JetBlue forecasts ongoing losses, Spirit antitrust trial begins

JetBlue Airways stock tumbled to an almost 12-year low Tuesday as the corporate forecast a loss for the fourth quarter and heads to court to defend its acquisition of budget carrier Spirit Airlines, a purchase order it argues is crucial to its future.

Shares fell greater than 10% Tuesday to $3.76 apiece. Spirit shares fell greater than 12% to a three-year low.

The U.S. Department of Justice sued in March to dam JetBlue’s $3.8 billion all-cash purchase of Spirit, a deal the airline reached with the discounter in 2022 after a bidding war with rival Frontier Airlines.

The deal would create the fifth-largest airline within the U.S. JetBlue argued it needs to purchase Spirit to grow and higher compete with giant carriers — American, Delta, United and Southwest — which control about three-quarters of the U.S. market and are products of megamergers themselves.

The Justice Department, nonetheless, alleges that “the proposed transaction will increase fares and reduce selection on routes across the country, raising costs for the flying public and harming cost-conscious fliers most acutely.”

JetBlue plans to remove seats from Spirit’s bright-yellow planes and outfit them with seatback screens to match JetBlue’s interiors. Spirit’s business model is predicated on packed planes, no-frills fares and charges for every part from seat assignments to carry-on luggage, while JetBlue has more amenities and fewer seats on board.

The lawsuit is a test for President Joe Biden’s Justice Department, which has aggressively pursued antitrust cases with mixed leads to the airline, health-care and publishing industries, amongst others.

The trial starts Tuesday and is about to last about three weeks in U.S. District Court in Boston.

In May, the Justice Department won a lawsuit to undo a partnership between JetBlue and American Airlines within the Northeast, an alliance the airlines began dissolving in the summertime. On the time, JetBlue said it might focus as an alternative on acquiring Spirit, a deal it expects to shut early next yr.

JetBlue agreed to pay a reverse breakup fee of $70 million and one other $400 million to Spirit shareholders if regulators successfully block the deal.

The JetBlue-Spirit merger can be the primary amongst major U.S. airlines since Alaska and Virgin America combined in 2016.

Neither JetBlue nor Spirit are on solid footing. Fuel prices have climbed together with other costs, just as red-hot post-pandemic growth in travel demand has eased and fares have dropped, depriving carriers of revenue after they need it to cover expenses.

JetBlue on Tuesday posted third-quarter results that got here in below analysts’ estimates. The airline reported an adjusted loss per share of 39 cents on revenue of $2.35 billion, underperforming an expected loss per share of 25 cents and revenue of $2.38 billion, in accordance with consensus estimates compiled by LSEG, formerly often known as Refinitiv.

“While we have now been capable of offset a few of the costs related to the difficult operational backdrop, the sheer magnitude of the air traffic control and weather-related delays has been staggering,” CFO Ursula Hurley said in an earnings release.

JetBlue also forecast an adjusted loss for the fourth quarter and the complete yr, guiding to an adjusted lack of between 35 cents and 55 cents within the last three months of the yr.

Spirit Airlines, meanwhile, said it is going to have little if any capability growth next yr because it grapples with slower demand and a Pratt & Whitney engine issue.

The budget airline told staff it is going to pause new-hire flight attendant and pilot training next month, CNBC first reported last week.

JetBlue said it might not answer any questions on the acquisition on the earnings call Tuesday.

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