JetBlue Sinks Frontier’s Offer With Higher Bid for Spirit

Frontier, JetBlue, Mergers/Finance, Spirit

With only 10 days to go until the now-rescheduled shareholder vote, JetBlue has effectively torpedoed the Frontier/Spirit merger as it stands by bumping its own offer up again. Unless Frontier is willing to make big changes, I’d say that deal’s chances are looking worse and worse by the day.

Spirit had planned on having a shareholder vote on the Frontier merger on June 10, but with the odds looking worse that it had the votes it needed, the airline decided to postpone the vote until June 30. With shareholders not sold on Frontier’s deal providing the most value, Spirit had to go back to the table to do more work.

It provided JetBlue with the same information it had provided Frontier, and JetBlue had always said that it would go back up to its original $33 per share offer in all cash if that happened. JetBlue did that and more. It has now boosted its offer to $33.50 per share which still includes the $1.50 pre-paid breakup fee. In other words, shareholders get $1.50 per share just for approving the deal and it’s theirs to keep. Once the deal is completed and regulators approve, they’d get the remaining $32 per share.

JetBlue also put a stronger commitment to getting the deal through regulators into writing. As the airline said in its press release:

JetBlue’s June 20 proposal includes a significant enhancement to its prior proposals through an obligation to divest assets of JetBlue and Spirit up to a material adverse effect on the combined JetBlue-Spirit, with a limited carve-out to this divestiture obligation for actions that would be reasonably likely to materially and adversely affect the anticipated benefits under JetBlue’s Northeast Alliance. This commitment significantly increases the divestitures JetBlue would be willing to commit to making in order to obtain regulatory approval and meaningfully exceeds the divestiture commitment from Frontier.

Spirit has put a release saying the board will review the proposal, but let’s be honest. The board is just going to go back to Bill Franke’s Indigo Partners — the architects of the Frontier deal — and beg them to do something to improve the deal or it’ll slip out of their hands. And what will Frontier’s response be? If I were a betting man, I’d go with something like this:

Why do I say Frontier would let JetBlue take Spirit? The benefits are just so great… for Frontier. Think about this deal as structured.

From a pure cash standpoint, JetBlue will give $33.50 per share. The Frontier deal is for $2.13 in cash plus 1.9126 shares in Frontier, or rather, the new company it will become. Unfortunately, the markets weren’t open yesterday so I don’t know how they’ll react to the news, but we’ll find out this morning. Based on Friday’s close, that’s hovering in the $20-$21 a share range in current value. On top of that, JetBlue will gift $1.50 per share of that purchase price up front with no questions asked.

So now, if you’re Frontier, what do you do? Frontier most definitely won’t want to go all-cash with its offer. The whole thing is predicated on there being great synergies and growth and all that so that all shareholders will win in the end. But considering the combined value of the deal as it stood on Friday is lower than the standalone Spirit share price, Frontier would have to come up a whole lot to sway the shareholders at Spirit. And there’s just not enough value there for Frontier.

If Spirit goes to JetBlue, JetBlue has gladly committed to giving up all of Spirit’s assets in Boston and New York. Frontier would stand to gain a fair chunk of those when they are divvied up, if it’s interested. And, as we’ve discussed before, the JetBlue strategy is to merge Spirit into the JetBlue way, take seats off airplanes, bring costs up, and try to compete as a tweener with a mix of good service and low-ish fares. All of this is great news for Frontier, opening up the US for it to move in and replace Spirit where its new model won’t work. And it doesn’t even have to give Spirit shareholders anything.

Thinking about it this way, why would Indigo bother increasing the deal price? So far, it has been very hesitant to do anything except add a reverse break-up fee to counter some of the criticism. It expected the deal to go through, so adding that was a minor concession. But so far, the Spirit board has continued to back Frontier’s offer, saying the JetBlue pitch is not a “Superior Proposal.”

