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- [00:02]
A
I'm Brian Summers and I write the Airline Observer.
- [00:04]
B
And I'm Brett Snyder, author of Cranky Flyer. You're listening to the Air show, the podcast where we talk about what goes on in the business of the sky. John is out again this week and does he still work here? Brian, do we know?
- [00:18]
A
Brett, I want you to know that I got a note from a listener last week and this listener thinks that we are too mean to each other. I don't think that we are. I think this is all good fun. I hope John is out there laughing somewhere, but to be serious here, Brett, does he still work here?
- [00:35]
B
I don't actually even know where he is this week, but he is gallivanting. But he will be back next week, I am told. So anyway, since he is gone, I thought we'd do a deep dive into the difference between the 78710 IGW and the previous version. Does that sound good, Brett?
- [00:51]
A
We did that once already, and to my utter shock, the listeners seem to love that episode.
- [00:57]
B
Well, they wouldn't love it with just the two of us doing it, so let's not do that. I know we did talk about whether we should do a Middle east episode this week, considering what's gone down in the region. Of course, the US and Israel attacked Iran and then Iran responded by trying to bring everyone else into it, including Dubai Airport's Terminal 3. Apparently, the result has been pure chaos with people stranded all over the region with no way out while we wait to see what happens next. But the problem with this is I don't think I have much to add.
- [01:29]
A
No, it's a terrible situation, Brett, but I think we'd like to stick to topics on which we can speak with authority. And like you, I don't have that much to add, except to say that European Airlines will probably bleed a little less traffic through the Gulf for a while.
- [01:44]
B
Yeah, there could be some shifts over time if this persists, I suppose, but we have no idea what's coming next, nor can we predict any sort of long term impact when there is nothing long term that's known about any of this right now. It is exhausting, exasperating, and there's nothing we can do about it. So let's table it for now. Instead, let's split this episode into two halves. I want to talk both about Spirit and its path forward, and also what's going on in Chicago now that the FAA is involved. So, Brian, let's start with Spirit. The airline has proudly shouted from the rafters that it has come to an agreement on a, quote, restructuring support agreement with its secured creditors, which means it has a path to exiting bankruptcy protection. What the hell does that mean? And why do I care?
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A
Yeah, Brett, just to be clear, these things are also exhausting. It's just in a different way.
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B
Good point.
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A
And I want to be careful of your rules because this goes back to the cranky network. Aw where I can and cannot say certain things that I learned there. But I will tell you that the consensus at your awards was that Spirit is a zombie airline. And I don't think this plan changes that. But let me tell you how Spirit plans to save itself this time. First, it says it will have an optimized network. So what does that mean? It's going to fly more on peak days and less during the off peak. And it's also going to adjust to seasonal demand. Second, the airline is promising more premium choices. It's going to expand its first class. Yes, I said that it's first class. As well as its premium economy. They're also going to make some, quote, enhancements to the loyalty program and co brand programs to encourage what they call guest loyalty. Because everybody's loyal to Spirit, right? And number three, the most important part, the part that you could not emerge from bankruptcy without, it says it's going to reduce its debt and lease obligations from 7.4 billion before the filing to approximately 2.1 billion after it emerges from bankruptcy.
- [04:09]
B
Now, I should just point out that I don't think the consensus you got from the awards was limited to the awards. I think this is sort of a general consensus here. For the most part. I think people are looking at this as a stay of execution. I can't believe the creditors are willing to keep chasing bad money with good, but here we are. So they have a plan and this should be a path to exit. The problem is this plan sounds like a lot of fluff. So what does this really mean?
- [04:37]
A
It means more shrinking, Brett. The fleet's going to have well under 100 aircraft. You may remember, at the peak, Spirit was more than 200 planes. And then interestingly to me, CNBC reported that Spirit increasingly is going to have an Airbus A320 CEO fleet. It's going to get rid of a lot of the NEOs. I guess that makes sense because those airplanes have engines that work. But still, the NEOs are probably more, well, definitely more valuable, but they're also more expensive to lease. As a quick aside, I took Tuesday off to attend a Cleveland Guardian spring training game this week. It's the best stadium in the Cactus League. And the reason for that is because it's next to Goodyear Airport. And there were Spirit tales everywhere. Too many to count. Nothing says dying airline quite like seeing those yellow airplanes in an aircraft graveyard.
