by Scott Laird
Last updated: 12:05 PM ET, Tue March 5, 2024
Just over a month after a federal judge ruled that Spirit
Airlines and JetBlue Airways couldn’t merge in their current form, the two
carriers have thrown in the towel on the merger, some 20 months after it was
first announced.
The two carriers announced the end
of the merger progression in a joint statement, both expressing
disappointment, as they still felt the merger would have been the best path
forward for the two carriers.
The announcement leaves each carrier to cope with its
problems individually and figure out a new plan moving forward.
Brett Snyder, founder and owner of the travel assistance
firm CrankyConcierge and author of the popular aviation business blog CrankyFlier, wasn't
surprised at the news.
"This just solidifies what the airlines must have
already expected would happen," he told TravelPulse. "Now they can
devote 100% of their time to a standalone return to profitability, which is
where the attention needs to be."
For JetBlue, that means moving forward with some initiatives
for 2024 that the airline had already announced as part of its fourth-quarter
earnings call: focusing on reducing costs by deferring some planned capital
expenses and accelerating the phase-out of Embraer 190 aircraft, which have
less favorable operating costs than the new Airbus A220 aircraft that is
replacing them.
The airline also plans to reallocate aircraft from
underperforming routes to ones already proven more reliably profitable. This
may notably reduce competition as JetBlue could exit markets where it has
unsuccessfully competed with other carriers—creating the opposite effect of
what the court's blocking of the merger was intended to achieve.
Particular network focus will be in New York City, where
JetBlue is in the midst of “right-sizing” their operation at New York’s
LaGuardia Airport after winding down the “Northeast Alliance” with American
Airlines, which a federal judge ordered the two airlines to end last summer on
antitrust concerns. JetBlue will also focus on growing revenue from their
loyalty program, TrueBlue, and their JetBlue Vacations arm.
JetBlue aircraft taking off. (Photo Credit: JetBlue)
The tune was similar on the Spirit Airlines earnings call,
where they, too, pledged to make network adjustments that favor already-strong
markets like Fort Lauderdale, and the end of service to cities struggling to
earn a profit. Spirit arguably has a more tenuous path forward than JetBlue,
with some industry pundits suggesting
that Spirit would need to file bankruptcy to reorganize its debt.
Spirit Airlines CEO Ted Christie called those speculations
misguided during the company’s earnings call, pointing to a sale-and-leaseback
of several aircraft that allowed the airline to retire some $465 million in
outstanding debt.
Debt aside, Spirit continues to face a multitude of
challenges. Engine issues on its fleet of Airbus aircraft have kept some
aircraft on the ground, and the slow return of business travelers, while not a
direct impact on Spirit (the airline's business model focuses on leisure
travelers), causes business travel-dependent carriers to fight more
aggressively for leisure passengers to make up the difference, which eats into
Spirit's margins.
Spirit's network is also concentrated on U.S. Domestic,
Caribbean and Latin America flights, where demand has lagged longer haul
destinations like Europe.
Legacy carriers United, Delta, and American have also
improved at competing with ultra-low-cost carriers like Spirit by introducing
lower "Basic Economy" fares with added restrictions. Because of this,
travelers who would usually have flown Spirit for lower fares return to the
larger airlines, which offer more perks like complimentary onboard beverages
and snacks and fewer add-on fees, like the $25 it levies for having an agent
print the boarding pass at the ticket counter.
The judge's ruling doesn't preclude either carrier from
seeking another merger. Spirit could re-engage Frontier Airlines, which had
previously announced a merger in 2022 before Spirit halted those plans in favor
of a new agreement with JetBlue. Still, Frontier faces similar pressures on its
own business model, making it a less attractive opportunity than it was two
years ago.
Snyder notes that Spirit's end of the merger agreement alone
isn't an immediate blow to Spirit's viability, but the status quo is also
untenable.
"Spirit needs to solely focus on profitability before
it runs out of cash," he says, "It has time, but it needs to make a
move."
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