With shareholders disagreeing, the Spirit board is backed into a corner. So what happens now? If the board sticks with Frontier as is, the shareholders will presumably vote against that merger on June 30. If the board decides that this is indeed a “Superior Proposal,” that would give Frontier four days to match. I don’t know exactly what a “match” would be considered, but at the very least it would require a big increase from Frontier.

If I were Frontier, I’d just walk away. If I were JetBlue, I’d get my head examined for offering such a deal. If I were Spirit, I’d go with the JetBlue deal. There would be a lot of celebrating at all three airlines if the JetBlue deal went through.

50 comments on “JetBlue Sinks Frontier’s Offer With Higher Bid for Spirit

  1. Maybe after the deal closes, JetBlue will come out and tell us what it is *really* after with this deal, because it makes no [insert expletive here] sense! It didn’t make sense at the original price, and makes less sense at the inflated one. Maybe some ex-Spirit Employee learned about some gold bars stashed inside the wings or something?

    I mean, I know that planes and pilots are hard to come by at the moment, but does JetBlue really have a plan for all that capacity coming online quickly? As you pointed out, filling in Spirit’s gaps with JetBlue service is not really a great substitute. I agree that this merger is really great for Frontier, since JetBlue is eliminating a competitor, while providing little competitive threat itself.

    1. Like any of the other big mergers, most changes wouldn’t happen overnight. They might pull some pilots to fly JetBlue routes right away, but other than that I’d imagine that the Spirit brand and routes would be phased out over a longer period of time like many months to a year.

        1. Of course not the next day or anything but much faster than the customer side would take to be completely integrated.

          Spirit’s pilots are all flying the A320 family already which is the majority of JetBlue’s fleet.

          1. It will be a year or more before a Spirit pilot could ever set fly a JetBlue aircraft and vice versa a JetBlue pilot wouldn’t be able to operate a Spirit flight. Both of these airlines pilots have a contract and although they are both represented by ALPA this merger if it happens would be no different than when NW/DL, UA/CO, or AA/US merger. Before JetBlue could cross utilize pilots JetBlue would first need to negotiate a totally new contract. However before a new contract can be negotiated both JetBlue and Spirit pilots would need to need to come to an agreement amongst themselves on how to deal with one major sticking point that every merge airline has had to deal with and that is how to combine the seniority list. Having gone through an airline merger myself let me tell you merging seniority list is no easy task because there will be winners and losers, and seniority is everything in the airline industry even if your entire fleet is A319/20/21’s.

  2. Will Frontier win Spirit’s heart? Will JetBlue steal Spirit away? Will Brett Schnider play psycho therapist for the airline industry? Stay tuned for the next exciting episode of “As the Jet Turns!”

  3. I think the real back story here is the financial condition of American Airlines. I believe JetBlue and American would like to extend the NEA beyond the Northeast. In this scenario, American cedes non-profitable (due to costs) flying to JetBlue that B6 can fly profitability. This could include CLT, PHL, MIA, DFW, ORD and/or PHX flying. This allows JetBlue access to the interior of the country, a gaping hole now. But JetBlue needs planes, LOTS of planes, to accomplish this massive growth opportunity. And, it needs Pilots to fly them. This very expensive deal with Spirit affords them the vehicle to make it all happen.

    1. “In this scenario, American cedes non-profitable (due to costs) flying to JetBlue that B6 can fly profitability. This could include CLT, PHL, MIA, DFW, ORD and/or PHX flying. This allows JetBlue access to the interior of the country, a gaping hole now. But JetBlue needs planes, LOTS of planes, to accomplish this massive growth opportunity. And, it needs Pilots to fly them. This very expensive deal with Spirit affords them the vehicle to make it all happen.”

      I think you are on to something Masters. AA needs to shed as much unprofitable routes as they can while staying viable. Why else would they partner up with both AS & B6 if they could do it profitably themselves? Also JetBlue needs to grow & this fight over Spirit allows them to do so. And Frontier wants to grow so bad they should go after G4 as they are easy pickens being similar yet smaller.