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B
Now, hold on. Yeah, I am going to have to fight you on this. It is a good park. But I will admit I'm kind of partial to Maryvale, where the brewers play.
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A
Go Brewers. Yes, it is a throwback there.
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B
It is a throwback. But, you know, this is. I'm assuming they talk about reducing their debt and lease obligations. This points to most of that being lease obligations is my guess.
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A
Yes. Now, back to the plan. Spirit is going to focus its network on Fort Lauderdale, Orlando, New York. And Brett, can you guess what the fourth market is?
- [06:15]
B
Detroit Rock City.
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A
Yeah, apparently somebody at Spirit headquarters is listening to this podcast.
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B
It all began there. Let's just keep it going.
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A
But I get it. When you're an airline in trouble, you always return to your area of strength. I just wonder how strong the airline is even in these markets anymore. I know JetBlue has talked about making a major play for Fort Lauderdale. And if you listen to the earnings calls, JetBlue has already taken some share there.
- [06:45]
B
Not just JetBlue. We've seen Allegiant grow. Frontier has been growing. Even Breeze has started ramping up there. But then again, where do you go if you're Spirit? So this isn't a surprise. These are still their best markets. But the airline's already pivoted toward premium before. Now it's rallied around those four focus cities already. And the fleet reduction, what, it's been underway for, what's it been, six months now? Maybe the eventual size is smaller than we thought it was going to be, like, even smaller. But everyone knew this airline would be cut in half. So let's talk about the more interesting tidbits, I guess. Tell me, Brian, have you ever seen Freaky Friday?
- [07:27]
A
No, Brett, I have not. And where are you going with this?
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B
Well, I ask because it seems like Frontier and Spirit are working on a remake. Jamie Lee Curtis. Spirit used to be the airline that had a more consistent schedule flying in big city markets, while Frontier's Lindsay Lohan was the wild child, was sub daily, went in and out of markets without a care in the world. But now Frontier has recently announced it will be going toward more consistent util even during those off peak times, Tuesdays, Wednesdays, while Spirit is going full Lohan by focusing on bulking up during the peak and then cutting back during the off Peak.
- [08:06]
A
Brad, I think I made a mistake last week. I was feeling very generous and I told you that you were funny and maybe suggested that you were clever. But I think that you've taken this too far. But yes, if I'm following correctly, your gist is correct, for Frontier is going for more utilization now the Berry Biffle is gone and Spirit is going for less. Remember though, while they had very similar fleets as recently as a year or so ago, they don't anymore.
- [08:39]
B
This is not me going too far, just to be clear. This is just the random stuff that pops into my brain. So do what you will with that. But yes, this really seems like this fleet forced move on both sides. I guess at Frontier you have a lot of expensive new airplanes that are now at high lease rates since Frontier sold those planes to lessors to grab cash. So they need to fly those things hard. But at Spirit, they've shed their most expensive planes. We don't know exactly what will be left in the end yet. They're still working on that. But it's definitely going to lean more heavily on the A320 CEO family. And some of those are even owned by Spirit. So this means ownership costs are lower. The airline doesn't have to feel the pressure to fly the airplanes nearly as much as it otherwise would.
- [09:28]
A
Yeah, I guess they learned this from Allegiant. Actually not probably allegiant. Remember that Dave Davis, Spirit's CEO, came from sun country. And this is probably more like the sun country model because those four bases, Detroit, Fort Lauderdale, Orlando, New York, have a lot more in common with Minneapolis than with any of the standalone allegiant bases places.
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B
That's a great point, but I think it's something of a mashup between the two airlines. Actually. Detroit, absolutely. More like sun country, probably the same in New York. But, you know, those are markets where it's about bringing people from those big cities to leisure destinations. But for Lauderdale and Orlando, I think they're still more allegiant. Like, right, it's the big destination rather than the big origin. But I guess you work with what you have. Anyway, I want to shift a little here toward this premium angle that they're talking about. The press release specifically says that Spirit will expand its Spirit first in premium economy offerings. And this is a focus on value. So how much of a market for this value is there? Is this the right move?
