transcript

Speaker 1:
[00:02] I'm Brian Summers, and I write The Airline Observer.

Speaker 2:
[00:04] 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. Brian, I'm just gonna say it, the government is screwing everything up in this industry right now, and I am fired up.

Speaker 1:
[00:20] Just in this industry, Brett?

Speaker 2:
[00:22] We need to reduce our scope, okay? There's only so much we can talk about in a half an hour. Now I realize this isn't gonna be news to anyone who has checked the price of oil lately, but we aren't even gonna talk about oil. There's just been overwhelming weirdness in the decisions coming out of the government, and it is creating real harm in this industry, so I wanna talk about it today. And no, this isn't just about mergers, but it's also the situation in Chicago, which I should note made for some seriously entertaining reading. It's all just a head scratcher. Let's start with what's effectively a part two from last week's merger episode with more merger talk.

Speaker 1:
[01:01] Yeah, I can't believe we're gonna do a second episode on a merger that is extremely unlikely to happen. And this, of course, is the much-discussed, rumored or maybe not rumored proposal for a United and American merger. I'm pretty sure that Scott Kirby wants something like this because as Jon, who is not here today, said last week, Mr. Kirby tends to run on spite and math. Of course, Scott Kirby would want to build the world's largest airline by a factor of two and also pick up some very nice office space not far from his home. It's just this is a government-related episode, right, Brett? And I cannot believe the federal government would allow this or even take it seriously. On an episode a long time ago, I think we joked about anti-trust laws being suspended, but I wasn't sure that we'd ever think it would get this dire. Did you get bombarded with questions over the last week as I did about this possible merger?

Speaker 2:
[02:11] Oh, I sure did. Everyone wanted to know when this was going to happen and if I thought it was a good idea, and my answers were never and no. But apparently, there was enough noise here and enough sheer will out of Scott Kirby, I guess, to get American to put out an actual statement on this. It was titled, wait for it, Statement from American Airlines.

Speaker 1:
[02:35] That is true.

Speaker 2:
[02:36] It is true. I think all their press releases should be titled that way. And then it included a couple of gems in there. Now, before even getting to the point of said statement from American Airlines, it started by fluffing President Trump, by saying that the airline quote, appreciates the leadership and strong support end quote. And after suppressing my gag reflex, I finally got to the meat of the statement, which said quote, American Airlines is not engaged with or interested in any discussions regarding a merger with United Airlines end quote. It then started the next sentence with quote, while changes in the broader airline marketplace may be necessary, end quote, before it just shut things down. So Brian, what do you make of that?

Speaker 1:
[03:21] Very interesting, Brett. I'm always skeptical about denial statements because I think we really have to parse them to understand their meaning, and sometimes it's not possible to know exactly what they mean until after the fact. So the sentence or the clause about not interested in the merger is very, very clear. Of course, American is not interested in a merger with the United Airlines, but what is engaged mean? I don't know. Does that mean there have never been informal talks at all? Maybe something at Conquistadors del Cielo?

Speaker 2:
[04:02] Well, yes, they were probably down by the river talking about it.

Speaker 1:
[04:06] Yeah, that's not necessarily an engagement. So who knows? It probably means that if there were talks, the talks haven't gone anywhere. But look, Brett, this leak came from somewhere last week. I don't think it was made out of thin air. Bloomberg was first to report it. Journalism has changed a lot over the last 10 years, but Bloomberg is still Bloomberg. And if Bloomberg is reporting it, there's some kernel of truth somewhere in it. Something could be going on. It's just that Brett, you and I will probably be the last people to know. The statement about the broader marketplace was interesting as well. We know that there are other airlines in play. Somehow, Spirit is still alive, which is insane after two bankruptcies and the run up in fuel price. And then JetBlue had its own weirdo internal memo recently when it said it wasn't at risk of bankruptcy this year. What about next year? Who's to say? One more thing, Brett, about American, because we never miss a chance to knock American Airlines. Bloomberg reported this rumor coming out from Washington about a proposed merger on Monday, the Monday of last week. And so by Friday, we kind of forgot about it. We assumed that there was nothing there. But American goes ahead on Friday. And what do they do? They put it back in the news. I'm not sure we ever needed that second statement. I think without the second statement, you and I wouldn't be talking about it today.