      1. I’m sorry but this makes no sense.
        The NEA cannot be expanded beyond the NE. Regulators and the APA will not allow it. Hell, it is still very iffy as to whether it will be allowed to stand in the NE, especially if this.merger goes through.

        1. The APA has no say on what routes its pilots fly. JetBlue is ALPA and you can rest assured ALPA will quite readily take APA flying. ALPA has NEVER forgiven APA for bailing on them.

          1. APA most certainly has say on domestic codesharing as a part of their scope clause. They had to specifically sign off on the NEA.

            1. Yes, but is the NEA actually “code-sharing” or some hybrid model of revenue sharing that APA would be forced to contest in the courts? I think we need to acknowledge the “olive branch” Leadership that Mr. Parker used to get AA’s employees to buy into his vision left the property when he did.

      2. While that sounds great in theory, in reality JetBlue (even post merger with Spirit) won’t have the capacity to fly its own routes plus take on AA’s unprofitable routes. Who is to say that JetBlue even wants AA’s unprofitable routes? JetBlue may see better opportunities than picking up AA’s leftovers.

        1. Great point, Eric. JetBlue will have the opportunity to beef up its own system and simultaneously cherry-pick the routes that AA no longer wants. Presumably, the routes JetBlue does take will create synergy within their network.

          1. You are overlooking several things, first if JetBlue does succeed most experts believe the DOJ and DOT would force them to give up the NEA. In fact the DOJ’s lawsuit to block the NEA cleared a major hurdle a few weeks back and will proceed forward. Secondly and more importantly JetBlue current offer is $3.7 Billion dollars all cash. JetBlue does not have $3.7 Billion dollars on hand. According to the Q1 2022 report JetBlue only has $2.4 Billion dollars in cash and assets and don’t forget JetBlue is still losing money they lost over $350 million dollars in the first quarter of this year alone. Then there is the cost that comes after the merger, the $3.7 Billion that all goes to shareholders JetBlue would have to borrow that money. Then there is the cost of rebranding all of Spirits aircraft repainting one narrowbody aircraft cost at least $250,000 dollars in 2019. Rebranding Spirit ticket lobbies, and gates, but the most expensive rebranding will take place inside Spirit aircraft. If JetBlue intends to with the same level of service they have now that means they would need to strip every Spirit aircraft down to its frame and install wiring so every passenger would have the own personal IFE at every seat (Spirit aircraft were never wired to support inflight setback entertainment.) Then there is the cost refurbishing the entire cabin. By the time JetBlue is done merging their operations with Spirit the amount of debt they will be in will be problematic for an airline of their size. When debt becomes a problem and the main focus for an airline, service suffers. JetBlue isn’t going to be cherry picking routes AA no longer wants because JetBlue is going to be drowning in debt brought on by this merger, $3.7 Billion dollars is just the beginning by the time this merger is done it will probably cost JetBlue at lest $5 Billion dollars which is a lot considering the size the newly merge carrier will be. Prior to COVID Southwest Airlines which will still be many times bigger than a merged JetBlue carried less than $2 Billion dollars in debt and Delta Airlines I believe carried around $6 Billion dollars worth of debt before COVID.

    2. JetBlue isn’t profitable in any of the cities you listed. Also, their cost basis isn’t low enough to turn loss-making flying into profits. B6’s strength in the NEA is its brand in the region. AA brings a large loyalty program and a ton of credit card holders in NYC.

  4. If these were normal times, JetBlue’s offer would be ridiculous. But these are not normal times.

    I think JetBlue is desperate to escape the constraints it is in almost all of its flying in small congested areas, where one storm event (winter or summer) can basically shut down the whole airline.

    This is a way to get more planes and employees right now. Spirit has Airbuses and crews that JetBlue needs badly. Here are the planes they have, with the number of NEOs on order.

    319 31 (31)
    320 119 (82)
    321 30 (26)

    Just as importantly they have 3,000 pilots already flying these planes.

    Now the question becomes, what does JB do with all these planes and crews? My suspicion is that they have one target in mind…

    Southwest.

