JetBlue and Spirit Airlines are moving forward with their planned appeal of the ruling that blocked their proposed $3.8 billion merger, despite facing uncertain futures as standalone companies.
Appeal Filed Despite Bleak Outlook
Last week, the U.S. Justice Department and six states filed an antitrust lawsuit seeking to block the deal over concerns it would reduce competition and lead to higher fares. The airlines vowed to appeal the decision, arguing the merger would allow them to compete more effectively against larger rivals.
On Monday, JetBlue and Spirit formally notified the U.S. Court of Appeals for the D.C. Circuit that they would appeal the ruling. However, analysts warn the airlines face significant challenges and question if the deal still makes sense.
Spirit faces a particularly precarious future. The ultra-low-cost carrier was struggling financially even before the government brought its case, posting a $75 million loss in the third quarter of 2023. Its stock plunged after the ruling was announced, falling as much as 30% before partially recovering.
Some analysts believe bankruptcy could be inevitable for Spirit if the appeal fails. The airline carries high levels of debt and has limited options to raise money. It also lacks the resources to compete against larger discount rivals like Frontier and Allegiant.
“Spirit is basically uninvestable at this point,” said aviation analyst Samuel Engel of ICF. “Bankruptcy is certainly possible if oil prices rise or the economy weakens further.”
Uncertainty Clouds JetBlue’s Outlook
While JetBlue is on firmer financial footing, analysts say the failed acquisition also creates complications for the New York-based carrier.
JetBlue was relying heavily on the merger to fuel its growth ambitions and expand its fleet. Without Spirit’s aircraft and gates at key airports, JetBlue will struggle to challenge entrenched legacy competitors like American, Delta and United.
“This completely stalls JetBlue’s plans to bulk up and take on the Big Three,” Engel said. “They are basically back to square one in that effort.”
There are also questions about whether acquiring Spirit still makes sense for JetBlue after last week’s court ruling and the target’s eroded finances. JetBlue may be better off focusing resources on revamping existing operations.
On Friday, JetBlue said it would exit airports in Sacramento, Ontario and Long Beach while cutting numerous routes out of Los Angeles. The move aims to improve profitability but limits the airline’s growth potential.
“JetBlue finds itself at a crossroads,” said aviation consultant Mike Boyd. “Does it double down on a struggling Spirit or refocus on improving margins?”
Turbulence Ahead for Flyers
The collapse of the Spirit-JetBlue tie-up could have significant implications for air travelers over the long run. Analysts say blocking the deal will likely lead to higher fares and reduced competition.
Spirit and JetBlue argued the merger would give them greater scale and resources to compete nationally against American, Delta, United and Southwest. If Spirit declares bankruptcy, the industry will consolidate further.
“This will accelerate the trend toward very expensive airfares because Spirit is one of the only sources of competition and pricing tension,” said Robert Mann of R.W. Mann & Co.
| U.S. Airline Market Share | 2022 | 2023 (Estimated) |
|---|---|---|
| American | 21% | 22% |
| Delta | 20% | 21% |
| United | 16% | 18% |
| Southwest | 16% | 15% |
| JetBlue | 7% | 5% |
| Spirit | 7% | 4% |
| Others | 13% | 12% |
* Source: U.S. Bureau of Transportation Statistics
The American, Delta and United have controlled around 60% of the domestic market in recent years. If Spirit fails, the share of the Big Three could swell to 70% or higher, analysts predict. That enhanced pricing power across the industry would likely translate into more expensive plane tickets.
Airports in mid-size metro areas like Cleveland, St. Louis, Pittsburgh and Milwaukee could find themselves with just one or two dominant carriers. Fares in those cities could jump significantly.
“Blocking this merger will only further reduce competition in markets that desperately need more of it,” said Spirit CEO Edward Christie. “Our appeal is critical for consumers.”
Next Steps
It could take the appeals court six months or longer to schedule arguments and make a final ruling. In the meantime, both JetBlue and Spirit face tough decisions about their futures.
Most analysts believe Spirit will need to pursue a revised deal with JetBlue or another suitor to have any shot at survival. Frontier Airlines and Indigo Partners have been mentioned as potential alternates.
JetBlue is reevaluating whether acquiring Spirit remains the right strategy. The airline could pursue smaller targets like Sun Country or Alaska Air instead. JetBlue could also refocus on improving profits by culling more underperforming routes.
“Both airlines are sort of in limbo until we get clarity from the appeals court,” said travel industry analyst Henry Harteveldt of Atmosphere Research Group. “But make no mistake – their futures are very much hanging in the balance.”
The outlook for consumers also depends heavily on the appeals process. If competition continues to decrease through consolidation, travelers will likely pay the price through higher fares.
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