JetBlue Airways Pulls Out of Deal to Purchase Spirit Airlines Following Antitrust Ruling
In a surprising turn of events, JetBlue Airways has announced its decision to withdraw from its deal to acquire Spirit Airlines. This move comes after a federal court ruling blocked the merger on antitrust grounds. The Justice Department argued that airfares could potentially increase if Spirit were no longer an independent airline.
Spirit Airlines has been a prominent player in the low-cost, no-frills segment of the airline industry, offering base fares that required passengers to pay extra for additional services, including carry-on baggage. Despite the appeal made by both companies against the judge’s ruling, JetBlue and Spirit have come to the realization that they cannot overcome the legal obstacles to complete the merger.
JetBlue CEO Joanna Geraghty stated, “Given the hurdles to closing that remain, we decided together that both airlines’ interests are better served by moving forward independently.” Spirit CEO Ted Christie expressed disappointment over the failed deal but remained confident in the airline’s future as an independent entity.
The termination of this deal could potentially ignite a bidding war for Spirit Airlines. However, there is also a possibility that it may lead to bankruptcy and liquidation for Spirit, according to some airline analysts. The airline has struggled with losses in recent years, especially as larger airlines have returned to profitability following the pandemic’s peak.
JetBlue had hinted at the possibility of pulling out of the deal in a filing with the Securities and Exchange Commission earlier this year. It had become evident that Spirit was no longer valued at the agreed-upon price of $3.8 billion, or $33.50 per share. Even before Judge William Young’s ruling, Spirit’s shares were trading at half the purchase price over the past six months and only two-thirds of the price at the time of the deal’s announcement in July 2022.
Following the news of the deal’s termination, Spirit’s shares plummeted further, closing at $6.46 per share. This represents a 75% decrease from the closing price on the day of the initial announcement. In contrast, JetBlue’s shares rose by 3% in premarket trading upon learning that the deal was off.
Analysts from JPMorgan Chase believe that JetBlue may still be interested in expanding but was unwilling to proceed with the original deal economics. The price was deemed too high to pay, even before the judge’s decision. The analysts described JetBlue’s withdrawal as “dodging a bullet.”
The failed merger between JetBlue and Spirit Airlines raises questions about the impact on fares in the US airline industry. Over the past two decades, the industry has undergone significant consolidation, resulting in four major carriers – American Airlines, United, Delta Air Lines, and Southwest Airlines – controlling approximately 80% of the nation’s air traffic. While these mergers have increased profitability, they have also limited choices for travelers, potentially leading to higher fares.
The Biden administration has taken a more aggressive stance against mergers and alliances, including those in the airline industry. In addition to successfully challenging this deal in court, the administration objected to an alliance between JetBlue and American Airlines, which was subsequently dropped as JetBlue pursued the Spirit acquisition.
Spirit Airlines’ emergence as a low-cost carrier prompted the four major airlines to introduce a similar offering known as “basic economy” seats. However, these airlines continued to generate significant revenue through premium services such as first class and business class. Despite its competitive fares, Spirit has faced challenges in returning to profitability and has received numerous customer complaints about its service quality.
If analysts’ concerns about Spirit’s viability prove accurate, the airline’s closure could result in the loss of 13,000 jobs and potentially lead to higher fares that the merger aimed to avoid. Spirit reported substantial losses in recent years, with an adjusted loss of $359.5 million in 2023, nearly double the previous year’s figure. Analysts predict further losses of approximately $300 million this year and $174 million in 2025.
JetBlue has also experienced losses since the pandemic, reporting an adjusted loss of $151 million in 2023. While this represents an improvement from the previous year, the airline faces its own challenges moving forward. Activist investor Carl Icahn has acquired a 10% stake in JetBlue and plans to secure two seats on its board of directors at the upcoming shareholders’ meeting.
The termination of the JetBlue-Spirit deal marks a significant development in the US airline industry. As both airlines chart their independent paths, the repercussions of this decision will undoubtedly shape the future landscape of air travel and fares for passengers across the country.