    Southwest’s fares have climbed through the roof. Just one example: Chicago to Denver, next Wednesday (8 days out). Southwest’s cheapest flight is $281, with most flights over $300 and some at $400.

    Both United and American have fares of $215 to $230. On all flights.

    Southwest’s folky we are cool and young and cheap because we are not the big guys is wearing out. And their costs have blown up.

    JetBlue is coming for them. Where? Who knows. It won’t be Phoenix or Dallas or Midway – they aren’t going to bite American’s hand. But they will be very much looking to attack Southwest, probably piecemeal in places like Houston, Nashville, St. Louis, etc.

    1. BWI.
      Spirit has a growing operation. Southwest has been reducing capacity. Large, affluent area with a mix of business and leisure customers.
      I am was (pre-pandemic) a very loyal SW customer but have had issues with them this year. I like JB and would definitely shift my now reduced travel to them.

    2. I honestly don’t see JetBlue winning a battle
      On cost against Southwest giving the fact that B6 cost are already much higher than WN now.
      Add the additional cost of the merger with Spirit B6 costs will rise again further widening the gap.
      JetBlue advantage is it has lower cost than AA, DL and UA. Gaining Spirits Texas,Midwest and West Coast network it’s can nip off mid level business traffic and hopefully keep the Basic economy traffic Spirit drawls and win more passengers on the Up sale A’ La Cart marketing.
      WN will be in a good position thanks to the new Wanna get away plus fare to revamp the Wanna get away fare to cater towards the lower basic fare price sensitive A’ La Cart passengers. With the elimination of NK in the market WN easily change the WGA Fare to match JetBlues basic fare and Frontiers basic fare by offering everyone one free checked bag and just a small personal item with the fare. Then promote the advantages of the up sale to WGA+

      1. JetBlue is in a tough spot right now. Labor costs make up almost 40% of JetBlue’s operating expenses. Guess where their hubs and HQ are located? In high labor cost areas.

        Fuel makes up another 23% of JetBlue’s operating expenses. Fuel prices at their hubs in BOS & NYC is among the highest in the nation outside of the western states

        This airline lives and breathes in high cost areas, yet they are unable to charge a premium for their services in these areas. They are on a horrible financial path and the only real way for them to get out of it is to somehow increase their presence in areas where the costs are more favorable relative to the fares they charge.

        Thus, one of their reasons behind purchasing Spirit. It helps to expand their network into areas with much lower costs. The interesting thing to watch though, it how much of that presence do they lose without being able to offer the rock bottom fares that Spirit was offering.

    3. I get what you are saying, and if it were any other carrier you would have a point. But Southwest still retains its pricing power in a way that NO OTHER carrier in the US does, including the ULCCs. This is because Southwest does not distribute openly via the major GDS’ (corporate stuff aside) and thus keeps its fares out of the major OTAs, where price-conscious buyers shop. As long as Southwest is able to keep doing this, your scenario will remain invalid.

      In my opinion airfare consumers are really, really dumb with the way they shop. But this is 1000% to Southwest’s benefit.

  5. So, objectively, how did the AS + Virgin merger/buyout work out? I think everyone agreed Alaska over paid, and that they were trying to buy routes/slots/pilots.

    Looking at it now, 5 years or whatever later, did it work? AS still exist but to me they don’t really seem any different.

    What does the Alaska Virgin merger tell us about the Jet Blue Spirit merger.

    1. Yeah, it ended up being a huge joke driven by egos and stubbornness. Objectively, Alaska is in the same position it was pre-merger, they took on a massively failing airline on the brink of insolvency, and all they have to show for it is spending billions to get rid of all of VX’s aircraft and shrink back to a Seattle Fortress. Transcons were gone, absolutely zero-zilch-nada-nothing of VX’s “quirky” culture (which was worth almost nothing in actual revenue) survives. Alaska is *massively* struggling outside of the core markets. Perennial attempts to “grow California” are met with huge losses.

