Failed JetBlue buyout leaves Spirit Airlines with a tough path forward

Spirit
Airlines
is
on
shaky
footing
after


JetBlue
Airways‘
proposed
$3.8
billion
takeover
of
the
budget
carrier
was

blocked
by
a
federal
judge
this
week.

Industry-watchers
say
the
carrier
could
be
forced
to
cut
its
already
low
fares
even
more.
Some
Wall
Street
analysts
argue
the
discount
carrier
could
have
to
restructure,
if
not
liquidate.

Spirit’s
shares
fell
47%
after
the
decision
was
issued
Tuesday.
They
were

down
another
22%
on
Wednesday,
notching
a
new
record
low
of
$5.74
a
share,
before
recovering
slightly.

Spirit,
whose
last
profitable
year
was
2019,
had
challenges
even
before
the
ruling:
It’s
navigating
groundings
of
some
Airbus
narrow-body
jets
for


Pratt
&
Whitney
engine

issues,
and
it’s
facing
softer-than-expected
demand
in
the
wake
of
the
pandemic,
along
with
higher
costs.

The
carrier
could
look
for
another
buyer,
“but
a
more
likely
scenario
is
a
Chapter
11
filing,
followed
by
a
liquidation,”
said
Helane
Becker,
an
airline
analyst
at
TD
Cowen,
in
a
note.
“We
recognize
this
sounds
alarmist
and
harsh,
but
the
reality
is
we
believe
there
are
limited
scenarios
that
enable
Spirit
to
restructure.”

A
potential
bankruptcy
could
force
the
airline,
known
for
its
low
fares
and
fees
for
everything
else
like
seat
selection
and
cabin
baggage,
to
slash
fares
even
more.

“We
may
see
some
shocking
prices
on
major
Spirit
routes
as
the
carrier
tries
to
bring
as
much
cash
in
the
door
as
possible,”
Becker
wrote.

Spirit
and
other
carriers
have
been
grappling
with
higher
employee
salaries
and
other
costs,
while
a
surge
in
domestic
flight
capacity
has
forced
them
to
cut
fares,
particularly
in
the
off-peak
periods.
That
dynamic
might
be
good
in
the
short
term
for
consumers,
but
not
for
airlines
that
require
large
amounts
of
cash
to
operate.

“Softening
demand
and
rising
costs
is
squeezing
from
both
sides,”
said
Samuel
Engel,
a
lecturer
at
Boston
University’s
Questrom
School
of
Business
and
senior
vice
president
at
consulting
firm
ICF. “It’s
going
to
start
taking
a
bite
out
of
fares.”

In
his
ruling
blocking
JetBlue’s
acquisition
of
Spirit,
Judge
William
Young,
an
appointee
of
former
President
Ronald
Reagan,
said
the
combination
would
eliminate
the
discounter
airline
famous
for
its
rock-bottom
fares
and
bright-yellow
planes,
harming
the
most
price-conscious
consumers.

JetBlue
planned
to
take
seats
out
of
Spirit
planes
and
rebrand
them
as
its
own,
which
have
more
creature
comforts
and
legroom.

JetBlue,
facing
a
quarter-life
crisis
as
it
approaches
its
25th
year
of
flying,
argued
it
needed
Spirit’s
fleet,
pilots
and
routes
to
grow
and
better
compete
with
larger
rivals


American,


Delta,


United
and


Southwest.

Those
four
airlines
combined
control
about
80%
of
the
U.S.
domestic
market
and
are
themselves
the
result
of
years
of
mega-mergers
that
former
regulators
approved.

“I
don’t
see
how
it
benefits
consumer
to
entrench
the
oligopoly
of
the
big
four”
airlines,
said
Engel.
“Organic
[airline]
growth
in
this
country
is
painstaking
and
slow.
If
you
bar
mergers
between
the
second-tier
airlines
you
entrench
the
big
four.”

Engel
noted
that
JetBlue
itself
has
had
a
big
impact
on
larger
airlines,
forcing
them
to
revamp
their
premium
cabins
after
it
launched
its
lower-priced
Mint
cabin
about
a
decade
ago,
and
offering
seat-back
entertainment
before
that.

JetBlue
and
Spirit
said
in
a
joint
statement
Tuesday
that
they
disagree
with
the
judge’s
ruling
and
are
evaluating
their
options.

“We
continue
to
believe
that
our
combination
is
the
best
opportunity
to
increase
much
needed
competition
and
choice
by
bringing
low
fares
and
great
service
to
more
customers
in
more
markets
while
enhancing
our
ability
to
compete
with
the
dominant
U.S.
carriers,”
the
carriers
said
after
the
ruling.

JetBlue
and
Spirit
didn’t
respond
to
a
request
for
comment
on
Wednesday
about
their
future
plans.

JetBlue’s
incoming
CEO
Joanna
Geraghty
will
be
tasked
with
ensuring
JetBlue
returns
to
profitability
and
to
chart
a
growth
path
for
the
New
York
airline.
The
carrier
operates
in
the
country’s
most
congested
air
space
and
airports,
which
makes
adding
flights
a
challenge.

The
airline
swooped
in
with
a

hostile
takeover
bid
for
Spirit
in
April
2022,
weeks
after
Spirit
announced
a

merger
agreement
with
fellow
budget
carrier


Frontier
Airlines.
Spirit
shareholders
ultimately
rejected
the
Frontier
cash-and-stock
deal
and
went
for
JetBlue’s,
increasingly
sweetened,
all-cash
$3.8
billion
offer
instead.

Engel
said
a
combination
of
Frontier
and
Spirit
might
have
been
easier
to
get
approved.

“If
JetBlue
didn’t
insert
itself
in
this
process,
a
Frontier-Spirit
merger
might
have
already
happened,”
he
said.