JetBlue Airways at crossroads after Spirit rejects takeover bid

JetBlue Airways is at the crossroads of a quarter of a century.

The airline’s first flight flew from New York to Fort Lauderdale in February 2000. Twenty-two years later, JetBlue executives set their sights on South Florida again with a surprise bid to acquire Spirit Airlines. That first flight was successful, there was no application.

Spirit on Monday turned down a $3.6 billion offer from JetBlue and said it was sticking to a $2.9 billion merger deal with fellow low-cost carrier Frontier Airlines, a February deal. Spirit shares fell up more than 9% on Monday after the company announced it was dropping JetBlue’s offer in favor of a deal with Frontier, while JetBlue’s stock rose slightly and JetBlue’s stock rose more than 2%.

Miramar, Fla.-based Spirit cited regulatory concerns by rejecting the offer, saying it doubted the JetBlue acquisition would be approved, in part due to JetBlue’s Northeast partnership with American Airlines, which the Justice Department sued to block him last year. In its lawsuit, the Justice Department argued that this would raise fares and hurt competition, especially citing the importance of smaller carriers such as JetBlue.

JetBlue said it would sell Spirit’s assets in New York, Boston and some in Florida under the revised offer. The discount carrier still said no. Spirit CEO Ted Christie said during a Q1 phone call with the airline on Thursday that he “was wondering if blocking our deal with Frontier was really their goal.”

Spirit’s failure puts JetBlue Airways at a turning point. Nearly 24 years after its incorporation, JetBlue has gone from being a quirky, one-class holiday airline based in New York to the sixth largest airline in the US with over 100 destinations from Los Angeles to Lima, Peru.

In its more than two decades of existence, JetBlue has stood out from its competitors by advertising low fares and passenger amenities such as seat-back screens, satellite TV, and, later, free Wi-Fi. It even has more legroom than the competition. Its latest venture, service in London, aims to woo the high-paying passengers of its competitors with its Mint Business Suites.

JetBlue shares have fallen more than 43% in the past 12 months as of Thursday’s close, losing out to a 29% drop in the NYSE Arca Airline Index, which tracks 18 airlines based primarily in the US. Over the same period, the S&P 500 is down 1.3%.

This, combined with the resignation of Spirit’s board of directors, is putting additional pressure on Robin Hayes, JetBlue’s third CEO, and his management team to both grow the airline and ensure reliability in the process.

In February, JetBlue ranked last among U.S. carriers for punctuality, with almost 62% on-time arrivals, compared with a 17-airline average of almost 77%, according to the Department of Transportation.

It faced a host of other operational issues in April as thunderstorms swept across Florida, affecting Spirit, Southwest Airlines, American Airlines and others.

“I think they can fix themselves. They need a leader who is truly capable of running a much larger and more complex airline,” said Mark Ahasik, an aviation consultant who worked at JetBlue from 2000 to 2006, including as Director of Operations Planning and Management. corporate planning manager. “This is no longer an entrepreneurial startup JetBlue. This is an advanced airline.”

JetBlue executives argued that the Spirit acquisition would help accelerate its growth by giving it access to the Spirit fleet of more than 170 Airbus aircraft as well as more than 2,000 pilots at a time when pilot shortages and attrition hamper expansion.

JetBlue has many internal issues to address, such as improving reliability and dealing with crews who have complained about grueling work schedules due to the pandemic, as employees of other carriers such as Southwest and American have also reported. JetBlue has already taken steps this summer to reduce its schedule by about 10% so it has more room to maneuver in the event of disruptions.

He did not always offer room for maneuver to his top boss.

The crisis in February 2007 left thousands of customers stranded and JetBlue founder David Nieleman lost his CEO position. (Nealman now runs new airline Breeze Airways.) JPMorgan analyst Jamie Baker noted the precedent in light of JetBlue’s operational troubles during an earnings call on April 26, a week before Spirit rejected JetBlue’s offer.

“Today, the composition of the JetBlue board of directors has changed, but it is worth noting that there is a precedent for the dismissal of senior executives due to deteriorating operations,” Baker said.

JetBlue and other airlines have had to deal with bad weather in Florida’s tourist hub. The Federal Aviation Administration said Wednesday that it will “immediately” add staff to the state’s main air traffic control center following a meeting with airlines in which carriers said they would continue flying to Florida above 2019 levels.

“We can’t control the weather, but we can try to control everything pretty much, and that’s what we’re going to do,” Hayes said during the April earnings call. “But the #1 priority for me, for management, for the Board of Directors right now is to get our operations back on track because that’s the way to rebuild margins.”

JetBlue says it will continue to work on its operation and to restore profitability. For now, he says he still wants to acquire Spirit.

“While we would certainly prefer to negotiate a deal with you if you continue to refuse constructive engagement with us so that we can deliver that value to your shareholders, we are actively considering all other options available to us,” Hayes wrote in Spirit. Chairman H. McIntyre Gardner and CEO Ted Christie in an April 29 letter.

A JetBlue spokesperson declined to elaborate, but fighting for Spirit Airlines through a proxy battle or a tender offer could be costly..

JetBlue’s bid for Spirit is not the first acquisition attempt. It lost out to Alaska Airlines in 2016 when that airline, another mid-sized carrier like JetBlue, acquired Virgin America.

JetBlue has not indicated that it is open to being acquired or merged with a carrier other than Spirit. In March, Alaska CEO Ben Minicucci told CNBC that he wanted his airline to grow organically and that a merger was out of the question at this time. An Alaska spokeswoman told CNBC on Tuesday that Minicucci’s strategy remains in place.

“Often companies make acquisitions to avoid renovating their own home,” says Emily Feldman, professor of management at the Wharton School of the University of Pennsylvania. “Sometimes it’s better to forego the acquisition and go into your own business.

Ahasic added that JetBlue has “more important fish to fry”.