A JetBlue airliner lands past a Spirit Airlines jet on taxi way at Fort Lauderdale Hollywood International Airport on Monday, April 25, 2022.
Joe Cavaretta | Sun Sentinel | Getty Images
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 might be forced to chop its already low fares much more. Some Wall Street analysts argue the discount carrier could should restructure, if not liquidate.
Spirit’s shares fell 47% after the choice was issued Tuesday. They were down one other 23% on Wednesday, notching a latest record low of $5.74 a share.
Spirit, whose last profitable yr 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 within the wake of the pandemic, together with higher costs.
The carrier could look for one more 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 fact is we consider there are limited scenarios that enable Spirit to restructure.”
A possible bankruptcy could force the airline, known for its low fares and costs for the whole lot else like seat selection and cabin baggage, to slash fares much more.
“We may even see some shocking prices on major Spirit routes because the carrier tries to bring as much money within the door as possible,” Becker wrote.
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Spirit Airlines and JetBlue Airways stock after a judge blocked their proposed merger.
Spirit and other carriers have been grappling with higher worker salaries and other costs, while a surge in domestic flight capability has forced them to chop fares, particularly within the off-peak periods. That dynamic may be good within the short term for consumers, but not for airlines that require large amounts of money to operate.
“Softening demand and rising costs is squeezing from either side,” said Samuel Engel, a lecturer at Boston University’s Questrom School of Business and senior vice chairman at consulting firm ICF. “It should start taking a bite out of fares.”
Grasping for growth
In his ruling blocking JetBlue’s acquisition of Spirit, Judge William Young, an appointee of former President Ronald Reagan, said the mixture would eliminate the discounter airline famous for its rock-bottom fares and bright-yellow planes, harming essentially 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 because it approaches its twenty fifth yr of flying, argued it needed Spirit’s fleet, pilots and routes to grow and higher compete with larger rivals American, Delta, United and Southwest.
Those 4 airlines combined control about 80% of the U.S. domestic market and are themselves the results of years of mega-mergers that former regulators approved.
“I do not see the way it advantages consumer to entrench the oligopoly of the massive 4” airlines, said Engel. “Organic [airline] growth on this country is painstaking and slow. If you happen to bar mergers between the second-tier airlines you entrench the massive 4.”
Engel noted that JetBlue itself has had a huge impact on larger airlines, forcing them to revamp their premium cabins after it launched its lower-priced Mint cabin a couple of 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 proceed to consider that our combination is the most effective opportunity to extend much needed competition and selection by bringing low fares and great service to more customers in additional markets while enhancing our ability to compete with the dominant U.S. carriers,” the carriers said after the ruling.
JetBlue and Spirit didn’t reply to a request for comment on Wednesday about their future plans.
JetBlue’s incoming CEO Joanna Geraghty will likely be tasked with ensuring JetBlue returns to profitability and to chart a growth path for the Recent York airline. The carrier operates within 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 as a substitute.
Engel said a mix of Frontier and Spirit might need been easier to get approved.
“If JetBlue didn’t insert itself on this process, a Frontier-Spirit merger might need already happened,” he said.