Speaker 2:
[05:46] Look, you can never miss a good chance to fawn at the feet of the president, Brian. And apparently he liked what American had to say, because on an appearance on CNBC, he said this. Have you thought about that proposition?

Speaker 3:
[05:58] I just heard it two days ago, and I know them both very well. I don't like it. No, I don't mind mergers. With American, it's doing fine, and United is doing very well. I know the United people, they're doing very well. I don't like having them mergers, just like all of these aerospace, defense companies and aerospace companies.

Speaker 2:
[06:16] Okay, let's cut it there, because he went into some random, lengthy treatise on aerospace. It doesn't matter, but it's hard to find an actual rationale in here, but he doesn't like United's idea. At least in the couple of minutes when he was interviewed, he didn't like United's idea. Could have changed his mind by now. Squirrel, we know the states won't like this. We know the EU won't like it. Certainly American management will hate it. So is this dead?

Speaker 1:
[06:44] Nothing is ever dead, Brett. Well, not in this current climate in Washington, DC. Unless fraught times, of course, when the president goes on television and says, I don't like having them merge, that can usually mean something because the Department of Justice, which can block any merger or try to block any merger, is part of the administration. But how can I say this maybe a little bit more charitably than you have? This president has been known to change his mind. Before we go any further, I should say that Scott Kirby has not changed his public tune about consolidation. We had United's first quarter earnings call on Wednesday, and Scott Kirby also went on TV. And he's generally saying that, while he'd like to pick up assets possibly from a failing airline, he still doesn't want to gobble up one. Of course, what do you expect him to say?

Speaker 2:
[07:43] Well, unless it's American, then he'll gobble the crap out of that one and all of its debt. But whatever, I think this should be dead. But United has been laying the groundwork for quite some time on this, and they're taking it seriously on their side at least. Like we talked about it last week when you interviewed Scott at the Apex Expo last September, and he started talking about the importance of eliminating the so-called trade deficit with foreign airlines. It's such a strange way to look at the industry, but it feeds right into this idea that the US needs to have one big competitive airline to compete with all them foreigners. These things have to be connected, and it just plays out over a long period. We also know that President Trump is very impressionable. Apparently, you want to be charitable, so we'll just say it that way. But we know he's big on trade deficits. So, if someone can get in front of him and explain how this is going to help improve America's standing and beat down those evil foreign companies, then he might end up going along with it. It's kind of like, who has the last meeting with him before he decides where he wants to go? I can't even imagine being in Washington right now. I would lose my damn mind.

Speaker 1:
[08:54] Yeah, Brett, and you probably wouldn't just lose your damn mind because of whatever's happening with United and American, because this week, we have more potential news. As of this recording on Wednesday morning, it appears that Spirit Airlines, twice bankrupt Spirit Airlines, might become a ward of the government or a partial ward of the government, which might make major loan to the airline. That's a little bit weird, right, for an administration that generally claims that it wants to keep its hands-off business?

Speaker 2:
[09:34] So, yes, that was from the same CNBC clip. There was a piece I cut out. I assume that's what we're starting with here, yes?

Speaker 1:
[09:44] Yeah, Brett, it was this part.

Speaker 3:
[09:46] I'd love somebody to buy Spirit as an example. Spirit's in trouble, and I'd love somebody to buy Spirit as 14,000 jobs, and maybe the federal government should help that one out.

Speaker 1:
[09:57] No!

Speaker 2:
[09:58] No, it shouldn't! But hey, this feeds into the previous discussion, because maybe now if United buy Spirit to help him out, then he'll repay the favor and let United buy American, too. This is f***ing insane. Can we agree on that?

Speaker 1:
[10:14] Well, Brett, I'm not gonna curse, and I wanna be more charitable in this episode. But yeah, I can agree with the sentiment.

Speaker 2:
[10:23] I had started hearing rumors last week about Spirit looking to the feds for a bailout, but we saw some early reports on that, and now he's publicly talking about it, so it shows you just how much power you have when you're a Florida company, apparently. Because this is one of the dumbest ideas I've ever heard, and that's saying a lot. I've heard a lot of dumb ideas. But Spirit is a failing company. In bankruptcy right now, is this a quasi-free market, or are we just going to play politics with it all? Because Spirit, it's not like they even have a good plan. We could go back after 9-11, right? Where they had the ATSB loans and airlines had to make a pitch for why they deserved a loan. And the airlines were turned down for that when they didn't have a good plan. Spirit does not have a good plan, and yet here it is getting singled out for special treatment.