- [10:31]
A
Well, Brett, I'm the market. I love a premium seat sold at a discount. The older I get, the less I like to sit close to Strangers, but beyond me. Kind of hard to know. In Spirit's glory years, the airline did very well with that frills big front seat. But remember, this is a long way from that. This is a more standard first class sold as a fair. And then behind that you have premium economy, which Spirit historically did not have. I think this is probably a move that looks okay when the consultant shows you the slide deck. The numbers might be there in a perfect world, but Brett, Spirit's brand is so tattered and nothing about it says premium. I wonder if they've considered like a name change. Like, no one was going to buy a premium seat from ValuJet back in the day, but then ValuJet became AirTran. And remember how well AirTran did with those business class seats?
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B
I do, and I think that that last point is important. But hold on. I want to, I want to stick with the model before we get into that part, but let me ask you this question. You say that this is the right move for you, but if Spirit is in a market that you need to fly, are you going to buy a ticket on them in first class? How much cheaper does it have to be?
- [11:58]
A
I absolutely will buy a ticket on them in first class if they can show that they're operationally reliable. That part is very important. And then obviously it's going to depend on the discount.
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B
You know, the problem that I have with a lot of this is that it all just depends where you are in the cycle on whether it makes sense. I think right now, times are good, planes are full, people are clamoring for premium for years. And just to be clear, when I say premium, I'm talking about what Spirit calls premium economy. Extra leg room, the exit rows, which apparently isn't part of premium economy. And then first class. I think it works in the good times since Spirit still can't even fill its airplanes on a lot of routes, so might as well take out a row or a few seats because you'll get more money selling them than trying to get that last couple people on the airplane. But what about when the economy goes downhill and demand shrinks? Does this go to the traditional, you know, these, these spill carriers do better, like Southwest used to do better when the economy went down. What do you think? Does it still work?
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A
Are we really going to talk about this again? Brett, nobody has any idea what is going to happen. This premium cycle has gone longer than I think anyone except Glenn Howenstein. By the way, congrats on the retirement. It's official.
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B
That's right.
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A
Probably expected. Some people in the industry think this is permanent or semi permanent. And others say it will end. I don't know the answer. You don't know the answer? I do know that the most dangerous words on Wall street are this time is different.
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B
Oh, I do know the answer. I just don't want to tell you.
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A
No, you'll have to. You'll have to sign up for Brett's gold package of consulting. Then he'll tell you.
- [13:41]
B
Oh, yeah, that reminds me, I need to go create a gold package. I still think this makes sense there. This is the thing. They have so many seats on these airplanes in an all coach configuration. Like, even when you focus on these big cities like New York or even big destinations like in Florida, they still have trouble filling these from so many of the places they fly. And you don't actually even need to give up that many seats. Like if you look at the A320, the old configuration had 182 seats on board. Then they went to this temporary configuration where they had eight first class and 12 premium economy, which had just a blocked middle seat. Then they had the 12 exit row seats and then 144 in the back. Now the plan is 8 first and still 12 in the exit rows. But premium economy is up to 42 seats. So instead of blocking the middle, they just remove a row and add a bunch of extra legroom upsell opportunities. So, you know, you lose six seats on that airplane. And the A321, it's the same thing, but it now has 222 seats still. That's very dense. United looks dense in their configuration and they have 200 on that airplane. So the real question is whether differentiating the onboard service matters because that has a more tangible cost and impact than just maybe removing that one row.
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A
Yeah, I think that Spirit is going to try to differentiate its service because of course, the more you can do that, the more money you can charge. All airlines and brands do this. And the reason that you get a free drink and a better snack in Delta comfort is not because Delta likes you. It's because it's a trick to get you to pay more. And then of course, on Delta, people do pay more. Whether they will pay more for that stuff on Spirit remains to be seen.
