Making Sense of the Airline Fuel Price Crisis

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In this week’s show, Gordon and Jay unpack how US airlines are navigating a fuel price crisis — with jet fuel nearly doubling since February — while demand remains surprisingly strong, and dig into key takeaways from the JP Morgan Industrials Conference, where airline CEOs sounded off on fare hikes, the O'Hare turf war between American and United, and whether an oil-driven recession could be the industry's next big threat.

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Transcript of This Conversation

This transcript is generated by artificial intelligence.

Hello, and welcome to the Airline Weekly Lounge. I'm your host Gordon Smith, and I'm joined as usual by co-host Jay Shabat. In part one, we're asking how the US airline industry is managing the fuel price spike.

And in part two, we explore the key takeaways from a major industry conference. Hi, Jay, how's it going?

All right, Gordon, how are you?

Nice to be reunited after my week away. I was shamelessly skiing in the French Alps, but back to reality today with the Airline Weekly Lounge, Jay.

And there was a part of me that was on my skis, thinking I'm away from my phone, I'm away from all of the alerts and all the usual pings and emails and everything else. Maybe this whole fuel crisis has blown over, and we're back to 55, 60 a barrel.

And I would just come back to reality, come back to normality, and it would be business as usual. That has not happened, has it?

No, it hasn't. Unfortunately, we're now entering our third week in this... We'll call it the fuel price crisis.

It's more of a... Depending on which part of the world that you're talking about, the airline industry, obviously, if you're talking about the Gulf carriers, that's a revenue crisis.

For I think most of the rest of the industry, and we're going to focus more in the US today, and for a specific reason, which we'll talk about in a minute, but for the US industry and most other regions of the world, I would say this is a fuel price

crisis. In fact, it is very much not a demand problem at all. I think we got a clear message that demand in the US is very, very strong. Revenue is very, very strong.

So how do we know this? Well, as you mentioned, we'll get in some of the specifics of this JPMorgan Chase Investor Conference. We'll maybe go into some of the specifics, Airline by Airline, in part two.

But we had this big industry conference, and let's set the scene here for a minute here. Let's say a couple of caveats and just let everybody know. So we're doing this podcast on Wednesday, Wednesday morning, New York time.

I guess it's afternoon over your part of the world, Gordon. And so FYI, I was OOO out of office the past couple of days here.

So I spent the entire morning scrambling, listening at very accelerated speeds to the transcripts of all of these JPMorgan presentations from all the US airlines.

Can I ask a question, Jay? Completely off topic. Set me off topic.

Who's got the funniest voice when it's sped up?

Yeah, so I use a text-to-voice reader, so it's all one same robotic voice. I'm listening to the robot the whole time. So that's my trick, by the way, for consuming massive amounts of information in limited time.

So there you heard a listener's.

There's the secret to Jay Shabat's enormous brain.

Well, yeah, right now, whatever's inside my head, it's like, like I was telling you before that we went on air here. It's my head's like a pinball machine right now. Literally about five minutes before we started recording.

I just finished the last one, which was Southwest, just in the order that I happened to listen to them. So the only one I missed was Air Canada. They presented as well.

Rest assured, everybody who's listening, by the time our issue goes out on Monday, Gordon and I will have thoroughly discussed this and organized our thoughts. Right now, our brains are a little bit like pinball machines.

We've got ideas flying around in there and maybe not as well organized. But I think enough to make some clear, draw some clear conclusions about what's going on in the US aerial industry. I think I'm comfortable talking about that.

Well, let's put a quarter in the pinball machine, Jay.

Fire it up. Let's go. Where do we start?

Okay, Gordon.

Yeah. Thanks for that. So the first thing I'm going to say is that the March, the month of March has turned into just this cauldron of bad luck.

I don't know what it is about this month, but remember that COVID really started in March of 2020. Remember that the Ukraine War started in March of 22. Remember that the tall tariff thing started blowing up in March of 25 last year.

And here we are in March 26, and we have this Iran War and this Jeffy price spike. So I don't know what it is. If you're superstitious out there, it's a little bit.

Fortunately, I'm not. I wouldn't call myself superstitious, so maybe it's just coincidence.

But for any of you out there that believe these things have some kind of spiritual, I don't know, that the ghosts are controlling this or something, it's a bad omen. So watch out next March.

Anyway, so for whatever time of the calendar year it is, we do have Jeffy price spiking. And just to give you the latest number.