      Alaska has no path forward. They thought VX would jumpstart some kind of magical growth in the “low-cost, high-service” market that doesn’t and can not exist (see comment below), but instead they systematically eliminated every remaining vestige of VX culture and assets at great cost to morale and the balance sheet and all it got them was “defend Seattle from Delta,” the exact same place they were two years before the merger.

      All of this because the executives wanted to but their way into looking “cool.”

      See my comment below for more about this, but “What does the Alaska Virgin merger tell us about the Jet Blue Spirit merger?” It tells us that, if you have no coherent or successful market & growth strategy before your merger, you won’t have one afterward, either. “Like now, but more of it,” isn’t a plan.

      1. This is one of the worst takes I’ve ever read in this blog. Almost all of your facts are incorrect, and seem to be based on opinion. AS is not losing money in CA. The merger was not an attempt to “look cool” — it was a way to eliminate a competitor and keep B6 out of the west coast, both of which it did successfully. The company is profitable and “defending Seattle” is an insanely profitable business model.

  6. As of 8:15 A.m. Arizona time, JetBlue’s stock was down slightly (0.3%), and Spirit’s was up almost 8%. That’s a fairly normal reaction in a merger scenario. The potential acquirer’s stock goes down while the potential acquiree’s goes up. I could be wrong but I think a lot of the reaction to all of this is overreaction.

    American isn’t on the verge of liquidation as some have hinted, and neither are JetBlue nor Spirit. There’s a lot of angst over short-term events, when the long term is what’s really important. Is JetBlue potentially overpaying for Spirit? Maybe – and maybe not. I saw a post on Airliners.net that pointed out that JetBlue’s offer isn’t a whole lot more or less than what the airline would pay for new aircraft, and it’s getting pilots for very little additional. JetBlue doesn’t need Spirit’s New York and Boston assets, and probably feels it can deploy its new assets more profitably elsewhere. I’m a contrarian in this view, but I really think a JetBlue/Spirit merger will help the NEA win its court battle. The ULCC market is extremely limited. Jetblue competes in the overall marketplace, and is, therefore, a more serious competitor.

    I agree with Cranky. If I was Frontier, I’d walk away. There’s a good chance that Frontier will get as large a share of Spirit’s New York and Boston assets as it wants, and it will get rid of a competitor either way. As the old baseball saying goes, “the best deals are often the ones you don’t make.”

    1. I forget, is the number looking at the cost to buy Spirit vs the cost to buy the planes include Spirit’s debt? AFAIK that brings the merger cost to $7-8 billion.

      1. Any transaction will include the assumption of Spirit’s debt. If the combined entity can generate the necessary cash flow, there shouldn’t be a problem.

          1. Correct. Debt + Equity (and/or cash if applicable) is the true purchase price.

            So yes, much greater than the ~$3 billion hitting the headlines.

  7. If winning the contest for acquiring Spirit was solely about financial terms, there is no doubt that JetBlue should win. But financial terms are only part of the calculation that SAVE shareholders must consider. The only reason why JBLU needs to offer a premium is because the risk of getting a JBLU/SAVE merger approved by the Dept. of Justice is much higher.
    Never in the history of the deregulated US airline industry -going on 44 years – has a carrier acquired and then dismantled a lower class of carrier. JetBlue is a low cost carrier while Spirit is an ultra low cost carrier. JBLU has repeatedly tried to argue how it will be a much better competitor to the big 4 by being larger – but it ignores the fact that in order to grow via an acquisition (not a merger), JBLU will eliminate a lower cost competitor, raise prices, remove capacity and then justify doing so by picking a competitor to transfer the excess assets to (Frontier). Every one of those steps is anti-competitive and anti-consumer by themselves but in combination will raise prices for consumers and eliminate a competitor to JBLU.
    For years we have been told that ultra low cost competitors were a threat to legacy carriers even though it has been obvious to some that ULCCs are much more of a threat to low cost carriers. Legacy carriers do a better job of segregating demand into distinct pricing groups and of capturing high value demand. It isn’t really a surprise that the 3 global carriers as a group will post higher margins than low cost or ultra low cost carriers. It is precisely because the ultra low cost segment is the least profitable right now that there is a fight to acquire SAVE.
    Those that suggest that AA needs to further expand the Northeast Alliance with JBLU might want to 1. Run that suggestion by AA employees who aren’t the least bit interested in watching their airline and their jobs carved up to other airlines and 2. The NEA is precisely part of the competitive concerns with a SAVE merger. While JBLU talks about reducing NY slots, the overlap in S. Florida is much more problematic – JBLU, SAVE plus the NEA which covers BOS and NYC to MIA and FLL, some of the largest east coast markets. The option is for JBLU to walk away from the NEA in order to get the SAVE merger approved but they have so far not said they would do that.