- [15:32]
B
Well, yeah, that's the point. So Delta can get a premium and it already has a service culture. So this is kind of part of the whole shtick. Right. But Spirit does not. Spirit does not have a culture for giving a crap about anybody. I mean, you can go Way back into its past if you want. But, you know, it's. It's been, what, a couple decades of being clear that you're just getting a cheap seat and you should just like that, maybe some blips in between, but. So now you get to this point. Will people pay more for better service on Spirit? I think we know that they would pay more for a big front seat, as they did back in the day. But that's less costly than trying to have a differentiated service and do all that kind of stuff. So I guess this brings us back to the previous question that we had. Well, you had touched on is, do you think with these moves that Spirit needs a rebrand?
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A
Brad, am I just the brand guy around here now?
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B
Yes, you are.
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A
Fine. I'll embrace it. I said earlier what Spirit might want to do is completely change its name, perhaps by buying another certificate from another airline. That's something that would allow a hard reset, but that's different than a rebrand. All the smart people in branding tell me that a rebrand isn't great going to work until you actually change the experience. So a Spirit rebrand today changes nothing. First, you have to prove to people that you are a changed airline. Then you get to mess with the livery and the logo and all that stuff. If you do the rebrand without fixing the company. Very smart people tell me that your problems, they just follow you to the new brand.
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B
Well, yes, they would have to, I guess, stop canceling and delaying so many flights just maybe to start. It's a. It's a pretty basic baseline here, but it sounds like you think Spirit could at least benefit from a name change or, you know, pulling an Air Tran. Maybe they'll give that one a swing with more creditor money as they get closer to exit here. All right, that's enough on Spirit for now. But before we leave today, let's talk a little bit about Chicago as we record this. The airlines and the Chicago Department of Aviation have all been summoned to Washington to try and figure out a plan to avoid complete and total gridlock at o' Hare this summer, we're going to
- [18:03]
A
talk about this saga again. Can't it just end at this point?
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B
No, it cannot.
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A
All right. For reasons I'm not sure why I'm doing, I will summarize this for our listeners, but honestly, how could you not know at this point?
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B
Very short summary, very short.
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A
We've got an unsustainable arms race going in Chicago as American and United both are trying to win future gates at the airport. O' Hare has a new process for awarding gate space with a 12 month look back. So the more an airline flies, the more future gate space it gets. Brett, why am I saying gate space instead of gates?
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B
Well, it's actually linear gate frontage, if you really want to be clear about it.
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A
A phrase that nobody was talking about before, what, a year ago?
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B
Yes, but now all the cool kids are talking about it.
- [18:52]
A
So the FAA is concerned because it says because of this buildup, airlines, all airlines, not just American United, are gonna offer more than 3,000 daily flights at O' Hare this summer, which is about 400 more than last year. It would be the busiest summer ever at o'. Hare. And the FAA is worried that it would stress the Runway, terminal and air traffic control systems, because it will. So what do you think of all this, Brett?
- [19:20]
B
There's no question that this is going to be an epically bad summer at o' Hare if they try and fly all these flights, especially on stormy days when you should just abandon all hope. But I actually am of the belief that United never actually wanted to fly all of the 780 daily flights it has filed for this summer. Anyway, I'm going with the conspiracy theory here that United was just running up the tally, realizing the Feds would have no choice but to step in, or
- [19:50]
A
maybe asking the Feds to step in in the background. What do you think?
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B
That's possible too. They could have been poking them in the background, but they also have to be careful with that because you don't want to have to cut more than you otherwise would have. There's a lot of deep theory going on here, but. But now that the Feds have stepped in and they are doing individual interviews to today with the airlines to get them to volunteer, you know, United still hoping that it can end up with a substantially higher number of flights in American in the end because they did such a big run up leading to this point. That's my guess at least. What do you think?
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A
I think both airlines may have wanted out of this mess at this point. I think we all know United would have won eventually if the goal was gate space, but it would have been very expensive, even for United States. United might be more profitable at o'. Hare. And by more profitable, I mean United was making money and American is probably losing lots of money. How much? I don't know, but definitely a lot. But as you say, these new flights were not going to be good for United. And United has promised its investors quite a bit in earnings per share. And it's hard to get those. If you're flying four times a day from Lansing and champagne and you don't really want to be doing that, do
- [21:10]
B
not forget Lacrosse and Kalamazoo.