Speaker 4:
[11:10] It's insane.

Speaker 1:
[11:11] I'll talk about Spirit in a moment, but quick tangent here today in homage to Jon, who likes to do this sort of thing. We talked about very dumb ideas. There's a very dumb idea that we're hearing now from this administration that I don't think we're going to go into detail on today. Supersonic travel. So don't forget that one, Brett.

Speaker 2:
[11:31] Yes, right. It's coming over land. It's going to be here soon. Like just distraction, man. That's the name of the game. Let's talk about dumb stuff that doesn't matter.

Speaker 1:
[11:41] Back to Spirit, which is important for our world covering airlines. I guess a merger is still possible, although I don't know what the partner would be, who would want it. As we record here, The Wall Street Journal is reporting that the US government could loan the airline as much as $500 million, and the government would receive warrants to take a potential significant stake in the airline.

Speaker 2:
[12:11] The merger idea would have been brilliant. It's also still stupid, but kind of brilliant because then you're creating this very specific case where you're going to start bailing someone out, right? That not everyone else is going to come and meet that threshold. But this is clearly just we're going to do this no matter what. Obviously losing jobs is bad. You don't want to lose 14,000 jobs. But I can bet you anything that if Spirit were not based in Florida, say maybe California, Illinois, president wouldn't care. This is about politics, and Florida gets more attention. But while we're talking about these 14,000 jobs, that is a false narrative. There aren't going to be 14,000 lost jobs if you save Spirit, net lost jobs. So if a dying airline like Spirit goes away, a lot of those frontline people will be swept up by other airlines you mentioned it yourself. United is interested in picking at carcasses, could pick people up with that. And the rest of it, yes, will go away. Some jobs will go away. But that's because Spirit is not a viable airline.

Speaker 1:
[13:16] Right, Brett. There are repercussions here that I don't know if the government is thinking about. Throughout the time of airlines, a lot of carriers hate competing with a zombie airline, especially a government funded zombie airline, because they make irrational decisions that affect the rest of the industry.

Speaker 2:
[13:39] Right, so you save 14,000 jobs, but now maybe you're gonna lose jobs elsewhere because these airlines can't compete and shouldn't have to compete with this airline that shouldn't exist. So are we supposed to save a failing airline just to save jobs at that specific airline? The whole thing makes no sense. Like I guess it isn't crazy, but when you say it, it sounds like it is that we have a Republican president arguing for the importance of a social safety net, but like a highly selective one. I don't know.

Speaker 1:
[14:07] I do find it interesting that we have a lot of public statements from the administration that conflict with each other. So transportation secretary Sean Aduffi did an interview with Reuters and he sounded more rational. He said, it takes a lot more work from inside the government to figure out where we should go. By the way, if you do spirit, who comes next? Who is the third?

Speaker 2:
[14:33] Yes, that is rational, except for the part that it takes a lot more work from inside the government, which is clearly not true since they've already magically gotten to the point where they're finalizing this. But what that sounds like to me is that another airline got to Duffy in order to set him straight. And he said as much, I think, it was, quote, if spirit goes away, it's better for JetBlue. If we bail out spirit, I can't imagine JetBlue would love that, end quote. No kidding. But that message apparently didn't make it to the president or he decided he didn't care. Maybe because JetBlue is a New York company. Forget that they have a huge presence in Florida. But in all of this, JetBlue absolutely is the one getting the biggest shaft here, assuming this actually happens.

Speaker 1:
[15:19] I'm not sure, Brett. Is this all a breath of fresh air or is it a mess?

Speaker 2:
[15:24] This is so f***ed up.

Speaker 1:
[15:26] Brett, I'm going to cut you off there because you seem very, very, very upset. Let's take a break here and then let's come back and talk about what the government has done in Chicago. If you saw the transcripts that the government released about some of the talks in DC, you know, these got a little bit wild.

Speaker 5:
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Speaker 2:
[15:55] Sure.

Speaker 5:
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Speaker 2:
[16:01] Your wife may have something to say about that.

Speaker 1:
[16:03] Probably.

Speaker 5:
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Speaker 2:
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Speaker 5:
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Speaker 2:
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Speaker 5:
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Speaker 2:
[16:44] Hard to beat those three words.