So I'm looking at, and again, we're focusing our conversation today on the US because of this JP Morgan event and all this new information we have, all this new insight that we have from the US airline executives.

So as of looking at the Airlines for America Jet Fuel, what do they call it? Jet Fuel Price Monitor Index, whatever they call it. They have a chart on their website.

And as of the 17th of March, which was Tuesday yesterday for us, US Jet Fuel price, the average was $3.93. And that's been kind of bouncing a little bit up and down within a narrow range over the past the three weeks of this crisis.

And just again for context, on February 27th, which is when the crisis, or let's say the day before the crisis began, it was $2.50. So $2.50 then, $3.93 now. So a huge increase.

I think Jeff Delta made the comment that jet fuel prices have almost doubled since the start of the year. So a very, very serious increase. You're going to get different airlines absorbing different costs.

It depends on where you're fueling up. Refinery spreads are going to be different, for example, on the West Coast or Seattle and California. I think there were two refineries that were actually closed in California.

So it's going to be even more expensive over there. Alaska Airlines says that they're actually fueling up in Asia, just to get cheaper fuels than they can get in California, which is interesting in and of itself. But let's not beat that dead horse.

The very important corollary to this jet fuel inflationary spike is the fact that demand is very, very strong and airlines are very, very aggressively raising fares.

So Delta mentioned that the industry as a whole has already pushed through two major fare increases over the past three weeks.

And I believe it was Scott Kirby of United who said that this is the fastest he's ever seen the industry respond to a cost shock by raising fuel, fastest that the industry has ever raised fares. So that is very helpful.

And yeah, I mean, it seems pretty universal as far as the demand situation, premium is good, non-premium is good, domestic is good, international is good, corporate is good.

The only, like, I think the only slight negative that I remember, I think Jeff Lewis of the Caribbean was maybe a little bit weaker. They said it's still good, but just not as strong as maybe Florida and the rest of their domestic system.

So that is, you know, that's the positive offsetting impact. So, you know, nobody knows how long the jet fuel price crisis will, the jet fuel prices crisis will last.

We don't know how long or how much more, wherewithal the airlines will have to continue to raise their fares. So still a lot of question marks, but for now, you know, I think the, I would say the crisis is going to cost these airlines for sure.

It's not, they're not, you know, coming out neutral with these fare hike. It's not totally compensating for the additional costs of the higher fuel prices, but it's definitely not a bottom line crisis.

I think they're doing a good job of offsetting a significant portion of the extra costs.

It's fair to say, Jay, that some of the topics we discuss in this podcast are for the industry and they kind of stay within the industry.

The fuel price, whether it's filling your car at the pump or whether it's jet fuel for your flight, that seems to have percolated down into sort of general society. People are talking about it.

People way outside of the industry are speaking to me, oh, what's happening with the fuel price? Are my flights going to be more expensive for my summer holiday? You know, sort of real consumer facing behaviors.

And that's obviously made it into newspapers, into the network TV broadcasts and so on.

Do you think hearing this strong demand narrative, particularly from US carriers, is any of this maybe a sort of short-term peak, maybe artificial peak even, or people bringing forward bookings with the expectation that fares may rise with this

slightly doomed narrative that's around at the moment? And is there any sort of indication that that may steady out and actually we may bottom out a little bit?

That's a great question. And it is something that came up. So, yes, there were a couple of airlines that in fact suggested that demand is getting maybe pulled forward, I think might be the term there.

Far more eloquent way of putting it than I did.

Yeah, and you've heard people use that term from when we were talking about terrorists last year, right?

Like people were pulling forward their demand because they didn't want to pay the terrorists later on.

So there seems to be some of that, as you suggest, that people thinking, oh, I got to buy my ticket to New York now because if I wait another week, the price is going to go up. And that is pretty, you know, it takes an informed consumer to do that.

I don't know if we're going to see that in all markets around the world or even in all markets in the US, but certainly if it's, you know, a sophisticated, someone who travels a lot, someone who's, you know, familiar with the price.

And it kind of makes sense, right? I remember studying economics, you know, in grad school, and we would study the 1970s inflation era.

And you know, one of the phenomenon was that people would, like spending was very good because people thought, oh, I got to buy my washing machine now because we've got all this inflation.

Or even in episodes, and you know, you have like countries like Argentina or Turkey, where you have very, very high levels of inflation.

