Spirit Airlines Fleet Parting Out

You're listening to dots, lines, and destinations, a travel podcast with host Stephen Segraves, Vazma Moon, and Seth Miller. Hello and welcome to episode five hundred and ninety of Dots Lines and Destinations. I'm Stephen Seagraves. Today joined by Mr. Seth Miller, a mister Faz Mahmoud. Gentleman ? Not a good day. Faz is live from Las Vegas, Viva ? No, just pronounced Rio, Steven. Oh, Rio, the Rio . Yeah Does it feel like Rio de Janeiro there? No. I don't know, is the entirety of the aviation global communities sitting in the lobby somewhere Definitely not. No, it's mostly women with oxygen tanks, chain smoking. That's been my experience. You know, I raised the issue because the go ahead . I was gonna say I was going in and out of the lobby this morning during basically the checkout window '.s a There lot of interesting people leaving on us Sunday morning. Why are you asking, Seth Because this week, this weekend, in fact, Sunday morning it started in the real Rio, the Ata annual general meeting kicked off. And why aren't you there? There happened to be I wasn't invited this year. No , I'm sorry. Also I had, you know, prior commitments that probably would have prevented me from going, but I wasn't invited this year . Any big news? Not to be that surprised, but they don't like me anymore, but whatever. So some interesting news, a couple things came up listenership and probably for us directly, the most significant thing that has come up so far is that Philippine Airlines is joining One World . So that add them to the mix of various routes and connections and things. It's interesting a couple weeks ago, they announced an updated partnership with Quantas . There has been discussion about sort of JVish stuff in and out of the United States and access to gates. I don't know if you recall, they're flying to Chicago , which we talked about because Delta got had concerns about granting them rights to fly to Chicago if Delta couldn't get rights to fly LA to Manila . But apparently they're doing it. So I don't know exactly when they're expected to make the transition, but that is happening . I think there's some changes in the Alaska relationship too, right? Yeah, so they had announced a while back. I'm convinced that Alaska's like sponsoring all these people to join one world . And so like a while back, Alaska said, Hey, we have this partnership with Philippine Airlines. It's going to be great. You're going to be able to earn and burn. It's awesome. We'll sell itineraries . And that went on for six months, maybe . And then like two months back , they kind of said, Oh, well, you're not going to be able to earn or burn depending on certain things. There was like certain criteria. And they kind of like pulled back on the relationship . And so maybe that was like because they knew that they were coming into one world . I don't know . Hm m. Yeah, it was interesting. Faz , did you remember that? I vague remember it, but I mean, is that because they're coming to one world or is that Alaska being Alaska and realizing they couldn't implement it properly? They couldn't actually sell you a ticket that wasn't in full Y or something? Yeah, exactly . Yeah. So I mean, it's good news that they're going to be in one world ? I think it's good. It's a net positive . It's still a little bit off, right? Because I think what I heard was twenty twenty seven . Yeah . Yeah, I mean, that wouldn't surprise me. I mean, twenty seven isn't that far assuming typically the process to join an alliance is rather drawn out . SAS was pretty aggressive making the jump from star to Skyam Te just because of the ownership shift. But other than that, it usually takes a while and you gotta get all the even though everything is sort of coordinated with all of the partnerships and everything, you still have to get sorry contracts signed and things done sort of on a bilateral relationship to get all of the award programs in place and the inventory sharing details and the pricing and all that stuff. So even if you have the backend systems as sort of a quote unquote seamless whatever thing that everybody can tap into and put their information into and pull out of , they still have a lot of one on one negotiations and contracts that have to be signed. So it's not that surprising that twenty twenty seven would be where the I mean given we're halfway through twenty six at this point , but there was an interesting conversation of why join an alliance. And I think that that's always a fun bit to dig into and it, you know, always depends on the airline, but like Latam , with Delta as an investor and significant own er didn't join Sky Team , but in this case Filipinos in putting the ownership part aside thinks the value is there. I mean, what is the upside? Like lounge sharing potential schedule sharing? Like what are the upsides these days I mean lounge acts any of it sort of any of it can be done just on a direct bilateral relationship . Where it gets valuable arguably ability to have sort of the partner airlines more aggressive is the wrong word, but sort of more it's the wrong word but I'm using it. It's more aggressively and you know sort of pushing that the partnership exists and it gets you access to more partners more quickly. It comes with some costs. There's, you know , integration costs and other costs to be part of an alliance that sort of impact things . But it's it's one of those things where I feel like if you're big enough or small enough, you don't need an alliance. If you're big enough, you