Jet Blue's bid on Spirit
A few months back, I'd posted about Spirit's merger with Frontier
I actually had the chance to speak with some of the MS team from the deal about it since then. They seemed super hyped about it.
Now Jet Blue is putting in a bid for Spirit. I'm having trouble understanding why Jet Blue wants this deal. Spirit and Frontier have very similar business models, so a merger makes sense.
Budget airlines come in two formats: "low cost carriers (LCCs)" and "ultra low cost carriers (ULCCs). Domestically, the difference between a full service airline (like American) is closer to an LCC (like Jet Blue) than an LCC is to an ULCC (like Spirit).
Spirit doesn't have super valuable airport slots, and since the business model is so different, Jet Blue is essentially just buying their fleet.
I've always been weary of making my own opinions on M&A deals this early as I'm just an intern, but this is the first time I absolutely cannot understand the rational behind a deal.
your rationale is right. no idea what jetblue is thinking, they'll also have to retrofit all the spirit planes to match their service quality (= massive capex). there's a reason jetblue's stock tanked 20% since the offer.
I'll chip in my drunken $0.02 on this. The US airline market operates probably near the closest perfect competition in the world. We got our big 3 mainline carriers (AAL, DAL, UAL), secondary mainline carriers (ALK, HIA), LCCs (Southwest, Jetblue), ULCCs (Spirit, Frontier) and Leisure carriers (Allegiant, Sun Country). Safe to say Jetblue is significantly different than our mainline boys and the leisure carriers. So why the fuck would Jetblue want Spirit? Well for starters they can't compete with Southwest, they're playing second fiddle to them in their main market. In fact, no one can really compete with SW in the US domestic market. Fun fact, they SW could've flown their full schedule in the US and probably would've drove our secondary mainline boys and maybe AAL to bankruptcy during the pandemic. SO, a Frontier/Spirit tie-up could actually leave Jetblue in the worst spot as compared to the airlines they compete with. Perhaps they hope that this solidifies their position as the second strongest low-cost carrier in the US.
However
It's really important to note where Jetblue was prior to the pandemic. Airline was in growth mode. What the fuck do I mean by that? Good question. Well, Jetblue had planned to expand trans-Atlantic. Now I know what you're thinking, every single airline that has tried to operate a low-cost, trans-atlantic business model has, yes you're right, bankrupted. However, with the introduction of the A321neo XLR aircraft, it actually looks like this could be possible to achieve due to the fuel benefit savings the aircraft offers the airlines. SO, Jetblue could be thinking one of two things here: either a) that Spirit/Frontier give this strategy a go (Spirit has these aircraft and I believe more on option) & more effectively implement it than Jblue or b) they believe Spirit could assist with their future growth plans on this.
Last point, you mentioned it and it's super overlooked, but really important. Spirit may on the surface not have "valuable" slots, gates, routes ("SGRs" for our folks keeping the acronym score back home), but SGRs are finite. There's only so many of them and as they decrease in availability, they only become more valuable. Further to my point above about aircraft that offer fuel cost benefit savings, these "less desirable" slots/routes may be able to turn profit more frequently for airlines. You see this a lot in Europe now, these shit airlines go bankrupt with awful fleets and then you have 3 to 4 airlines bidding on them in bankruptcy. They have no interest in their fleets; the market is so saturated with competition the only way to differentiate yourself is through offering more availability, which can only be done through having more SGRs.
Anyway that's my two cents. Might not be right, but I'm gonna get back to this g&t.
I think you're right on the A321XLR. Budget transatlantic has always failed, but it was always tried with 787s and 767s which can be hard to fill. Interestingly, some Asian carriers had made it work long haul. Scoot for example (though they're a subsidiary of the government owned Singapore Airlines)>
merger won't happen, FTC girl liberal, case closed
also if were to happen, worst deal ever for the average flyer, nothing good can come to consumer
To my understanding, Spirit has many coveted spots for Florida, which they assume will give them enough market share to dictate prices and make a nice regional hub there.
However, I have not verified this information and I'm not super certain where I've heard it initially anymore.
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