If people need, you know, things that people need to buy, they tend to buy quicker rather than later because they think the price is going to go up.

So, you know, and obviously it depends on wages and things like that, what's happening to people's incomes. But yes, it's a very long and long winded answer to your question. But the answer is yes, that is happening.

Yeah, we've saw with Cathay Pacific, I think they were signposting saying, our fuel surcharges are going to increase as a direct consequence of these increased fuel prices.

But I think, I think off the top of my head, Jay, it was May 18th, i.e. today, that the changes went into effect, but they announced them a few days earlier.

So there actually was, if you were considering a purchase of a long haul airfare in particular, an opportunity to beat the surcharge increase.

So interesting that some airlines are giving a little bit of lead in time before these are enacted, which may stimulate a bit of additional booking behavior.

Yeah, and Cathay, that's a unique situation there because I think in a geography like Hong Kong, a market like that, Europe, this is definitely true as well.

What you have is a lot of demand that normally goes through the Gulf hubs that can go through the Gulf hubs now.

And so you have just all this, I don't know what you want to call it, emergency demand or, you know, I got to get to Europe and I was supposed to go through Dubai, but now I got to go, I got to fly Cathay to Europe.

So the US airlines, they're not really seeing as much of that.

United mentioned that they're getting a lot of, you know, like they're seeing a burst of Australia demand because people who might have gone Australia to London via Dubai, maybe you can do that through Los Angeles, for example, or San Francisco.

So Los Angeles, I guess would be the one. So there's some of that, but that's less a phenomenon on the US side than you'll see in a place like Hong Kong for an airline like Cathay Pacific.

For sure, for sure.

I know that we're going to go into much more detail in the next issue of Airline Weekly around fuel prices with particular emphasis on US carriers, but anything else you want to fill our listeners in before we wrap up and head into the break?

Yeah, well, I just wanted to... The one other thing, if you're looking about, you know, if you're someone who's monitoring the financial situation of US Airlines and how they're going to do in the first quarter, remember that we're only...

It's hard to believe, but we're only... What is it? About two or three weeks away from the end of the first quarter.

So we're going to be getting, you know, another round of earning season. I mean, it's less than a month before Delta reports their first quarter earnings, right? I mean, you should go very early.

So, yeah.

Give us a break.

Yeah, I know, I know. We need to slow down. We need to slow down.

We can't. So anyway. But yeah, so one other, if you are considering, well, how is this going to, you know, how are US airlines going to do financially in the first quarter?

And obviously, you know, you could look airline by airline. But one other important thing to remember is that in January, in February, and even to a certain extent in March this month, there have been some very big weather disruptions.

And then what that tends to do is it removes a lot of capacity. So airlines are flying fewer available seat miles. That means just by the math, your unit costs tend to go up, but your unit revenues are going to go up as well.

So when the airlines are talking about how strong their unit revenues are, and a few like JetBlue, I think, is one that even changed their guidance, they updated their Wall Street guidance to say, look, we told you back when we reported Q4 earnings

in January that our unit revenue is going to be this. Well, guess what? It's actually going to be even better. So some of that is weather related.

But it's also, like I said before, it's also seeming demand seems to be very, very strong. And then it's a question of how much is that demand strength related to what you were just talking about, the pull forward?

How much is that related to the fact that, you know, the economy from one perspective seems to be pretty good. I mean, the job market is not good, but a few other aspects of the economy is not good.

But then, you know, we're just going through at the same time, this epic capital spending cycle with AI data centers and all that. I mean, just the sums are enormous. So that money is getting filtered throughout the economy.

And obviously, there are consultants involved, there are bankers involved, and, you know, the kind of people who are traveling a lot. So the man seems, you know, legitimately good, and they're certainly flying in first class, you know, premium class.

That, you know, that's, there's no lead up to that, you know, momentum there. So, yeah, so just remember, you know, weather, weather is a factor.

And I guess I'll just, you know, say one more thing is that the airlines do have one of the things that just hit me as I was listening to all these different calls from the different airlines is that these US carriers have just a lot of revenue

streams coming at them from a lot of different directions and give credit to the industry for putting them in that situation over the past couple of years. And, you know, example of that is obviously the loyalty programs.

They have tons of revenue coming in at them. You know, Delta has this big maintenance arm. They said that's doing really well.

A lot of revenue coming in. Southwest has all these new bag fees. JetBlue has this new first class.

