A JetBlue airliner passes a Spirit Airlines jet before landing on the taxiway at Fort Lauderdale-Hollywood International Airport on Monday, April 25, 2022.
Joe Cavaletta | Sun Sentinel | Getty Images
spirit airlines After that, my feet are unstable. jet blue airlines‘s proposed $3.8 billion takeover of the low-cost airline was blocked by a federal judge this week.
Industry officials say the airline may be forced to further reduce its already low fares. Some Wall Street analysts say the discount airline may need to be restructured, if not liquidated.
Spirit’s stock price fell 47% after the decision was issued on Tuesday. Shares fell another 23% on Wednesday to a new all-time low of $5.74 per share.
Spirit last made a profit in 2019, but it was facing challenges even before the ruling. pratt & whitney There are engine issues, demand is weaker than expected due to the pandemic, and costs are rising.
TD Cowen aviation analyst Helaine Becker said in a note that the company may seek another buyer, but “the more likely scenario is to liquidate through a Chapter 11 filing. ” he said. “We know this sounds alarming and harsh, but the reality is that we believe there are only a limited number of scenarios that would allow Spirit to rebuild.”
A potential bankruptcy could force the airline, which is known for its low fares and fees on everything else, including seat reservations and carry-on bags, to further reduce fares.
“Shock prices could occur on major Spirit routes as airlines look to bring in as much cash as possible,” Becker wrote.
Spirit Airlines and JetBlue Airways shares after a judge blocks the companies’ proposed merger.
Spirit and other airlines are grappling with rising employee salaries and other costs, while a surge in domestic capacity has forced them to cut fares, especially during off-peak hours. The move may be good for consumers in the short term, but not for airlines, which need large amounts of cash to operate.
“Slower demand and rising costs are putting pressure on both sides,” said Samuel Engel, a lecturer at Boston University’s Questrom School of Business and senior vice president at consulting firm ICF. “Fares will start to get squeezed.”
Grasp growth
In his ruling blocking JetBlue’s acquisition of Spirit, Judge William Young, appointed by former President Ronald Reagan, said the merger would eliminate the discount airline, known for its rock-bottom fares and bright yellow planes, and He said it would hurt price-sensitive consumers.
JetBlue planned to take seats from Spirit planes and rebrand them as its own planes with more comfort and extra legroom.
JetBlue, which is celebrating its 25th anniversary in service and facing a quarter-life crisis, has argued that it needs Spirit’s aircraft, pilots and routes to grow and better compete with larger rivals. American, delta, united and southwest.
Together, these four airlines control about 80% of the U.S. domestic market and are themselves the result of years of major mergers approved by former regulators.
“I don’t see how entrenching the oligopoly of the big four airlines will benefit consumers,” Engel said. “organic [airline] Growth in this country is painstaking but slow. Prohibiting mergers between second-tier airlines would entrench the Big Four. ”
Engel said JetBlue itself has had a major influence on major airlines, and after introducing the low-cost Mint cabin about 10 years ago, it was forced to renovate its luxury cabins, and before that it changed seat backs. He pointed out that they were providing entertainment.
JetBlue and Spirit said in a joint statement Tuesday that they disagree with the judge’s ruling and are considering their options.
”We are confident that this partnership will provide much-needed competition by providing lower fares and superior service to more customers in more markets, while strengthening our competitiveness with leading U.S. carriers. “We continue to believe this is the best opportunity to increase choice,” the airline said after the ruling. .
JetBlue and Spirit did not respond to requests for comment Wednesday about their future plans.
JetBlue’s next CEO, Joanna Geraghty, will be tasked with ensuring JetBlue returns to profitability and charting a growth trajectory for the New York airline. Adding flights has been a challenge because the airline operates in some of the nation’s busiest airspace and airports.
The airline swooped in with a hostile takeover bid against Spirit in April 2022, weeks after Spirit announced a merger agreement with the fellow low-cost airline. frontier airlines. Spirit shareholders ultimately rejected Frontier’s cash-and-stock deal, opting instead for JetBlue’s increasingly sweet all-cash offer of $3.8 billion.
Engel said a combination of Frontier and Spirit might have been easier to approve.
“Had JetBlue not participated in this process, the Frontier-Spirit merger may have already happened,” he said.