    1. JetBlue does not need to abandon the NEA to get the Spirit acquisition approved. They have Senator Schumer and a Democrat in the White House. That’s all they need (particularly Schumer).
      As far as what AA’s employees will say as AA gets parted out to JetBlue, when has ANY airline’s employees had a say in major corporate decisions or asset transferrals?? AA management will spin it as a win: “We are divesting unprofitable routes to improve our bottom line, thereby enhancing job stability for the remaining employees. In addition, the transfer of these routes to our Partner airline, JetBlue, eliminates the possibility of Delta, United or Southwest from invading our fortress hubs, again increasing job security for our Employees.”

    2. Wasn’t Virgin America a lower-cost carrier than Alaska? What about AirTran and Southwest? Just because something has never been done before doesn’t automatically mean it can’t be successful. We never put a man on the moon until we tried it. Why is south Florida problematic? There’s nothing about the service level there that’s set in stone. Divesting gates isn’t rocket science. Don’t forget that the DOJ has to sue to stop airline mergers and alliances. It can’t simply disapprove them. No one knows what a judge will decide. That’s why the cases are usually settled. The NEA doesn’t cover Florida.

      1. First, I am pretty sure (but am willing to be corrected if I am wrong) that the NEA does not carve out NYC (all 3 airports) and BOS to Florida which is why FL has joined the DOJ in its lawsuit. Having joint venture type benefits on either end of some of the US’ largest markets is problematic for 2 carriers that are in the top 3 – and in some cases the top 2 – in a number of specific markets.
        2. Divesting assets to a single pre-selected competitor does not fix a competitive imbalance. The witness to that is the AA/US merger in which the DOJ chose Virgin America to win AA’s 2 Dallas Love Field gates. Delta and Southwest have wanted to grow there for years while AS sat on two valuable gates. Supposedly a settlement is in the works with Delta reportedly set to gain one of those gates thru 2028 when all Love Field gate leases expire.
        3. and AirTran, Southwest, and Virgin America were/are all low cost carriers while AS is functionally so even though it is technically a legacy carrier. AS has unit lower costs than a number of low cost carriers. No low cost carrier has ever acquired an ultra low cost carrier and a legacy carrier has not acquired a low cost carrier in the US with the express intent of removing seats and raising prices (JBLU is a higher fare and higher cost producer than SAVE).
        VFTW asks the question today as to when B6 gets serious about settling the DOJ’s complaints or walking away from it. I believe that if they win the SAVE shareholders vote, they will address the NEA. I also don’t think that the NEA has to end completely but schedule coordination, revenue sharing and slot sharing are all anticompetitive and AA and B6 could continue a simple codeshare as AA and AS are doing on the west coast. VFTW also believes AA is without a plan if the NEA is shot down – and he may be right.

        And I have never said that DL dominates SEA although DL was the largest international carrier pre-covid and likely will be once again; that is also true of JFK and BOS and is part of how DL builds hubs at airports that have a large low cost carrier presence.

        1. Why have you twice mentioned “pre-selected competitor”? Has JetBlue announced that they will divest assets to F9, or are you making an assumption? If there’s a divestiture, will Allegiant, Breeze and Avelo not have an opportunity to apply?

