Cranky on the Web (August 4 – 8)

JetBlue, Virgin America

Mergers that make senseTravelSkills
I was asked when a Virgin America/JetBlue merger would make sense.

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12 comments on “Cranky on the Web (August 4 – 8)

  1. It would make sense for the investors of VX who are looking to recoup their investment and/or if B6 was willing to pony up the cash for a handful of slots in NYC, DCA and a couple of gates at DAL.

    Other than that,,,,there are plenty of opportunities for B6 to grow organically without the hassle of integrating VX.

    Just because two airlines both operate essentially the same equipment is not reason enough to pursue a merger/acquisition.

  2. Should we tell them B6 flies ERJ-190s not just Airbus “Both carriers fly only Airbus narrowbody jets”

  3. I’m not sure a Virgin America merger would add any value to jetBlue. But Virgin America may not be large enough to survive long term. I also wonder which airline’s business model will survive. I’d be inclined to believe that jetBlue’s will win out.

    Higher end airlines haven’t fared as well as those whose main offering is ultra low fares.

    In any event, I don’t see any action on a merger until after the IPO is completed. Once the market value becomes relatively stable, an all stock transaction would be possible.

  4. I can see Jetblue buying Virgin America for one reason and one reason alone: Kill a competitor. Pretty much most of the reason Southwest bought Airtran.

    IMHO, that article is some pretty crappy armchair investment banking. The Uber + Lyft bit was laughable. At least in Seatlte UberX (the market where Uber and Lyft compete) is about twice the size of Lyft in Seattle. Combining Uber and Lyft would be like trying to combine Spirit and Singapore Airlines. (Ignore the international issue for a moment.) Uber is all about the high quality, high service experience, even at their low end UberX side. Lyft is about… well I don’t understand their brand, I just know I’ve tried it and don’t like it. I’m fine riding in someone’s personal car if its reasonably cleaned up, but Lyft just tries to make it a party or something, and you’re just in someone’s plain old personal car.

    1. but JetBlue does not need to kill Virgin. They don’t overlap on a ton of routes. Virgin isn’t “stealing” JetBlue customers across the board (though maybe on JFK-LAX/SFO). Sure there is incremental value in west coast ops, but JetBlue has other more profitable places to grow first, and could add those routes anytime if they wanted (short of a few slots). Given that VX is still in “startup” mode, they are likely valued at a high multiple of their assets. JetBlue would have to “overpay” for things it could get on its own, while having to deal with integration challenges. Surely they could compete with ultra low fares and burn less cash than an acquisition.

      I just don’t see it. Aircraft alone are not a reason to merge. And the egos and finances involved make it a tough sell.

      1. Noah, I agree with you on that.

        Though, sometimes its easier to pay some money and get rid of a competitor than it is to fight them. Both of Southwest’s recent acquisition attempts (Frontier & Airtran) were more about paying to get rid of a competitor, than really wanting their operations. Airtran less so than Frontier, but so much of Airtran was just junked unceremoniously by Southwest that much of the reason for the merger was just to get rid of Airtran.

        1. agreed. My point was that WN had no other growth opportunities so it needed to buy Airtran to kill a competitor and monoplize routes / niche. There is little organic growth left in the US for WN. B6 buying VX doesnt really kill a competitor as they dont overlap much. It helps the industry, but I dont think B6 gets outsized value like WN got from AirTran.

  5. It would much easier and cheaper to have them wait it out till VX is no longer sustainable, and just take the assets. B6 is playing smart and just letting the long term play out for their benefit.

  6. “It is increasingly difficult for these two upstarts to fight against the attraction of the major carriers’ robust frequent flier programs.”

    I find this comment to be quite laughable. The major carriers have been watering down their frequent flier programs these days. There is devaluation after devaluation, every year.

    1. I agree, plus jetBlue has some powerful interline partners and most people assume that when Azul (Brazil) starts flying to the US, B6 will be among their first partners, though some also speculate United. Why not both? The True Blue FF program was pretty lame when it first started, but it has tweaked up to a better level of rewards. BOS and JFK alone are worth partnering with B6 if you’re aligned with Star, who is lackluster in both markets.

  7. Good article except for the Uber/Lyft nonsense. They have different business models and corporate cultures. UberX is comparable to Lyft but Uber works with traditional taxi/limo companies as well. The problem is corporate culture. Uber is utterly aggressive to point of ethics issues. They have had staff call and repeatedly cancel rides on the Lyft app. They even have Uber staff take Lyft rides to recruit the drivers. FULL Disclosure: I did drive for Lyft for about 5 months. Uber’s actions are well documented and I have seen them personally as well.

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