Budget carriers including Frontier, Avelo reportedly seeking $2.5B in government aid
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A group of budget airlines is reportedly seeking financial assistance from the federal government that could convert into airline shares.
The Wall Street Journal reported Sunday that the budget airline group, which includes Frontier and Avelo, is seeking $2.5 billion in federal aid through stock warrants that could convert into airline shares, according to people familiar with the matter.
Some of the Journal’s sources told this newspaper that the group’s figure of $2.5 billion was taken from the estimate of how much money they expect to spend on jet fuel this year compared to previous forecasts, and the estimate is that jet fuel prices will remain above the average of $4 a liter throughout the year.
A Frontier Airlines flight approaches Ronald Reagan Washington National Airport. (Ken Cedeno/Reuters)
Discussions about a possible aid package for budget airlines are reportedly expected to continue in the coming days, according to the Journal. The news follows a reported meeting between the leaders of several budget carriers with Transportation Secretary Sean Duffy and Federal Aviation Administration chief Bryan Bedford last week.
“As the smallest and newest airline in the country, Avelo is competing with major airlines in an unprecedented way,” Avelo Airlines said in a statement to FOX Business. “Our focus on underserved and underserved airports provides millions of US consumers with low-fare nonstop airline service options that they wouldn’t otherwise have. We have no specific comment on this report, but we strongly agree that a healthy, competitive airline industry is vital to the US economy, especially during this time of high fuel prices.”
FOX Business has reached out to Frontier Airlines for comment.
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Rising jet fuel prices amid the Iran war have dampened the outlook for airlines, which are facing higher-than-expected costs.
Other airlines, including major rivals such as United and American, responded by raising fares and assessing baggage fees for consumers.
United Airlines recently raised fares for passengers, citing the rising cost of jet fuel. (Tayfun Coskun/Anadolu Agency via Getty Images)
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Last week, leading budget carriers called for Congress to pass a bill to end the 7.5% federal tax on airline tickets and the $5.30 per share tax, which the Association of Value Airlines estimates would cover about one-third of the increased fuel costs.
The group represents Spirit Airlines, Frontier Airlines, Allegiant Air, Sun Country and Avelo.
The budget airlines’ pursuit of government aid comes as the Trump administration weighs a separate proposal to provide Spirit Airlines with a $500 million loan that would give the federal government the ability to convert warrants into airline equity.
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The deal will see the federal government acquire warrants equal to 90% of Spirit’s equity in exchange for funding.
The Trump administration is considering a separate proposal to provide relief to Spirit Airlines. (Photos by AaronP/Bauer-Griffin/GC)
Rising jet fuel costs have complicated Spirit’s plan to exit the bank this summer, after the budget carrier filed for Chapter 11 bankruptcy for the second time last year.
During the COVID-19 crisis, the Ministry of Finance received warrants on large aircraft after a support package of approximately 54 million dollars to prevent mass layoffs during the crisis.
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The federal government ultimately chose not to exercise the warrants it received and instead sold them in actions that raised more than $550 million.
Reuters contributed to this report.
