Skepticism on Wall Street as details emerge on JetBlue’s bid for Spirit
This post contains references to products from one or more of our advertisers. We may receive compensation when you click on links to those products. Terms apply to the offers listed on this page. For an explanation of our Advertising Policy, visit this page.
JetBlue held a conference call with analysts and media Wednesday morning to provide initial details surrounding the bid and the airline’s vision for the proposed merger.
“JetBlue and Spirit will be better positioned to challenge the big four, creating value for both of their shareholders, customers, crew members and team members and other stakeholders,” CEO Robin Hayes said. “The proposed combination accelerates JetBlue’s strategic plan, turbocharging our focus city strategy, securing valuable access to aircraft and airport infrastructure for future growth and further diversifying our network.”
Want more airline-specific news? Sign up for TPG’s free new biweekly Aviation newsletter
The bid, which Spirit characterized as “unsolicited,” comes weeks after Spirit and Frontier announced plans to merge, and could cast doubt on the future of that deal.
At first look, a JetBlue-Spirit tie-up has raised questions. The airlines offer radically different experiences on board and tout very different value propositions for their respective brands. Both target leisure passengers, though Spirit is known for low base fares with lots of add-on extras while JetBlue is known for relatively simple fares and free perks that include in-flight TV and Wi-Fi.
That’s led some to speculate that JetBlue’s bid is intended as a defensive move, meant to raise costs for Frontier, rather than a serious bid. Or as one analyst put it to CNBC: “Wait; what?”
Indeed, there was a tone of mild incredulity during the investor conference call.
“I’m just trying to square away how removing seats right now is pro-consumer over the long haul,” Connor Cunningham of MKM Partners asked, referring to the removal of capacity from the market as Spirit’s dense A320 family aircraft get converted to JetBlue’s less-dense configuration.
While customers might be happy with fewer seats, Wall Street sees reduced revenue-earning potential. Even even pro-consumer advocates would agree reducing capacity across Spirit’s entire fleet is only likely to put upward pressure on fares.
“We still have myriad questions, but our initial take – in contrast to certain deals in the past – is one of surprise and curiosity,” JPMorgan analyst Jamie Baker wrote in a research note on Wednesday.
Another aspect is that JetBlue is currently tied up with American Airlines in its Northeast Alliance (NEA) partnership, designed to help the two airlines better compete in the Northeast with Delta and United, which have become entrenched in key New York and Boston markets.
Despite a rationale for that partnership that industry observers tend to find credible, the Department of Justice filed an antitrust suit against the two airlines, alleging it was an anti-competitive move, and claiming it would lead to higher prices for consumers.
Some observers are therefore doubtful of JetBlue’s claims that it can get regulatory approval for a merger with Spirit — let alone win approval for a merger and keep its alliance with American. American Airlines declined to comment.
Cowen analyst Helane Becker seemed to sum up the prevailing sentiment in a Wednesday research note by saying: “This transaction faces an uphill regulatory review.”
Also summing up the uncertainty: JetBlue’s stock closed on Wednesday down 8.75%.
Additional reporting from TPG’s Ethan Klapper.
Featured photo by Robert Nickelsberg/Getty Images.
Welcome to The Points Guy!
Earn 90,000 bonus miles after you spend $3,000 in purchases on your new Card in your first 3 months. Offer ends 8/3/2022.
With Status Boost™, earn 10,000 Medallion Qualification Miles (MQMs) after you spend $25,000 in purchases on your Card in a calendar year, up to two times per year getting you closer to Medallion Status. Earn 3X Miles on Delta purchases and purchases made directly with hotels, 2X Miles at restaurants and at U.S. supermarkets and earn 1X Mile on all other eligible purchases. Terms Apply.
- Limited Time Offer: Earn 90,000 bonus miles after you spend $3,000 in purchases on your new Card in your first 3 months. Offer ends 8/3/2022.
- Earn up to 20,000 Medallion® Qualification Miles (MQMs) with Status Boost® per year. After you spend $25,000 in purchases on your Card in a calendar year, you can earn 10,000 MQMs up to two times per year, getting you closer to Medallion® Status. MQMs are used to determine Medallion® Status and are different than miles you earn toward flights.
- Earn 3X Miles on Delta purchases and purchases made directly with hotels.
- Earn 2X Miles at restaurants worldwide including takeout and delivery in the U.S., and at U.S. supermarkets.
- Earn 1X Miles on all other eligible purchases.
- Receive a Domestic Main Cabin round-trip companion certificate each year upon renewal of your Card. Payment of the government imposed taxes and fees of no more than $80 for roundtrip domestic flights (for itineraries with up to four flight segments) is required. Baggage charges and other restrictions apply. See terms and conditions for details.
- Enjoy your first checked bag free on Delta flights.
- Fee Credit for Global Entry or TSA PreCheck® after you apply through any Authorized Enrollment Provider. If approved for Global Entry, at no additional charge, you will receive access to TSA PreCheck.
- Enjoy an exclusive rate of $39 per person per visit to enter the Delta Sky Club® for you and up to two guests when traveling on a Delta flight.
- No Foreign Transaction Fees.
- $250 Annual Fee.
- Terms Apply.
- See Rates & Fees