So you can see that they have, let's say, more weapons to deal with this jet fuel price crisis than they did in previous jet fuel crises. Like maybe, I mean, you could argue there was one in 2022 as well.

That was kind of a weird situation because they were just coming out of COVID, the airlines. But then obviously we had 2010 to 2012, I think oil was over $100 a barrel.

And then, you know, mid 2000s as well, when all the airlines were going bankrupt because of high fuel prices. So that's not the case this time. Airlines are in a better position to deal with it.

Let's see how long it continues, Jay.

Thanks for that insight.

Can I say one more thing? It's hard to shut me up once you get going. But like I said, pinball machines, a lot of thoughts are shooting around in there.

So I think one more important thing, and it's a theme that came up, is that in previous Jeff fuel price shocks, or really any industry shocks, what you would tend to see is some of these low cost, these ultra low cost carriers, even low cost

carriers. You know, think of the old spirit, the old frontier. They would almost see this as an opportunity, and say, okay, time to just discount everybody. Consumers are under pressure because the gas price is so expensive, that let's go after them.

They're going to come, we're going to get more of the demand now because we...

People are trading down.

People are trading down. Exactly. There you go.

You've got the better term there. So perfect term. People are trading down.

We're going to capture more of that demand. And I think the theme now is that the Uniteds and the Deltas of the world, they're saying, look, the low-cost carriers are not in a position to do that anymore because we've got the basic economy fairs.

We've got these giant narrow-body planes with all these very, very low marginal cost seats in the back of the bus there that we can just sell at the same price as the LCCs and we'll be fine.

So the price matching is much more aggressive from the legacies or however you want to. Term the big guys. So that is a different characteristic of this year now versus the past also.

Absolutely.

Really appreciate that extra insight there, Jay. Much more detail, like we said, in the next issue of Airline Weekly, landing in your inboxes on March 23rd. If you're not already a subscriber, go to airlineweekly.com.

Get all the details there and get a free trial issue as well. We're going to touch more on some of the wider themes from the JP Morgan Industrials Conference, which took place earlier this week in Washington, DC.

But before that, a quick reminder to send any questions or comments that you might have to podcast.skift.com. That's podcast with an S at the end. And please don't forget to follow or subscribe to the podcast, wherever you're listening and watching.

We are watching now. We're in full visual beauty now, Jay. And if you're enjoying the show, please rate us five stars or leave us a positive review so we can continue to spread the word about the Airline Weekly Lounge.

Doug Winnowa will be right back. Before we head into the break, we're joined by a Skifter that you might not be so familiar with, and that's Adam Stacey. He's a Senior Editorial Event and Awards Producer.

Oh, that's a big title. And he's currently working on the Skift Idea Awards. Adam, welcome to the Airline Weekly Lounge.

Thank you very much.

Glowing introduction.

For the benefit of listeners who aren't familiar with the Idea Awards, what are they all about?

Yeah. So, Skift Idea Awards, we're just moving into our eighth year. So the awards were launched really to recognize and celebrate the most impactful ideas across travel, just the entire ecosystem.

But I like to think of them as the travel industry's innovation benchmark. We all know we're at the pivotal moment of transformation for the industry, structurally, technologically, operationally.

And these are awards about spotlights in the companies and leaders who are actually driving that change.

So I'm talking about things like advancements in customer experience, AI, digital transformation, sustainability, product design, all that good stuff. And what's important with the awards as well is that it's not necessarily about scale.

So we're open to everyone because our focus is about impact. So we see submissions from startups, mid-size players, global brands, you know, individual leaders. I was like to think innovation doesn't correlate with the size of the company.

It correlates with the execution and the results that they're putting out. And that's what we are recognizing with these awards.

Totally agree. Sometimes it helps if you're a little bit more nimble, a bit smaller, you can be a little bit more disruptive than a very large corporation.

But what would you say, Adam, to an Airline Weekly Lounge listener who says, that all sounds great, but where do I fit in? Yeah.

And I'm not an airline expert, so I'm not going to tell people what to do. But I think for this audience, we have an obvious category, which is airlines and airports is specifically designed for that industry.

That could cover anything from carbon innovation, distribution strategies, emerging advanced aimability. We're seeing all this stuff with flying taxis and this crazy stuff. But we also have categories specifically for technology.

So this industry specifically is deep into AI deployment. We're focusing on revenue optimization, workforce planning, retail transformation, data-driven personalization, and sustainability as well.

