Why is JetBlue So Eager to Buy Spirit?

It won’t take no for an answer. JetBlue Airways wants Spirit Airlines badly, as its higher and higher offers make clear. But why? Here are ten reasons:

1. Consolidation Works Wonders: When America West bought US Airways in 2005, it triggered a merger wave that would reshape the U.S. airline sector, improving the financial fortunes of all involved. Five subsequent deals — Delta–Northwest (2008), United–Continental (2010), Southwest–AirTran (2010), American–US Airways (2013), and Alaska–Virgin America (2016) — gave the industry a level of pricing power strong enough to withstand all but the most severe shocks. The mother of all shocks — the Covid-19 pandemic — would arrive in 2020. But now that its impact is receding, JetBlue is surely mindful of the long track record of airline mergers producing a lot of value. To be sure, several of those past mergers came with headaches including labor tensions and even some short-term financial distress. But no airline today — not Delta, United, American, Southwest, nor Alaska — regrets having done their deals. (note: Alaska outbid JetBlue to buy Virgin).
   
2. Eliminates a Key Lower-Cost Rival: One reason why consolidation works so well is that it often removes a close competitor, resulting in immediate yield gains. JetBlue would never quite say this so directly, but it’s surely a key motivation.
   
3. Florida: JetBlue has a high degree of dependence on the Florida market, which fortunately for its sake, performed about as well as a market could during the pandemic. On the other hand, others weren’t oblivious to this fact and, in some cases, responded with huge amounts of new Florida capacity. That’s especially true of the Orlando and southeast Florida markets, both critical to JetBlue. Buying Spirit thus alleviates some of that intensifying competitive pressure.
   
4. The Caribbean: JetBlue trails only American in terms of its Caribbean clout, and Spirit brings a lot of its own heft in the region. Getting stronger in the Caribbean (and upper South America) also makes its loyalty plan and other travel products more attractive in places like New York and Florida.
   
5. People, Planes and Property: Asked early on why it wants to buy Spirit, JetBlue gave this as a key reason. A tight narrowbody aircraft market, made worse by Airbus and Boeing production issues, will make it tough for JetBlue to realize its growth ambitions. Spirit’s order book of A320neo family jets should make that easier. JetBlue can certainly use more pilots, which Spirit will provide. And it would gain access to airport gates and other facilities in congested markets like Atlanta, Chicago, and Los Angeles.
   
6. Economies of Clout: One of the biggest benefits of merging is the influence a larger airline achieves with key suppliers ranging from banks to manufacturers to software vendors. With Spirit under its control, JetBlue would become even more important to two companies in particular: Barclays, its credit card partner, and Airbus, its aircraft provider. As far as traditional economies of scale, like spreading fixed costs over a larger asset base, those will likely be scant for a JetBlue-Spirit combination, offset by having to de-densify aircraft layouts and standardize labor compensation.  
    
7. Greater Leisure Exposure: JetBlue, though already a leisure-heavy airline, does have substantial business exposure in markets like Boston, and for products like Mint. With business traffic trends still uncertain, more leisure exposure in the years ahead looks increasingly attractive. Though business traffic can bring big bucks in flush times, leisure traffic tends to hold up better across business cycles. Even during the extremely severe 2008-09 recession, markets like Florida did rather well. More leisure offerings, meanwhile, will boost the earnings potential of JetBlue’s loyalty plan and Travel Products division.
   
8. Ancillaries: Spirit is nothing if not a master of ancillary sales. It was also a leader in introducing bare-bones basic economy-type fares that the rest of the industry — JetBlue included — eventually adopted. JetBlue would surely eliminate some of Spirit’s ancillary products, especially those considered least customer friendly. But it’s just as likely to learn from the master, adopting some of its best practices.  
   
9. More Muscle to Compete with the Big 4: JetBlue competes fiercely with four airlines much larger in size, namely American, Delta, Southwest, and United. And its pending northeast alliance with American doesn’t change that. The added scale that Spirit would bring entails the ability to offer more competitive schedules when going head-to-head with rivals in major markets. The bigger you are, furthermore, the more likely you can stomach losses in a particular market for an extended period. Each route, in other words, becomes a smaller percentage of your overall business. This also means JetBlue can afford to be more aggressive if, Allegiant or Breeze say, try to attack its core markets. Separately, more traffic flowing through JetBlue’s domestic and Latin/Caribbean networks means more potential feed for future transatlantic expansion.
   
10. Defends Against Itself Getting Swallowed: Would Southwest ever attempt a hostile takeover of JetBlue? It’s surely something the heirs to Herb have at least entertained. In any case, by getting bigger, JetBlue would become a tougher takeover target.

— Jay Shabat