A Spirit Airlines and JetBlue aircraft alongside a judge's gavel
Issue Overview

Judge to JetBlue: No Merger for You

North America

Judge to JetBlue: No Merger for You

January 22nd, 2024 at 1:00 AM EST
22 min read

Issue Overview

And just like that, JetBlue’s plans are up in smoke. A federal judge last week ruled that no, JetBlue cannot buy its rival Spirit, agreeing with the U.S. Justice Department that the deal would violate antitrust laws designed to protect consumers.

 Where does this leave JetBlue? It needs to find some way to cure itself of chronic margin weakness dating back at least a decade. More recently, it’s posted uncomfortable losses during a period of robust demand. Blame, perhaps, severe operational disruptions linked to air traffic control shortages, Pratt & Whitney engine troubles, and congested northeastern airspace. But JetBlue faces other problems as well, discussed in this week’s feature story below.

 Where does this leave Spirit? Once an industry profit leader, the ultra-LCC has since spilled alarming quantities of red ink during and since the pandemic. Cash flow is becoming a concern, prompting chatter about a potential bankruptcy. In response, the carrier on Friday sought to reassure investors, highlighting its $1.3 billion in liquidity, aided by aircraft sale-leaseback deals. It expects hefty compensation from Pratt & Whitney (for GTF engine problems), but the proceeds could arrive “over the next couple of years.” 

Spirit also painted a ‘less bad’ picture of its Q4 results, which it will detail on Feb. 8. Operating margin, it said, was somewhere between negative 12% and 13%. That’s awful for sure. But it’s less awful than the negative 15% to 19% it forecasted earlier. Holiday bookings were stronger than expected. Fuel costs were lower than expected. Airport costs were lower than expected. And operations were smoother than expected. 

 It thus sounds premature to talk bankruptcy, but the apprehension is understandable. Spirit’s problems are serious, some of them similar to what JetBlue faces, i.e., engine woes causing schedule disarray, plus overcapacity in Florida and the Caribbean. Spirit, though, is smaller than JetBlue, with fewer assets and fewer routes where it commands pricing power. Spirit’s stock price, by the way, is down more than 70% from this time last year as of Friday morning.

 Looking more broadly, Spirit isn’t the only subject of bankruptcy chatter. Brazilian news outlets have reported increased speculation that Gol might be on the verge of filing. The carrier’s struggles with creditors are no secret, and no different in fact than those which drove fellow Latin firms Latam, Avianca, and Aeromexico into bankruptcy (Avianca, remember, is now merged with Gol, though the two maintain separate financial accounts). 

Gol for its part insists it’s still working to achieve a “consensual restructuring,” specifically with its aircraft lessors. The reports in any case caused Gol’s stock to plummet; the company will report and discuss its Q4 results on March 7. 

 Speaking of distressed companies, Boeing continues to navigate its reputational problems in the wake of its latest Max incident. Yet there’s one issue it oddly does not have: A problem selling airplanes. On the contrary, demand for the MAX continues to be red hot, with India’s Akasa becoming the latest to place a giant order. It’s buying no fewer than 150, opting for Max-10s (that’s the largest version) and Max-8-200s (that’s the version designed specifically for low-cost carriers like Ryanair). Akasa is angling to challenge India’s two giants, namely Air India and IndiGo, both domestically and on short-haul international routes.

 Speaking of international routes, SAS is wasting no time taking advantage of its expected affiliation with SkyTeam. The Scandinavian carrier will fly to Atlanta, home of course to the mighty Delta. The Georgia-based operator is a close partner of Air France/KLM, which secured a consortium deal to buy 20% of SAS, ripping it from the clutches of Lufthansa and the Star Alliance.

 Buckle up for a busy week ahead. The spotlight will shine on U.S. airlines, with American, United, Southwest, and Alaska all scheduled to report Q4 earnings. Will American once again post margins that frustratingly lag its Big Three peers? Will United’s margins beat Delta’s? Is Southwest still seeing strong demand across its vast U.S. network? How is Alaska managing its Max-9 disruption? The questions are many. The answers are coming.  

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