Speaker 5:
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Speaker 1:
[17:03] We're back, let's talk Chicago, Brett. We remember the government decided that it would implement an operations cap of about 2,700 movements a day at O'Hare this summer. And so American and United, which scheduled far more flights than that, would have to reduce their flying to match their share in summer 2025. I am no operations genius, but in my newsletter, The Airline Observer, I was a little bit skeptical of this because I know Chicago spent an absolute fortune on airfield and runway improvements, precisely to allow the airport to grow. I know that United is not happy about what transpired here, although let's be honest, United is going to save a boatload of money by not flying those extra departures. I think United is upset about what this decision has done for its competitive, its relative position in Chicago compared to American.

Speaker 2:
[18:08] Yes, so high level, I think on most peak days looks like about 150 to 200 operations per day get cut. They have to go somehow.

Speaker 1:
[18:16] Is that both airlines or is that only one of the airlines?

Speaker 2:
[18:19] That's total. International carriers are exempt from this anyway. This is just from what was filed. There perhaps been other changes. We'll see how it all shakes out. We've already seen May get reduced and that's about in the range of what happened there. But I think they just needed to get that out of the way as quick as they could and the rest of the summer we'll see soon enough. In my mind, American comes out of this as the winner, no question. It absolutely made the decision to neglect Chicago after the pandemic and focus on the Sunbelt while United built up Chicago. Then American decided it wanted to be competitive again, once it realized it was going to lose Gates. So it raced to add more flights in 2025. And because of that, the feds decided to base allocations on that summer 2025. And that is bad news for United, which ideally wanted it based on what was already filed for this upcoming summer to be the baseline. And there is an argument to be made here.

Speaker 1:
[19:18] Indeed, Brett, we like this proceeding because things got quite heated according to these government transcripts released this week. They are long. There are three parts. But I'd recommend people who are obsessed with this stuff look at the third day specifically. We'll put a link in the show notes here.

Speaker 2:
[19:38] It's so good.

Speaker 1:
[19:39] American was pretty a matter of fact. While United seemed to channel its inner Vasu Raja. Remember when he said something like, Gird your loins regarding the Northeast Alliance? That was a good one.

Speaker 2:
[19:54] Yeah, this one definitely requires getting some popcorn to read it. Even with the redactions, I wish we didn't have those, but there's still plenty in here. The first thing that I found to be crazy about this though, because this is a government episode, how much the numbers bounced around here in this discussion? The FAA seems so unprepared for this, it's wild to me. So they come into the meeting, FAA Administrator Brian Bedford said it would need to get operations down to around 2,500 operations per day. But then the feds come into the first session and say, well, it's 2,400 with no explanation at all, and there seemed to be some confusion there. Then at one point that became 2,450, and I don't even know why. I feel like they just maybe someone said, man, you can go up 50 if you need to. But then in the middle of the day, the first day, they come back and say, oh, we've upped the cap to 2550. They got approval from somewhere that magically that's gonna be okay now. And then on day two, they say they're up to 2,608, a very specific number. But they did say that that was, quote, a hard line. But then at some point between the end of the conference and when the order came out, it jumped another 100 to 2,708. I have no idea how any airlines can work like this.

Speaker 1:
[21:10] United is certainly not happy about working like this. I think my favorite parts and yours as well from the transcript were just the public frustration from Patrick Quayle, United's senior vice president of global network planning and alliances. There was a lot of back and forth over these days. But what I loved is when Quayle came in a little hot on day three, just in the beginning, a little hot, a little hot. When it became clear, I think that United was not going to get its way. So associate administrator of airports, Dan Edwards, who was in charge of these proceedings, said, I trust you had a good night. And do you know how Quayle responded?

Speaker 2:
[21:57] I do, but I'll let you say.

Speaker 1:
[21:58] He said, we had a night.

Speaker 2:
[22:01] It's so good. I mean, that just starting that on day three, I knew that was it. I couldn't stop reading this thing. It was going to be hilarious because United was just absolutely relentless in trying to sway the FAA's opinion. And to the surprise of probably nobody, it did not succeed. But buried in some of this very overt anger, I think, United did make some real salient points. It just fell on deaf ears.

