Hello and welcome to David Bonson's Capital Record brought to you by National Review where each week we attempt to address anything happening in the world around us that might inform our understanding of economics and give us an opportunity to defend a view of economics that upholds the free and virtuous society. And today we have a doozy. This is an issue that I do not believe would have been considered remotely controversial for much of American history. In fact, anytime we have done something different, which is going to be explained in a moment, it has always come with great controversy, great pushback, often bipartisan pushback. But I'm referring to those times where the government decides to intervene in the market and particularly intervene in the form of a bailout of a private company. And the Trump administration has announced, President Trump in particular, that he wants to effect a government purchase or rescue of Spirit Airlines and that they are looking at the government getting involved to be a rescuer via convertible debt. So put in $500 million in a loan that can convert into equity. And I'll get into why a bunch of that is a problem in a moment. How did we get here? First of all, Spirit Airlines sells airplane tickets for about $49, $99. It's more like a charity than a business. They have $7 billion of debt. And you may have heard fuel prices went up in the last couple months, and you're not going to believe it that at their $49, $99 seat price, they don't really have the margin to withstand a big increase in prices like jet fuel going up 50% to 100% in a month. So for the second time, they're now facing bankruptcy. $7 billion is a lot of debt. They've never turned a profit. I think we can all agree They're never going to turn a profit. They have not been profitable through the entire period post-COVID. You could say airlines had a real rough go of it during COVID because most people were not flying. I'd like to point out that I was a single airline rescue bailout during COVID as I flew just as much as I always did, but be that as it may. The airlines were not doing well during COVID Since then they just been crushing it Travel is up well above 100 of its pre levels And in this over 100 of pre level period is now going on for years Spirit Airlines has still never been able to return to profits. Higher jet fuel prices have now eaten up all their cash. And their ultra low cost model has apparently been attractive to some consumers, but not attractive enough to make any money over there at Spirit Airlines. But you know, Spirit Airlines had a way in which they could have functioned as a going concern, sustained their business, stayed alive, kept flights and routes available because a competitive low-cost airline that has a more established brand and a more seasoned business model and more gates and routes and airport contracts set is an airline many of you have heard of called JetBlue Airlines. And they came to buy the equity of Spirit Airlines a number of years ago. And while Spirit was not going to make it, they were going to take on their debt. Creditors were going to be okay. and JetBlue would add the brand and the asset and then figure out a synergized cost, make it work for them as a merged entity. And you say, okay, well, maybe that was a risk for JetBlue. It would have been great for Spirit Airlines. They're about to go out of business. They would have functioned and stayed in existence, better for their workers, better for their consumers, their customers. What could have gone wrong? Oh, the federal government blocked it. You hear me? The federal government in 2024 and the Biden administration blocked the proposed acquisition of Spirit Airlines by JetBlue on antitrust grounds. Nothing more monopolistic out there than a couple of low-cost airlines getting together. And now Spirit Airlines is going bankrupt and the federal government might be the ones bailing them out. the same federal government that kept them from private rescue capital in the form of equity and debt investment from their competitor, JetBlue Airlines. My friends, if this sounds insane to you, it's because it is insane. They believed, the Biden administration's Department of Justice believed that Spirit Airlines merging with JetBlue Airlines would harm customers because then a a merged entity would have the ability to charge more. Well you know charging more might have kept them in business You know what not charging more did It put them out of business This is very complicated sophisticated business stuff I going through here Big fancy business stuff. They're $49 airplane tickets with $100 oil prices. Doesn't necessarily lead to a profitable business. Yeah. So bottom line, my friends, is that you have a problem of the government's making that is now resulting in a problem that the government is going to try to come in and solve. And how are they going to solve it for a company with $7 billion of debt that just blew through a few hundred million in a couple months behind a transitory increase in oil prices? How are they going to fix it with a $500 million cash infusion? I want you to raise your hand if you believe that that is going to end up being enough. So what you basically have is an inadequate amount of loan that is there to bail out failure that would be convertible into equity, making the United States government once again a shareholder of a private business, distorting markets, distorting competition, government in the business of picking winners and losers and with absolutely no limiting principle as to why they shouldn't do this all the time. Well, we want to protect these low-cost providers out there, but if they're low-cost providers who don't have a viable business, which Spirit Airlines most certainly does not, then why not subsidize every business? Why not create new businesses? Why are we not calling this the Trump-Mamdani plan? Which is, by the way, not the first time I've had to use that line here in Capitol Record. This is a total Mamdani playbook. That where something is just simply unprofitable, let's just have government go do it. Subsidizing, bailing out bad businesses. But it is even more perverse in this case because what is needing to be bailed out is needing to be bailed out because of the fact that government caused the problem by blocking the private markets, private sector solution that a JetBlue acquisition represented. So they were afraid that if JetBlue bought them, it would eliminate a low-cost carrier. And now you know what you've got? You eliminated a low-cost carrier and set a ton of money on fire and hurt your bondholders and hurt counterparties at airports and aircraft manufacturers and parts makers and hurt laborers And we just going to take for granted that no one even cares about the equity holders which will all be wiped out. So you still got the same thing you're trying to avoid, and you added a bunch of other classes of victims. And these are the people that the new right wants to have a more elevated role in economic stewardship. No, thank you. Hands off, please. This is a Mondani-like way of thinking where we're subsidizing failed business models. I love the idea of low-cost carriers. And you will get competition in the most basic laissez-faire market principle of all. The people will push prices down to the point they can still profitably stay in business and yet compete for market share. That's what puts prices lower. Where prices can only stay low because it is an unprofitable failed business, what you get are people talking about government bailout. In America, we don't bail out failed private business models. Even when you talk about national security rationale, it is almost always a complete and total lie, but at least they were pretending. Now no one's even pretending Spirit Airlines is a national security risk. So this is an outrageous development that reinforces a basic market principle. Private markets come up with good solutions a lot and governmental forces get in the way and then governmental forces get in the way of them getting in the way and you rinse and repeat. a vicious cycle, all avoidable by government staying in its lane and allowing markets to do what they do. A more free society is a better one. And in this particular case, the Spirit Airlines debacle is something that we should all be embarrassed about. First embarrassed that the DOJ blocked the merger with JetBlue to begin with, and now embarrassed that the government is coming in to bail out a private actor, picking a winner relative to other companies in the sector. Thank you for listening to David Bonson's Capital Record. We hope there'll be less bailouts of Spirit Airlines and a more spirited defense of free enterprise. We'll be with you in a couple of days. You
