Spirit Airlines is trying to buy out JetBlue. With a $1 billion bid, it could be the end of an era for American travelers or just the beginning of another airline takeover.
JetBlue is telling its employees that it will not be able to bid for Spirit Airlines, which has been struggling financially. The airline’s CEO Dave Barger said in a statement that the company is “not pursuing this acquisition.” Read more in detail here: jetblue response to spirit.
What JetBlue Is Telling Its Employees About Its Absurd Spirit Airlines Bid
on April 5, 2022 by Gary Leff
Spirit Airlines and Frontier Airlines are scheduled to join in a transaction announced two months ago. Today, though, JetBlue jumped in with a bid for Spirit that was 40% greater than Frontier’s.
It’s a strange play. They receive aircraft, pilots, and gates, but they fear they won’t be able to preserve Spirit’s business strategy or cheap expenses. If you’re paying a 40% premium above a transaction the Spirit board approved and don’t intend to preserve the business model, brand, or goodwill (whatever that means), you’re clearly overpaying for the components.
When Alaska Airlines outbid JetBlue for Virgin America, purchasing its gates and slots at crowded airports but never using them, executives could claim that the transaction would work over because the Virgin customer base was worth marketing their credit card to. If JetBlue were to partner with Spirit, that case would be weaker.
JetBlue would gain valuable assets in places like New York (an anti-trust problem for their Northeast Alliance with American) and Fort Lauderdale (a real concentration problem), and while the Department of Justice has referred to JetBlue as a low-cost carrier when arguing that they shouldn’t be allowed to tie up with American, the Biden DOJ is likely to be even more displeased with taking a low-cost player off the board than Spirit-Frontier turning two low-cost players in.
Here’s how JetBlue’s workers are being told about the merger. According to JetBlue,
- Low rates and excellent service will remain, as will the JetBlue culture. The purchase will not be worth more if Spirit’s cost structure is lost, and integrating Spirit’s personnel would be a nightmare.
- They’re promoting expansion in Fort Lauderdale and Orlando, but the DOJ is sure to be concerned about the concentration.
- The government would never have allowed JetBlue+American+Spirit, and the combination offers the Department of Justice a credible case that circumstances have changed since the Northeast Alliance with American was approved.
- Spirit’s fleet and order book will both get extra Airbus jets. True, but these are pricey jets, and that’s before they upgrade all of Spirit’s flights with JetBlue interiors, as they promise.
- With less outsourcing, they’ll insource services Spirit presently doesn’t handle, increasing the cost structure and lowering the asset’s value proposition.
The full message to employees is as follows:
This is definitely a fascinating development. I’m unconvinced that Spirit is worth more to JetBlue than it is to Frontier and more than it is to JetBlue as a standalone company (because JetBlue’s stated goals lower the value of that business, they’re purchasing it for pieces) (which would continue its focus on low costs).
However, a bigger carrier may be able to make more money with the assets than the extreme low cost carrier. However, it would betray American Airlines CEO Robert Isom’s industry cliché that Spirit’s and Frontier’s approaches are the most lucrative.
More From the Wing’s Perspective
JetBlue has been looking to buy Spirit Airlines for quite some time. Today, JetBlue announced that it had reached an agreement with the company to merge. Reference: airline merger.
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