notion of it is crazy. And So I think JetBlue is really the play. And it just makes a ton of sense. Sense for, For United, you get the eastern side of New York with a JFK presence in Long Island, Queens that, you know, they can't compete for very effectively today. From Newark, Boston, you know, certainly attractive. And in both of those places, you can compete much more effectively against Delta. And then you gain, you know, a small, but still, you know, a meaningful presence and you can build a small hub in Fort Lauderdale and use that to compete directly with American as well. And United has always struggled, you know, with. With the lack of Florida presence. I mean, you know, it's really a lot of large spokes without connectivity and a lot of point of sale strength. And So I think JetBlue is the play here and everything else is sort of noise and distraction or maybe collateral damage that's helpful, you know, to the overall battle.

A (48:04)

But, yeah, I don't know. It seems like having an interest in two sisters and asking one sister out on a date. And while you're on the date, you're asking, asking that sister about the other sister because that's who you really want to date. It just. It's probably a terrible analogy, but I, I just.

B (48:20)

No, I think one. One sister turns you down and so you ask, ask her sister what's going out. The other sister says, yeah, let's do it. Well, speaking of dating, let's move on. It's time to time to thank our sister sponsors for making this podcast possible. We want to thank Cirium. Cirium offers the most accurate and precise data and analytics to enable airlines to optimize planning, operations and passenger services. The right intelligence drives operational efficiencies, enables you to predict market shifts, and helps airlines respond quickly to maximize revenue, manage costs, and seize commercial opportunity. Visit cirium.com for more. And thanks to Ontario International Airport, which is celebrating a decade of local control for its sponsorship as well. Thanks to public support, the local community reclaimed ont, revived it as a vital gateway in Southern California and ensured the airport is ready to soar even higher in the years to come. Visit flyontario.com 10 to learn the story and find out how you can join the year long celebration of how a decade of local control has turned Ont into one of California's fastest growing and most economical airports.

C (49:40)

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B (50:22)

Okay, let's move on to Spirit Airlines. We reported last week on the objections filed by Citibank on behalf of the lenders behind Spirit's $275 million revolving credit line. And now we learn Spirit is asking the government for a bailout, asking for cash to cover higher fuel costs caused by the Iran war. We're actually recording this before the meetings in Washington happened this week and Transportation Secretary Sean Duffy has expressed concern for the financial health of all smaller airlines and I think is looking at a broader meeting than just Spirit. What we do see are Spirit's financial results for February and as I kind of hinted, it's kind of ugly on a stick. Spirit had an operating loss of $28 million in the month of February. It had $105 million in non operating costs, including hefty interest expenses, and more than $93 million in reorganization items. So the net loss for the month was more than 133 million. The airline's cash balance dropped by 49.3 million in the month. And that was before the war doubled the price of jet fuel. Jet fuel is not the only big problem with the reorganization plan. The Citibank objection said the lenders are objecting to how Spirit is proposing to restructure the $275 million revolving credit facility. And the Citibank Group accused Spirit of being in default on terms of the credit facility as of last month. I think that's really significant. The revolving credit facility is backed by collateral, Specifically at least 14 aircraft engines, all eligible spare parts and all of Spirit's LaGuardia Airport slots. And it says Spirit hasn't Lived up to the terms required on that collateral. All of which is to say some cash from a sympathetic government, if possible, likely doesn't cure a lot of other problems within the reorganization plan. Not to say Spirit can't work it all out with lenders, but the rumblings of liquidation are getting louder and that becomes an issue unto itself. Right. People stop buying tickets, creditors get more and more nervous about it all. And in the end it can become a self fulfilling prophecy. So shutdown does seem more likely. Let's not forget, high oil prices didn't kill Spirit. The Biden administration killed Spirit when it refused to let it merge with JetBlue and attempt to change to meet the changes in the marketplace. A marketplace that saw bigger competitors get bigger through mergers. Right, mergers. And then the government changed the rules in the middle of the game and said Spirit, its employees and customers can't merge. And now they're really paying the price for that arbitrary. What I think is the arbitrary and ill informed policy change. You have to remember too, Spirit also added a bunch of airplanes was growing even though it wasn't making any money, hasn't made a dime since the pandemic and yet grew a lot. And that's, it's very hard to, to grow your way into profitability.

A (53:47)

Scott, didn't you also reference Spirit had an outstanding performance record for 2025 and this has recently changed, correct?

B (53:57)

Yes. So because I'm on Cirium's on time performance advisory Board, Cirium puts this out, we review before it goes out each, each month, the numbers on the industry, the numbers for March, Spirit had an on time arrival rate of 53%. I've never seen 53% before. So the operation, they had huge problems. They had a lot of pilots leave because job security is awfully weak and even though they had layoffs and then they were trying to bring people back and, and I think there are a lot of staffing issues. There's been huge turnover with the aircraft fleet. Right. Just so many issues. So yeah, I think the operation has suffered too. And look, losing 40 plus million dollars of cash in February, it's more expensive to run a lousy operation.

