JetBlue and Spirit Airlines announced this week a merger, acquiring Spirit through Jet Blue. The value of the acquisition is $3. 8 billion, and each Spirit shareholder is expected to get $33. 50 per stake. If the agreement is necessary (the U. S. Department of Justice)In the U. S. you may say no), JetBlue will sign up for a new “Big 5” of U. S. airlines.
The news comes a day after Frontier Airlines, Spirit’s former suitor, ended its bid for the airline. This concluded a love triangle. . . um, war of offers. . . which began when Frontier and Spirit first announced a merger in February 2022.
“It smells like the spirit of fusion,” wrote Helane Becker, CEO of Industrials.
(Full disclosure: I have shares in Southwest Airlines, American Airlines and Jet Blue. )
After that deal collapsed, the Associated Press wrote, “With Frontier Deal Dead, Spirit ponders selling to JetBlue. “With a $3. 8 billion offer, Spirit Council didn’t think too much. They agreed to merge with JetBlue the next day.
The new combination (if approved through federal regulators) will be the fifth-largest U. S. airline. USA In April 2022, American had 18. 4% of the U. S. air market. In the U. S. , followed by Southwest with 17. 2%, Delta with 17. 1% and United with 13. 9%. Alaska airlines had 5. 6% and JetBlue 5. 4%. Spirit ranked seventh in importance with 4. 8%.
JetBlue/Spirit will move beyond Alaska to enroll in a new Big Five, comprised of Southwest, Delta, United, American and JetBlue. be particularly smaller than the rest of the Big Five, which are still dealing with the devastation caused by COVID on airlines. Still, JetBlue can win in many areas, such as the price of its loyalty program.
“The next step will be a vote through Spirit shareholders on the new merger agreement, which is expected to take position within the next 60 to 90 days. Given the final results of the vote on the Frontier-Spirit merger following JetBlue’s bid, there is little threat to getting mandatory approval,” said Savanthi Syth, Managing Director of Global Airlines.
Biden’s management is adamant that restricting the festival will hurt consumers. Meanwhile, airlines like JetBlue are concerned about their own ability to compete against a backdrop of recovering profits for airlines.
Competition would likely be accentuated among the new Big Five. But the larger ULCC (very cheap operator), Spirit, would disappear, leaving the domestic market cheap to Frontier, Allegiant and even the smaller operators.
“The brain is about to disappear and, with it, its cheap structure,” William McGee of the American Economic Freedoms Project told the AP. “There is no doubt that the price lists will pass. “
When doing business, JetBlue cites its history of fare reduction. He says the new combo, with more than 450 planes, could force competition to cut prices. Meanwhile, JetBlue said it would give up gates and landing spaces at New York and Boston airports. , which can then be passed on to cheap airlines.
In an interview with the AP, JetBlue CEO Robin Hayes said, “The real factor here is obviously what we can do in the U. S. The U. S. airline industry is more competitive compared to the big four airlines. we can do is build a JetBlue bigger and faster than we could otherwise.
Airlines have been stagnant this year. Seemingly endless disruptions such as pilot shortages, flight cancellations, delays, preemptive flight reductions, higher oil costs, and higher fees have led to decreased inventory costs even as domestic traffic has returned to pre-COVID levels.
Wall Street received the news of the merger with a yawn. Jet Blue ended the week at 8. 42, more than 40% below its annual high of 16. 64. Cowen and Company has a “Besting” score from JBLU. $14. 00. La JetBlue market cap of $2. 7 billion is $1 billion less than Spirit’s stated acquisition price.
Still, JetBlue is the top-tier airline in this transaction. On the other hand, Spirit at low cost and pay (symbol “SAVINGS”) is one of the most criticized airlines. Sadly, Spirit canceled more than 2,000 flights in a past week. A key argument for JetBlue is that bigger can mean better service.
JetBlue operates on 3 continents and has won praise for its premium Mint service and decent “Core” hosting. The merger is rarely considered to be the aerial equivalent of a hypothetical “Nordstrom buys Kmart,” but it’s close.
Why did Frontier and JetBlue fight Spirit? For both, the concept was to scale up to better compete with the “Big Four. “A successful merger can double the number of routes served. JetBlue flies to one hundred destinations in the United States, Mexico, the Caribbean and Latin America. The company began providing services in London last summer and just announced a service from JFK to Vancouver, Canada. Spirit’s extensive domestic network can force Jet Blue’s foreign routes and vice versa.
Spirit and JetBlue have fleets consisting primarily of Airbus A320 family aircraft. Spirit has an Airbus fleet of 175 single-aisle A319, A320 and A321 aircraft. While there are apparent operational efficiencies, JetBlue will still want to make expensive replacements. For example, Spirit has limited legroom, as befits its economic origins, while JetBlue has one of the most generous legrooms in the industry. “suites”.
The turf war involving the pilot mesh, adding the negotiation of seniority and rank, will also not be effortless. Speaking of territory, there may be another union war if the merger goes ahead, according to Forbes air expert Ted Reed. , “JetBlue’s roughly 5,000 flight attendants are represented through the Transportation Workers Union, while Spirit’s roughly 4,500 flight attendants are represented through the Flight Attendants Association. “
An additional complication would possibly be the repayment of the portion of the government bailout loan that Spirit and JetBlue received. And, of course, airlines will want approval from the Department of Justice and then a single certificate operating certification from the FAA.
The last major merger, when Alaska Airlines bought Virgin America, took about 3 years and the inevitable missteps to succeed. Alaska (whose fleet basically consisted of Boeing 737s) eventually sold its aging Virgin America A321 aircraft.
This year, the airline “competition” is focused on who may be offering the worst service and maximum cancellations. If the merger achieves the maximum improbable – quality service at competitive costs – it will be welcomed with open arms by passengers.