just take the partnerships you want, you get joint ventures where you want them and you move on. If you're small enough, the costs are just too much . There's a reason there was like the One World Connect and Sky Team or Starlines had like a junior partner kind of thing also . They got you some access with a lighter lift on the technology side and some other things to get it integrated faster and cheaper . But there are those costs to do it. And for some airlines, depending on what region of the world are you're in and your size, it can make sense . Yeah, I mean I get what you're saying. It's kind of this it's kind of like a marketing play a little bit. Like there's a marketing aspect to it and then there's some lower cost potentially if you're a mid sized airline. Yeah, I would say. Yeah. What else what else came out of Ayata? What other news? Yeah, just one other thing on that. Only thirty one new destinations not already served by a one world member , which seems low to me, but it shows how it does seem how hard it is for yes , that's how hard it is for an alliance to get new places to show up . Anyway , other stuff for Mayata. There was as always the conversation about getting aviation to the net zero world . There was sort of a commitment to net zero by twenty fifty that was almost certain ly BS from the minute it was announced and continues to almost certainly not be something that will not happen . But that's a very challenging environment and the latest is actually interesting to me. They put out, you know, a statement for something to the effect of, you know, this is it's still not happening and these are the changes, these are the changes that need to be made. These are the top four things we think should happen to make it happen and to get enough staff into the system . And historically, Ayata's position has been a solid governments need to invest more and provide subsidies to saff producers and otherwise stimulate the market so that the production happens more quickly and produces the product at a price point that is much closer to normal fuel prices. Typically it's about double right now if you can get it . So it's a good time to produce . What was that? It's a good time to producef Sae and make money from? Yeah, well with not having access to anything coming out of the Middle East anymore . But anyway, like it's interesting on that front, but this and they've all they've constantly put beating this drum , basically government should work harder to make sure this shows up for us. Governments want us to be net zero, so governments should front the cost of the transition . And this time around the press release has a four point sort of actions needed . Number three is the government should subsidize it more and is kind of obliquely stated. It's not near ly as direct as it has been in the past , which I thought was interesting. I don't know if it's because Willie Walsh, who's the director general is on his way out the door moving over to to go into Indigo Air wasn't it going to one of the Indian airlines? Yeah , I think you're right, Indigo might be the Yeah they quote was strengthen policy support through effective sequencing of production, incentives and investment frameworks that provide certainty and reduce risk before any mandates are imposed. So it's clear right there reading between those lines, there's clearly a call for subsidies , but it's less you should subsidize our production , but I mean how does that message stand up now? I feel like that message today , that's a lot harder of a message to swallow in the political climate that we're in globally . Not just in the United States, but globally. The current one, the one I just read or the prior messaging. The new messaging, I feel like is even I mean, I think the old messaging is definitely hard to swallow. I think even the new messaging doesn't soften it enough potentially . Yeah , I mean it certainly they're they're I say they're burying the lead, right? That's they're not outright calling for that money to come in. So they're softening it, but it's again, like you said, it's between the lines that they still want the governments to subsidize this. Yeah. And yes, Willie Walsh is going to be the CEO of Indigo. Yeah, correct. So that and, you know, as an organization, Iata has been aggressively pushing the position that the mandates are slowing decarbonization and infl ating costs because it's skewing where the investment is happening . I don't think that that's actually what's skewing the production, but what do I know? I mean, you need I mean, you need fuel stocks, right? Like you need Yes. And that's one of the real challenges is, you know, we talk about like , you know, doing from corn, you can't grow enough corn to make fuel. Yeah . You just can't, like , you can't match the demand that would be needed with any reasonable at any reasonable production level and even if you tried, you'd be dealing with massive distortion of actual food production needs. Agriculture markets would yeah collapse. Yeah . So and there's been, you know, plenty of debate around that and discuss ion around that. I just keep thinking back to conversation I've had with a guy who works for ICCI and Dan Rutherford's name. He's sort of environmental transportation guy and has been beating on IATA for years because IATA keeps publishing these charts saying, well, see we're going to have enough safe, you know, safe is the key to all of our decarbonization and we're going to have enough of it and it's going to hockey stick production