A (55:03)

I mean, Spirits in a horrible situation right now and when you're talking with people who are going to lend you money either on a revolving basis or on something beyond that, you want to tell a hopeful story for the future that you know, we are, you know, going to become a more focused, low cost carrier in terms of geography. And the problem with that right now is no one can present a rosy scenario about the future because of what's happening with the price of oil and the war in Iran. And so it is a huge, it's a boat anchor around their neck in terms of, you know, their ability to tell a happy, productive story about the future. And that's, you know, the timing is absolutely abysmal for them in that regard.

C (55:54)

It sure is. Hey, I wanted to go back to something else you'd said, Scott too about, you know, the Biden administration sort of killing spirit. I think JetBlue is lucky as all get out that they didn't acquire a spirit because I think that would have been an abysmal failure from a, you know, financial and operational other point of view I was a fan of and I thought the spirit frontier merger made a lot more sense because we know just ULCs in general are struggling. So I'm not sure that merger would have been any, any more successful. And as you said, I mean there are struggles and indeed two Chapter 11 filings all predates the current high oil prices. And you know, as I sit here, I mean there's a well worn tradition of the federal government stepping in and providing funding and support for airlines. You can go back to 911 and the stabilization funds and certainly the CARES act after Covid. And you know, I mean I just, I personally just hate to see any sort of market distortions or the government picking winners and losers and it just ultimately prolongs the inevitable. So we'll see what happens. Certainly. And it's the whole Value Airlines group that I believe is going to be meeting with the Secretary this week and certainly pleading their case. And I mean all airlines globally are certainly feeling the effects of these high oil prices. And so let's see what happens. I'll tell you my experience in Canada with WestJet is we got no federal support through Covid and it made it tough, but it also, I don't know, it just, you know, we had a level playing field and we fought our way through it. And the company I think is better for it now for having not taken any government aid.

A (57:34)

I think the timing of asking the government for money is inopportune. I don't think that there will be support for that. And I also think that you're going to look at collectively as a, as an industry that might work if the industry were looking for support. If, you know, if American, Delta, United were, you know, hat in hand looking for money from Washington. They are not and I don't think they will because they're going to look at this moment as the great culling of the herd.

B (58:05)

Yeah, yeah. No, I think politically, and this would require, you know, Congress, but politically, you're going to, you're going to, to give government support to Delta, which is earning billions of dollars and owns an oil refinery. No, I don't, I don't think so. And what about the, what about farmers and putting diesel fuel in their tractors and truckers and who, you know, where does the. Why the airline industry? Why not everyday American? $4 a gallon. Yeah. Yeah, it's really tough.

C (58:35)

Well, guys, should we wrap with one final news story before we go to the mailbag?

A (58:40)

Let's talk a little bit about JetBlue here. You know, there was a meeting occur, apparently that occurred with Neeleman and the Breeze pilots. We can't confirm what was said at that meeting. And so, you know, if that's it, if that's of interest to your listeners, I think they should do a Google and do a search for that. But more importantly, JetBlue last week filed an 8K report with the SEC saying the company had to deal with Sky Leasing to borrow against 22 jets as needed. It's up to $500 million, which is a chunk of change. And JetBlue can do it one plane at a time as needed. Flexible terms. Each alone would have an interest rate of 6 to 6% to 6.75%. So more financial liquidity for the carrier. JetBlue has more than 2 billion in cash right now, but losses this year with high fuel prices could be considerable. And JetBlue is really at a interesting crossroads. It has shrunk back to its original form of sorts as largely a subway system between the Northeast and Florida, by the way, a market that is sought by lots of carriers in terms of leisure traffic. But it is also trying to be an international carrier, not just to the Caribbean, but now across the transatlantic. And it doesn't have great feet at jfk, necessarily. So that's why the American Northeast alliance, when it existed, was so very helpful. And its frequent flyer program has limited destination offerings and limited ways to accrue. So that's why the United deal that replaced the American relationship makes sense. But all of this is to say that JetBlue's future is very much up in the air.

B (60:27)

Yep, no doubt.

