JetBlue twists into knots, trying to create a rationale for buying spirit – Cranky Flier

Looks like Breeze’s attempts to buy JetBlue were thwarted … something surprisingly not an April Fool’s joke. On Tuesday, the world learned that JetBlue is taking a step in favor of Spirit. Yes, it’s the same Spirit that’s working on the merger with Frontier, but JetBlue is clearly jealous. Has anyone hooked up a blue Kool-Aid? I don’t exactly understand why JetBlue is doing this. She has clearly decided that this is the best growth option available to the airline and it is a scary thought.

JetBlue’s offer is $ 33 per share in cash. This will allow the airline to acquire Spirit and merge it with JetBlue for just $ 3.6 billion in cash. Frontier’s offering consisted of 1.9126 Spirit shares plus $ 2.13 in cash per share. So call it about $ 24 or $ 25 depending on the fluctuations, but it’s cash and stocks. The offer pales in comparison to JetBlue, and if I were a shareholder in Spirit – and I was confident that the merger with JetBlue would pass antitrust review – I would be more than happy to withdraw JetBlue money and never look back.

Of course, Frontier can boost its offer, and maybe it will fit a little. But it’s hard to imagine that the architect of the Frontier / Spirit deal, Bill Franke, would enter the bidding war. He’s not going to chase a deal with stupid money; it’s just not the way it works. In addition, Frontier should note the possibility that JetBlue will capture Spirit. This is one of the best possible results for Frontier, strange as it may sound.

Why am I saying this? Well, let’s talk about costs. A press release quoted JetBlue CEO Robin Hayes as saying: “Although JetBlue and Spirit are very different, we also have a lot in common, including focusing on keeping costs low …”. They can both be aimed at keeping costs low, but only one airline is good at it. (Hint: it’s yellow.)

Costs these days are unsustainable due to a reduction in pandemic-related capacity, but Spirit has gone ahead and JetBlue has stayed in the middle. Just look at this chart.

Adjusted unit costs excluding fuel by airline

The length of the scene is brought to 1000 miles

JetBlue’s costs are high for ULCC and low for an outdated airline. Yes, part of this is due to the high costs at airports at JetBlue’s major airports, but much of it is structural because of the entire JetBlue model as the ultimate twiner. Having more legroom, more redundancy, less density … it’s just a different model than what ULCC offers.

Of course, higher costs mean you need to get higher rates.

Adjusted revenue from airline units

The length of the scene is brought to 1000 miles

JetBlue certainly does that, but it’s the opposite of what Spirit wants to do. These are fundamentally different airlines with networks and products designed for their main markets. If JetBlue was going to run Spirit as a standalone standalone ULCC that just connects to JetBlue, well … I probably still wouldn’t like it, but it would be easier to understand as part of a growth plan. But that’s not what is happening here. According to JetBlue in a letter to employees …

The combined airline will fly under the JetBlue brand and will be based in New York. We are upgrading the fleet to the overall JetBlue experience on all aircraft. That doesn’t mean we can’t learn from Spirit and incorporate into JetBlue what they do well. We will conduct a complete review of Spirit products and technologies for customers to gather the best of both airlines.

It seems pretty obvious that JetBlue likes to be JetBlue, which means that the cost of Spirit will increase significantly. How do you think all those people who are looking for cheap tickets to Florida or Vegas or anywhere will feel when fares go up? They will run right into the arms of the Frontier. Perhaps the Allegiant is also in this case. The possibility of this merger is greatest for those who do not participate and will instead benefit from Spirit giving up the ULCC space.

What makes it even worse is the misconception that JetBlue will still be able to be part of the Northeast Alliance (NEA) with Americans in something like its current form. JetBlue spreads the gospel far and wide at this point, believing it can have it all. But it just can’t. The Justice Department was looking for a way to destroy the NEA, and by concluding a merger agreement that required federal consideration, JetBlue simply opened the door and gave the federation leverage.

If the merger happens, it will absolutely require serious help from the NEA. This may be the end of NEA completely; it will not surprise me at all. Even if he survives in some form, JetBlue has just royally angered his important partner, the American. I asked the American for a comment, but, oddly enough, he was not there. I guess it’s because it’s hard to bring a red face with steam coming out of your ears into an email. This move by JetBlue jeopardizes the entire strategy of Americans in New York … not to mention JetBlue.

What about the rest of the network? Will it even be able to pass the meeting with the federal? Probably. After all, the Department of Justice has positioned the NEA as a big, horrible American who destroys the cute, nice and helpless JetBlue. If something isn’t related to the big guys, it’s much easier to achieve that. But this does not mean that it will pass without concessions.

I point to this chart, which shows market concentration in Raymond James ’well-known report on JetBlue entitled“ Indecent Proposal – Downsizing ”.

The Federals probably won’t like these changes in Fort Lauderdale. A shortage of gates may be required for approval, as there is little space in the gate. And you know what that means, right? Frontier and Allegiant win again.

So again, what will JetBlue get out of this? Yes, yes, they have a common fleet and they will get more pilots, but it’s hard to see how good that strategy is. It seems JetBlue is struggling to find a way to expand on its own, so more pilots and more aircraft are only helping if the airline benefits strategically from the merger. Since JetBlue’s plan is to erase the benefits of Spirit, it’s unclear what JetBlue will do with all of these aircraft, especially if much of the Spirit network becomes unprofitable as costs increase.

JetBlue says: “The combination of JetBlue and Spirit will create the fifth largest domestic airline, better positioning it nationally as a cheap customer-oriented alternative to the dominant Big Four airlines. No, stop. That’s not what you want to say. Spirit for years has proudly said it is being removed from the top. It is not trying to compete with heritage. This is how the ULCC do the most damage. Yes, sometimes they feel the anger of the big guys, but prefer to avoid it. JetBlue says here that it wants to challenge them, even if it doesn’t have anything like a network that makes a compelling offer. This is a loss-making strategy.

Spirit is an operating airline. JetBlue is one that is in the middle and working in its limited geography … but it’s hard to go beyond that. Now JetBlue wants to take Spirit and create a major airline that works worse. (To be clear, I mean commercial. I wasn’t even talking about JetBlue’s poor operational capabilities … that’s a whole other problem.)

I spent the last two days trying to find a story that supports this merger. I still haven’t found it.

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