wise and it's going to be great. And all of their charts expected massive production of safe far more production of saf ety at each at any given milestone than has ever come to pass and they sort of just keep repredicting that that's going to happen again . Yeah, I think it's it's one of those things of I think we get there at some point. I don't I don't think they should put numbers on it. I think that's it 's a really lofty goal to put a date on it. I think you have to. I mean, it's kind of like when you do any kind of green energy target, you're trying to hit a number and you're putting that number out there to give yourselves a goal and you try to make those somewhat aggressive, but twenty fifty an increase in technological capability and just the ability to grow that much feedstock that I don't think it's possible. Like it's what are we what are we at now? twenty twenty six . It's twenty four years away , right? Right. Maybe, maybe? I don't know. Like it just seems really impressive. I mean, and SaaF is going to have to be part of it because they're making planes today. They're going to be still running on normal fuel. Yeah , yeah . What about how airlines are doing financially? Badly expected ? twenty three billion in twenty twenty six ? Total net profit for the industry combined . On roughly a trillion dollars in revenue which is it was previously projected to be forty one billion and then the US and Israel launched a war in Iran and screwed the pooch there But if still making money is it really bad old losing how ? Well, A they're not making as much, B, not all of them are actually going to make money. I mean never, were all of them going to make money, but it's the average numbers distort the story badly in a lot of ways. Just based on like the in the Middle East, the expectation now is a net los s of twenty dollars per passenger carried . And in total, roughly four dollars profit per passenger carried globally . So I mean , should I want, do I need the airlines to make a lot of money ? No, do I need them to be profitable enough to reinvest and like continue to buy new planes and do things so that we can still fly and they don't just eventually run out . Yes . It's a fine line and that's that number is also based on they're not fully recovering the higher fuel costs yet. So over time does it even get worse ? Right. But like as far as profit goes, right, that's after the extent of all the new planes that they're already put deposits down on that's already in their financial plans . So it shouldn't really impact that that much. The biggest thing it'll likely happen in Not in this year's hand not in next year's fair, fair . What was the what was the biggest thing you said Foss? The biggest thing will be it'll if anything, it should help put a halt or slow down stock buybacks I mean, I don't know about that. That's an easy way to I don't think it will because that's what I mean, that's what they should be doing when the price goes down. Yeah . Yeah , I mean it's I think it's bad from the perspective of if you're only making four dollars a passenger carried , it really incentivizes the idea of becoming a credit card company even more and that only even works in the United States . Yeah , right. Because many other many slash most other regions in the world have cap on the interchange fees that credit cards can charge the merchant and so the credit card companies can aff'tord to pay out the points. But on average , the current forecast is forty cents profit per passenger in Africa , three dollars forty cents in Asia Pacific , seven fifty hundred cents in Europe , three fifty in Latin America , a twenty one dollar forty cent loss in the Middle East, which by the way, compares to thirty one fifty cents in profit last year, which both of those numbers are insane. Yes. And North America profit per passenger of about eight dollars and ten cents . And if you think about how the market is sort of bifurcated in the United States and in some other regions as well . Like Delta and United are making money . American maybe, Alaska probably , Jet Blue, probably not. Like the way that that splits out, it sounds great that any eight bucks of passenger carried and there's millions of them , but it's on a huge amount of invested capital and it's barely working for it works for a few but not for all. And so the average numbers , they don't lie, but they tell a different story. Yeah. Yeah. What was the number last year for North America? So ten dollars eighty cents . Okay. So North America has one of the arguments yeah, one of the arguments about North America has been that they've been able to better recapture the higher fuel prices so far . So it's only down about twenty twenty five percent, which is way better than most of the other markets in terms of what the what things have dropped . What's the what's the news on those fuel costs? Like what's the expectation there? So right now they're talking about a forty percent spike for the year and that's basing it on an expected per barrel price of ninety five dollars for crude oil . I haven't checked lately, but I think we're right around there, maybe a little above it . And that's mostly being held at that point because so many we talked about this last week, countries are releasing money from their strategic money. They're releasing fuel from their strategic reserves , oils and other bits. So how long they can continue to do that and at what pace and how long it holds will be interesting. One of the things that's interesting was also an impressive