C (60:28)

Yeah. I mean, certainly something to keep, you know, keep, keep our eyes on. And hey, what One, one final, you know, bit of news that also kind of occurred, you know, late last week was that, you know, the FAA issued its order on Chicago o' Hare summer scheduling and I know our listeners, all of us, have been following this really closely that Americans been building back at o'. Hare. And you know, United started building back much quicker after the pandemic. And then United poured in a ton of flights after it won five additional gates last year from the reallocation process as part of the lease agreement between the airport and airlines, and then picked up two more from Spirit after American also had lease two from Spirit. We were just seeing hundreds and hundreds of flights being piled in. And the FAA now has set a limit through the entire summer operating period of 2,700 scheduled operations per day at O'. Hare. And that's just slightly like 1% more flights than what operated in 2025 last year. So O' Hare, in the ruling still has a lot of construction projects underway, but the city has been working with the FAA to explain what impacts those will have on the operations, and they won't be as disruptive this year. And so the feeling is the airport kind of operate with a 2708. And, you know, it seems that Americans going to be okay with that. And United, of course, wanted more. And in their filing, they detail all of United's objections and so forth. But it doesn't seem likely that they're going to squeak too loud or squawk too loudly, you know, through this, given all that's on their plate with the government right now. Yeah, you know, I'll tell you what,

A (62:09)

it's a prudent and sensible outcome.

C (62:12)

Well, it certainly is. And you know, ultimately what it means is that American is going to need to pull 50 flights a day out of their schedule. It's loaded and for sale and been out now for many weeks. United's closer to 200 flights a day. And, you know, these flights have been for sale. So it'll be very interesting, I think, to see, you know, which flights come out, which times of day. And there have been a whole lot of cities in the, in the Midwest, in the Plains states that have gained a lot of flights. Like one example would be near U.J. la Crosse, Wisconsin has gone from two flights a day to O' Hare to seven. And clearly some number of those is going to get dialed back. But the re accommodation will be likely sort of messy. And it's going to be interesting to see how that all plays out and under a very tight time frame here, I'm guessing in the coming week we'll see the actual schedule moves played by both. And the FAA also made a point of saying that this has nothing to do with the gates and the gate matter is between the city and the airlines. That will also be interesting to see how that, how that plays out because of course, United was doing this to make a play for gaining even more gates at o'. Hare.

A (63:21)

So they toss it, they toss it back to the lower court. Indeed.

B (63:28)

Well, thanks for, for that, Charles. I'll just remind listeners, few people know o' Hare like Charles does, having run

C (63:36)

United's hub for a long time. Yes, lots of friends still there and lots of great memories. It was a challenging four years, but definitely very formative for me.

B (63:47)

Okay, before we get to the mailbag, and we do have one really interesting question in the mailbag that I've held for Mr. Sorenson. But before we get to that, we want to thank RTX for its longtime sponsorship of airlines Confidential. RTX rallies more than 180,000 innovators around a powerful vision to create a safer, more connected world. With industry leading tools and technology, the RTX Global team works across market leading businesses Collins Aerospace, Pratt and Whitney and Raytheon to drive progress for generations to come. And thanks too to Infinity Flight Academy, the leader in cadet academy training programs for helping us bring the podcast to you for free, without subscription or anything else. Whether you're looking to build a custom pipeline or strengthen your existing cadet program, Infinity Flight Academy delivers consistent airline ready results. And for those of you listening who have always dreamed of flying or know someone who has, Infinity Flight has trained thousands of students, many now flying for major airlines around the world. Learn more at infinityflight.com, infinity Flight Academy, where future airline pilots take off.

A (65:05)

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B (65:21)

Okay Jay, this mailbag question is really for you. Steve from Framingham, Mass. Near where I grew up, asks Scott in your podcast and elsewhere, much is made of co branded credit card revenue for airlines. This is the ballast that is boosting profitability at a number of them. With Delta's partnership with American Express often being cited as a prime example of this. What I never hear mentioned is the profitability of these arrangements. When consumers cash in miles or points, they are occupying seats that can't be sold to other customers. It seems that this lost revenue should be considered a cost of the program, which should be subtracted from the revenue to convey a net economic value or profit of the program. So why are Only the revenue numbers thrown about. Thanks, Steve.

A (66:14)

