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

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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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.

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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.