Speaker 1:
[22:33] Yeah, I think United executives had a reason to be frustrated because it wasn't quite clear how all of this was going to work and how the FAA was going to make its decision. So United did a nice job, I think, of pointing to precedent, what came before, because that's often very salient. It helps an airline or any company make an argument. So it cited previous examples when the FAA was required to reduce operations. And in those cases, the government used planned operations for the impacted period, not going back in time, to determine the reductions. Quail cited previous issues in Chicago, Newark, London, Amsterdam, San Francisco, and don't forget, Bogota. But here the FAA chose a prior, maybe arbitrary time on which to base the cuts. And Quail called this, quote, sheer madness. And then he said very bluntly, this is not right. You're blowing up precedent, which I think they did. And then he went on to say, quote, this is real jobs, real people's careers, real mortgages. This is not an academic exercise. And then a bit of a jab. And I find it incredibly rich that a Republican administration is trying to distort market forces and upend decades of precedence.

Speaker 2:
[23:59] It's not often you can really just feel the anger coming off the page in a transcript, but this one was absolutely palpable. And I get the emotion, but I'm also not surprised it did not move the FAA to change things around either. It did take some badgering just to get the FAA to explain why it chose Summer 2025 in the first place, right?

Speaker 1:
[24:21] Yes, and apparently it all had to do with our favorite document or whatever it is, the IATA Worldwide Airport Slot Guidelines. According to those, the FAA is supposed to use the most recent comparable period. United pointed out that these are just guidelines and that precedent is much more important, but the FAA said it chose to go with the most recent stable time period since so much has changed more recently. United understandably disagreed.

Speaker 2:
[24:57] I can understand why the FAA did what it did in a vacuum, but the more I think about this, the more I think the FAA really screwed this up. FAA decided to use Summer 2025 for its baseline, right? But nearly all of Summer 2025 was operated using the gate allocations at the airport from before. Remember in the Chicago lease, every year there's this gate reallocation process, but the gates don't change hands until October. So in October 2025, United gained five new gates and I think American lost four. So if you're forcing proportional operations based on Summer 2025, shouldn't you have made an adjustment for the change in the hands of all those gates? Because the FAA is effectively choosing American and invalidating all the work United's done to gain more gates, because if United can't increase operations, it's not going to lose those gates in the next reallocation. So when confronted with that, the FAA just said gates aren't their problem. But then they started talking about who upgaged more as some weird justification, but that also shouldn't be their problem. It was such a weird exchange. It seems like there was some kind of an agenda there, but it also could have been that they were just flustered and outmatched by people who actually understand the industry. So at the end, it was so weird. They just said they had a hard stop, which apparently was never communicated. And then they just walked away.

Speaker 1:
[26:23] So bizarre, Brett.

Speaker 2:
[26:25] I think what this shows is the importance of having good people in government who actually understand what's happening in great detail. After all, Assistant Secretary Edwards here, he's new to government. He's been in it for less than a year. But he's the one that had these interactions on the third day. I think he was the ranking official from FAA. I mean, there were attorneys there. There were a bunch of people there. But he doesn't have airport experience. The closest thing would probably be that he was actually a pilot for American from 2000 to 2004. That, by the way, isn't even in his official bio or on LinkedIn, which seems like a strange omission. But the point is that this isn't his area of expertise. So it's probably all the other career people in the FAA that did the hard work and could have possibly explained it better. But instead, he just sat there and just got hammered.

Speaker 1:
[27:14] What are you most mad about, Brett? Is it the outcome or is it just the way this was all handled?

Speaker 2:
[27:21] Can't they just be mad about everything, Brian, because that's how I feel today. Look, the outcome is very messy and I see a clear problem with it. There should have been an adjustment for the changing gates. They just didn't want to touch that. There were probably several ways they could have done it with more nuance, but nuance does not seem to be the government's cup of tea. So now it probably falls on O'Hare to figure out how they should handle gates, because now this is just a mess. Maybe they won't do anything, I don't know. But it is, in general, this whole episode, it's about how the government is handling everything in such strange ways with just constant changes and changing their minds and different numbers and everything, it just adds to this sense that the government is chaos. And it's not really approaching things the way we would expect that they would or should to help a thriving private industry. And I think Patrick said it out loud in the proceedings. He said, I am appalled that this is being run like a banana republic.

Speaker 1:
[28:27] 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, the airshowpodcast.com to get in touch.

Speaker 2:
[28:39] Leo Duran produced and edited this episode. Our theme music is by Joshua Moser. Thanks for listening and we'll be back soon.

Speaker 4:
[28:58] Some mother, son of a, god, these mother...