You know, first off, there's a tremendous amount of infatuation or fascination with coal branded credit card revenues for airlines and there's a tremendous amount of misinformation out there on this topic. I was reading a post on LinkedIn this week where someone said that airlines make no money flying passengers and all the money is made with the credit card programs. And so I suggest that your listeners look at airline, co brand or frequent flyer programs in the following light. Airlines have three methods of distribution. One is the direct method and that's the travel that they sell directly via the website, via the call center, via the mobile app to consumers. The second category is indirect distribution and that is the travel that is sold through online travel agencies like Expedia and corporate travel agencies, or business travel. What I want to suggest is that co branding is a third method of airline product distribution and that is effectively what airlines are selling travel through their co branded credit card programs. And so it is a hybrid. You know, it is not neither direct nor indirect. It's something that's different. And it's, you know, it represents about, you know, roughly speaking, 10% of airline revenue. And so people take these miles and they redeem them for travel. And so I push against this thought that you know, frequent flyer programs are, you know, have a tremendously high margin. No they don't. They're buying travel. And so in these revenue relationships with the co branding partners, they are obviously selling miles that are redeemable for travel. They're also selling components to the bank. And so when you have a credit card with Chase or Amex or with Citi, that credit card is going to have perks that are associated with it, such as a free bag or sometimes lounge access and early boarding. Those are all services that are not given away free of charge by the airline to the customer. They are sold to the bank. And how those deals are structured are a very closely held corporate secret. However, you know, they are sold, these elements such as bags and lounge access are sold at a deeply discounted rate. And sometimes there's a cap placed in terms of how often the airline will redeem for the services used by a cardholder so that there's a financial limit to the exposure for the banks. But these programs are contributing travel revenue. They are not this 90% profitable margin business. You know, they're selling travel. And so I, I push back against this whole concept that they can be separated. This was a thing that occurred, by the way, more than a decade ago where these Programs are being spun off in some cases in the world. And now that model really has changed where they're being brought back in because I think the realization is that they are like peanut butter and jelly. You just can't carve a frequent flyer program out of an airline because it sells travel.

B (69:42)

Right. But it's a, it is a business unit that, I mean, to Steve's question, it has its own profit and loss statement inside the airline. It's also a unit that airlines borrowed heavily against during the pandemic and help me with the, you know, the bath of it. So one of the benefits is airlines are pre selling travel, as you say. So they're getting, you know, they're getting the cash up front. They may not be able to book all of it until you actually use your points or miles, but they do have, have the cash. And you know, we would assume in addition to getting paid for baggage fees and lounge access and things, you know, they're selling those points or miles for what? Something more than they get redeemed for. There's also the spillage, the loss, the points that never get redeemed. But if you're selling to Citibank or American Express at 1.2 cents a mile or a point or whatever and they're getting redeemed at 1.1 cents, I'm sure my numbers are off. But the idea is they're selling them for more than people are getting value out of them in terms of that revenue seat.

A (71:06)

Well, one part that Steve asked is when these programs began, the original design of them was it was a compromise made with the people who run revenue management and that said, they said, okay, so we're going to have this reward trap travel. And the original programs, there was no money associated. There's no cash flow because there was no credit cards. And so the original award structure was treated by airlines as a, almost a zero cost item. The concept was revenue management would make awards available and they would assume that the seats that were being occupied by reward travelers would have gone empty. And so there's that, that incremental cost of, of carrying a passenger is, you know, dollars per passenger.

B (71:58)

Right. And they had all those capacity controls in where. Right.

A (72:01)

And there was, and there was no displacement. They promised revenue management would, you know, would, would say, okay, we're, we're 90% confident that we are not displacing revenue. And so that worked well. All of a sudden we have credit cards show up on, on the scene and there's a tsunami of miles that were hitting the books and you had the situation which demand far outstripped this old method of delivering supply. And so then the airlines went to this process in which they said, okay, you're going to be able to spend your miles like cash. And that, you know, the reflect that the price of a reward will be similar to a, a ticket that you would buy with cash. And that is, you know, on a very busy flight, it's going to have a high mileage price. On a flight that has very low demand, it's going to be very, the price is going to be very modest in terms of the mileage price. And so now we see a situation which certainly those reward travelers, there is displacement. And so, you know, there is a real cost now to reward travel that's actually recorded. You know, the last time I saw a disclosure by Delta, I think they were recording it, you know, six tenths, six tenths of a, of a cent per mile. And by the way, coming back to your, your comment about, you know, they're selling these miles to the banks for about 1.8, 1.9 cents per mile. So the revenue that they're getting is very high. In fact, it seems at times it's almost the bank is giving up all of their merchant fee or their interchange revenue to these co brands. The advantage certainly is in favor of the airlines at this moment in time in terms of these relationships.

B (73:48)

In terms of leverage, well, it's pretty good profits if you can sell at 1.8, 1.9 and I'm redeeming at 1.3 or whatever I get. Yeah, yeah. All right, Fascinating. That's all we have. Time for another edition of Erwine's Confidential. I want to say thanks to Scott Kirby for giving us plenty to talk about.

A (74:10)

Thanks Scott.

B (74:11)

Very special thanks to both of you. Charles and Jay, what fun this has been. And I hope we all have some more understanding maybe of what the world is like out there. Thank you. Thank you both very much.

A (74:25)

Thank you, Scott.

C (74:27)

It's always a pleasure. Thank you, Scott. Have a great week, everybody.

A (74:31)

This podcast is produced by Mass media info@massmedia.net.