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A
Of course not. I love the press releases from those airports about why they're getting new service.
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B
They're so happy and it's just going to end in tragedy for them. It's going to be so sad. But hey, enjoy it while you got it. I mean, I'm, I'm with them. You never get this kind of stuff. But if United flew those 780 daily flights, I cannot imagine they would be profitable. I'm just going to say that one right there. But yes, they would probably lose a lot less than American would. But American, on the other hand, I think they want to fly the flights that they've filed. They're still just trying to restore back to pre pandemic levels at this point. It seems to me United is saying that if American wants to be at pre pandemic levels, United will be higher. Right now, about 250 daily flights higher. And it's using a new baseline and it's willing to use that healthier financial performance versus American to, to fund this effort because there's no way that this plane makes money for either airline if it flies as expected.
- [22:11]
A
Good news for our listeners. Brad, I think we can finally disagree here. We've been very agreeable so far on this podcast. I don't agree with you that American wants to fly all these new routes, certainly not on this time frame. Yes, American wanted to get to its pre pandemic levels, but if there's anything that we've seen from American since the pandemic, it likes to do things on its own time frame, certainly not in some frenzied race with United to try to win future linear frontage. Brett, in what world do you think American wanted to announce new flights from Chicago in December to begin operating in February?
- [22:56]
B
Oh, no, they definitely didn't want to do that. That was absolutely not a play for profit. But also, that's not even part of the FAA's discussion. This is only for summer, and that's when this is really going to be the main issue here. But I think this summer, I think American does want to fly those. Because you think about this from an American perspective, it's either Chicago or Philly. They've neglected the northern half of the country for so long. Those are the places they need to rebuild. So, you know, unless you're going to throw a, like, 15th daily flight in Dallas, Austin or Something. Where are you going to put these airplanes?
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A
I am thrilled to live in Los Angeles, as far away from FAA headquarters as I could possibly be. I guess un. I was in Hawaii. Brett, maybe you follow this stuff closer than I do. What's the FAA going to do here? Step one is voluntary. But if the government has to get tough, what's going to happen?
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B
I don't know.
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A
Is that the first time on the
- [23:54]
B
show that you've said, I don't know, I don't know. No, I don't know what's going to happen. How could we know? All we know is this. The FAA is individually taking these airlines into a room and asking them to voluntarily give up some of their flights this summer. And they're hoping that that will magically create a flyable schedule for the airport. But how do you even think about that? Because if you're United, you're going to look at it and say, okay, we have 250 more per day, or maybe it's a percentage. Whatever it is, this is what's filed, so we should all proportionally cut the same. If you're American, you're going to say, no, no, it should be based on what flew last summer or maybe even pre pandemic. But I think that's probably a losing argument. So you probably already disagree on the premise. And then if you're these airlines, this all requires some serious game theory, because what are your first offers? If you offer too little and then the other airline offers too much, then it falls out of balance. What happens when the FAA comes back to it? It's all just sort of a terrible way to do this. But I guess this is to do it without providing antitrust immunity. It's just the way it has to go.
- [25:10]
A
It is. But as I wrote this week in the Airline observer, it seems sometimes with this Department of Justice that you can do things that you couldn't ordinarily do with antitrust. But it's probably best that the FAA is taking over here and that United and American were not talking to each other. But anyways, it is going to be interesting to see what happens here. This is a lot different than what has happened in Newark, where there's only one big airline in United. This one, as we know, has much bigger, longer term implications.
- [25:45]
B
Yeah. And I don't think we need to spend any more time on this right now because we don't have the answers yet. But once this meeting is done and word comes out about how the reductions are going to be handled, that's when we'll know who the winners and losers are. So, Brian, we are going to have to touch on this yet again.
- [26:02]
A
Sounds good to me. Brett, you've been listening to the air show. If you have suggestions or questions for us, or if you're interested in sponsoring the podcast, go to our website, theairshowpodcast.com to get in touch.
- [26:18]
B
Leo Duran produced and edited this episode. Our theme music is by Joshua Mosher. Thanks for listening and we'll be back.