That's another area where this industry is focused on. So fleet strategy, emissions tracking, new planes, all that stuff.

So we're looking for initiatives really that just demonstrate tangible progress and are better in the experience for the end user and the industry as a whole.

Sounds great. And if anyone's still unsure, I believe you've got a quiz as well.

We do. We do. Our marketing team, I like to call them the best in the biz.

They've come up with a quiz that you answer a couple of questions and the quiz will tell you basically which categories are the best fit. Amazing.

One new thing we've launched this year is where is that you can actually download a sample form before you submit.

So if you're entering on behalf of a client maybe, or you're not quite sure what the submission forms looks like, you can just download a PDF sample and take a look in advance.

Super, super helpful. Okay. You've got everyone interested.

What is the call to action? Where do they go next if they want to apply or learn a little bit more?

Yeah. So the next step is to just head to the website, which is hosted on live.skift.com, and then you just follow through to ID rewards. As you mentioned, we've got a quiz.

You'll find all of the categories, the sample PDFs, judges, previous winners, if you're curious to see who's made in the past and all of the relevant timelines. The submission process is very straightforward and streamlined.

It's all done remotely via our online system. You can buy now at the lowest rate and continue to edit up until the entry deadline in July. So there's no huge time commitment there.

And one thing I would say is even if you're unsure about whether your project or initiative will qualify, it's worth exploring.

Some, from speaking to past winners, some of the most compelling have come from projects that they didn't think would be a good fit. And then they've gone on to win.

So yeah, if you've got a smart solution that solves a real world problem, take a look.

We'd love to hear from you. Take a look, fantastic. Yeah, sounds great.

Thanks again for coming up to the show. Adam and telling us all about it. And I can speak for myself at the Global Forum in New York last September.

We got to see for ourselves many of the IDEA Awards winners and they are from right across the industry. It's not always who you might expect. So yeah, do check that website out, live.skift.com, where you find all the details for the IDEA Awards.

Just scroll down to the bottom of the page, you'll get all the info there. Thanks to Adam for joining us on the show and listeners hang around because we'll be talking IAG right after this short break.

Hello and welcome back to the Airline Weekly Lounge. I'm Gordon Smith joined as usual by co-host Jay Shabat. Part one, we were discussing fuel prices with specific reference to the US.

Part two, we are touching on some of the broader themes from the JP Morgan Industrials Conference, Jay. For anyone that's listening who might not be too familiar, they might be like, JP Morgan, that's a bank or what's the link and why have you got?

I've got the full list here from yesterday. From 7:30 AM, Delta Airlines, it is just a roll call of just the biggest names in US aviation.

And this is just Pure Play Airlines, obviously got less oars and the wider stakeholders involved throughout this event. Just very, very briefly, what is the significance of this event and why do we care about it?

Sure, yeah. So these big banks, they routinely hold conferences for their clients. They'll have people that they work with that are interested in maybe investing in Delta stock or lending to Delta or whatever airline.

And so they occasionally hold these conferences. And the JP Morgan one just happens to be a very premier event where almost all, like you said, like pretty much almost all the major airlines go. So yeah, that's a very common thing.

We'll get others from other banks over the course of the year as well. So yeah, very significant. And it's great for people like Osborne because we get to hear from the horse's mouth, so to speak.

For sure. Right. The executives will tell us what's in their minds and here we are.

Some executives more than others.

I'm sure we'll get into a bit of detail about some of the more opinionated executives. But we say executives, we're not talking about the interns here. It is a C-suite bonanza, usually the CEO, if not the CFO or the CEO, sometimes all three.

What were some of the highlights? I know you've been running through some of the transcripts in razor time, in laser time even, Jay. You may have been Chevy at the same time doing your razor, I don't know.

What were some of the highlights for you coming through this event at Speed?

Well, I'm going to start out with something that was not mentioned, or I guess it was.

Delta mentioned it briefly, but it was something I want to talk about because it's something that always seems to come up when I talk to people who are either not in the industry, but kind of follow it.

You get a lot of, I'm sure, Gordon, you run into, or if you have friends who travel a lot, and they're not professionally involved in the airline industry, but they're interested in airlines. They know a lot about airlines.

I've gotten this question from pilots. I've gotten this question from, yeah, just like I said, just a lot of people. Not even just now, just over the years, I got a lot of questions about Delta's refinery.

That seems to be like people are fascinated with this topic. You know, oh, Delta owns an oil refinery in Philadelphia. What is that all about?