          1. …because a number of people have said they believe that excess assets should only be given to ULCCs. If JBLU/SAVE becomes a thing, then Frontier is the next largest player but they might not be interested. Allegiant plays but they might not be interested either. As others have noted, gate assets can go to any player and the hope would be that multiple players – not any single carrier – uses the assets.
            Also, United is tiny at JFK and in FLL. They might be interested in acquiring more space and I don’t see a reason that they should be blocked.
            As others have noted, JBLU is at a pivotal moment that will define its future which is why they are fighting so hard for this deal. Their assumptions about what will turn themselves around might not be correct but there is clearly a growing reality that their highly competitive model with many elevated costs – like their HDQ – won’t work financially going forward.
            It is also important to note that Spirit is guiding investors to paying over $4/gallon – in the same ballpark as United and JetBlue which have much larger NE operations – so there is something about SAVE’s fuel acquisition strategies that are costing it money compared to other airlines which have similar geographic spread across the US (such as WN absent their hedges)

      2. Maybe the better way to answer that is to turn the question around.

        If a ULCC’s customer base is attracted to the ULCC due to low fares, how do you expected a merged carrier (ULCC + Legacy or LCC) with much higher costs appeal to that customer base? By keeping the fares low and running an unprofitable operation? That can only happen for so long, after which the airline slowly starts to dismantle the former ULCC’s network.

        So, while anything COULD happen, it would be interesting to hear how you believe there is a successful path forward. I can only think of one way, and even that one way is very risky.

    3. The South Florida situation is only a major issue if there are significant barriers to new entrants or to existing competitors expanding, which as far as I know there aren’t. (Last I heard, FLL is a bit crowded but it’s unlikely a combined B6/NK would use the gate and counter space that the two do separately right now.) Same for MCO, and no problems with anyone wanting to go into TPA.

  8. I know that JetBlue is *saying* that they want to raise the Spirit product to JetBlue-levels of quality, but color me skeptical. I think JetBlue’s ultimate goal is to move closer to the ULCC model.

    Think of a diagram, on the left is Spirit, Southwest, Frontier, Allegiant, etc. On the right is Delta, United, American. JetBlue and its West Coast twin, Alaska, inhabit a no-mans land in the industry: the middle of that diagram, the desire to be a “low-cost, high-service” airline, which is actually a magical unicorn pony airline business model that so far doesn’t seem particularly conducive to success or growth.

    VX tried that model, and failed. JetBlue is struggling, arguably near failing at it. Alaska is also on this failure path, as they have no successful growth strategy to speak of other than “defend Seattle,” which is not growth, it’s retrenchment and it’s all they’ve been good at for 15 years.

    I would argue that’s because these airlines want desperately to be this magical unicorn, the best of both low-cost and high-service worlds, but that market does not exist for a reason: it’s not viable. You have to pick a side.

    JetBlue has been struggling for a while lately; I imagine they privately view their future as one of capturing more of the ULCC market, since they’re not cutting it in this weird middle ground. Their other option is being acquired, themselves. (I think becoming an acquisition target is Alaska’s long-game; they’re too font of themselves to imagine they’d have to become a poor-person airline to survive.)

    I don’t think Frontier is in the clear after JetBlue’s potential Spirit acquisition: I think they have a much larger, much more dangerous competitor with larger market share. The key for Frontier will be to strike at Spirit/JetBlue during the inescapably problematic merger process, which *every* pre-merger airline thinks they’re going to do better at but *every* airline fails at.

      1. Southwest is closer to the left than it is to the right, or even the center, that’s for sure. They’re certainly lower-cost, lower-service than B6/AS.

        1. They are NOT lower cost. If you aren’t buying six months out, their fares are the highest. Including the legacies.

          They have done a great job pretending to be a low cost carrier but they just aren’t anymore.

    1. A move to the ULCC model negates Mint and European flying. Possible, but I don’t see B6 walking back from that strategy.

      It’s entirely possible that in an inflationary economy with a severe pilot shortage that the US has an overcapacity of ULCC seats. High margin flying will survive and that is not the ULCC model at the current scale.