number in the release and this is something Delta's probably pretty happy about the crack spread, the premium that one gets for selling processed jet fuel versus buying crude is up to fifty seven dollars a barrel . They still the refinery. And they still have a refinery. So Delta basically gets a discount on the cracks spread. Didn't they close that refiner y? No. No, it was temporarily halted for a while . They were doing a bunch of improvements, but it's back operating for the North Africa. Because I know at one point they were talking about selling it. They thought about selling it. Yeah . They did. And currently , Iatis about a third of the total fuel consumption for the year is hedged for the global airline community. A lot of that's in Europe. European airlines have historically hedged more. U. S. airlines have basically none . Yeah . It's interesting . And then some other stuff, Etihad had some news . Yeah, I mean, this is sort of a blend of the Ayata News and the Middle East news. Edihad's claim that they're back to sort of running normal capacity and filling planes up and they haven't had to discount their flights . And anecdotally , I can say I don't think that's true. I add a statementally , I can say it seems like that's not true. I mean, I add a statement about the Middle East is quote, the immediate recovery path is likely to be driven more by pricing than a rapid return of volumes , basically saying they're going to have to cut prices to make people show up . I was talking this past weekend with some friends with family in India who travel , you know, a lot both to the US and to Europe . And they are no longer booking Middle Eastern connections . Come one family, but I'm sure there's several of them. So well, I mean, it's what we talked about the other day, like Swiss adding a flight to India from Europe from Zurich, right? Bangalore . And then I also think it's Etihad's news could just simply be a backlog of passengers that were stuck, unable to fly while they weren't operating. You know? Yes. And Ettihod's relatively small. Yes . And on top of that, there was a new notum. Yeah , I didn't see all the diesels on this one, but I want to say on Saturday night or Sunday morning U. S. time , Qatar had a note amount shut ting down its airspace or severely limiting it . I haven't gone and look and see what flights were cancelled. That's probably a smart thing to do . And then also Sunday night , we'll say Middle East time . There's been an escalation between Israel, Lebanon and Iran again such that Iraqi airspace, Iranian airspace and some Syrian airspace was closed. . It's good times . So that ceasefire's going great . I mean, Faz and I were supposed to actually fly through there next week, right, Fawz? Yeah . Yeah, that's not happening anymore. How's that playing up on ? That's plan's been abandoned and we'll update you with our reconfirm reconfirmation at a later time . Um , yeah, speaking of which, there was an article, I think it was Paddle Your On Canoe wrote about Qatar kind of abandoning plans about a one world connector in Doha, like being the connecting airline in Doha and like really trying to draw in one world carriers to fly to Doha so they could connect onward to India and other parts of the Middle East and even into South Asia or Southeast Asia . And the article is kind of written like, well , Americans completely given up on Philly Doha, like it's canceled for the rest, like forever now. Well, Qatar's going to Qatar's looking to higher status and but Quitar's coming back . Yeah . Yeah . So just like an interesting thing. Like maybe they just think that they can pick up all the traffic that American would have would have flown over. And some of the other carriers are still doing it, but it's kind of like signaling this idea that is Qatar giving up on those plans to be this connector airline is going to focus back in on being a connect for themselves and one world that's fine. We'll be part of it, but we're not going to push for that . It's kind of the hypothesis there. And I thought that was interesting . I mean it is interesting. I would say they certainly were pushing to get airlines to bring traffic into Doha, right? Like we saw it with BA, we saw it with some of the others trying to bring passengers there to do onward connections. Now how joint venture was it? I don't know and that often skews whether it's a good idea or not for the airline, for the other airlines, but it's definitely it' wouldnt surprise me to see those other airlines pull back on that plan because they can't do it. Like it doesn't work anymore. Yeah. If you can't consistently get people to buy those tickets, then you can't do it. Yeah, exactly. And Faw is like, do you have any thoughts? Like do you think that this was ever realistic for Qatar to do or is it is it one of those things like it's I think it's realistic because Qatar goes to a lot of places these other airlines don't want to fly to Africa and India, right? It opens up a lot more opportunity for the VA, for AA and all these other airlines to get to these passengers that they normally would be able to on their own. I think this is just a matter of hesitation given the political climate at the moment. Yeah. Yeah. That's right. I think it'll shift it as that you know, as this whole conflict passes , it'll likely shift back. But at the moment there's a lot of apprehension flying through that area. So the others are just backing down. So it doesn't make sense right now. It kind of made sense with some of the Russian overflight