2.5 billion dollars.
That is the figure that low-cost airlines demand from the United States Government in order to continue operating in the country. The rise in fuel prices has reached such a point that a handful of companies are beginning to see the wolf’s ears. And that wolf is called: bankruptcy.
2.5 billion dollars. The Association of Value Airlines, made up of Allegiant Air, Avelo Air, Frontier Airlines, Spirit Airlines and Sun Country (all low-cost airlines operating in the United States), have asked the United States Government to create a liquidity fund of $2.5 billion to pay for the fuel they need to offer their services.
At the meeting, they assure from Reutersairline executives, Secretary of Transportation Sean Duffy and Head of the Federal Aviation Administration Bryan Bedford met.
111 dollars. It is the average ticket price offered by the low-cost airlines that attended the meeting. A figure that, they say, is impossible to maintain if the price of fuel continues to increase. And, according to his calculations, those 2.5 billion dollars It will be the increase in prices at the end of the year that they will have to assume if the market continues to be as volatile as it has been until now.
According to their calculations, the rise in the price of oil has been such that it is forcing them to pay for fuel at twice the price they normally did. This puts their operations at risk to the point that, they say, the profit margin is so narrow that it puts the viability of the companies at risk.
Ravine. Neither the White House nor federal aviation officials responded to questions from Reuters but by then it was already known that talks had been initiated to provide $500 million to Spirit Airlines. The airline, however, ended up bankrupt this weekend.
The company, they explain in BBChad operated in the country for more than 30 years but since the hardest years of the Covid-19 pandemic, it was going through severe financial difficulties. The rise in fuel prices has been the last straw that has ended up leaving passengers on the ground.
The Secretary of Transportation of the United States, Sean Duffy, has assured that the company already had serious problems before the country launched its first attacks against Iran. Now, 17,000 workers have lost their jobs overnight.
It’s not the only one. Although the Spirit case has been the most striking (its business became such that in 2014 Morgan Stanley pointed it out as the airline with the greatest potential for its investors). but he withdrew his support in 2023), this airline has not been the only one in which bankruptcy due to the enormous cost of fuel has weighed on the heads of hundreds or thousands of workers.
Latvia has had to rescue Air Baltic with a loan of 30 million euros and airlines such as Lufthansa or SAS have had to cancel thousands of flights to try to contain the hemorrhage. In the case of Lufthansathe company has focused on short-haul flights where profit margins are narrower, canceling more than 20,000 of them before the end of the year. For its part, SAS canceled more than 1,000 flights only last April.
A warning (with buts). Michael O’Leary, CEO of Ryanair, has also not missed the opportunity to attack his rivals. In The Spanish They report that O’Leary predicts the bankruptcy of two or three European companies before the end of the year if the oil crisis continues. For the manager, WizzAir and Air Baltic would be the main candidates.
However, some analysts have pointed out that they consider that the risk of reaching this point is lower among European companies. They point out that in the United States the strength of long-haul airlines is still very high and that, unlike in Europe, low-cost airlines have much less business. What they do not rule out, of course, is that flights will continue to be canceled en masse.
less margin. The airline problem low cost It is similar to that of the gas stations serving cheap fuel. In both cases, very narrow profit margins are played in exchange for adding a large number of operations. However, the increase in the cost of fuel kills its business because it places its rates at the prices of its rivals. premium.
In the case of airlines, as in the case of gas stations low costhave the added problem that fuel stock is usually small. Furthermore, in the case of aviation, variations in its price tend to be more damaging because its refinement and storage is so expensive and complicated that stocks are usually very small.
Photo | Forsaken Films
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