And they're not, I'm not sure that I'm the best person to, you know, provide a ton of insight on that. They're very, they don't say too much about, you know, what they're thinking or what they're used that for.

But I thought I would just say, you know, a few things about it because it seems to be something that a lot of people are interested in. So, you know, with this refinery, they bought it back, I think more than 10 years ago, back in the 2010s.

And I think the original motivation for it was mostly because there was a Philadelphia oil refinery that produced jet fuel that was slated for closure, I believe. And this is all in my book.

Some of you have read my book about the history of Delta glory, lost and found, excuse me. And it's all the details are in there, but I'm just doing this from memory. But the idea was we don't want to lose jet fuel supplies in the critical Northeast.

So by buying it, they were able to preserve the supply, and I think they even just basically maximize the jet fuel that could be produced from that facility.

So I think that was very helpful to not just Delta, but the whole industry really, all the other airlines that fly in the Northeast, that fuel up at some of these Northeast airports.

So now, of course, there are times when, like now, when the refining business is very lucrative, because you're taking crude oil at 100, and you're getting a huge spread on that.

We call it the crack spread, the refining spread, to produce and sell jet fuel. So I'm sure that's very profitable right now. So the question is, to what extent does Delta's refinery mitigate its overall jet fuel discomfort right now?

Let's call it that. And I think the answer is, it does some. And I think Ed Bastion, the CEO of Delta, who spoke at the JP Morgan event, I probably had it in my notes somewhere, but rather than shuffle around for it.

Just from memory, I think he did say that it is helpful, but obviously keep in mind, the jet fuel that comes out of that refinery is a very small percentage of what Delta is using globally.

So, Delta is obviously still getting, like everyone else, they're getting hit hard by this jet fuel price inflation. But it's helpful. I mean, it is helpful.

So, that's a little bit on the refinery. I thought I'd start with that. Who else you want to know about?

I mean, everybody is pretty much, anybody who's anybody was there.

Yeah, spin the wheel. I mean, literally Delta American JetBlue Frontier, Alaska, Air Canada, Southwest, LATAM, United, Aeromix, Go Allegiant, I could go on. That was it, just in chronological order there, Jay.

And some of them I believe that Allegiant go, some of them I haven't listened to because they may have not gone yet.

I think some of them are today. I might be wrong about that. But I haven't seen, the only reason why I mention that is because I haven't seen the Allegiant transcript yet.

I haven't listened to them.

No worries at all. Let's spin the wheel. American.

I feel like we spent a lot of time speaking about United and Delta. And American is obviously an enormous player. One that's maybe got a bit of a job to do, shall we say, to return it to maybe the level it once was at.

I know that Kirby, Scott Kirby, that is, had some colorful commentary around American at O'Hare and elsewhere. What was the general mood music from an American perspective?

When you were growing up in school, I don't know what to... When we were in elementary school or middle school, we had the principal was the head of the school. Is that what you call it also?

Oh, head teacher or headmaster.

The head teacher or the headmaster.

So American and United, someone's got to send them to the head teacher because they're misbehaving again and fighting in the schoolyard over this O'Hare thing. Nasty words, a lot of verbal ammunition going back and forth.

I think both airlines were calling each other irresponsible. And United brought up the fact that American is allegedly losing a billion dollars in Chicago.

And American defended itself and said, no, United is so irresponsible for just throwing all this extra capacity in there that our capacity was legit because we were rebuilding. It was part of our strategy.

They were just doing it as a predatory thing or whatever. So, yeah, so American does have that Chicago scuffle going on. Were you going to say something?

No, I pulled up the quote from Isom, Robert Isom, the American Airlines CEO, just looking at some of the commentary here.

The American CEO, he does not expect the airline to leave his long time at O'Hare. Here's the quote, American has been flying in Chicago for 100 years. Our very first flight was, it had Chicago as one of the legs flown by Charles Lindenburg.

American is not leaving Chicago, no matter what anyone says.

Yeah, so that's, I think, a signal that American is very much dedicated to that market. They don't seem like they're on the cusp of pulling out of there, even if they are losing as much money as the United Claims will see.

So that's one thing you asked about American, and more seriously, obviously, American does have that Chicago problem, or I don't know how you want to classify that Chicago challenge on their hands.

They're fighting, they're really in a dogfight there. Although I did see Southwest is pulling out of O'Hare Airport, not sure how significant that is competitively.

