A JetBlue plane lands next to a Spirit Airlines plane taxiing at Fort Lauderdale Hollywood International Airport on Monday, April 25, 2022.
Joe Cavaretta | Sun Sentinel | Getty Images
Spirit Airlines is on shaky ground afterwards JetBlue AirwaysA proposed $3.8 billion takeover of the finance company was blocked by a federal judge this week.
Industry observers say the carrier could be forced to cut its already low fares even further. Some Wall Street analysts say the discount company could have to be restructured, if not liquidated.
Shares of Spirit fell 47% after the decision was issued on Tuesday. They fell another 22% on Wednesday, hitting a new all-time low of $5.74 a share, before recovering slightly.
Spirit, whose last profitable year was 2019, had challenges even before the decision: It navigates landings of some Airbus narrow-body aircraft for Pratt & Whitney engine problems and is facing softer-than-expected demand in the wake of the pandemic, along with higher costs.
The carrier could seek another buyer, “but a more likely scenario is a Chapter 11 filing, followed by liquidation,” Helane Becker, an airline analyst at TD Cowen, said in a note. “We recognize that this sounds alarming and harsh, but the reality is that we believe there are limited scenarios that allow Spirit to restructure.”
A possible bankruptcy could force the airline, known for low fares and fees for everything else, like seat selection and carry-on bags, to cut fares even further.
“We may see some shocking fares on Spirit’s long-haul routes as the carrier tries to get as much cash in the door as possible,” Becker wrote.
Shares of Spirit Airlines and JetBlue Airways rose after a judge blocked their proposed merger.
Spirit and other carriers are grappling with higher employee wages and other costs, while increasing domestic flight capacity has forced them to cut fares, particularly during off-peak periods. This dynamic may 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 are being squeezed 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 pinching fares.”
Seizing growth
In his ruling blocking JetBlue’s takeover of Spirit, Judge William Young, an appointee of former President Ronald Reagan, said the combination would wipe out the discount airline famous for its low fares and bright yellow planes, harming more price-conscious consumers.
JetBlue planned to take seats from Spirit planes and rebrand them as its own, which have more creature comforts and legroom.
JetBlue, facing a quarterly crisis as it nears its 25th year of flying, argued that it needed Spirit’s fleet, pilots and routes to grow and better compete with its larger rivals. American, Delta, United and Southwest.
These four airlines together control about 80% of the US domestic market and are themselves the result of years of mega-mergers approved by former regulators.
“I don’t see how it benefits the consumer to consolidate the monopoly of the big four,” Engel said. “Organic [airline] Development in this country is laborious and slow. If you ban mergers between second-tier airlines, you consolidate the big four.”
Engel noted that JetBlue itself has had a big impact on larger airlines, forcing them to revamp their premium cabins after launching the lower-priced Mint cabin about a decade ago, and before that offering seatback entertainment.
JetBlue and Spirit said in a joint statement Tuesday that they disagree with the judge’s decision and are evaluating their options.
“We continue to believe our combination is the best opportunity to increase much-needed competition and choice, bringing low fares and great service to more customers in more markets, while strengthening our ability to compete with the dominant US carriers.” the carriers said after the ruling. .
JetBlue and Spirit did not respond to a request for comment Wednesday about their future plans.
JetBlue’s new CEO, Joanna Geraghty, will be tasked with ensuring JetBlue returns to profitability and charting a growth path for the New York-based airline. The carrier operates in the country’s busiest airspace and airports, which makes adding flights a challenge.
The airline launched a hostile takeover bid for Spirit in April 2022, weeks after Spirit announced a merger agreement with another budget carrier Frontier Airlines. Spirit shareholders ultimately rejected Frontier’s cash-and-stock deal and instead sought JetBlue’s increasingly sweetened $3.8 billion offer.
Engel said a combination of Frontier and Spirit might have been easier to approve.
“Had JetBlue not been brought into this process, a Frontier-Spirit merger may have already happened,” he said.