    2. While the comparisons between the ALK/ Virgin America merger and what JBLU and SAVE could possibly be like are valid, there are significant differences between ALK and JBLU from a financial perspective.
      ALK and JBLU were both darlings of the industry in the early 2010s with high margins and low debt.
      ALK’s acquisition of Virgin America pushed down its margins even as JBLU’s margins started to weaken about the same time.
      The common bond – whether some want to acknowledge it or not – is that Delta has successfully set up hubs in SEA and BOS over the past 5 years in ALK and JBLU’s “backyards.” When Delta ditched its DFW hub and moved assets to NYC, including acquiring US’ LGA slots, DL became the largest carrier at both JFK and LGA.
      ALK is still the largest carrier at SEA and that is not likely to change just as JBLU will likely remain the largest carrier at BOS. The DL strategy in SEA, JFK and BOS is that they use their multi-hub domestic network to generate higher average fares while flying a large international schedule with their partners. DL does not attempt to be and is not the largest airline in SEA or BOS but it does get 75% of the SEA local market revenue that AS gets and is at parity with JBLU in BOS with DL’s transatlantic buildup (they reached that point in the summer of 2019 as well).
      The difference between ALK and JBLU is that ALK dominates its core markets while JBLU does not. JBLU’s profitability fell with DL’s buildup of BOS – the two metrics can easily be tracked while ALK has managed to improve its margins.
      It also doesn’t hurt that ALK and LUV have fuel hedges while JBLU is paying some of the industry’s highest fuel prices, in part because of high refined product costs – which DAL is offsetting with its refinery.
      ALK likely will not make any acquisitions and they do appear to have a growth plan; JBLU’s growth plan at least publicly is to continue to grow in highly competitive markets which are not conducive to high margins; every airline that has had high margins has “moats” that include markets which it dominates.
      As for the NEA, the DOJ will soon decide but there is a significant groundswell against big business and mergers which result in higher prices; the NEA is being challenged by multiple states including in the South. And Schumer might not be the head Senator in six months.

        1. That’s in terms of departures. As far as ASMs go Jetblue is still #1 since they’re all on narrow bodies.

  9. At this point, I’m in favor of any merger that will eliminate Spirit’s hideous, cumbersome, odious and intentionally misleading online ticket purchasing process.

  10. First, I am pretty sure (but am willing to be corrected if I am wrong) that the NEA does not carve out NYC (all 3 airports) and BOS to Florida which is why FL has joined the DOJ in its lawsuit. Having joint venture type benefits on either end of some of the US’ largest markets is problematic for 2 carriers that are in the top 3 – and in some cases the top 2 – in a number of specific markets.
    2. Divesting assets to a single pre-selected competitor does not fix a competitive imbalance. The witness to that is the AA/US merger in which the DOJ chose Virgin America to win AA’s 2 Dallas Love Field gates. Delta and Southwest have wanted to grow there for years while AS sat on two valuable gates. Supposedly a settlement is in the works with Delta reportedly set to gain one of those gates thru 2028 when all Love Field gate leases expire.
    3. and AirTran, Southwest, and Virgin America were/are all low cost carriers while AS is functionally so even though it is technically a legacy carrier. AS has unit lower costs than a number of low cost carriers. No low cost carrier has ever acquired an ultra low cost carrier and a legacy carrier has not acquired a low cost carrier in the US with the express intent of removing seats and raising prices (JBLU is a higher fare and higher cost producer than SAVE).
    VFTW asks the question today as to when B6 gets serious about settling the DOJ’s complaints or walking away from it. I believe that if they win the SAVE shareholders vote, they will address the NEA. I also don’t think that the NEA has to end completely but schedule coordination, revenue sharing and slot sharing are all anticompetitive and AA and B6 could continue a simple codeshare as AA and AS are doing on the west coast. VFTW also believes AA is without a plan if the NEA is shot down – and he may be right.

    And I have never said that DL dominates SEA although DL was the largest international carrier pre-covid and likely will be once again; that is also true of JFK and BOS and is part of how DL builds hubs at airports that have a large low cost carrier presence.

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