I mean, they were very small there, but they're going back to their stomping grounds over at Midway Airport. They'll stay ensconced in that location. So, American has that, the Chicago situation.

They obviously have the fuel price shock that everybody else is dealing with, but they too on the other side of the coin say that demand is just really, really, really strong.

They said their balance sheet is worse than a lot of the other airlines, the big airlines, but they said, for example, their debt is at a 10-year low, and they've been paying down a lot of the debt.

They've had positive cash flow that they'd be able to use to clean up their balance sheet over the past couple of years. So, that's been helpful.

And then they have a whole bunch of collateral that they can, if things get really bad, if Jeffery oil prices are still where they are six months from now, a year from now, they could always raise more money by using aircraft as collateral or other

assets that they have. So, I don't think there's any major funding. This is not 2012 where they're on the verge of bankruptcy or anything like that. There's still plenty of levers to pull.

Plenty of levers to pull. Good way to put it. Yeah.

And the last thing I'll say, and if you want, you can ask me one or two more airlines, but I think the real big fear here at this point is not so much the Jeff fuel prices. And obviously, if you're going to $5, $6 a gallon, then that is a real fear.

But I think over time, if oil prices remain somewhere around $4 a barrel or below, I think the US airline industry can deal with it. They'll resize themselves, they'll raise their fares, they'll fly through this situation.

What they're really worried about, and I think this is true for a lot of companies throughout the whole economy, is that if expensive fuels starts to break the US consumer, and that leads to a recession or something worse than a recession.

And I always, you know, I think last week when you're gone, we were talking a little bit about this, but in 2008, that summer, when oil prices ran up to almost $150 a barrel, that really broke the American consumer.

They no longer could afford their mortgage payments, and that's when, you know, that was the moment that Lehman Brothers collapsed, and you had this big, you know, mortgage-driven financial crisis in the US.

And obviously that crisis was driven by other things than the run-up in oil prices, but it was that run-up that was the trigger. That was kind of the straw that broke the camel's back.

So you're hoping that that's not the same situation, that suddenly, okay, consumers are not able to spend money anymore, so consumer spending goes down, company profits go down.

Suddenly, you know, the banks, they can't pay their loans, the banks go down. You know, you can really trigger a lot with a big oil spike. So that's, I think, the big fear.

But nobody knows, you know, at what point would that trigger? Is it six months of this? Is it a year of this?

Is it two? Who knows? Yeah.

Never know.

Who knows, who knows? But really interesting insights around airlines, particularly your international airlines, getting used to just what seems to be one thing after another.

And I think it was our good friend, Andrew Nussela, Chief Commercial Officer at United, who says yesterday at the JP Morgan, I think this is with regard to aircraft and around the Middle East as opposed to fuel price specifically, but the principle I

think still applies. He said, quote, I think we're getting used to this volatility. If it's not one thing, it's another. So we're always prepared to be agile, which I think is interesting.

Welcome to the airline industry.

Yeah, exactly.

You could say, I'm sure long-term listeners of this show, long-term readers of Airline Weekly said, you know what, this is just business as usual in a way, but it does feel a little bit different, doesn't it?

Yeah, I think you're right.

I think the 2020s has been almost defined by, yeah, just an abnormal number of shocks to the system, whether it be geopolitical or, you know, the terror shock or even weather seems to be just, you know, the weather disruptions are getting worse.

And you'll hear, you know, other transportation companies say that as well, that the weather disruptions are just worse now, be it climate change, there's that. And then, yeah, I mean, just, we've even had, you know, volatility and interest rates.

And you can go on and on. So I agree with this. It is a little bit worse than usual.

But in that sense, you know, I guess you want to be at Airline because you're used to dealing with volatility and uncertainty. I mean, that's just part of the business.

Yeah, if you've been this far.

Yeah. Yeah. It's like this is the, you know, it's like a video game.

You know, the airlines go for it. They keep making it from board to board. Now we're on like the higher, the tougher board.

Yeah.

Hopefully, the big boss doesn't come.

That's always the problem.

Let's hope this is the big boss.

Yeah.

All right. Our time's up, Jay, but thanks for that. And I'll show a lot more insight in the issue this coming week.

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Okay.

Thanks to Jay for joining me this week.

Thanks as always to our producers, Sean, Monica and Will, and wherever you are in the world. Thanks for listening and we'll catch you next time. Bye for now.

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