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Skepticism on Wall Street as details emerge on JetBlue's bid for Spirit

April 06, 2022
4 min read
Skepticism on Wall Street as details emerge on JetBlue's bid for Spirit
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Wall Street and aviation insiders reacted with skepticism Wednesday following the surprise news a day earlier that JetBlue planned to make a bid to acquire ultra-low-cost Spirit Airlines.

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."

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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.

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Now what? Does JetBlue’s bid for Spirit put its American Airlines partnership at risk?

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.

Now what? 3 reasons JetBlue’s bid for Spirit could raise red flags for regulators

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 image by Robert Nickelsberg/Getty Images
Editorial disclaimer: Opinions expressed here are the author’s alone, not those of any bank, credit card issuer, airline or hotel chain, and have not been reviewed, approved or otherwise endorsed by any of these entities.

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TPG Editor‘s Rating
Card Rating is based on the opinion of TPG‘s editors and is not influenced by the card issuer.
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10XEarn unlimited 10X miles on hotels and rental cars booked through Capital One Travel
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Why We Chose It

The Capital One Venture X card is one of the best all-round travel credit cards ever launched. Not only is it offering a tremendous welcome bonus, but cardholders can earn tons of miles on everyday spending and receive a 10,000-mile anniversary bonus to boot. Its annual fee is $395, but cardholders can count on up to $300 in statement credits toward travel booked through Capital One Travel each year and other valuable benefits like access to Priority Pass lounges and Capital One’s own growing family of airport lounges.

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  • Excellent welcome offer worth 75,000 miles after you spend $4,000 on purchases in the first three months.
  • Up to $300 in annual travel statement credits toward bookings make through Capital One Travel.
  • 10,000 bonus miles (worth $100 toward travel) each account anniversary.

Cons

  • The $395 annual fee might be expensive for some, but this card’s benefits provide much more value than that.
  • If you don’t travel frequently, this might not be the best card for you.
  • Earn 75,000 bonus miles when you spend $4,000 on purchases in the first 3 months from account opening, equal to $750 in travel
  • Receive up to $300 back annually as statement credits for bookings through Capital One Travel, where you'll get Capital One's best prices on thousands of options
  • Get 10,000 bonus miles (equal to $100 towards travel) every year, starting on your first anniversary
  • Earn unlimited 10X miles on hotels and rental cars booked through Capital One Travel and 5X miles on flights booked through Capital One Travel
  • Earn unlimited 2X miles on all other purchases
  • Unlimited complimentary access for you and two guests to 1,400+ lounges, including Capital One Lounges and our Partner Lounge Network
  • Receive up to a $100 credit for Global Entry or TSA PreCheck®
  • Use your Venture X miles to easily cover travel expenses, including flights, hotels, rental cars and more—you can even transfer your miles to your choice of 15+ travel loyalty programs
  • Named editors' choice for "Best New Credit Card of 2021" by The Points Guy
  • Earn 10 miles per dollar when you book on Turo, the world's largest car sharing marketplace, through May 16, 2023