stuff too. Like you could connect people in Doha and they didn't have the overflight issues with Russia . And so it opened up some places that way too. Right. And part of it is also depends on where you're going. Some yeah . And the other part is the insurance aspect, right? The local government is willing to underwrite the local carrier. Yep, but the other like BA , Malaysian who else AA their insurance carriers might not be able to might not be willing to take the risk of people going there. Yeah, because there for a while, Malaysian was doing like six or seven flights a day to Doah . Yeah , yeah. Cool. And then I wanted to talk. I'll go ahead. Now I was going to say I'm just trying to look at some of the statistics about delays and stuff through Doha and not seeing as much as I would have expected given the announced the notum thing that supposedly happened. So relative almost no cancels, very few delays from what I can see. I still think it's a risk. Like anyway. Yes . I want to talk about Delta real quick. Just some of the stuff out of LEX. So they've been talking about like, you mentioned earlier , Seth, the wanna fly to Manila , but they also want to bring they want to do Singapore and somewhere else . They've been they've been rumored to want to start from LA. Hong Kong I assume, but in Hong Kong, yeah. I think Shanghai just started back up LA Shanghai and they're going to do it daily now , which I think is big news. They seem to really be pushing LA after all the money they spend in Seattle , they seem to be pivoting maybe to LAX . Well, there's a place where they can actually establish share. Yeah, there's probably more O ND in LA than Seattle. For a lot of that, yeah, I mean, I think there's still a lot of people who go to Manila from Seattle . But yeah, it's it's interesting to me how , I much mean they 've invested in Seattle and now they're like, well, L. A. is better for us. Well, they're not losing money in LA like they are in Seattle. Yeah, but we've talked about it before, the landing fees and just the fees in general in LA aren't really good but at least they at least they can land and get to a gate this is true. Getting to a gate is very important . I mean that's how that's how you make money, right? You got to get the passengers on it. You got to get the passengers on and off the plane to make money. Could just be a cargo carrier and then it doesn't matter . And then lastly, tell me about spirit, Seth. I think you actually found this link. There's a lot of talk out there that spirit planes are more likely to be parted out than they are to be released. Yeah, I put this on there. Steve Yeah, Steve Giordano did an interesting post where he basically said, I think if I remember the numbers correctly, the average lease rate for a three hundred twenty one Neo is like three hundred million dollars . Whereas the cars the engines are going for on average of two hundred forty two fifty It's hundred thousand per major. Yeah, hundred yeah, sorry, not millionaired stuff. And so basically when you take two hundred and fifty times two, it's more than the cost of reasingle the plane. And so the likelihood at this point is that most of these spirit planes are actually going to get parted out for the engines to address the Pratt and Whitney issues on the geared turbo fans . Which is amazing to me because short term it certainly makes sense, but like Pratt seems to think that at some point relatively soon it's no longer going to be an issue and they're going to catch up on all the reurbs and whatever , and then you're going to have a situation where they want to solve like you're going to want planes again and you're not going to need to take them out of service for a year at time to fix the engines . I don't know. And there is a growing production boom on all parts, but all parts Boeing and Airbus, but in theory, they're gonna need those planes for like new stuff, not just to replace ones that were five years old . I mean, you could always put the engines back in theory . How depends on how you par out the flame? Yeah, well, that's true. Like it could be like, yeah, we'll lease the engines, but we're going to leave the rest of the airframe intact . But you know, I think the Pratt and Whitney issues might be bigger than they lead on to believe because I was had a conversation with someone that we all know who works for an airline. And I guess one of the fundamental challenges is some of the core materials they need were coming from Russia . Yes. And so that's yeah, so that's been one of their biggest challenges is finding equal grade titanium . Hm . Is there anywhere else to get titanium? China . And that's not that's kind of been shot down . Great, good times . Yeah . If anyone has airline quality titanium, let us know . Just hanging out in your backyard, you know? That reels of it. Cool. Anything else you guys want to chat about? Neah, no. No, it's not for me. We're going a little bit for our Patreon supporters. We're going to talk about the United seven hundred and sixty four Newark Incident . We're going to talk about some AA lounge updates . Another new lounge coming to in my airport actually, and I haven't gone, I haven't been invited to investigate it yet . And then dynamic pricing on American airlines as well. Let's talk about that. So stick around. If you're not a patreon supporter, thanks for listening. Thanks to our new patrons, Jason M, Chris W. And Thomas Dee. We appreciate it. And yeah, we'll talk to everyone next time. Happy travels. Take We got it again. So