After a contentious three-and-a-half months, JetBlue, and not Frontier, is the airline poised to acquire Spirit Airlines.
But even if the proposed merger makes it through what could be a challenging antitrust review process, airline industry analysts aren't sure JetBlue will end up benefiting, at least in the short term.
"In the near- to medium-term, we view this as a negative for JetBlue," wrote Raymond James investment analyst Savi Syth shortly after JetBlue first bid on Spirit in early April. "It is a much tougher merger to execute than the proposed Frontier-Spirit merger."
JetBlue has agreed to purchase Spirit for $33.50 per share in cash, well above the stock's selling price of approximately $24 as August began. The airline says the purchase would unlock $600 million to $700 million in synergies within three years of closing. JetBlue management expects the regulatory review process to be lengthy, wrapping up in the first half of 2024.
Strategically, JetBlue says, acquiring Spirit will increase the extent of its network, enabling it to realize a goal of becoming a truly national carrier, rather than one focused mostly on the Northeast, Florida and the Caribbean.
"This transaction turbocharges our strategic growth plan," CEO Robin Hayes told investors on Aug. 2.
Still, the integration would be fraught with challenges. JetBlue plans to convert Spirit's fleet of Airbus narrowbodies, which currently numbers 176, according to Planespotters.net, into the more spacious interiors that JetBlue flies. According to an analysis by Helane Becker of Cowen, Spirit averages 182 seats in its Airbus A320s compared to 157 for JetBlue. Reconfiguring would be a pricey and lengthy proposition.
The acquisition would also drive substantially higher labor rates at JetBlue. Syth estimates that Spirit pilots, on average, would need a 27% rate increase to be brought up to JetBlue's pilot wage scale.
Conversely, the increase in scale would bring cost-saving synergies to JetBlue. In a July 28 analysis, Jamie Baker of JPMorgan estimated the annual savings would eventually reach approximately half of JetBlue's $600 million to $700 million estimate. But that, Baker wrote, is four to five years off.
"Four to five years is an eternity in the airline sector," he said.
The proposed merger also has the potential to have an adverse impact on JetBlue's Northeast Alliance with American Airlines in Boston and the New York area. Already, JetBlue has pledged to divest of some Spirit holdings, such as gate leases, at Newark, LaGuardia and Boston airports to reduce market concentration.
Fort Lauderdale, where JetBlue and Spirit jointly account for 51% of scheduled 2022 capacity, according to Becker, could be another trouble spot for antitrust regulators at the Justice Department.
Analyst Brett Snyder, who pens the Cranky Flier blog, said he expects the DOJ to use its review of the proposed JetBlue/Spirit merger to extract a pound of flesh from the Northeast Alliance, which it opposes. A trial on the DOJ's lawsuit to break up the alliance is scheduled to begin Sept. 26.
More broadly, Snyder questioned the overall utility for JetBlue of taking over Spirit's network. He said that many routes Spirit operates aren't likely to be successful when flown under JetBlue's higher-cost model, citing as examples routes from Las Vegas to Boise, Idaho, and Albuquerque, N.M.
"My assumption is that when this is all said and done, JetBlue isn't going to fly the same routes as Spirit flies today," he said.
Snyder added that JetBlue seems unable to settle on a uniform approach to growth. On the one hand, the company has paired with network carrier American in the Northeast. On the other, it wants to merge with ultralow-cost carrier Spirit.
"There does seem to be a rudderless strategy," he said.
JetBlue, however, says that the girth that would come from subsuming Spirit's network would make it more competitive with American, Delta, United and Southwest.
"Together, we will deliver long-term value to our shareholders as we double our annual revenue growth through the middle of the decade and meaningfully improve our profitability, accelerating our path to superior margins," the carrier said in a pitch to investors on its website.